<PAGE>
As filed with the Securities and Exchange Commission on June 20, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10/A
(Amendment No. 1)
GENERAL FORM FOR
REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
----------------
APW Ltd.
(Exact name of registrant as specified in its charter)
Bermuda 04-2576375
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Clarendon House, Church Street
P.O. Box 666,
Hamilton HM CX, Bermuda
N22 W23685 Ridgeview Parkway West
Waukesha, Wisconsin 53188-1013
(Address of Principal Executive (ZIP Code)
Offices)
Registrant's telephone number, including area code: (262) 523-7600
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, $.01 par value per share
(including the associated Preferred Stock
Purchase Rights) New York Stock Exchange
</TABLE>
Securities to be registered pursuant to Section 12(g) of the Act:
None
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
INFORMATION REQUIRED IN REGISTRATION STATEMENT
Item 1. Business.
The information required by this item is contained in the sections entitled
"Introduction," "Risk Factors," "The Distribution," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business
of APW Ltd. and its Subsidiaries" in the Information Statement dated
, 2000 (the "Information Statement"), attached hereto as Annex A
(including its annexes). Those sections are incorporated herein by reference.
Item 2. Financial Information.
The information required by this item is contained in the sections entitled
"Summary," "Capitalization," "Selected Historical Financial Information,"
"Selected Unaudited Pro Forma Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Information
Statement. Those sections are incorporated herein by reference.
Item 3. Properties.
The information required by this item is contained in the section entitled
"Business of APW Ltd. and its Subsidiaries" in the Information Statement. That
section is incorporated herein by reference.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is contained in the sections entitled
"Security Ownership of Certain Beneficial Owners" and "Management of APW
Ltd.--Security Ownership of Directors and Executive Officers" in the
Information Statement. Those sections are incorporated herein by reference.
Item 5. Directors and Executive Officers.
The information required by this item is contained in the sections entitled
"Management of APW Ltd.--Directors" and "Management of APW Ltd.--Executive
Officers" in the Information Statement. Those sections are incorporated herein
by reference.
Item 6. Executive Compensation.
The information required by this item is contained in the section entitled
"Executive Compensation" in the Information Statement. That section is
incorporated herein by reference.
Item 7. Certain Relationships and Related Transactions.
The information required by this item is contained in the sections entitled
"Summary," "The Distribution--Relationship Between API/Actuant and APW Ltd.
After the Distribution" and "Business of APW Ltd.--Transactions and Agreements
Between APW and API/Actuant" in the Information Statement. Those sections are
incorporated herein by reference.
Item 8. Legal Proceedings.
The information required by this item is contained in the section entitled
"Business of APW Ltd. and its Subsidiaries--Legal Proceedings" in the
Information Statement. That section 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 in the sections entitled
"Summary," "The Distribution--Manner of Effecting the Distribution," "The
Distribution--Results of the Distribution," "The Distribution--
2
<PAGE>
Listing and Trading of Shares of APW Ltd. Common Stock," "The Distribution--
Dividend Policy," "Security Ownership of Certain Beneficial Owners,"
"Management of APW Ltd.--Security Ownership of Directors and Executive
Officers" and "Description of APW Ltd. Capital Stock" in the Information
Statement. Those sections are incorporated herein by reference.
Item 10. Recent Sales of Unregistered Securities.
None. The section entitled "The Distribution" in the Information Statement
is incorporated herein by reference. Subsequent to the Distribution, Applied
Power Inc. will hold no capital stock of APW Ltd.
Item 11. Description of Registrant's Securities to be Registered.
The information required by this item is contained in the sections entitled
"Summary," "The Distribution--Listing and Trading of Shares of APW Ltd. Common
Stock," "The Distribution--Dividend Policy," "Description of APW Ltd. Capital
Stock" and "Comparison of Shareholder Rights" in the Information Statement.
Those sections are incorporated herein by reference.
Item 12. Indemnification of Directors and Officers.
The information required by this item is contained in the section entitled
"Liability and Indemnification of Officers and Directors" in the Information
Statement. That section is incorporated herein by reference.
Item 13. Financial Statements and Supplementary Data.
The information required by this item is contained (i) in the sections
entitled "Summary," "Capitalization," "Selected Historical Financial Data,"
"Selected Unaudited Pro Forma Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Information
Statement, and (ii) in the Historical Combined Financial Statements and other
financial information incorporated by reference in Item 15 hereof. Those
sections are incorporated herein by reference.
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Item 15. Financial Statements and Exhibits.
(a) Financial Statements. The following Combined Financial Statements of
APW Ltd. are included in the Information Statement and incorporated herein by
reference:
(i) Historical Combined Financial Statements of the Electronics Business
of Applied Power Inc., including APW Ltd.:
--Report of independent accountants
--Combined statements of earnings
--Combined balance sheets
--Combined statements of equity and comprehensive income
--Combined statements of cash flows
--Notes to combined financial statements
(ii) Unaudited Pro Forma Combined Financial Information:
--Unaudited pro forma combined balance sheet and notes thereto
--Unaudited pro forma combined statements of earnings and notes
thereto
(b) Exhibits. See Exhibit Index following Signatures page in this
Registration Statement, which Exhibit Index is incorporated herein by
reference.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
APW Ltd. (Registrant)
/s/ Richard D. Carroll
By: _________________________________
Richard D. Carroll
Vice President--Finance
Date: June 20, 2000
4
<PAGE>
APW LTD.
EXHIBIT INDEX
TO
FORM 10 REGISTRATION STATEMENT
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S> <C>
2.1 Information Statement of the Registrant dated ,
2000 (attached to this Registration Statement as Annex A) (the
"Information Statement")
3.1 Memorandum of Continuance of APW Ltd. (Annex A to the
Information Statement)
3.2 Form of Bye-laws of APW Ltd. (Annex B to the Information
Statement)
4.1 Form of Rights Agreement between APW Ltd. and FIRSTAR BANK,
N.A., as Rights Agent
4.2* Form of APW Ltd. Credit Agreement
4.3* Form of APW Ltd. Assumption Agreement between Applied Power
Inc. ("API") and APW Ltd.
10.1 APW Ltd 2000 Stock Incentive Plan (Annex C __to the
Information Statement)
10.2** Form of Contribution Agreement, Plan and Agreement of
Reorganization and Distribution between API and APW, dated as
of , 2000 (the "Contribution Agreement")
10.3** Form of General Assignment, Assumption and Agreement Regarding
Litigation, Claims and Other Liabilities between API and APW,
dated as of , 2000 (Exhibit D to the Contribution
Agreement)
10.4** Form of Transitional Trademark Use and License Agreement
between API and APW, dated as of , 2000 (Exhibit E to
the Contribution Agreement)
10.5** Form of Insurance Matters Agreement between API and APW, dated
as of , 2000 (Exhibit F to the Contribution Agreement)
10.6** Form of Bill of Sale and Assumption of Liabilities between API
and APW, dated as of , 2000 (Exhibit G to the
Contribution Agreement)
10.7** Form of Employee Benefits and Compensation Agreement between
API and APW, dated as of , 2000 (Exhibit H to the
Contribution Agreement)
10.8** Form of Tax Sharing and Indemnification Agreement between API
and APW, dated as of , 2000 (Exhibit I to the
Contribution Agreement)
10.9** Form of Interim Administrative Services Agreement between API
and APW, dated as of , 2000 (Exhibit J to the
Contribution Agreement)
10.10** Form of Confidentiality and Nondisclosure Agreement between
API and APW, dated as of , 2000 (Exhibit K to the
Contribution Agreement)
10.11* Form of Patent Assignment between API and Wright Line Inc.
(n/k/a APW Ltd.), dated as of , 2000
10.12 APW Ltd. Outside Directors' Stock Option Plan (Annex D to the
Information Statement)
21** Subsidiaries of APW
27.1** Financial Data Schedule for six months ended February 29, 2000
27.2** Financial Data Schedule for six months ended February 28, 1999
27.3** Financial Data Schedule for year ended December 31, 1999
</TABLE>
EI-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S> <C>
27.4** Financial Data Schedule for year ended December 31, 1998
27.5** Financial Data Schedule for year ended December 31, 1997
99.1** Audited Financial Statements of Vero Group PLC for year ended
December 31, 1997
99.2** Audited Financial Statements of Rubicon Group PLC for year
ended May 31, 1998
</TABLE>
--------
*To be filed by amendment.
**Previously filed with the Form 10, dated May 1, 2000
EI-2
<PAGE>
[APPLIED POWER INC. LETTERHEAD]
, 2000
Dear Shareholder:
On January 27, 2000, we announced a plan to spin-off Applied Power's
integrated electronics enclosures business as a separate publicly traded
company. Through a combination of internal growth and acquisitions, Applied
Power has become a leading global supplier of integrated enclosure systems to
the electronics industry. In preparation for the spin-off of this business to
our shareholders (the "Distribution"), we have caused APW Ltd. to become a
Bermuda corporation which owns and operates (directly or through subsidiaries)
Applied Power's global electronic businesses. Following the Distribution, you
will own shares in both APW Ltd., an independent public company, and Applied
Power, which will continue to operate the company's industrial businesses. As
previously announced, Applied Power intends to change its name to "Actuant
Corporation" following the Distribution. The attached Information Statement,
which is being mailed to all Applied Power shareholders, describes the
Distribution in detail.
Your board of directors has determined that the Distribution is in the best
interest of Applied Power's shareholders. Applied Power's electronics and
industrial businesses are distinct operations with different opportunities,
challenges, strategies and means of doing business. The Distribution will
permit the management of each company to focus on the opportunities specific
to the business of that particular enterprise. We believe this will provide
enhanced growth through both internal expansion and disciplined acquisition
strategies. Additionally, the Distribution will greatly simplify the business
profile of each of the businesses, allowing investors to more easily evaluate
each of the companies in the future.
Shareholders of record as of , 2000, will receive one share of APW
Ltd. common stock for every share of Applied Power Inc. common stock they own.
APW Ltd. share certificates will be mailed beginning , 2000. No action is
required on your part to receive your APW Ltd. shares. You will not be
required to pay anything for your APW Ltd. shares or to surrender your Applied
Power shares. Your receipt of APW Ltd. shares in the Distribution should be
tax-free for federal income tax purposes.
Following the Distribution, we expect that APW Ltd.'s common stock will be
traded on the New York Stock Exchange and that its ticker symbol will be
"APW." Applied Power/Actuant will continue to trade on the New York Stock
Exchange, but will change its ticker symbol to "ATU."
Our board of directors and management teams are excited about the
opportunities for both APW Ltd. and Applied Power/Actuant following the
Distribution. We believe that the improved business focus and financial
flexibility that will result from this transaction will benefit our
shareholders, customers, and employees.
Sincerely,
_____________________________________
Richard G. Sim
Chairman, Chief Executive Officer
and President
<PAGE>
Information contained herein is subject to completion or amendment.
INFORMATION STATEMENT
We are providing this Information Statement to you as a shareholder of
Applied Power Inc. ("Applied Power") in connection with the Distribution by
Applied Power to its shareholders of all of the outstanding shares of APW Ltd.
common stock and related rights. APW Ltd. will own and operate what is
currently Applied Power's integrated electronic enclosure systems segment (the
"Electronics Business").
We expect to make the Distribution on , 2000, to holders of
record of Applied Power common stock on , 2000. If you are an
Applied Power shareholder at the close of business on the Record Date, you
will receive one share of APW Ltd. common stock and related rights for every
share of Applied Power stock you own on that date. Certificates for the APW
Ltd. shares will be mailed to you, or your brokerage account will be credited
with the APW Ltd. shares, on or about , 2000. You will not be
required to pay anything for the shares of APW Ltd. common stock and related
rights distributed to you, nor will you be required to surrender or exchange
any of your shares of Applied Power common stock. The Distribution is intended
to be tax-free to Applied Power shareholders.
We have applied to list the APW Ltd. common stock and related rights on the
New York Stock Exchange under the symbol "APW." No shareholder approval of the
Distribution is required or is sought. We are not asking you for a proxy.
Applied Power will continue to own and operate the industrial segment of
its business (the "Industrial Business") and intends to change its name to
"Actuant Corporation" after the Distribution. We usually refer to Applied
Power as "API/Actuant" when referring to its future operations. We expect
API/Actuant common stock to trade on the NYSE under the symbol "ATU."
Consider carefully the risk factors beginning on page of this
Information Statement.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the terms of the APW Ltd. common stock
and related rights, or determined that this Information Statement is truthful
or complete. Any representation to the contrary is a criminal offense.
The date of this Information Statement is , 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE DISTRIBUTION.............................. 1
SUMMARY................................................................... 3
Selected Historical Financial Data...................................... 5
Selected Unaudited Pro Forma Financial Data............................. 7
RISK FACTORS.............................................................. 9
Spin-Off Distribution Risks............................................. 9
Operational Risks....................................................... 11
THE DISTRIBUTION.......................................................... 13
Background of and Reasons for the Distribution.......................... 13
Distribution Agent...................................................... 16
Manner of Effecting the Distribution.................................... 16
Post Distribution Taxation of APW Ltd................................... 17
U.S. Federal Income Tax Consequences to Holders of APW Ltd. Shares...... 17
Results of the Distribution............................................. 19
Federal Income Tax Consequences of the Distribution..................... 19
Listing and Trading of Shares of APW Ltd. Common Stock.................. 20
Dividend Policy......................................................... 20
Relationship Between API/Actuant and APW Ltd. After the Distribution.... 21
Distribution Conditions................................................. 21
BUSINESS OF APW LTD. AND ITS SUBSIDIARIES................................. 21
EMS Industry Overview................................................... 22
APW Ltd. Business Strategy.............................................. 23
Products and Services................................................... 25
Markets and Customers................................................... 26
Sources and Availability of Raw Materials............................... 27
Patents, Trademarks and Other Intellectual Property..................... 27
Backlog................................................................. 27
Competition............................................................. 27
Research and Development................................................ 28
Environmental Compliance................................................ 28
Employees and Labor Relations........................................... 28
Properties.............................................................. 28
Legal Proceedings....................................................... 29
Transactions and Agreements Between APW Ltd. and API/Actuant............ 29
FINANCING................................................................. 31
Arrangements Related to the Distribution................................ 31
Refinancing of Senior Subordinated Notes................................ 32
CAPITALIZATION............................................................ 33
APW LTD. UNAUDITED PRO FORMA FINANCIAL STATEMENTS......................... 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 40
Overview................................................................ 40
Business Combinations................................................... 40
Results of Operations................................................... 43
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
New Accounting Pronouncements............................................ 52
European Economic Monetary Union......................................... 52
Quantitative and Qualitative Disclosures About Market Risk............... 53
Recent Developments...................................................... 54
FORWARD-LOOKING STATEMENTS AND CAUTIONARY FACTORS.......................... 54
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS............................ 55
MANAGEMENT OF APW LTD. .................................................... 56
Directors................................................................ 56
Committees of the Board of Directors..................................... 57
Directors' Compensation.................................................. 57
Other Executive Officers................................................. 58
EXECUTIVE COMPENSATION..................................................... 58
Summary Compensation Table............................................... 58
Option/SAR Grants in Last Fiscal Year.................................... 59
Stock Options and the Impact of the Distribution......................... 60
APW Ltd. 2000 Stock Option Plan.......................................... 60
Stock Options.......................................................... 61
Restricted Stock....................................................... 62
Term of Stock Plan..................................................... 62
General Terms.......................................................... 62
Federal Tax Consequences............................................... 63
APW Ltd. 401(k) Plan..................................................... 64
APW Ltd. Employee Stock Purchase Plan.................................... 64
Future Compensation of Executive Officers................................ 64
DESCRIPTION OF APW LTD. CAPITAL STOCK...................................... 65
Authorized Capital Stock................................................. 65
Common Stock............................................................. 65
Preferred Stock.......................................................... 66
Summary of Rights Plan................................................... 67
Transfer Agent........................................................... 69
COMPARISON OF SHAREHOLDER RIGHTS........................................... 69
Size and classification of the Board of Directors........................ 69
Removal Directors; Vacancies............................................. 70
Meetings of Shareholders................................................. 70
Action by Written Consent of Shareholders; Shareholder Resolutions....... 70
Vote Required for Extraordinary Corporate Transactions................... 70
Interested Director Transactions......................................... 71
Business Combination and Anti-takeover Provisions........................ 71
Shareholder Suits........................................................ 73
Dissenters' Rights....................................................... 73
Dividends................................................................ 74
Voting................................................................... 74
Preemptive Rights........................................................ 74
Amendments to Corporate Governance Documents............................. 74
Limitations on Directors' Liability and Indemnification.................. 75
Rights of Inspection..................................................... 75
Repurchase of Untraced Shares............................................ 76
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
------
<S> <C>
Rights Agreement...................................................... 76
Listing............................................................... 76
Dividends and Distributions Upon Liquidation.......................... 76
Statutory Shareholder Liability....................................... 76
Director and Officer Discretion....................................... 76
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS................. 77
Limitations on Liability of Directors................................. 77
Indemnification and Insurance......................................... 77
INDEPENDENT PUBLIC ACCOUNTANTS.......................................... 77
2001 ANNUAL MEETING AND SHAREHOLDER PROPOSALS...........................
WHERE YOU CAN FIND MORE INFORMATION..................................... 77
INDEX TO COMBINED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES.............................................................. F1-F26
Annex A Memorandum of Association of APW Ltd.
Annex B Bye-Laws of APW Ltd.
Annex C APW Ltd. 2000 Stock Option Plan
Annex D APW Ltd. Outside Directors Stock Option Plan
</TABLE>
iii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE DISTRIBUTION
The following questions and answers, together with the summary that follows
it, highlight important information about the Distribution of APW Ltd. stock.
Because these sections are a summary, they may not contain all of the
information that is important to you. You should read the entire Information
Statement for more complete information.
Q: Who is APW Ltd.?
A: APW Ltd. is the Bermuda corporation that, together with its subsidiaries,
will own and operate Applied Power's Electronics Business following the
Distribution described in this Information Statement. Immediately following
the Distribution, APW Ltd. will be a leading global provider of electronics
manufacturing services (EMS) focused on the rapidly growing integrated
electronic enclosure systems market. Operating in over 40 locations
throughout North America, Europe and Asia, we supply a broad range of
individual components and integrated manufacturing services to OEMs
primarily in the communications (datacom and telecom) and computing
(servers, data storage, networking) markets. We provide a comprehensive
portfolio of electronic products, including electronic enclosures
(technical housing and external structure often the skeleton of the
product), power supplies, thermal management systems, backplanes (large
complex circuit panels used mostly in telecommunication equipment) and
cabling, either as individual standard products, or as integrated custom
systems. In addition, we provide a wide range of integrated design,
manufacturing and logistics services to our customers, including product
design, supply chain management, manufacturing, assembly, testing and drop-
ship capabilities. These services provide our customers with accelerated
time-to-market and decreased time-to-volume production (the time required
to increase operations to meet volume requirements of customers), while
reducing their production costs and allowing them to focus on the design
and marketing of their products.
Through a combination of internal growth and acquisitions, we have
established a leading position in the integrated enclosure systems segment
of the EMS industry. We believe that we are the leading, most vertically
integrated provider of integrated electronic enclosure systems and that our
size, global reach, product breadth, scope of services, and demonstrated
expertise uniquely positions us to win large manufacturing contracts from
leading global datacom, telecom and networking OEMs. We believe that these
customers will provide us with substantial growth opportunities due to
their significant rate of organic growth and their increased utilization of
outsourced manufacturing services. Our customers include industry leaders
such as Alcatel, Applied Materials, Cisco, Compaq, Dell, EMC, Ericsson,
Fujitsu, Hewlett Packard, IBM, Lucent, Marconi, Motorola, NCR, Nokia,
Nortel Networks and Sun Microsystems. OEMs in the communications segment of
the electronics industry accounted for approximately 25% of our net sales
for the six months ended February 29, 2000, with sales to computing segment
OEMs accounting for approximately 40% of net sales.
Q: Who is Actuant?
A: "Actuant Corporation" will become the new name of Applied Power after the
Distribution. Actuant will continue to design, manufacture and sell a wide
range of branded electrical and industrial tools and supplies through
retail, catalog and other distribution channels. It will also continue to
design, manufacture and sell customized, highly engineered motion control
systems to industrial OEMs. These continuing aspects of Applied Power's
business are referred to as the "Industrial Business" in this Information
Statement. We usually refer to Applied Power as "API/Actuant" when
referring to its future operations. We expect API/Actuant common stock to
trade on the NYSE under the symbol "ATU."
Q: What will happen in the distribution?
A: Applied Power is separating its Electronics Business from its Industrial
Business. Applied Power will accomplish this by distributing all of the
outstanding shares of APW Ltd. stock (which, together with its
subsidiaries, operates the Electronics Business) to the Applied Power
shareholders. API/Actuant will retain the Industrial Business, but it will
not retain any shares of APW Ltd. stock following the Distribution. This
type of distribution is often called a spin-off. If you are an Applied
Power shareholder as of [11:59 p.m.] on
1
<PAGE>
, 2000, you will receive APW Ltd. stock in the Distribution. You
will retain your stock in Applied Power, which will own only the Industrial
Business and will later change its name to "Actuant Corporation." Upon
completion of the Distribution, you will own shares in two separately
traded public companies, API/Actuant and APW Ltd.
Q: What do I have to do?
A: Nothing. No proxy or vote is necessary for the Distribution to occur. You
do not need to, and should not, mail in any certificates for Applied Power
stock in order to receive APW Ltd. stock in the Distribution.
Q: What will I receive in the distribution?
A: You will receive one share of APW Ltd. stock for each share of Applied
Power stock you own as of the Record Date. The shares of APW Ltd. stock
will also include an associated preferred stock purchase right that is
designed to encourage a potential acquirer of at least 15% of APW Ltd.'s
outstanding stock to negotiate with the APW Ltd. board of directors rather
than proceed unilaterally. For more information about the preferred stock
purchase rights, see "Description of APW Ltd. Capital Stock--Summary of
Rights Plan."
Q: Do I have to pay income taxes on the receipt of my APW Ltd. stock?
A: APW Ltd. has received an opinion of counsel that the receipt of APW Ltd.
stock in the Distribution should be tax-free to its U.S. shareholders for
federal income tax purposes. See "The Distribution--Material Federal Income
Tax Consequences of the Distribution."
Q: Will APW Ltd. stock be listed on any exchange?
A: Yes. APW Ltd. has applied for approval to list on the New York Stock
Exchange and will trade under the symbol "APW." The stock of API/Actuant
will also continue to be listed on the New York Stock Exchange, but it will
trade under the symbol "ATU."
Q: What will happen to the trading of applied power and APW Ltd. stock?
A: Beginning on or about , 2000, and continuing through ,
2000, you will only be able to sell your Applied Power stock with due bills
for APW Ltd. stock. This means that you will give up your right to receive
APW Ltd. stock if you sell your Applied Power stock during this time.
Beginning on or about , 2000, we expect that investors will be
able to buy and sell APW Ltd. stock on a when-issued basis until the stock
certificates are actually delivered by the transfer agent.
Q: How can I obtain more information about the distribution?
If you have questions about the Distribution, please contact:
Ms. Susan Hrobar
Investor Relations
APW Ltd.
N22 W23685 Ridgeview Parkway West
Waukesha, WI 53188-1013
(262) 523-7600
or
Firstar Bank N.A.
Attention: Trust Department
777 East Wisconsin Avenue
Milwaukee, WI 53202
(414) 765-5000
2
<PAGE>
SUMMARY
This summary, together with the questions and answers immediately preceding
it, highlights some key information from this Information Statement concerning
the Distribution of APW Ltd. common stock by Applied Power. However, it does
not contain all of the information that may be important to you. To better
understand the Distribution and the business and financial position of APW
Ltd. and its subsidiaries, you should carefully review this entire document.
References in this Information Statement to "Applied Power" mean Applied Power
Inc., a Wisconsin corporation, and its subsidiaries and affiliates. Because
Applied Power Inc. intends to change its name to "Actuant Corporation" after
the Distribution, we usually refer to it as "API/Actuant" when discussing its
future operations. References to APW Ltd. include operations of its
predecessors.
Securities to be
distributed................ One share of APW Ltd. common stock (plus
associated preferred stock purchase rights issued
pursuant to a shareholder rights plan
(collectively with the distributed common stock,
the "Shares")) for each outstanding share of
Applied Power common stock owned on the Record
Date. Approximately 39.1 million Shares will be
issued in the Distribution. The Shares to be
distributed will constitute all of the
outstanding Shares of APW Ltd. immediately after
the Distribution.
Record Date................ , 2000 (close of business).
Distribution Date.......... , 2000 (12:01 a.m., Central time).
Tax consequences...........
In the opinion of Weil, Gotshal & Manges LLP,
special tax counsel to Applied Power, for United
States federal income tax purposes the
Distribution should be tax free to Applied Power
shareholders. Applied Power shareholders should
apportion their tax basis in the Applied Power
common stock held immediately before the
Distribution between the Applied Power common
stock and the APW Ltd. Shares received in the
Distribution, based on the relative fair market
values of each as of the Distribution Date. An
Applied Power shareholder's holding period for
the APW Ltd. shares should include the holding
period of the Applied Power common stock on which
the Distribution is made. See "The Distribution--
Material Federal Income Tax Consequences of the
Distribution."
Distribution agent and
transfer agent for the APW
Ltd. Shares................ Firstar Bank, N.A.
Dividends.................. APW Ltd. does not intend to pay cash dividends on
the APW Ltd. common stock in the foreseeable
future. Rather, we currently anticipate that
earnings generally will be retained by APW Ltd.
for use in its business. See "The Distribution--
Dividend Policy."
Risk factors............... See "Risk Factors" for a discussion of certain
risks that should be considered in connection
with the Shares received in the Distribution.
Principal offices of APW c/o Conyers Dill & Pearman, Clarendon House, 2
Ltd........................ Church Street, P.O. Box HM666, Hamilton HM CX,
Bermuda; telephone (441) 295 1422.
N22 W23685 Ridgeview Parkway West, Waukesha,
Wisconsin 53188-1013; telephone (262) 523-7600.
3
<PAGE>
Relationship with
API/Actuant after the
Distribution............... API/Actuant will have no stock ownership interest
in APW Ltd. after the Distribution. APW Ltd. and
API/Actuant will have entered into several
agreements for the purpose of giving effect to
the Distribution and defining their ongoing
relationships. These include agreements providing
for the transfer to APW Ltd. of substantially all
of the assets and liabilities of the Electronics
Business, pursuant to which API/Actuant generally
will indemnify APW Ltd. against liabilities,
litigation and claims arising out of all Applied
Power operations not transferred to APW Ltd., and
APW Ltd. will indemnify API/Actuant against
liabilities, litigation and claims arising out of
the Electronics Business. Additional agreements
will relate to, among other things, certain
employee benefit and compensation matters,
intellectual property rights, certain interim
administrative services, tax matters (including
allocations of tax obligations), insurance, the
transfer of real estate and other miscellaneous
matters. See "The Distribution--Relationship
between API/Actuant and APW Ltd. after the
Distribution" and "Business of APW Ltd. and its
Subsidiaries--Transactions and Agreements between
APW Ltd. and API/Actuant."
4
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following selected financial data have been derived from the combined
financial statements and financial information of APW Ltd. and subsidiaries.
The data should be read in conjunction with the combined financial statements
of APW Ltd. and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Information Statement. The statement of earnings data for the years ended
August 31, 1997, 1998 and 1999 and the balance sheet data as of August 31,
1998 and 1999 have been derived from the audited combined financial statements
of APW Ltd. The statement of earnings data for the years ended August 31, 1995
and 1996 and the balance sheet data as of August 31, 1995, 1996 and 1997 have
been derived from unaudited combined financial information of APW Ltd. not
included in this information statement. The statement of earnings data for the
six months ended February 28, 1999 and February 29, 2000, and the balance
sheet data as of those dates have been derived from unaudited combined
financial statements of APW Ltd., which, in the opinion of management,
includes all adjustments necessary for a fair presentation of assets and
liabilities as of such dates and results of operations for such periods.
Operating results for the six months ended February 29, 2000 are not
indicative of the results that may be expected for the entire year ending
August 31, 2000.
<TABLE>
<CAPTION>
Six Months
Year Ended August 31, Ended February
----------------------------------------- ---------------------
1995 1996 1997 1998(1) 1999 28, 1999 29, 2000(1)
------ ------ ------ ------- -------- -------- -----------
(In millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Combined Statement of
Earnings Data:
Net sales.............. $215.8 $263.0 $375.3 $ 593.2 $1,055.3 $ 513.2 $ 566.2
Gross profit........... 86.9 109.8 146.7 194.1 291.8 139.9 149.7
Operating expenses (2). 57.1 67.9 84.8 142.8 188.0 91.4 94.0
Amortization expense... 0.5 1.0 3.0 7.8 20.9 9.7 11.8
Operating earnings..... 29.3 40.9 58.8 43.5 82.9 38.7 43.8
Net financing costs
(3)................... -- 3.7 9.5 16.6 52.9 23.6 23.6
Net other (income)
expense............... (.7) (.5) (1.3) (8.7) (1.8) (1.3) 1.4
Earnings before income
taxes................. 30.0 37.7 50.6 35.5 31.8 16.4 18.9
Income taxes........... 10.8 14.9 18.9 17.2 11.4 5.4 8.0
Earnings before
extraordinary loss.... 19.3 22.8 31.7 18.3 20.4 11.0 10.9
Extraordinary loss, net
of income tax benefit
of $1.3 million (4)... -- -- -- -- -- -- (2.1)
Net earnings........... 19.3 22.8 31.7 18.3 20.4 11.0 8.9
Basic and Diluted
Earnings per Share: (5)
Earnings per Share--
before extraordinary
items................. $ 0.48 $ 0.57 $ 0.84 $ 0.48 $ 0.53 $ 0.28 $ 0.28
Extraordinary loss net
of tax................ -- -- -- -- -- -- (0.05)
------ ------ ------ ------- -------- -------- --------
Earnings per Share..... $ 0.48 $ 0.57 $ 0.84 $ 0.48 $ 0.53 $ 0.28 $ 0.23
====== ====== ====== ======= ======== ======== ========
Weighted Average Common
Shares Outstanding.... 40.1 40.3 37.9 38.4 38.8 38.7 39.0
====== ====== ====== ======= ======== ======== ========
Combined Balance Sheet
Data (at end of
period):
Working capital........ $ 30.8 $ 32.3 $ 48.3 $ 9.9 $ 6.6 $ 57.9 $ 27.2
Total assets........... 124.1 147.7 275.5 719.2 1,180.0 1,126.6 1,184.5
Total debt (3)......... -- 50.0 119.9 367.8 728.8 715.7 680.8
Total equity........... 83.9 53.4 86.0 172.7 172.8 212.0 236.6
Other Data:
Cash flows--Operating
Activities............ $ 25.4 $ 56.7 $ 75.9 $ 4.7 $ 7.3
Cash flows--Investing
Activities............ (93.1) (314.0) (435.3) (399.9) (28.6)
Cash flows--Financing
Activities............ 74.6 249.3 373.7 396.7 6.2
EBITDA (6)............. 71.4 75.1 135.6 66.0 71.6
Depreciation and
amortization.......... 11.3 23.0 50.9 26.0 29.1
Capital expenditures... 17.7 31.6 43.0 20.3 18.1
</TABLE>
--------
(1) Results of operations in fiscal 2000 include a $3.3 million make-whole
premium ($2.1 million after-tax) paid in connection with the early
retirement of debt which is recorded as an extraordinary charge, net of
tax. Fiscal 2000 also includes a $2.2 million allocated charge for costs
associated with the Distribution of the Electronics Business from Applied
Power and incorporating APW Ltd. in Bermuda. See Note 8--"Merger,
Restructuring and Other Non-recurring Items" in Notes to Combined
Financial Statements for further discussion.
5
<PAGE>
Operating results in fiscal 1998 include allocated non-recurring charges
related to ZERO merger, plant consolidation and product rationalization
costs of $27.9 million before tax, $21.1 million net of applicable income
tax. Fiscal 1998 results also include an allocated net gain of $6.5 million
before tax for gains recognized by ZERO for life insurance proceeds and
sale of property. See Note 8--"Merger, Restructuring and Other Non-
recurring Items" in Notes to Combined Financial Statements for further
discussion.
Excluding the one-time items discussed above, operating earnings were as
follows for each of the periods presented (in millions):
<TABLE>
<CAPTION>
Six Months
Year Ended August 31, Ended February
----------------------------------------------------------- -----------------------
28, 29,
1995 1996 1997 1998 1999 1999 2000
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
$29.3 $40.9 $58.8 $71.3 $82.9 $38.7 $46.0
</TABLE>
(2) Historical operating expenses include APW Ltd.'s allocated share of
Applied Power's corporate general and administrative expenses. The
allocation of Applied Power's corporate general and administrative
expenses is based on estimated levels of effort devoted to APW Ltd. and
the relative size of APW Ltd. compared to Applied Power's total revenues,
operating profit, assets and employee headcount. APW Ltd. expects that
costs for these functions will differ following the Distribution.
(3) Applied Power's historical practice has been to incur indebtedness for its
consolidated businesses at the parent company level or at a limited number
of subsidiaries, rather than at the operating company level, and to
centrally manage various cash functions. Accordingly, historical amounts
include debt and related interest expense allocated to APW Ltd. from
Applied Power based on the portion of Applied Power's investment in the
Electronics Business which is deemed to be debt. This allocation is
generally based upon a cash flow model which details the historical uses
of debt proceeds by the Electronics Business and the deemed debt
repayments by the Electronics Business based on free cash flow. Management
believes that the allocation of corporate debt and related interest
expense for the historical periods is reasonable. This historical
allocation, however, is not indicative of the total amount of debt that
APW Ltd. will have upon completion of Applied Power's realignment of its
consolidated debt before the Distribution. See "Unaudited Pro Forma
Combined Financial Statements" for further discussion of APW Ltd. debt
levels after the Distribution.
(4) Represents costs associated with a make-whole premium paid in connection
with the early retirement of debt.
(5) Basic and diluted shares used to calculate earnings per share are the same
as the historical Applied Power Inc. basic shares outstanding. We have
used Applied Power Inc. basic shares outstanding for the following
reasons: (i) upon the Distribution, each shareholder of Applied Power Inc.
will receive an equivalent number of APW Ltd. shares; (ii) there are no
common stock equivalents of APW Ltd. as of the date of this filing; (iii)
we are unable to estimate the impact of converting Applied Power Inc.
common stock equivalents into APW Ltd. common stock equivalents because it
will depend upon the market price of both the equities of APW Ltd. and
API/Actuant after the distribution, each of which could vary
significantly.
(6) "EBITDA" is defined as income from continuing operations before interest,
taxes, depreciation and amortization. Management believes that EBITDA
provides useful information regarding APW Ltd.'s and its subsidiaries'
ability to service its indebtedness, but should not be considered in
isolation or as a substitute for operating income or cash flow from
operations as an indicator of operating performance or as a measure of APW
Ltd.'s and its subsidiaries' liquidity. Excluding restructuring and other
non-recurring items (described in Note (1) above), EBITDA would have been
as follows for each of the periods indicated (in millions):
<TABLE>
<CAPTION>
Six Months
Year Ended August 31, Ended February
-------------------------------------------------- -----------------------------------------
28, 29,
1997 1998 1999 1999 2000
----- ----- ------ ----- -----
<S> <C> <C> <C> <C>
$71.4 $96.5 $135.6 $66.0 $73.8
</TABLE>
6
<PAGE>
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
The following table sets forth selected unaudited pro forma financial data
of APW Ltd. and its subsidiaries. This data presents the combined statement of
earnings data of APW Ltd. and its subsidiaries assuming that the transactions
contemplated by the Distribution had been completed as of September 1, 1998.
The combined balance sheet data of APW Ltd. and its subsidiaries is presented
assuming that the transactions contemplated by the Distribution had been
completed as of February 29, 2000. See the Unaudited Pro Forma Combined
Financial Statements of APW Ltd. and notes thereto included in this
Information Statement for computation of pro forma amounts, including
descriptions of the pro forma adjustments.
The selected unaudited pro forma financial data has been prepared utilizing
the historical combined financial statements of APW Ltd. and its subsidiaries.
This information should be read in conjunction with the historical combined
financial statements and notes to those statements, included elsewhere in this
Information Statement. The selected unaudited pro forma financial data does
not purport to be indicative of the results of APW Ltd. and its subsidiaries
in the future or what the financial position and results of operations would
have been had APW Ltd. been a separate, stand-alone entity during the periods
shown.
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
August 31, February 29,
1999 2000
---------- ------------
(In millions, except
per share data)
<S> <C> <C>
Pro Forma Combined Statement of Earnings Data (1):
Net sales........................................... $1,055.3 $ 566.2
Gross profit........................................ 291.8 149.7
Operating expense................................... 192.6 94.2
Amortization expense................................ 20.9 11.8
Operating earnings.................................. 78.3 43.7
Net financing costs................................. 27.6 13.9
Net other (income) expenses......................... (1.8) 1.4
Earnings before income taxes........................ 52.5 28.4
Income taxes........................................ 15.7 8.5
Net earnings........................................ 36.7 19.9
Basic and Diluted Earnings per Share (2):
Earnings per Share.................................. $ 0.95 $ 0.51
======== ========
Weighted Average Common Shares Outstanding ......... 38.8 39.0
======== ========
Pro Forma Combined Balance Sheet Data (1) (at end of
period):
Working capital..................................... N/A $ 27.2
Total assets........................................ N/A 1,184.5
Total debt (3)...................................... N/A 288.9
Total equity........................................ N/A 628.5
Pro Forma Other Data (1):
Depreciation and amortization....................... 50.9 29.1
Capital expenditures................................ 43.0 18.1
</TABLE>
--------
(1) Pro forma adjustments include adjustments to debt, interest expense and
general corporate expenses, as well as the exclusion of non-recurring
items which were incurred in anticipation of the Distribution. The amount
for general corporate expenses reflects an estimate of the net incremental
selling, administrative and other expenses associated with APW Ltd.
operating as a stand-alone company. This estimate mainly represents
additional costs for personnel and purchased services such as information
technology, human resource administration, legal and corporate
communications as well as incremental insurance and risk management
7
<PAGE>
costs. Although this adjustment is based upon available information and
assumptions that management believes are reasonable, APW Ltd. may incur
greater than expected selling, administrative and other expenses in
connection with operating as a stand-alone company. See further explanation
of these items in the footnotes to the Unaudited Pro Forma Combined
Financial Statements.
(2) Basic and diluted shares used to calculate earnings per share are the same
as the historical Applied Power Inc. basic shares outstanding. We have
used Applied Power Inc. basic shares outstanding for the following
reasons: (i) upon the Distribution, each shareholder of Applied Power Inc.
will receive an equivalent number of APW Ltd. shares; (ii) there are no
common stock equivalents of APW Ltd. as of the date of this filing; (iii)
we are unable to estimate the impact of converting Applied Power Inc.
common stock equivalents into APW Ltd. common stock equivalents because it
will depend upon the market price of both the equities of APW Ltd. and
API/Actuant after the distribution, each of which could vary
significantly.
(3) Represents debt allocated to APW Ltd. after giving effect to the debt
realignment as discussed in the Unaudited Pro Forma Combined Financial
Statements.
(4) Pro Forma EBITDA for the twelve months ended August 31, 1999 is $131.0
million and for the six months ended February 29, 2000 $71.4 million.
EBITDA is defined as income from continuing operations before interest,
taxes, depreciation and amortization. Pro Forma EBITDA has been calculated
by adding APW Ltd. and its subsidiaries depreciation and amortization
expense as well as other (income)/expense to operating earnings. EBITDA is
not presented as an alternative measure of operating results or cash flow
from operations, as determined in accordance with generally accepted
accounting principles, but is presented because APW Ltd. believes it is a
widely accepted indicator of our ability to incur and service debt. EBITDA
does not give effect to cash used for debt service requirements and thus
does not reflect funds available for dividends, reinvestment or other
discretionary uses. APW Ltd. is providing Pro Forma EBITDA as a footnote
due to the nature of Applied Power's central treasury function which makes
providing an accurate disclosure of financing activities in the statement
of cash flows difficult to segregate between the Electronics businesses
and the other businesses of Applied Power.
8
<PAGE>
RISK FACTORS
Spin-Off Distribution Risks
The tax consequences of the Distribution are not assured.
The Distribution is conditioned upon receipt of the opinion of Weil,
Gotshal & Manges LLP, special tax counsel to Applied Power, that the
Distribution should be a tax-free spin-off to Applied Power's U.S.
shareholders. No rulings have been requested from the Internal Revenue Service
as to the tax consequences of the Distribution. The opinion of Weil, Gotshal &
Manges LLP is not binding on the Internal Revenue Service or the courts. If
the Distribution does not qualify as a tax-free distribution, each U.S. holder
of Applied Power common stock would generally be treated as if the shareholder
had received a taxable dividend in an amount equal to the fair market value of
the APW Ltd. common stock received, and Applied Power would recognize gain
equal to the excess of the fair market value of the APW Ltd. common stock
distributed to its shareholders over Applied Power's basis in the APW Ltd.
common stock. See "The Distribution--Material Federal Income Tax Consequences
of the Distribution."
Because the Distribution will violate covenants under Applied Power's
outstanding subordinated notes, Applied Power needs to borrow additional money
to repurchase those notes.
Applied Power's $200 million of outstanding senior subordinated notes
include a covenant effectively prohibiting the proposed Distribution. Applied
Power intends to repurchase those notes and issue new subordinated notes that
will not include that restriction, but the repurchase and refinancing have not
yet been completed and a successful refinancing on terms acceptable to Applied
Power cannot be assured.
An Applied Power creditor could attempt to prevent the Distribution or to
rescind it.
A creditor of Applied Power could bring a lawsuit to prevent or rescind the
Distribution by claiming that Applied Power was insolvent at the time of the
Distribution, was rendered insolvent by the Distribution, was engaged in a
transaction for which its remaining assets constituted unreasonably small
capital, or intended to incur (or believed it would incur) debts beyond its
ability to pay them as they matured. If a court agreed with any of these
claims it might prevent or void the Distribution (entirely or in part) as a
fraudulent conveyance or as unlawful under the Wisconsin Business Corporation
Law and require the shareholders to return some or all of the shares of APW
Ltd. stock to API/Actuant, or require APW Ltd. to fund certain liabilities of
API/Actuant for the benefit of creditors. Generally, Applied Power would be
considered insolvent if the fair value of its assets was less than the total
amount of its liabilities or if it incurred debt beyond its ability to repay
as the debt matures.
The boards of directors of both APW Ltd. and Applied Power have carefully
considered these issues and have structured the Distribution and related
agreements and transactions in a manner such that they believe that both
companies are solvent and will be solvent immediately after the Distribution.
The charter documents of APW include provisions that may prevent or delay
change of control transactions, which could adversely affect the price of its
common stock, and the rights of APW Ltd. shareholders under Bermuda law are
not as favorable in some ways as the rights of Applied Power shareholders
under Wisconsin law.
APW Ltd.'s charter documents contain anti-takeover provisions that could
have the effect of delaying or preventing changes in control that a
shareholder may consider favorable. The provisions in APW Ltd.'s charter
documents include:
. the Rights (see "Description of APW Ltd.'s Capital Stock--Summary of
Rights Plan");
. a classified board of directors with three-year staggered terms and
removal only for cause;
. the ability of APW Ltd.'s board of directors to issue shares of preferred
stock and to determine the price and other terms, including preferences
and voting rights, of those shares without shareholder approval;
9
<PAGE>
. anti-takeover provisions in APW Ltd.'s bye-laws (see "Comparison of
Shareholder Rights--Business Combination and Anti-takeover Provisions");
and
. supermajority voting requirements to approve extraordinary transactions
or to amend charter documents, including board of director approval to
amend the bye-laws.
Other provisions of APW Ltd.'s charter documents or Bermuda law that could
be disadvantageous to shareholders include:
. Shareholders may not be able to obtain jurisdiction over APW Ltd. outside
Bermuda, so certain remedies available to shareholders of Applied Power,
such as class action lawsuits under United States federal and Wisconsin
law, might not be available to APW Ltd. shareholders.
. The right to bring a derivative action in the name of a company for a
wrong to the company committed by present or former directors of the
company is more limited under Bermuda law than under Wisconsin law. See
"Comparison of Shareholder Rights--Shareholder Suits."
. APW Ltd.'s common stock has no prior public market, and it is not
possible to predict how its stock will perform after the Distribution.
There has been no prior trading market for APW Ltd.'s stock and there can
be no assurance as to the prices at which APW Ltd.'s common stock will trade
before or after the date of the Distribution. Until the APW Ltd. common stock
is fully distributed and an orderly market develops, the prices at which APW
Ltd. stock trades may fluctuate significantly. Prices for APW Ltd. common
stock will be determined in the trading markets and may be influenced by many
factors, including:
. the depth and liquidity of the market for APW Ltd. common stock;
. developments generally affecting the EMS industry and the electronics
enclosure systems market;
. investor perceptions of APW Ltd. and its business;
. the financial results of APW Ltd.; and
. general economic and industry conditions.
In addition, the stock market, in general, often experiences substantial
volatility that is often seemingly unrelated to the operating performance of
particular companies. These broad market fluctuations may adversely affect the
trading price of APW Ltd. common stock.
The separation of APW Ltd. from Applied Power poses new financial and
operational risks.
When the Distribution occurs, APW Ltd. will own and operate the Electronics
Business, and API/Actuant will own and operate the Industrial Business.
Neither company has a recent operating history as a separate entity.
After the Distribution, each company initially will be smaller and less
diversified than was Applied Power prior to the Distribution. The ability of
APW Ltd. to satisfy its obligations and maintain profitability will be solely
dependent upon its own future performance; it will not be able to rely upon
the capital resources and cash flows of API/Actuant. The future performance
and cash flows of APW Ltd. will be subject to prevailing economic conditions
and to financial, business and other factors affecting its business
operations, including factors beyond its control.
The separation of the Electronics Business from the Industrial Business and
the Distribution of APW Ltd. to the Applied Power shareholders may result in
some temporary dislocation and inefficiencies to the business operations, as
well as the organization and personnel structure, of APW Ltd., and will also
result in the duplication of certain personnel, administrative and other
expenses required for the operation of independent companies. Accordingly,
there can be no assurance that the Distribution will not alter or disrupt the
management and operations of APW Ltd.
10
<PAGE>
APW Ltd. has certain indemnification obligations to API/Actuant, or may not
be able to collect on indemnification rights from API/Actuant.
Under the terms of the Distribution Agreements, APW Ltd. and API/Actuant
have each agreed to indemnify the other (and certain related parties) from and
after the Distribution with respect to certain indebtedness, liabilities and
obligations. These indemnification obligations could be significant. The
availability of these indemnities will depend upon the future financial
strength of each of the companies. We cannot determine whether APW Ltd. will
have substantial indemnification obligations to API/Actuant after the
Distribution. We also cannot assure you that, if API/Actuant has substantial
indemnification obligations to APW Ltd., API/Actuant will have the ability to
satisfy those obligations. See "Business of APW Ltd. and its Subsidiaries--
Transactions and Agreements Between APW Ltd. and API/Actuant."
The reorganization transactions may present tax risks for APW Ltd.
The reorganization leading up to the Distribution, including the merger and
continuation of APW Ltd. as a Bermuda corporation, involve taxable
transactions. Based upon current estimates, prepared by PricewaterhouseCoopers
LLP, of the fair market value of the affected assets, APW Ltd. believes the
federal and state income tax cost resulting from these transactions will be
approximately $40 million. This estimate has been reflected in the pro forma
financial information included in this Information Statement. Under the Tax
Sharing Agreement with API/Actuant, APW Ltd. will be responsible for federal
and state income taxes resulting from the reorganization transactions. As a
result, APW Ltd. will bear the risk of any audit adjustments by the IRS or
other taxing authorities challenging the reporting of the reorganization
transactions, including the valuations of the affected assets.
The extent of tax benefit from becoming a Bermuda corporation is uncertain.
We believe that a significant portion of the income derived from our non-
U.S. operations will not be subject to tax, either by Bermuda, which currently
does not have a corporate income tax, or by the United States or other
countries in which we conduct other activities or in which our customers are
located. We will be subject to a 2.5% income tax in Barbados on certain
income. We base these beliefs upon:
. the anticipated nature and conduct of our business, which may change; and
. our understanding of our position under the tax laws of the various
countries in which we have assets or conduct activities, which position
is subject to review and possible challenge by taxing authorities and to
possible changes in law, which may have retroactive effects.
We cannot predict the amount of tax to which we may become subject and
cannot be certain that any of these factors would not have a material adverse
effect on our business, financial condition and results of operations. Our
shareholders might also become subject to special tax rules applicable to
foreign corporations under the circumstances described under the heading "The
Distribution--U.S. Federal Income Tax Consequences to Holders of APW Ltd.
Shares."
Operational Risks
APW Ltd.'s recent growth places new demands on its management.
There are substantial risks presented by the fact that APW Ltd.'s
Electronics Business has grown rapidly and significantly. For example, from
fiscal 1997 to fiscal 1999, APW Ltd. saw an increase in net sales of its
Electronics Business of about 181% and an increase in employees of about 140%.
This growth comes from both expanding current operations and acquiring other
businesses. In building APW Ltd., 17 acquisitions have been integrated
involving consolidation of facilities, rationalization of product offerings
and redeployment of management resources. This integration has, at times,
resulted in temporary disruption to customer relationships, production levels
and managerial responsibilities. Future growth involves risks, such as:
. risks from integrating new people and operations;
. risks from making technical, operational and administrative changes; and
. risks from increasing reliance on outside financing sources.
11
<PAGE>
APW Ltd.'s acquisitions may create transitional challenges.
APW Ltd.'s business strategy includes continued growth through strategic
acquisitions, which depends upon the availability of suitable acquisition
candidates at reasonable prices and APW Ltd.'s ability to quickly resolve
transitional challenges. These challenges include integration of product
lines, sales forces and manufacturing facilities and decisions regarding
divestitures, inventory write-offs and other charges. Also, these challenges
involve risks of employee turnover, disruption in product cycles and the loss
of sales momentum. Although APW Ltd.'s Electronics Business has substantial
experience in managing these risks, we cannot be certain that we will
successfully manage them in the future.
APW Ltd.'s business strategy depends in part upon continued outsourcing by
customers.
APW Ltd.'s customers and potential customers could decide to manufacture in
house the products offered by APW Ltd. and its subsidiaries. To be successful,
APW Ltd. and its subsidiaries must excel in terms of service, product quality,
and price not only when compared with its direct competitors but also when
compared with the customer itself doing the manufacturing in house.
APW Ltd.'s industry concentration may expose it to cyclical fluctuations in
the electronics, datacom, networking and telecommunications industries.
APW Ltd.'s business is highly focused in the electronics, datacom,
networking and telecommunications industries, with approximately 65% of sales
coming from businesses in those industries. Management believes that the best
use of APW Ltd.'s resources is in serving these high growth industries and
responding to their changing needs, so it is unlikely that APW Ltd.'s customer
base will broaden significantly beyond those industries for the near term.
These industry segments are subject to rapid technological change and product
obsolescence. Any discontinuance or modification of orders or commitments
could lower our operating results. To the extent these industries experience
weakened demand, APW Ltd.'s revenues and profitability will suffer.
APW Ltd. and its subsidiaries typically do not obtain long-term volume
purchase commitments from our customers, and cancellation or rescheduling of
purchase orders could adversely affect our operating results.
We typically do not obtain long-term volume purchase contracts from our
customers. Customers orders may be cancelled and volume levels may be changed
or delayed on short notice. Future cancellations or rescheduling of orders or
commitments could cause our operating results to be below expectations.
Increased competition may result in decreased demand or prices for our
products.
The EMS industry is highly competitive. We compete against numerous other
U.S. and foreign companies with global operations, as well as with those who
compete on a local or regional basis. Current and prospective customers
continually evaluate the merits of manufacturing products internally.
Consolidation in the EMS industry results in larger and more geographically
diverse competitors who have significant resources with which to compete
against us.
APW Ltd.'s international operations are exposed to political and economic
risks.
APW Ltd.'s Electronic Business has recently increased the size of its
international operations, especially those in Europe. This increase has been
due in large part to its recent acquisitions. As a result, approximately 43%
of our sales are currently generated outside of North America. As such, we
have broader geographic coverage than many of our competitors which subjects
us to greater exposure to political and economic risks. In addition to the
risks associated with rapid growth discussed above, such international
operations present APW Ltd. with special risk factors, including those
associated with:
. New regulatory systems or changes in foreign regulations;
. Foreign currency fluctuations;
. Trade or currency exchange restrictions; and
. Cultural differences.
As APW Ltd. continues to expand its international presence, these risks may
increase.
12
<PAGE>
THE DISTRIBUTION
Background of and Reasons for the Distribution
Applied Power was founded in 1910 with the formation of the American
Grinder and Manufacturing Company, which produced hand grinders for hardware
and agricultural applications. Over the course of the following 80 years, the
Company grew through a series of acquisitions and product introductions into a
diversified conglomerate of industrial businesses, including leading brands
such as Enerpac, Gardner Bender and Power-Packer.
In 1989, Applied Power acquired the Barry Wright Corporation, which
included both Barry Controls, a manufacturer of vibration isolation products
for aerospace, defense and general industrial markets, and Wright Line, Inc.,
a designer of specialized equipment and technical furniture to support the use
of computers in the workplace. In the mid-1990's, Wright Line, the predecessor
of Applied Power's Electronics Business, began to experience rapid growth,
driven by greatly increased demand for custom enclosure systems from
electronics OEM customers. Capitalizing on this opportunity, Applied Power
dedicated significant resources to the Electronics Business to exploit the
identified potential in this market. In order to expand its product portfolio,
manufacturing capabilities and global breadth in this industry, Applied Power
acquired 17 enclosure companies for an aggregate purchase price of
approximately $1.1 billion. Through a combination of internal growth and
acquisitions, Applied Power became a leading worldwide supplier of integrated
enclosure systems to the global electronics industry.
In 1999, in order to more effectively pursue strategic opportunities in the
electronics market, Applied Power's management began to consider the
separation of Applied Power's Industrial Business from its Electronics
Business. Management considered a number of alternatives, including the sale
of the Industrial Business, a spin-off of either of the businesses, and the
combination of a spin-off of the Electronics Business with the sale of the
Industrial Business. On August 3, the board of directors of Applied Power
approved in principle a plan to pursue the sale of the Industrial Business in
combination with the spin-off of the Electronics Business. Following an
extensive marketing process, Applied Power did not identify a potential
acquiror of the Industrial Business as a whole that was willing to purchase
the Industrial Business at an acceptable valuation level and in a tax
efficient transaction structure.
On January 12, 2000, the board of directors reevaluated a number of
strategic alternatives, most of which had been discussed previously, and
determined that separation of the Electronics Business and the Industrial
Business through the Distribution would be in the best interests of Applied
Power, APW Ltd. and Applied Power's shareholders. At a subsequent meeting on
January 26, the board of directors authorized Applied Power to proceed with
the Distribution. On , the Board formally approved the Distribution in
the form of a dividend of one share of APW Ltd. for every share of Applied
Power held. The dividend will be payable on (the "Distribution Date"),
to each holder of record of Applied Power stock as of the close of business on
(the "Record Date").
APW Ltd. is a Bermuda corporation, the predecessor of which was originally
incorporated in Massachusetts on November 7, 1975 as Wright Line Inc. In
anticipation of the Distribution, Wright Line Inc. has merged with and into
WLI-Texas, followed by the continuation of WLI-Texas as APW Ltd., a Bermuda
corporation. Currently, a significant portion of Applied Power's electronics
operations in and outside the United States are owned directly or indirectly
by APW Ltd. Those electronics operations which are not currently owned
directly or indirectly by APW Ltd. will be contributed to APW Ltd. prior to
the Distribution. Therefore, at the time of the Distribution, APW Ltd. will
directly or indirectly own all of the worldwide electronics operations
currently conducted by Applied Power.
In conjunction with the Distribution, APW Ltd. reviewed the current
corporate structure of the Electronics Business to determine what structure
would best meet APW Ltd.'s business, financing and tax requirements. Based
upon the recent and anticipated growth of the Electronics Business, we believe
that a substantial portion of APW Ltd.'s future income will be derived outside
of the United States. Operating within this environment, incorporating in
Bermuda will allow APW Ltd. to leverage certain business, financing and tax
advantages which are either not available or difficult to obtain if APW Ltd.
were to be incorporated in the United States. More specifically, the decision
to incorporate in Bermuda is based upon the following:
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. A Bermuda based company provides a more favorable corporate structure for
expansion of APW Ltd.'s current business and future acquisition and
diversification opportunities; as well as, enhances its relationships
with its global customers;
. APW Ltd.'s ability to obtain funds, whether utilizing debt or equity,
should be enhanced as a result of increased access to international
capital markets and by creating a larger interest in APW Ltd.'s stock due
to the potential of attracting more non-U.S. investors;
. APW Ltd.'s worldwide corporate income taxes should be significantly
reduced as a result of creating a corporate structure which is more tax
efficient;
. and as these opportunities noted above materialize over time, APW Ltd.
should realize improvements in earnings-per-share and experience an
increase to the shareholder base, both of which should result in
enhancing shareholder value.
Bermuda was specifically chosen for the place of incorporation of APW Ltd.
rather than another offshore location because of Bermuda's political
stability, legal framework and tax environment. There are other public
companies, trading on the U.S. and European markets, which have been
incorporated in Bermuda. The corporate legal system in Bermuda is based on
English law. In addition, legislation has been enacted in Bermuda that
precludes the government from imposing taxes for a specified period of time.
In reaching its decision to prepare for and proceed with the Distribution,
Applied Power's board of directors considered the recommendations of Applied
Power management. The board considered the projected pro forma capital
structures for API/Actuant and APW Ltd. and their impact on the future
operating results of both of the companies. The board also reviewed Applied
Power's recent trading price and trading multiples and the trading prices and
trading multiples of comparable EMS companies and diversified industrial
companies. The board's decision to pursue the Distribution was based on the
following factors, among others:
. Applied Power's Industrial Business and its Electronics Business are
distinct, complex enterprises with different opportunities, challenges,
strategies and means of doing business. The opportunities for
coordination of purchasing, production, distribution or marketing between
the two businesses are limited.
. Applied Power believes that the Distribution will permit the management
of each business to focus solely on the opportunities and challenges
specific to that business, and to be more responsive to changes in its
own business environment.
. Applied Power believes that the Distribution will permit the management
of each company to adopt capital structures and allocate resources in
ways that best reflect the financial and strategic characteristics of
that particular enterprise.
. Applied Power believes that the Distribution will enable the Electronics
Business to obtain debt and equity financing necessary to execute its
business plans and acquisition strategies more efficiently and cost
effectively.
. The Distribution will permit each company to offer stock-based incentive
compensation to its executives that is more closely aligned with the
performance of that enterprise, as reflected in the stock market's
valuation of the stock of that company. We believe that this will help
each company attract, retain and reward key employees.
. The Distribution will permit investors to choose whether to invest in the
Electronics Business, the Industrial Business, or both. It will also
enable the investment community to better understand and evaluate the two
businesses.
. The Distribution will facilitate acquisitions by the Electronics Business
by improving the attractiveness of its capital stock as an acquisition
currency.
. Management of APW Ltd. believes that the Distribution and the realignment
of debt will allow it to compete more effectively in its market. See
footnote (3) of the Notes to Pro Forma Combined Financial Statements for
a discussion of the debt realignment.
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The board of directors also considered certain negative factors regarding
the Distribution, including the creation of additional expenses associated
with APW Ltd. being a stand-alone public company, the fact that API/Actuant
and APW Ltd. will initially be smaller and less diversified than Applied Power
prior to the Distribution, and the potential for temporary dislocations in the
business operations of API/Actuant and APW Ltd. following the Distribution.
However, the board concluded that these factors were not likely to be
meaningful enough to outweigh the significant benefits of the Distribution.
As previously noted, Applied Power's board of directors had considered a
number of alternatives to a spin-off of the Electronics Business, including a
sale of the Industrial Business as a whole, the sale of selected portions of
the Industrial Business from time to time, and a retention of all of the
operations following an internal restructuring to more clearly align the
Industrial Business and the Electronics Business into separate groups of
operations. Under the circumstances, the board decided to authorize the spin-
off of the Electronics Business as a Bermuda corporation supplemented by the
disposition of non-strategic Industrial Business assets.
Corporate Fit and Focus
The Distribution will allow the management of both companies to devote more
attention and focus to their respective businesses. APW Ltd. competes in the
rapidly growing EMS industry. Participants in this industry provide services
and products to a defined number of large electronics OEM customers. These
customers require nimble suppliers that are able to support very rapid growth,
with highly accelerated scale-up requirements on a global basis. While
management believes that APW Ltd. is well positioned to capitalize on the
substantial opportunities available in the EMS market, achievement of APW
Ltd.'s full potential requires management to focus its resources more
exclusively on the EMS market.
Applied Power sells tools and supplies through distribution and retail
channels as well as highly engineered components and systems to OEM customers.
Applied Power's industrial markets are fairly mature, with lower potential for
internally generated growth as compared to APW Ltd.'s electronics markets.
Capital requirements for Applied Power's Industrial Businesses are relatively
low, and it has historically generated significant free cash flow.
API/Actuant's strategy will be focused on debt reduction, enhancing its
profitability and operating results through a continuing focus on operation
efficiencies and the effective re-investment of the substantial cash it
generates.
The differences between these businesses require different management
techniques and investment strategies. The Distribution will permit management
of each company to specialize in its respective business.
Capital Structure and Resource Allocation Optimization
The Distribution will provide both API/Actuant and APW Ltd. the opportunity
to create capital structures and adopt resource allocation policies that best
reflect the cash flow, investment requirements, competitive landscape,
shareholder expectations and corporate strategy and business objectives of
each company. By appropriately tailoring the capital structures of API/Actuant
and APW Ltd., each should be better able to pursue its strategic objectives
while achieving the lowest overall cost of capital consistent with the risk
profiles and competitive factors inherent in its business segment.
Attraction and Retention of Key Employees
APW Ltd.'s management believes that having a publicly traded equity
security will create a highly effective incentive tool for motivating
management and attracting and retaining talented employees at all levels for
both APW Ltd. and API/Actuant. Following the Distribution, the stock price of
APW Ltd. will be directly influenced by the operational and financial
performance of APW Ltd. without regard to the performance of the Industrial
Businesses retained by API/Actuant. APW Ltd. believes that this direct link
between performance and stock price appreciation will create an effective
incentive system and is likely to enhance the levels of dedication, commitment
and productivity of the management and employees of APW Ltd.
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Stock as Acquisition Currency
Acquisitions have been, and are expected to continue to be, an important
part of APW Ltd.'s growth strategy. The Distribution will permit APW Ltd. to
use its stock as a more attractive currency with which to pursue acquisitions.
Management of APW Ltd. believes that shareholders in potential target
companies often prefer to receive stock in a corporation focused on the
industry in which the target company is engaged as consideration in an
acquisition. As a diversified industrial company, Applied Power shares may not
be as attractive to shareholders in target companies as would be shares of APW
Ltd. Management believes that following the Distribution, as a "pure-play" EMS
company, APW Ltd. will have more opportunity to pursue acquisitions using
stock as currency than Applied Power would have in the absence of the
Distribution.
Improve Investor Understanding of APW Ltd. and API/Actuant Equity
APW Ltd. management believes that the public equity markets currently
perceive Applied Power to be a diversified industrial company. The
Distribution will position APW Ltd. as a focused EMS company with a leading
global position in the electronics enclosures market, which investors will be
better able to understand and evaluate. Publicly-traded EMS companies are
currently valued at significantly higher multiples of earnings than
diversified industrial conglomerates. Management believes that if, following
the Distribution, investors value APW Ltd. in a manner consistent with the
valuations of other EMS companies, APW Ltd. will be able to raise equity
capital at a lower cost than it can as part of the combined enterprise.
Following the Distribution, API/Actuant will continue to be positioned as an
industrial company. Further debt reduction, continuing operational
improvements and the execution of a selective acquisition strategy will be
expected to drive earnings growth. API/Actuant will be positioned to be more
easily evaluated versus other comparable industrial companies.
Distribution Agent
The Distribution Agent is Firstar Bank N.A. Its address and telephone
number are:
Firstar Bank N.A.
Attn: Trust Department
777 East Wisconsin Avenue
Milwaukee, WI 53202
Telephone No.: 414-765-5000
Manner of Effecting the Distribution
The Distribution will be effected by declaring and paying a dividend in APW
Shares to the shareholders of Applied Power as of the Record Date. No
shareholder vote is required.
Reorganizations--Continuance
For U.S. federal income tax purposes, the continuation of Wright Line Inc.
as APW Ltd., a Bermuda corporation, will be treated as if Wright Line Inc.
sold all of its assets in a fully taxable transaction in which gain, but not
loss, will be recognized. Based upon current estimates, prepared by
PricewaterhouseCoopers LLP, of the fair market value of the affected assets,
APW Ltd. believes the federal and state income tax cost resulting from this
continuation and related reorganizations will be approximately $40 million.
This estimated cost has been reflected in the pro forma financial information
included elsewhere in this Information Statement.
Reorganizations--other than Continuance
Since Wright Line Inc. will not own directly or indirectly all of Applied
Power's electronics operations prior to its continuance as APW Ltd. in
Bermuda, other corporate structure reorganizations will be required to allow
for the contribution of these other electronics operations to APW Ltd. or its
subsidiaries prior to the Distribution.
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Also APW Ltd. and its subsidiaries will transfer certain industrial operations
to API/Actuant or its continuing subsidiaries. Upon these transactions, and to
the extent not previously recognized, gain, if any (but not loss), will be
recognized based upon the fair market value of the contributed assets less APW
Ltd.'s cost basis in these assets. Applied Power's estimate of the federal and
state income tax cost resulting from the taxable exchange of the affected
assets is based upon current valuations of the affected assets by
PricewaterhouseCoopers LLP and is reflected in the pro forma financial
information included elsewhere in this Information Statement.
Post Distribution Taxation of APW Ltd.
Bermuda and Barbados Income Tax Consequences to APW Ltd.
After the reorganizations described above, APW Ltd. will have its corporate
charter in Bermuda; however, it will be treated as resident in Barbados for
purposes of the Barbados Income Tax Act and the U.S.-Barbados Double Taxation
Treaty. A favorable ruling has been obtained from the Department of Inland
Revenue of Barbados confirming this treatment. APW Ltd. will be treated as a
resident of Barbados for tax purposes because the management and control of
APW Ltd. will be exercised in Barbados. APW Ltd.'s establishment as a resident
of Barbados will permit APW Ltd. to utilize certain treaty benefits between
Barbados and other countries, including the United States. These treaty
benefits, which are not available to Bermuda tax residents, will provide APW
Ltd. with a base for cash management and other financing activities.
Under current Bermuda law, APW Ltd. is not subject to tax on income or
capital gains, and no income, withholding or other taxes or stamp or other
duties are imposed upon the issue, transfer or sale of, among other things,
shares of common stock, shares of preferred stock, or debt securities, or on
any payments thereunder.
APW Ltd. will be registered in Barbados as an external company and
anticipates becoming licensed under the International Business Companies Act,
1991 as an International Business Company (IBC). As an IBC, APW Ltd. would be
subject to a maximum tax rate of 2.5% of its taxable income. Its taxable
income would consist of all income derived from Barbados, together with all
non-Barbados income remitted to Barbados.
U.S. Federal Income Tax Consequences to APW Ltd.
APW Ltd. believes that it and its non-U.S. subsidiaries will be subject to
U.S. federal income tax only to the extent that they derive certain U.S.
source income that is subject to U.S. withholding tax or income that is
effectively connected with the conduct of a trade or business within the U.S.
and is not otherwise exempt from U.S. tax under the U.S.-Barbados tax treaty.
The U.S. subsidiaries of APW Ltd. will all continue to be subject to U.S.
federal income taxes, as before.
U.S. Federal Income Tax Consequences to Holders of APW Ltd. Shares
Passive Foreign Investment Company Rules
A foreign corporation will constitute a "passive foreign investment
company" (a "PFIC") under the Code with respect to a taxable year if 75% or
more of its gross income is passive income or 50% or more of its average
assets (generally by value) held during the taxable year consists of passive
assets. Based on its current operations, Applied Power believes that APW Ltd.
will not be a PFIC.
If a U.S. Holder is treated as owning PFIC stock, the U.S. Holder will be
subject to special rules, generally intended to reduce or eliminate any
benefits from the deferral of U.S. federal income tax that the holder could
derive from investing in a foreign investment company that does not distribute
all of its earnings on a current basis. If APW Ltd. is a PFIC, then unless the
U.S. Holder makes a "qualified electing fund" election (a "QEF Election") or a
"mark-to-market" election, upon disposition of the APW Ltd. common shares, or
upon receipt of an "excess distribution" for APW Ltd. (generally,
distributions during a taxable year in excess of 125% of the average annual
distributions paid by a foreign corporation in the three preceding taxable
years), the U.S. Holder generally will be subject to tax as if the gain or
distribution were ordinary income earned ratably and
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subject to tax at the highest rate applicable to the U.S. Holder over the
period during which the APW Ltd. common shares were held (including any
periods in which APW Ltd. was not a PFIC) and will be subject to an interest
charge on the deferred tax.
A U.S. Holder may avoid or mitigate the adverse tax consequences described
above by making a QEF Election, which is made on a shareholder-by-shareholder
basis and, once made, is effective for all subsequent taxable years of the
U.S. Holder, unless revoked with the consent of the IRS. A U.S. Holder of APW
Ltd. common shares who makes a QEF Election will be taxed currently on its pro
rata share of APW Ltd.'s net ordinary income and net capital gain, if any, in
any year in which APW Ltd. is a PFIC. If a U.S. Holder makes a QEF Election
for the first taxable year in which, with respect to that holder, APW Ltd.
qualifies as a PFIC, the U.S. Holder will not be currently liable on any
portion of APW Ltd.'s undistributed earnings, and will not be subject to any
of the adverse PFIC provisions described above, for any taxable year in which
APW Ltd. is not a PFIC. APW Ltd. expects that it will not be a PFIC in any
taxable year in which it has significant net income. APW Ltd. intends to
advise its U.S. Holders within 75 days of the close of each taxable year in
which it qualifies as a PFIC that it was a PFIC for that year.
Applied Power believes that APW Ltd. will not be a PFIC in any taxable year
following the Distribution. However, the tests for determining PFIC status are
applied annually, and it is difficult to predict accurately future income and
assets relevant to this determination. Accordingly, Applied Power cannot
assure a U.S. Holder that APW Ltd. will not become a PFIC. If APW Ltd. should
determine in the future that it is a PFIC, it will endeavor so to notify U.S.
Holders, although there can be no assurance that it will be able to do so in a
timely and complete manner. U.S. Holders should consult their own tax advisers
about the PFIC rules, including the QEF election.
A U.S. Holder may make a QEF Election by filing IRS Form 8621 with its
income tax return on an annual basis and by maintaining records supporting the
information entered on the form.
A U.S. Holder may also make a mark-to-market election, in which case the
PFIC rules described above will not apply. Instead, in general, an electing
shareholder will include in each year as ordinary income the excess, if any,
of the fair market value to the APW Ltd. common shares at the end of the
taxable year over their adjusted basis and will be permitted an ordinary loss
in respect of the excess, if any, of the adjusted basis of the APW Ltd. common
shares over their fair market value at the end of the taxable year (but only
to the extent of the net amount of previously included income as a result of
the mark-to-market election). The electing U. S. Holder's basis in the APW
Ltd. common shares will be adjusted to reflect any such income or loss
amounts.
Foreign Personal Holding Company, Personal Holding Company and Controlled
Foreign Corporation Rules
Special U.S. federal income tax rules apply to a holder in a "foreign
personal holding company" (a "FPHC") and to a foreign corporation that is a
"personal holding company" (a "PHC"). A foreign corporation will not
constitute a FPHC or a PHC unless five or fewer individuals own more than 50%
of the voting power or the value of its shares. APW Ltd. believes that it will
not be a FPHC or PHC for any taxable year. Special U.S. federal income tax
rules also apply to certain holders of a foreign corporation classified as a
"controlled foreign corporation" (a "CFC"). A foreign corporation will not
constitute a CFC unless U.S. shareholders, each owning more than 10% of its
voting power, collectively own more than 50% of the total combined voting
power or total value of the corporation's stock. APW Ltd. does not expect that
it will be a CFC for any taxable year.
U.S. Backup Withholding Tax and Information Reporting
Generally, 31% "backup" withholding tax and information reporting
requirements will apply to dividends paid on APW Ltd. common shares to a non-
corporate U.S. Holder if such a holder fails to provide a correct taxpayer
identification number and other information or fails to comply with certain
other requirements. The proceeds from the sale of APW Ltd. common shares by a
U.S. Holder will be subject to U.S. backup withholding and information
reporting unless the holder has provided the required certification or has
otherwise established an exemption.
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A U.S. Holder can establish an exemption from the imposition of backup
withholding tax by providing a duly completed IRS Form W-9 to the holder's
broker or paying agent, reporting the holder's taxpayer identification number
(which for an individual will be his or her social security number), or by
otherwise establishing its corporate or exempt status.
Any amounts withheld under the backup withholding tax rules from a payment
to a holder will be allowed as a refund or a credit against the holder's U.S.
federal income tax, provided that the required information is furnished to the
IRS.
Results of the Distribution
After the Distribution, APW Ltd. will be an independent, publicly traded
company owning and operating the Electronics Business. The number and identity
of shareholders of APW Ltd. immediately after the Distribution will be the
same as the number and identity of shareholders of Applied Power on the Record
Date. Immediately after the Distribution, APW Ltd. expects to have
approximately [4,300] holders of record and approximately [39.1 million]
shares outstanding based on the number of record shareholders and outstanding
shares on [February 29, 2000]. Using the distribution ratio of one share of
APW Ltd. common stock for every one share of Applied Power common stock, the
actual number of shares to be distributed will be determined as of the Record
Date. The Distribution will not affect the number of outstanding shares of
Applied Power common stock or any rights of Applied Power shareholders.
Material Federal Income Tax Consequences of the Distribution
The Distribution is conditioned upon receipt by Applied Power of an opinion
from Weil, Gotshal & Manges LLP, special tax counsel to Applied Power,
substantially to the effect that, among other things, the Distribution should
qualify as a tax-free spin-off to Applied Power's U.S. shareholders under the
tax-free spin-off provisions of the Internal Revenue Code of 1986, as amended
(the "Code"). No rulings have been requested from the Internal Revenue Service
with respect to these matters and the opinion of Weil, Gotshal & Manges LLP is
not binding on the Internal Revenue Service or the courts. Additionally, the
opinion of Weil, Gotshal & Manges LLP is based upon various representations
and assumptions described therein.
The opinion is based on current provisions of the Code, existing
regulations thereunder and current administrative rulings and court decisions,
all of which are subject to change. No attempt has been made to comment on all
United States federal income tax consequences of the Distribution that may be
relevant to particular holders, including holders that are subject to special
tax rules such as dealers in securities, foreign persons, mutual funds,
insurance companies, tax-exempt entities, shareholders who acquire their APW
Ltd. common stock pursuant to the exercise of employee stock options or
otherwise as compensation and holders who do not hold their Applied Power
common stock as capital assets. Holders of Applied Power common stock are
urged to consult their own tax advisors regarding the United States federal
income tax consequences of the Distribution in light of their personal
circumstances and the consequences under applicable state, local and foreign
tax laws.
In the opinion of Weil, Gotshal & Manges LLP, the Distribution should
qualify as a tax-free distribution to Applied Power's U.S. shareholders under
the Code. Accordingly:
(1) An Applied Power shareholder should not recognize any income, gain
or loss as a result of the Distribution.
(2) An Applied Power shareholder's aggregate tax basis for his or her
Applied Power common stock on which APW Ltd. common stock is distributed
and the APW Ltd. common stock received by the shareholder in the
Distribution should be the same as the basis of the Applied Power common
stock held by the shareholder immediately prior to the Distribution. An
Applied Power shareholder's aggregate basis should be allocated between his
or her Applied Power common stock and APW Ltd. common stock received in the
Distribution in proportion to the fair market value of both the Applied
Power common stock and APW Ltd. common stock on the Distribution Date.
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(3) An Applied Power shareholder's holding period for the APW Ltd.
common stock received in the Distribution should include the holding period
of the Applied Power common stock on which the Distribution is made
provided that the Applied Power common stock is held as a capital asset by
the shareholder on the Distribution Date.
Current United States Treasury regulations require each Applied Power
shareholder who receives APW Ltd. common stock pursuant to the Distribution to
attach to his or her federal income tax return for the year in which the
Distribution occurs a detailed statement setting forth such data as may be
appropriate in order to show the applicability under the tax-free spin-off
provisions of the Code to the Distribution. Applied Power will provide the
appropriate information to each shareholder of record as of the Record Date.
It is also the opinion of the Weil, Gotshal & Manges LLP that, subject to
certain exceptions, Applied Power should not recognize any income, gain or
loss as a result of the Distribution. Applied Power does not believe that the
application of any of the exceptions will be material to Applied Power.
Listing and Trading of Shares of APW Ltd. Common Stock
There is no existing market of APW Ltd. common stock. APW Ltd. [has
received] approval to list its common stock on the NYSE. When the shares are
accepted for listing, a "when issued" trading market for APW Ltd. common stock
is expected to develop on or shortly before the Record Date. The term "when
issued" means that shares can be traded prior to the time certificates are
actually available or issued. We cannot predict the trading prices for APW
Ltd. common stock before or after the Distribution Date. Until the common
stock is fully distributed and an orderly market develops, the trading prices
for APW Ltd.'s common stock may fluctuate substantially. Prices for APW Ltd.
common stock will be determined in the trading markets and may be influenced
by many factors, including:
. the depth and liquidity of the market for APW Ltd. common stock;
. developments generally affecting APW Ltd.'s business;
. the impact of the factors referred to in "Risk Factors" beginning on page
;
. investor perceptions of APW Ltd. and its business;
. APW Ltd.'s financial results; and
. general economic and market conditions.
We anticipate that APW Ltd. common stock will be traded on the NYSE under
the symbol "APW." The transfer agent and registrar for APW Ltd. common stock
will be Firstar Bank N.A.
As of February 29, 2000, Applied Power had approximately 4,300 shareholders
of record. Assuming that each shareholder is a shareholder of record on the
Record Date, each of them will become a shareholder of record of APW Ltd. For
certain information regarding options and other equity-based awards involving
APW Ltd. common stock which may become outstanding after the Distribution, see
"Executive Compensation." Shares of APW Ltd. common stock distributed to
Applied Power shareholders in the Distribution will be freely transferable
under the Securities Act, except for shares of APW Ltd. common stock received
by persons who may be deemed to be affiliates of APW Ltd. Persons who may be
deemed to be affiliates of APW Ltd. after the Distribution generally include
individuals or entities that control, are controlled by, or are under common
control with APW Ltd. and may include officers and directors, or principal
shareholders, of APW Ltd. After APW Ltd. becomes a publicly traded company,
securities held by persons who are its affiliates will be subject to resale
restrictions under the Securities Act. Affiliates of APW Ltd. will be
permitted to sell shares of the entity of which they are affiliates only
pursuant to an effective registration statement or exemption for the
registration requirements of the Securities Act, such as the exemption
afforded by Rule 144 under the Securities Act.
Dividend Policy
APW Ltd. has no current plans to pay dividends following the Distribution,
and it does not anticipate paying dividends for the foreseeable future.
Dividends will be paid on APW Ltd. common stock only if declared by the APW
Ltd. board of directors in its sole discretion following the Distribution. The
payment and level of cash dividends, if any, will be based upon a number of
factors, including the operating results, cash flow, financial
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requirements and business prospects of APW Ltd. The actual amount and timing
of dividends, if any, will depend upon these and any other matters APW Ltd.'s
board of directors may deem relevant.
Relationship Between API/Actuant and APW Ltd. After the Distribution
Immediately after the Distribution, API/Actuant and APW Ltd. will be
independent, public companies with no direct relationships between them,
except that (a) Mr. Sim and Mr. Boel will be directors of API/Actuant (and Mr.
Sim will also be a director of APW Ltd.) as well as officers of APW Ltd. and
(b) the two companies will be parties to certain agreements intended to assist
each of them in transitioning to stand-alone businesses. See "Business of APW
Ltd. and its Subsidiaries--Transactions and Agreements between APW Ltd. and
API/Actuant."
Distribution Conditions
We expect that the Distribution will occur on the Distribution Date,
provided that the following conditions are satisfied (unless waived by Applied
Power), among other things:
1. The SEC must have declared effective the registration statement on
Form 10 under the Exchange Act, filed by APW Ltd., and no stop order
relating to the registration statement can be in effect.
2. Applied Power and APW Ltd. must have received all necessary permits,
registrations and consents required under the securities or blue sky laws
in connection with the Distribution.
3. Applied Power and APW Ltd. must have received a favorable tax opinion
from Weil, Gotshal & Manges LLP, and the opinion must not have been revoked
or modified in any material respect.
4. The NYSE must have approved the APW Ltd. common stock for listing on
the NYSE, subject to official notice of issuance.
5. Applied Power must have completed the transfers of assets and
liabilities to APW Ltd. required to constitute APW Ltd. as described in
this Information Statement.
6. APW Ltd. must have obtained credit facilities on acceptable terms and
conditions and in amounts expected to be adequate (together with APW Ltd.'s
anticipated cash flow) to fund its capital expenditure, debt service and
working capital requirements.
7. No order, injunction or decree can have been issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
consummation of the Distribution or related transactions.
The fulfillment of the foregoing conditions will not create any obligation
on the part of Applied Power to effect the Distribution, and Applied Power's
board of directors has reserved the right to amend, modify or abandon the
Distribution and the related transactions at any time prior to the
Distribution Date.
BUSINESS OF APW LTD. AND ITS SUBSIDIARIES
Overview
APW Ltd. is a leading global provider of EMS solutions focused on the
rapidly growing integrated electronic enclosure systems market. Operating in
over 40 locations throughout North America, Europe and Asia, we supply a broad
range of individual components and integrated manufacturing services to OEMs
primarily in the communications (datacom and telecom) and computing (servers,
data storage, networking) markets. We provide a comprehensive portfolio of
electronic products, including electronic enclosures, power supplies, thermal
management systems, backplanes and cabling, either as individual standard
products, or as integrated custom systems. In addition, we provide a wide
range of integrated design, manufacturing and logistics services to our
customers, including product design, supply chain management, manufacturing,
assembly, testing and drop-ship capabilities. These services provide our
customers with accelerated time-to-market and decreased time-to-volume
production, while reducing their production costs and allowing them to focus
on the design and marketing of their products.
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Through a combination of internal growth and acquisitions, we have
established a leading position in the integrated enclosure systems segment of
the EMS industry. We believe that we are the leading, most vertically
integrated provider of integrated electronic enclosure systems and that our
size, global reach, product breadth, scope of services, and demonstrated
expertise uniquely positions us to win large manufacturing contracts from
leading global datacom, telecom and networking OEMs. We believe that these
customers will provide us with substantial growth opportunities due to their
significant rate of organic growth and their increased utilization of
outsourced manufacturing services. Our customers include industry leaders such
as Alcatel, Applied Materials, Cisco, Compaq, Dell, EMC, Ericsson, Fujitsu,
Hewlett Packard, IBM, Lucent, Marconi, Motorola, NCR, Nokia, Nortel Networks,
and Sun Microsystems. OEMs in the communications segment of the electronics
industry accounted for approximately 25% of our net sales for the six months
ended February 29, 2000, with sales to computing OEMs accounting for
approximately 40% of net sales.
Since September 1996, we have completed 17 acquisitions of EMS companies.
These acquisitions have allowed us to strengthen our product and service
offering, establish our leading global capabilities and diversify our customer
base. The acquisition of Vero Group plc in June 1998 provided us with a strong
base of operations in the European enclosures market and significant
engineering and test capabilities, as well as entry into the power supply
market. Our July 1998 merger with ZERO Corporation enabled us to increase the
scale of our North American enclosure operations, while also providing a
leading position in the thermal management market. The acquisition of Rubicon
plc in September 1998 expanded our presence in Ireland and Scotland for
integrated custom enclosures. In addition, we have completed 14 niche
acquisitions that have provided access to new customers and additional
geographic coverage. We intend to continue to selectively pursue strategic
acquisition opportunities, particularly when these opportunities have the
potential to enable us to access new customers, technologies or geographic
markets or to continue to implement our vertical integration strategy.
EMS Industry Overview
The EMS industry is comprised of companies that provide a range of
manufacturing services to OEMs in the electronics industry. The EMS industry
has experienced rapid growth in recent years, fueled by the expansion of the
overall electronics industry and increased outsourcing of manufacturing and
related functions by electronics OEMs. Industry sources forecast that the EMS
industry will grow annually at approximately 20% each year through 2003, with
total industry revenue projected to be approximately $150 billion by 2003. The
great majority of the existing EMS industry is based around populating printed
circuit boards and assembling these boards into finished products such as
personal computers, mobile telephones or into subracks for subsequent
integration into larger, more complex products. While subject to the same
market dynamics, APW Ltd. is not a "board" company; rather it competes in the
electro-mechanical, low to medium volume, larger product part of the EMS
industry. This is a new emerging segment of EMS in which APW Ltd. is the
leader. Examples of such larger, lower-volume products are wireless base
stations, servers, high-end memory wireline switching equipment, larger
lithographic equipment and kiosks.
EMS Industry Demand
(U.S. Dollars in Billions)
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
60.0 73.2 87.7 105.5 125.5 149.4
</TABLE>
--------
20% Compound annual growth rate.
Years 1999-2003 are estimated.
Source: Technology Forecasters, Inc.
Electronic OEMs have increasingly outsourced manufacturing and other
related functions to EMS companies in order to focus their own resources on
core competencies, while leveraging the expertise of EMS providers in design,
procurement, assembly and test operations and supply chain management. As this
trend has
22
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developed, many EMS providers have established strong strategic relationships
with many of their OEM customers. Additionally, OEMs have sold manufacturing
operations to EMS providers with demonstrated expertise in generating
manufacturing efficiencies. Key benefits driving OEMs to favor outsourcing to
EMS providers include:
. Accelerated Time-to-Market and Decreased Time-to-Volume
.Reduced Operating Costs and Capital Requirements
.Focused Resources on Core Competencies
.Greater Access to Leading Design and Manufacturing Technologies
.Abitity to Leverage EMS Companies' Logistics Expertise
.Improved Inventory Management
We believe the fast-growing communications and computing equipment
industries represent large and attractive markets for EMS providers. The more-
established telecommunication OEMs began to outsource their manufacturing
operations relatively recently and are increasingly utilizing EMS providers
for product design and manufacturing. Other, newer OEMs have never
manufactured in-house and have always used EMS companies. We believe the
communications and computing industries have excellent growth characteristics,
driven by accelerating product development cycles and the demand for network
infrastructure expansion to handle greater voice and data traffic related to
the Internet and the enhanced functionality of mobile telephones.
We believe that OEMs will continue to outsource more complex products and
services, and will tend to favor large, global EMS providers that can
demonstrate an advantage in terms of scale, geographic reach, technology and
quality. We believe that the key success factors for EMS providers seeking to
establish and expand relationships with leading OEMs include:
. Global Presence
.Global Supply Chain Management Skills
.Sophisticated Technological Capabilities
.Broad Product and Service Offering
.Large-Scale and Flexible Production Capacity
We believe that larger EMS providers that possess the foregoing attributes
are well positioned to take advantage of the growth in the EMS industry.
Conversely, we believe that smaller providers who seek to serve leading OEM's
are disadvantaged due to lack of scale and difficulty in meeting demanding OEM
requirements.
The EMS industry has experienced significant acquisition activity in recent
years. Consolidation has occurred both through the sale of OEM manufacturing
operations to EMS providers and through acquisition activity among EMS
businesses themselves. Larger EMS companies are well positioned to lead
consolidation in the industry, as OEMs have tended to sell manufacturing
operations to larger EMS providers that possess the capital, management
expertise and advanced systems required to effectively acquire and integrate
the acquired businesses. We believe that the EMS industry will continue to
experience significant consolidation, driven by the ongoing trend among OEMs
to outsource large-volume programs to the leading EMS providers, the continued
disposition of OEM manufacturing assets to these companies, and acquisition
activity among EMS businesses themselves.
APW Ltd. Business Strategy
Our goal is to continue to be a leading vertically integrated electronic
enclosures systems supplier in the world, providing total EMS solutions to
leading OEMs on a global basis. To accomplish this goal, we have developed a
business strategy that includes the following components:
Provide Vertically Integrated Electronic Manufacturing Solutions. We
offer a comprehensive, vertically integrated range of products and services
to our electronics OEM customers, which can range from metal
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fabrication through fabrication, assembly, installation of all components,
testing, and shipping. Vertical integration is driven by engineering and
technical competence rather than manufacturing capability. Our ability to
engineer and manufacture as well as source a broad portfolio of metal and
plastic enclosures, thermal management systems, backplanes, power supplies,
wire harnesses and cable assemblies allows us to shorten our customers'
product development cycles and to lower their total cost. In addition, our
vertical integration provides us with greater control over quality,
delivery and cost, enabling us to offer our customers a complete EMS
solution. Through our integrated engineering and manufacturing
capabilities, we provide our customers with a broad range of value-added
services, including complete system design, manufacturing, supply chain
management, full system integration, assembly and test. We believe our
emphasis on being a full-solution partner to our customers is a competitive
advantage.
Build and Expand Relationships with Communications and Computing OEMs.
We are focused on continuing to develop strategic relationships with
leading OEMs in the communications and computing industries. OEMs in these
markets are experiencing tremendous growth due to rapid technological
advances and increasing global demand for more sophisticated products and
services. They are also increasing the volume of their outsourced
manufacturing in order to meet the accelerating time-to-market and time-to-
volume requirements of their customers. Our vertically integrated
manufacturing capabilities provide total solutions to these customers on a
global basis. We believe that we can become an integral part of our
customers' operations by working closely with them throughout the design,
manufacturing and distribution process. Our world class manufacturing
capabilities allow our customers to accelerate time-to-market, decrease
time-to-volume, reduce costs, and improve their supply chains. We currently
have established relationships with leading OEMs such as Cisco, Ericsson,
Fujitsu, Lucent, Marconi, Motorola, Nokia and Nortel Networks in
communications and Compaq, EMC, Hewlett Packard, IBM and Sun Microsystems
in computing.
Continue to Build Global Capabilities. We have established an extensive
global network of manufacturing facilities to service our customers'
requirements on a worldwide basis. We have a significant presence in
Europe, which contributes over 40% of our net sales. We currently maintain
facilities in the United States, Canada, England, Scotland, Ireland,
Germany, Denmark, Italy, France, India and China. By strategically locating
our facilities close to our customers' end markets, we are better able to
serve our customers' worldwide manufacturing requirements, reduce
transportation costs, meet local content requirements and reduce time-to-
market. We intend to continue to expand globally through organic growth and
acquisitions. We are making significant investments in personnel, hardware
and software directed at standardizing our business systems and
manufacturing practices, and providing for real-time communications from
our customers to all our plants and to our suppliers' plants.
Selectively Pursue Strategic Acquisitions. During the 1990s we built a
leading global integrated electronics enclosure systems company through
internal growth and the completion of 17 acquisitions of EMS companies. We
plan to continue to grow through strategic acquisitions in order to further
develop strategic relationships with leading OEMs, expand our capacity,
diversify into new market sectors, broaden our service offerings and
optimize our global capabilities. In addition to acquisitions of EMS
companies, we plan to selectively acquire the manufacturing operations of
our OEM customers, which frequently involves long-term outsourcing
contracts as part of the transaction. As a leading consolidator in the
fragmented electronics enclosure systems market, we believe that we are
well positioned to execute our acquisition strategy.
Continue Efficiency and Productivity Improvements. Our World Class
Performance Program uses JIT inventory practices, Kanban replenishment
systems and Kaizen events to improve quality, efficiency, on-time delivery
and space utilization. "Kaizen" is a Japanese term for continuous
improvement. In a Kaizen event cross functional teams meet to focus on
improving a particular process. Kanban refers to certain inventory
replenishment practices which minimize the amount of product brought into
inventory by establishing a delivery schedule with our customers that
brings inventory to their production floor as it is needed. These
enhancements result in better use of manufacturing floor space, lower
24
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inventory levels and reduced working capital requirements. The success of
these efforts can produce cost savings for our customers and enhance our
financial performance. These programs have contributed to a reduction of
primary working capital (defined as accounts receivable plus inventories
less accounts payable) as a percentage of sales from 21% for the fiscal
year ended August 31, 1996, to 15% for the fiscal year ended August 31,
1999. Additionally, APW Ltd.'s e-Resources organization coordinates the
purchasing and sourcing of commodity parts and materials in order to
further reduce costs.
Cultivate Performance Based Culture. Our culture is based on the belief
that people are the key ingredient in successful execution of global
business strategies and the drivers of financial performance. Our team
members participate in a structured compensation system based on
achievement of overall performance targets. Executive compensation is
heavily weighted toward stock ownership, thereby aligning management's
interests with investors' interests in achieving strategic goals.
Our Services and Products
EMS Services
We offer a broad range of value-added services to provide our OEM customers
with an integrated solution for the development, manufacture and distribution
of a product.
New Product Design. New Product Introduction ("NPI") provides a business
process to help the customer achieve a production design that is both cost
effective and enables the customer to produce commercial volumes within a
short time. The NPI process is most effective when the customer uses it at the
concept phase of the product's development cycle. NPI can include technology
selection; design, test and material strategies; best practices design and
development engineering services; and rapid circuit board and system prototype
build services. NPI centers in the United Kingdom and on the East and West
coasts of the United States provide customers with comprehensive and rapid
turnaround prototype development. We work closely with our OEM customers'
development teams from the early stages of product design. Our development
teams design all the electro-mechanical aspects of our customers' products
with a focus on reducing costs and increasing ease of manufacturability. In
addition to fast prototype capability, our NPI centers provide complete in-
house testing, airflow analysis, safety agency approvals, Electro-Magnetic
Interference/Radio Frequency Interference (EMI/RFI) emission compliance, and
testing to ensure shock, vibration, FCC and environmental compliance.
Manufacturing. Our manufacturing operations include hard and soft metal
tooling, plastic injection molded and structural foam parts, tool and die
design and manufacturing, backplane boards, cable assembly and PC board
population in Europe and North America. We manufacture components,
subassemblies and systems both for sale as standard products and for
incorporation into our custom integrated electronics enclosure systems. We
employ just-in-time, flow manufacturing and continuous improvement processes
to reduce costs and shorten lead times. We are committed to maintaining World
Class Performance in our manufacturing operations and employ Kaizen techniques
to continuously identify improvements in our processes.
Supply Chain Management. We provide our customers with extensive
flexibility in materials purchasing and inventory management requirements. We
use a variety of software systems to monitor our operations and facilitate
global inter- and intra-company communication. Our procurement activities are
designed to provide our customers with flexibility in their volume
requirements within established frameworks. We procure materials and
components from vendors who meet our strict standards for timely delivery,
high quality, cost-effectiveness and compliance with our customers' exacting
specifications. Kanban methodologies are utilized to pull inventory through
our facilities and further reduce costs. Strategic purchasing teams work
closely with our suppliers to achieve additional efficiencies.
Assembly and Testing. We provide a wide range of assembly services, from
component assembly (Level 0) to full system integration services (Level 5)
consisting of enclosures with backplanes, power supplies, thermal management
assemblies and active boards completely assembled, wired and fully
functionally tested. Our assembly services allow our customers to rapidly
bring their products to market at reduced costs, utilizing
25
<PAGE>
advanced manufacturing and testing technology. Our engineers continuously
evaluate our ongoing manufacturing and assembly processes and recommend
improvements to reduce costs, improve quality and shorten lead times. We offer
comprehensive in house testing, airflow analysis, safety agency approvals, and
EMI/RFI compliance, as well as shock, vibration, FCC and environmental
compliance. Each enclosure system is subjected to a battery of tests that
verify the performance of every component.
Electro-Mechanical Products
We manufacture a wide range of electro-mechanical components, which are
either combined to produce our integrated electronics enclosure solutions or
sold as standard or modified standard products. Our products include
enclosures, racks, backplanes, thermal management systems, power supplies and
cabling as well as technical furniture and manufacturing assembly and test
equipment. We believe that the combination of our extensive manufacturing
services capabilities coupled with our ability to provide a wide range of high
quality electro-mechanical components provides us a unique competitive
advantage in the EMS industry.
Enclosures. We are the leading global manufacturer of enclosures and racks
for the electronics industry. We have an integrated global network of 29
enclosure manufacturing facilities with operations in the Americas, Europe and
Asia. We believe this manufacturing infrastructure for integrated enclosure
solutions is unequaled in the industry and allows us to better serve the
international needs of our global electronics OEM customers.
Electronic enclosures are steel, aluminum or plastic cabinets that organize
and configure individual electronic components and house, protect and insulate
the entire electronics system. We manufacture a complete range of standard and
custom enclosure products including subracks, racks, indoor and outdoor
cabinets and cases. Our custom enclosure products are developed in
coordination with our customers and typically are incorporated into an
integrated manufacturing solution that includes other APW Ltd. components and
a range of value-added design, manufacturing, assembly and test services.
These custom products are marketed under the APW brand name. Our standard
enclosures are designed for a wide range of electronics applications and are
marketed under the brand name APW Electronic Supplies.
Thermal Management. We manufacture and market thermal management products
under the McLean brand name. Thermal management products cool and protect
vital electronic components housed within an electronic system. These products
are of particular importance in highly complex communications and networking
systems, which generate a high level of heat and require exacting heat
dissipation capabilities. Products include air conditioners, heat exchangers,
filter fan packages, AC and DC motorized impellers, fan assemblies,
centrifugal blowers and packaged blowers.
Backplanes. We manufacture a wide range of standard and custom backplanes
for integration into our electronics enclosure systems. Backplanes are
complex, multi-layered printed circuit boards (a circuit for electronic
apparatus made by depositing conductive material in continuous paths from
terminal to terminal on an insulating surface) that are used in an electronic
system to interconnect various components. Our ability to offer custom
manufactured backplanes to our OEM customers provides us with a competitive
advantage in securing full system assembly contracts. We manufacture boards
for backplanes in the United Kingdom, including boards to VME and compact PCI
(Peripheral Component Interconnect) standards. Peripheral Component
Interconnect refers to a local bus standard developed by Intel Corporation
that is used on most modem PCs and on newer versions of the Macintosh
computer.
Power Supplies. We manufacture a complete range of fault-tolerant power
supplies for electronics systems. Our power supply products range from 20 to
1200 watts with either AC or DC input and single or multiple output. The
majority of our power supplies are developed in cooperation with our customers
to meet their unique power supply requirements.
Markets and Customers
We believe we offer a more comprehensive range of EMS products and services
than our competitors in the electronic enclosures market. We provide
electronic enclosure products such as cases, racks, cabinets,
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backplanes, thermal management systems and power supplies. More importantly,
we offer broad design and engineering expertise to integrate these products
into customized, cost-effective enclosure systems for our customers worldwide.
We sell our products under the APW brand name, while continuing to co-brand
APW with McLean in the thermal management market and with Wright Line in the
technical furniture market. We serve a wide range of principal markets
including the datacom, networking, telecommunication, data storage,
semiconductor equipment, ATM, medical, electronic and manufacturing
industries.
Our customers include a diversified base of electronics OEMs. The following
table lists our ten largest customers and the end products for which we
provide manufacturing services. Our ten largest customers comprised 36% of our
sales in the six months through February 29, 2000, with our largest customer
accounting for only 6% of our sales during that same time period.
<TABLE>
<CAPTION>
Customer Customer Solutions Provided
-------- ---------------------------
<S> <C>
Applied Materials Semiconductor equipment
Compaq High end server products
EMC Various memory products
Hewlett-Packard High end server products
IBM Server and PC products
Lucent Wireless base stations
Marconi Power supplies for wireless base stations
NCR ATM machines
Nortel Networks Wireless base stations
Sun Microsystems High end servers and memory products
</TABLE>
Sources and Availability of Raw Materials
We have strong relationships with a broad range of suppliers. We view the
volume of our procurement as an important competitive advantage as it enhances
our ability to obtain favorable pricing for raw materials using long-term
purchasing contracts. We generally order materials and components only to the
extent necessary to satisfy existing customer orders, and we work with our
suppliers to develop just-in-time supply systems, which reduce inventory
carrying costs. Materials and components we use are readily available in the
open market from a number of local and national suppliers, both in North
America and in Europe, and to date, we have not experienced any significant
shortages of materials.
Patents, Trademarks and Other Intellectual Property
We own a number of United States and foreign patents and trademarks. No
individual patent or trademark is believed to be of sufficient importance that
its termination would have a material adverse effect on our business.
Backlog
Although APW Ltd. obtains firm purchase orders from its customers, OEM
customers typically do not make firm orders for delivery of products more than
30 to 90 days in advance. APW Ltd. does not believe that the backlog of
expected product sales covered by firm purchase orders is a meaningful measure
of future sales, since orders may be rescheduled or canceled.
Competition
The EMS industry is growing rapidly and is extremely competitive. While APW
Ltd. enjoys a leading position today in the area of the EMS market in which it
competes, we expect that other companies will try to
27
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replicate our strategy. In the short term, APW Ltd. believes that the demand
for our services exceeds supply. However, in the longer-term, there will be
more direct competition. While price is always important, APW Ltd. believes
that other parameters such as new product design, technical innovation,
quality, and delivery costs are equally or more important. APW Ltd. believes
that its array of capabilities will continue to serve as a competitive
advantage.
Research and Development
APW Ltd. employs over 200 engineers who design new products and make
improvements to existing product lines. Expenditures for APW Ltd. research and
development were $0.9 million, $2.7 million and $5.5 million in fiscal years
1997, 1998 and 1999, respectively. Most of these costs during these periods
were for company-sponsored research and development for standard product
offerings. The larger more complicated products that APW Ltd. competes for
often involve lengthy development programs before they go into production.
Complex integrated systems are typically developed at one of our three NPI
centers. Specific custom products may be developed elsewhere. Our policy is
that customers should pay for the development expenses for new products.
Environmental Compliance
We have facilities in a number of geographic locations that are subject to
a range of environmental laws and regulations. Compliance with these laws has
and will require expenditures on a continuing basis. Predecessors to APW Ltd.
have been identified by the United States Environmental Protection Agency as
"Potentially Responsible Parties" regarding various multi-party Superfund
sites. Potentially responsible parties are jointly and severally liable with
respect to Superfund site remediation liabilities. Any liability in connection
with these sites has been assumed by APW Ltd. Based on our investigations, we
believe that we are a de minimis participant in certain of these sites. As to
one other site, we are a minor participant, and our share of estimated cleanup
costs is not likely to exceed $1.4 million. As to another EPA site where we
are not a de minimis participant, the state has required us to conduct
additional ground water testing at our former manufacturing facility, and we
cannot reasonably estimate the amount of our liability, if any. In addition,
we are also involved in other state cleanup actions for which we believe the
aggregate costs of remediation are adequately reserved for.
We anticipate that environmental costs will be expensed or capitalized
depending on their future economic benefits. Expenditures that have no future
economic value will be expensed. Liabilities will be recorded when
environmental remediation is probable and the costs can be reasonably
estimated. Environmental expenditures over the last three years for APW Ltd.
have not been material. Although the level of future expenditures for
environmental remediation is impossible to determine with any degree of
certainty, in our opinion these costs are not likely to have a material
adverse effect on our financial position, results of operations or cash flows.
Environmental remediation accruals of $2.1 million and $2.8 million were
included in the Combined Balance Sheets for APW Ltd. and its subsidiaries at
August 31, 1998 and 1999, respectively.
Employees and Labor Relations
As of February 29, 2000, we employed approximately 8,100 people on a full-
time equivalent basis. Some of our European employees are represented by
collective bargaining agreements. In addition, 150 employees in North America
are represented by collective bargaining agreements. We have never experienced
a work stoppage or strike, and we believe our relationship with our employees
is good.
Properties
We are truly a global provider to our international customer base with over
40 locations strategically located around the world. We believe the breadth of
our geographic coverage is a key competitive advantage. Our established
footprint will be complemented by future expansion to continue to serve the
global needs of our customers on a local basis. We operate 23 facilities in
North America, aggregating 3.2 million square feet of which 16 of the
properties are leased and the remaining 7 are owned. In Europe, APW Ltd.
operates in 19 facilities totaling 1.5 million square feet of which 15 are
leased and 4 are owned. In addition to our principal
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<PAGE>
manufacturing facilities listed below, we operate a number of other facilities
in Denmark, Finland, Sweden, the United Kingdom and the United States. Our
corporate offices are located in an 18,000 square foot leased space in
Waukesha, Wisconsin and we lease office space in Bermuda.
North America
Austin, Texas Robbinsville, New
Anaheim, California Garland, Texas Jersey
Camarillo, California North Salt Lake, Radford, Virginia
Garden Grove, California Utah Monson,
Grass Valley, California Champlin, Minnesota Massachusetts
Irvine, California Oak Creek, Worcester,
Poway, California Wisconsin Massachusetts
San Jose, California Monon, Indiana Hudson, New
Valencia, California Milton Ontario, Hampshire
Canada
Erie, Pennsylvania
Europe
Eastleigh, England Beith, Scotland Bremen, Germany
Middlesex, England Dundee, Scotland Beauvais, France
Sheffield, England Hamilton, Scotland Cedex, France
Southampton, England Tallaght Dublin, Aarup, Denmark
Totton, England Ireland
Wandsworth London, Galway, Ireland
England Cork, Ireland
Berkhamsted, England
Smethwick West Midlands,
England
Legal Proceedings
APW Ltd. and its subsidiaries are parties to various legal proceedings that
have arisen in the normal course of its business. These legal proceedings
typically include product liability, environmental, labor and patent claims.
APW Ltd. will assume and indemnify API/Actuant with respect to those
proceedings involving the Electronics Businesses, while API/Actuant will
indemnify APW Ltd. with respect to its Industrial Business.
We have recorded reserves for estimated losses based on the specific
circumstances of each case. Such reserves are recorded when it is probable that
a loss has been incurred as of the balance sheet date and the amount of such
loss can be reasonably estimated. In our opinion, the resolution of these
contingencies is not expected to have a material adverse effect on our
financial condition, results of operations or cash flows.
Transactions and Agreements Between APW Ltd. and API/Actuant
In order to effect the Distribution, API/Actuant and APW Ltd. have entered
or will enter into the following agreements:
1. Contribution Agreement, Plan and Agreement of Reorganization and
Distribution
2. General Assignment, Assumption and Agreement regarding Litigation,
Claims, and other Liabilities
3. Transitional Trademark Use and License Agreement
4. Insurance Matters Agreement
8. Bill of Sale and Assumption of Liabilities
9. Employee Benefits and Compensation Agreement
10. Tax Sharing and Indemnification Agreement
11. Interim Administrative Services Agreement
12. Confidentiality and Non Disclosure Agreement
13. Assumption of Applied Power Inc. Debt Obligation
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<PAGE>
These agreements describe the reorganization of Applied Power and define
the ongoing relationship between the parties after the Distribution. Because
these agreements were negotiated while APW Ltd. was a wholly-owned subsidiary,
they are not the result of negotiations between independent parties, although
API/Actuant and APW Ltd. have set pricing terms for interim services believed
to be comparable to what could be achieved through arms-length negotiations.
Following the Distribution, additional or modified agreements, arrangements
and transactions may be entered into and such agreements and transactions will
be determined through arms-length negotiations.
Contribution Agreement
Pursuant to the Contribution Agreement, Plan and Agreement of
Reorganization and Distribution, immediately prior to the spin-off, the assets
and liabilities of the Electronics Business not then owned by APW Ltd. will be
transferred by Applied Power to APW Ltd. Under this agreement API/Actuant will
retain debt equal to four times its twelve month earnings before interest,
taxes, depreciation and amortization (estimated to be approximately $450
million of interest bearing obligations) and APW Ltd. will assume the
remaining debt.
Assignment and Assumption Agreement
Pursuant to the General Assignment and Assumption Agreement regarding
Litigation, Claims and other Liabilities, in general APW Ltd. will assume and
will agree to indemnify API/Actuant and acquire substantially all the
liabilities, litigation and claims arising out of the Electronics Businesses,
including all environmental liabilities. API/Actuant will retain and will
indemnify APW Ltd. against substantially all liabilities, litigation and
claims arising out of its Industrial Business and other items not transferred
to APW Ltd. The indemnification obligations will not entitle the indemnified
party to recover to the extent that such liabilities are covered by proceeds
received from a third party insurer. In circumstances in which the potential
liability of API/Actuant and APW Ltd. is joint, the parties will share
responsibility for such liability on a mutually agreed basis consistent with
the allocation of the business segments.
Transitional Trademark Use and License Agreement
Pursuant to the Transitional Trademark Use and License Agreement, Applied
Power will grant to APW Ltd. certain rights to continue to use, for a limited
period of time and under certain defined circumstances, certain API/Actuant
trademarks and trade dress already inscribed upon APW Ltd.'s existing
inventory of labels, promotional materials, product materials and other
materials relating to APW Ltd.'s existing inventory of products. Also
API/Actuant will grant to APW Ltd. a royalty free, nontransferable,
nonexclusive license to use certain API/Actuant trademarks and certain
products for nine (9) months after the Distribution.
Patent Assignment
In connection with the Distribution, Applied Power will assign to APW Ltd.
and its subsidiaries all rights and title to numerous patents related to the
Electronics Business.
Insurance Matters
An Insurance Matters Agreement will govern the rights and obligations of
API/Actuant and APW Ltd. with respect to various pre-existing contracts
insuring Applied Power and covering risks associated with, or arising out of,
the Electronics Business. The types of policies covered by the Insurance
Agreement include, without limitation, automobile liability, comprehensive and
general liability. This Agreement also establishes certain procedures for
dealing with pending litigation, new litigation and the resolution of disputes
between the parties concerning the Insurance Matters Agreement.
Employee Benefit and Compensation Matters
An Employee Benefits and Compensation Agreement will govern the rights and
obligations of API/Actuant and APW Ltd. with respect to various matters and
obligations concerning employee benefits of the former
30
<PAGE>
Applied Power employees who will become employees of APW Ltd. or its
subsidiaries as of the Distribution Date. The Benefits Agreement will cover
APW Ltd.'s assumption of certain compensation and benefit obligations relative
to APW Ltd.'s employees. The Benefits Agreement will also transfer assets and
liabilities under Applied Power's 401(k) plan for certain employees to APW
Ltd.'s 401(k) plan. Pursuant to the Benefits Agreement, APW Ltd. will assume
responsibility for certain benefits previously offered by Applied Power to its
employees prior to the Distribution who become employed by APW Ltd. and will
receive funds from Applied Power for disbursement to such employees for
compensation and certain employee benefits earned prior to the Distribution.
Tax Indemnification Agreement
The Tax Sharing and Indemnification Agreement (the "Tax Indemnification
Agreement") will govern the allocation of certain tax responsibilities between
API/Actuant and its subsidiaries on the one hand and APW Ltd. and its
subsidiaries on the other hand after the Distribution. Except for
Reorganization Taxes (for which APW Ltd. is responsible), API/Actuant will
assume and pay, and will indemnify and hold harmless APW Ltd. and its
subsidiaries from and against, all income taxes based upon income required to
be shown in Applied Power consolidated income tax returns for the taxable year
in which the Distribution occurs and all prior taxable years. In the event of
an audit of Applied Power's consolidated income tax returns for the taxable
year in which the Distribution occurs or any prior taxable year, APW Ltd.
assumes and will indemnify and hold harmless API/Actuant and its subsidiaries
after the Distribution from all income taxes (other than Reorganization Taxes)
in excess of $1,000,000 resulting from a final determination of tax liability
based upon adjustments to the separate taxable income of APW Ltd. and its
subsidiaries.
Confidentiality Agreement
As of the Distribution Date, APW Ltd. and API/Actuant will enter into a
Confidentiality and Nondisclosure Agreement whereby, subject to certain
exceptions, each party will agree to treat as confidential and not disclose
certain proprietary and other confidential information belonging to the other
company.
Interim Administrative Services Agreement
As of the Distribution Date, API/Actuant and APW Ltd. (through a U.S.
subsidiary of APW Ltd.) will enter into an Interim Administrative Services
Agreement. This agreement will govern the administrative and financial
services that API/Actuant will continue to provide to APW Ltd. on an interim
basis and those which APW Ltd. will provide to API/Actuant. In general, APW
Ltd. will provide certain financial services, human resource services and
information system services for a period of six months to one year. The
Interim Administrative Services Agreement will also provide for certain
financial support, technical support, and staff support services for six
months to one year. Each party will compensate the other parties at negotiated
amounts which, APW Ltd. believes, will be comparable to rates APW Ltd. could
have achieved through arm's-length negotiations and approximate current
intercompany allocations.
FINANCING
Arrangements Related to the Distribution
APW Ltd.'s financing requirements have historically been met by Applied
Power. APW Ltd. is presently in discussions with several lenders to arrange
its own credit facilities prior to the Distribution. APW Ltd. believes that
these credit facilities, along with the cash flow from operations, will be
adequate to fund its debt service, capital expenditure and working capital
requirements. As of the date of this Information Statement, APW Ltd. has not
completed all of the negotiations to enter into its credit facility. Based
upon a commitment letter and drafts of the credit facilities being finalized,
APW Ltd. believes the credit arrangements will contain financial and other
covenants and provisions not more limiting or prohibitive than the current
Applied Power facility. We expect that APW Ltd.'s board will approve the terms
of a credit facility at a meeting after the date of this Information Statement
and prior to the Record Date.
31
<PAGE>
Refinancing of Senior Subordinated Notes
In connection with the reorganization and Distribution, Applied Power
anticipates that it will repurchase the outstanding 8.75% Senior Subordinated
Notes due 2009 (the "Notes") immediately prior to the Distribution Date. The
aggregate principal amount of the Notes outstanding as of February 29, 2000,
was $200.0 million. In addition, Applied Power anticipates issuing new notes
(the "Offering") immediately prior to the Distribution Date concurrently with
obtaining a new credit facility at API/Actuant (the "New API/Actuant Credit
Facility"), proceeds from which, if the Offering and New API/Actuant Credit
Facility are successfully completed, would be used in part to finance the
repurchase of the Notes and for general corporate purposes.
32
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited historical capitalization of
APW Ltd. and its subsidiaries as of February 29, 2000, and unaudited pro forma
capitalization of APW Ltd. and its subsidiaries as of February 29, 2000 after
giving effect to the Distribution and the debt realignment as discussed in the
Unaudited Pro Forma Combined Financial Statements. The pro forma information
may not reflect the capitalization of APW Ltd. in the future or as it would
have been had APW Ltd. been a stand-alone company on February 29, 2000. This
table should be read in conjunction with the Combined Financial Statements of
APW Ltd. and its subsidiaries and related notes, the Unaudited Pro Forma
Combined Financial Statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations, each contained elsewhere in
this Information Statement.
<TABLE>
<CAPTION>
February 29, 2000
-----------------
Pro
Historical Forma
---------- ------
(in millions)
<S> <C> <C>
Short-term debt:
Allocated from Applied Power (1).................... $ 5.9 $ --
Borrowings under new APW Ltd. credit facility (2)
(3)................................................ -- 5.9
Long-term debt:
Allocated from Applied Power (1).................... 632.9 --
Borrowings under new APW Ltd. credit facility (2)
(3)................................................ -- 241.0
Pound Sterling credit agreement..................... 14.7 14.7
Other............................................... 27.3 27.3
------ ------
Total debt........................................ 680.8 288.9
------ ------
Common stock (2) (4).................................. -- 0.4
Share premium (2) (4)................................. -- 636.9
Accumulated other comprehensive income................ (8.8) (8.8)
Combined equity (4) (5)............................... 245.4 --
------ ------
Total equity...................................... 236.6 628.5
------ ------
Total capitalization.............................. $917.4 $917.4
====== ======
Debt to total capitalization.......................... 74% 31%
</TABLE>
--------
(1) Applied Power's historical practice has been to incur indebtedness for its
consolidated businesses at the parent company level or at a limited number
of subsidiaries, rather than at the operating company level, and to
centrally manage various cash functions. Accordingly, historical amounts
include debt and related interest expense allocated to APW Ltd. from
Applied Power based on the portion of Applied Power's investment in APW
Ltd. which is deemed to be debt. This allocation is generally based upon a
cash flow model which details the historical uses of debt proceeds by APW
Ltd. and the deemed debt repayments by APW Ltd. based on free cash flow.
Management believes that the allocation of corporate debt and related
interest expense for the historical periods is reasonable. This historical
allocation, however, is not indicative of the total amount of debt that
APW Ltd. will have upon completion of Applied Power's realignment of its
consolidated debt before the Distribution. See Unaudited Pro Forma
Combined Financial Statements of APW Ltd. for further discussion of APW
Ltd. debt levels after the Distribution.
(2) The Pro forma adjustment to debt and equity reflects the change in
allocated debt from Applied Power to APW Ltd. that is a result of the debt
realignment. The debt realignment contemplates allocating to APW Ltd. the
remaining Applied Power debt balance outstanding after payment of costs
associated with the Distribution, including transaction costs, estimated
federal taxes from the reorganization and expenses in connection with
redeeming the outstanding Applied Power subordinated notes the receipt of
proceeds from the anticipated divestiture of Air Cargo Equipment Company
and Barry Wright Corporation (both included in Applied Power's Industrial
Business), the completion of sale-leaseback transactions and the
additional allocation of $392 million of debt to API/Actuant.
33
<PAGE>
(3) APW Ltd. is in the process of arranging a multi-currency revolving credit
facility with a group of banks. The credit facility will be used to
support working capital requirements and for other general corporate
purposes when APW Ltd. becomes a stand-alone company.
(4) The Distribution is reflected as the elimination of Applied Power's net
investment in APW Ltd. and the issuance of an estimated 39.1 million
shares of APW Ltd. common stock, par value $0.01 per share. This is based
on the number of shares of Applied Power common stock outstanding on
February 29, 2000 and the distribution ratio of one share of APW Ltd.
common stock for every one share of Applied Power common stock issued and
outstanding.
(5) The "Combined equity" caption represents Applied Power's cumulative net
investment in the combined businesses of APW Ltd. and its subsidiaries.
Changes in the "Combined equity" caption represent the net income (loss)
of APW Ltd. and its subsidiaries, net cash and noncash contributions from
(distributions to) Applied Power, changes in allocated corporate debt and
allocated corporate interest, net of tax. See the accompanying Combined
Statements of Equity and Comprehensive Income for an analysis of the
activity in the "Combined equity" caption for the three years ended August
31, 1999 and the six months ended February 29, 2000.
34
<PAGE>
APW LTD.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined statements of earnings and
unaudited pro forma combined balance sheet present the combined results of APW
Ltd. and its subsidiaries and its financial position, assuming that the
transactions contemplated by the Distribution had been completed as of
September 1, 1998 for statement of earnings purposes and as of February 29,
2000 for balance sheet purposes.
The unaudited pro forma information has been prepared utilizing the
historical combined financial statements of APW Ltd. and its subsidiaries. You
should read this information in conjunction with the historical combined
financial statements and related notes thereto included elsewhere in this
Information Statement. We have included the unaudited pro forma financial data
as required by the rules and regulations of the SEC and, as such, it is for
comparative purposes only. The unaudited pro forma financial data does not
purport to be indicative of the results of APW Ltd. and its subsidiaries in
the future or what the financial position and results of operations would have
been had APW Ltd. been a separate, stand-alone entity during the periods
shown.
APW LTD.
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended February 29,
2000
-------------------------------------
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Net sales................................ $566,216 $ -- $566,216
Cost of products sold.................... 416,517 -- 416,517
-------- ------- --------
Gross profit........................... 149,699 -- 149,699
Engineering, selling and administrative
expenses................................ 91,859 2,314 (1) 94,173
Amortization of intangible assets........ 11,842 -- 11,842
Corporate reorganization expenses........ 2,162 (2,162)(2) --
-------- ------- --------
Operating earnings..................... 43,836 (152) 43,684
Other expense (income)...................
Net financing costs.................... 23,567 (9,665)(3)(4) 13,902
Other--net............................. 1,353 -- 1,353
-------- ------- --------
Earnings before income tax expense....... 18,916 9,513 28,429
Income tax expense....................... 7,972 557 (5) 8,529
-------- ------- --------
Net earnings before extraordinary item... 10,944 8,956 19,900
Extraordinary loss on early retirement of
debt, net of income tax benefit of
$1,250.................................. (2,083) 2,083 (6) --
-------- ------- --------
Net earnings............................. $ 8,861 $11,039 $ 19,900
======== ======= ========
Basic and Diluted Earnings per Share: (9)
Earnings per Share--before
extraordinary items................... $ 0.28 $ 0.23 $ 0.51
Extraordinary loss net of tax.......... (0.05) 0.05 --
-------- ------- --------
Earnings per Share..................... $ 0.23 $ 0.28 $ 0.51
======== ======= ========
Weighted Average Common Shares
Outstanding (000's)................... 39,023 39,023 39,023
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements
35
<PAGE>
APW LTD.
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended August 31, 1999
------------------------------------
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ----------
<S> <C> <C> <C>
Net sales................................ $1,055,338 $ -- $1,055,338
Cost of products sold.................... 763,585 -- 763,585
---------- ------- ----------
Gross profit........................... 291,753 -- 291,753
Engineering, selling and administrative
expenses................................ 187,991 4,623 (1) 192,614
Amortization of intangible assets........ 20,876 -- 20,876
---------- ------- ----------
Operating earnings..................... 82,886 (4,623) 78,263
Other expense (income)
Net financing costs.................... 52,857 (25,269)(3) 27,588
Other--net............................. (1,786) -- (1,786)
---------- ------- ----------
Earnings before income tax expense....... 31,815 20,646 52,461
Income tax expense....................... 11,390 4,348 (5) 15,738
---------- ------- ----------
Net earnings............................. $ 20,425 $16,298 $ 36,723
========== ======= ==========
Basic and Diluted Earnings per Share: (9)
Earnings per Share..................... $ 0.53 $ 0.42 $ 0.95
========== ======= ==========
Weighted Average Common Shares
Outstanding (000's)................... 38,825 38,825 38,825
========== ======= ==========
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements
36
<PAGE>
APW LTD.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(Dollars in Thousands)
<TABLE>
<CAPTION>
February 29, 2000
-------------------------------------
Pro Forma
ASSETS Historical Adjustments Pro Forma
------ ---------- ----------- ----------
<S> <C> <C> <C>
Current assets
Cash and cash equivalents............. $ 250 $ -- $ 250
Accounts receivable, net.............. 98,656 -- 98,656
Inventories, net...................... 130,599 -- 130,599
Prepaid expenses...................... 10,482 -- 10,482
Deferred income taxes................. 7,517 -- 7,517
---------- --------- ----------
Total current assets................ 247,504 -- 247,504
Property, plant and equipment........... 371,591 -- 371,591
Less: accumulated depreciation (176,744) -- (176,744)
---------- --------- ----------
Net property, plant and equipment... 194,847 -- 194,847
Goodwill, net of accumulated
amortization........................... 682,612 -- 682,612
Other intangibles, net of accumulated
amortization........................... 11,154 -- 11,154
Other assets............................ 48,385 -- 48,385
---------- --------- ----------
Total assets........................ $1,184,502 $ -- $1,184,502
========== ========= ==========
<CAPTION>
LIABILITIES AND EQUITY
----------------------
<S> <C> <C> <C>
Current liabilities.....................
Short-term borrowings................. $ 5,904 $ -- $ 5,904
Trade accounts payable................ 102,840 -- 102,840
Accrued compensation and benefits..... 24,449 -- 24,449
Income taxes payable.................. 38,108 -- 38,108
Other current liabilities............. 49,036 -- 49,036
---------- --------- ----------
Total current liabilities........... 220,337 -- 220,337
Long-term debt.......................... 674,885 (391,858)(7) 283,027
Deferred income taxes................... 8,149 -- 8,149
Other deferred liabilities.............. 44,476 -- 44,476
Equity
Common stock.......................... -- 391 (7) 391
Share premium......................... -- 636,912 (7) 636,912
Combined equity (8)................... 245,445 (245,445)(7) --
Accumulated other comprehensive
income............................... (8,790) -- (8,790)
---------- --------- ----------
Total equity........................ 236,655 391,858 628,513
---------- --------- ----------
Total liabilities and equity........ $1,184,502 $ -- $1,184,502
========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements
37
<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(1) Pro forma adjustments to engineering, selling and administrative expenses
of $2.3 million for the six months ended February 29, 2000 and $4.6
million for the twelve months ended August 31, 1999 represent the
incremental costs that would have been incurred by APW Ltd. for general
corporate expenses if the transaction discussed in the Distribution would
have occurred on September 1, 1998, the beginning of fiscal 1999. For the
six months ended February 29, 2000 and twelve months ended August 31,
1999, the aggregate total of Pro Forma general corporate expenses in these
Pro Forma financial statements is $6.0 million and $12.0 million,
respectively. These amounts reflect an estimate of the net incremental
selling, administrative and other expenses associated with APW Ltd.
operating as a stand-alone company. This estimate mainly represents
additional costs for personnel and purchased services such as information
technology, human resource administration, legal and corporate
communications as well as incremental insurance and risk management costs.
Although this adjustment is based upon available information and
assumptions that management believes are reasonable, APW Ltd. may incur
greater than expected selling, administrative and other expenses in
connection with operating a stand-alone company.
(2) Pro forma adjustment reflects the exclusion of APW Ltd.'s allocated
portion of a one-time charge incurred by Applied Power associated with the
transaction discussed in the Distribution. These pro forma statements of
earnings reflect the transaction discussed in the Distribution as having
taken place at September 1, 1998 and as such, the charge is excluded given
that these corporate reorganization expenses would have been incurred by
APW Ltd. before the Distribution.
(3) Pro forma adjustment reflects an adjustment to net financing costs based
on the debt realignment anticipated with the transaction. The debt
realignment contemplates allocating APW Ltd. the remaining Applied Power
debt balance outstanding after payment of costs associated with the
Distribution, including transaction costs, estimated federal taxes from
the reorganization and expenses in connection with redeeming the
outstanding Applied Power subordinated notes the receipt of proceeds from
the anticipated divestiture of Air Cargo Equipment Company and Barry
Wright Corporation (both included in Applied Power's Industrial Business)
the completion of sale-leaseback transactions and the additional
allocation of $392 million in debt to API/Actuant. The pro forma
adjustment is a result of APW Ltd.'s lower anticipated indebtedness and
subsequent lower financing costs as a result of the debt realignment. Net
financing costs have been calculated using a 7.75% annual interest rate
both for the twelve months ending August 31, 1999 and the six months
ending February 29, 2000. This weighted average interest rate is based on
interest rates for various types of interest bearing obligations that APW
Ltd. expects to enter into. A 0.25% change in the annual interest rate
would result in a $0.5 million and a $0.7 million change in the pro forma
net financing costs for the six months ended February 29, 2000 and the
twelve months ended August 31, 1999, respectively.
(4) Pro forma adjustment represents the reversal of APW Ltd.'s allocated
portion of net gain associated with the unwinding of interest rate swap
agreements by Applied Power in conjunction with final debt payments. The
unwinding of the swaps and recording of the resulting gain was initiated
by Applied Power in anticipation of the transaction discussed in the
Distribution. These pro forma statements of earnings reflect the results
of APW Ltd. as if the transaction occurred at September 1, 1998 and, as
such, the swap gains are appropriately excluded given that this gain would
have been incurred by APW Ltd. before the Distribution.
(5) Pro forma adjustment to income tax expense represents the anticipated
lower effective tax rate of 30% (versus the historical effective tax rates
of 42.1% and 35.8% for the six months ended February 29, 2000 and the year
ended August 31, 1999, respectively) on the higher pro forma pre-tax
earnings that APW Ltd. will be subject to after its incorporation in
Bermuda, as discussed in the Distribution.
(6) The pro forma adjustment represents the exclusion of the extraordinary
loss on the early retirement of debt that was recorded during the six
months ended February 29, 2000, which was incurred in anticipation of the
transaction. The Pro Forma Combined Statement of Earnings presents the
results of APW Ltd. as if the
38
<PAGE>
transaction discussed in the Distribution had occurred on September 1,
1998. Because the extraordinary loss was incurred by APW Ltd. before the
Distribution, the pro forma results should exclude this loss.
(7) The pro forma adjustment to debt and equity reflects the change in
allocated debt from Applied Power to APW Ltd. that is a result of the debt
realignment discussed in Note (3) above. In addition, the pro forma
adjustment reflects the Distribution as the elimination of Applied Power's
net investment in APW Ltd. and the issuance of an estimated 39.1 million
share of APW Ltd. common stock.
(8) The "Combined equity" caption in the Pro Forma Combined Balance Sheet
represents Applied Power's cumulative net investment in the combined
business of APW Ltd. Changes in the "Combined equity" caption represent
the net income (loss) of APW Ltd., net cash and noncash contributions from
(distributions to) Applied Power, changes in allocated corporate debt and
allocated corporate interest, net of tax.
(9) Basic and diluted shares used to calculate earnings per share are the same
as the historical Applied Power Inc. basic shares outstanding. We have
used Applied Power Inc. basic shares outstanding for the following
reasons: (i) upon the Distribution, each shareholder of Applied Power Inc.
will receive an equivalent number of APW Ltd. shares; (ii) there are no
common stock equivalents of APW Ltd. as of the date of this filing; (iii)
we are unable to estimate the impact of converting Applied Power Inc.
common stock equivalents into APW Ltd. common stock equivalents because it
will depend upon the market price of both the equities of APW Ltd. and
API/Actuant after the distribution, each of which could vary
significantly.
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion of the financial condition and results of
operations of APW Ltd. and its subsidiaries should be read in conjunction with
the accompanying Combined Financial Statements of APW Ltd. and its
subsidiaries, and related notes thereto, included in this Information
Statement. The Combined Financial Statements of APW Ltd. and its subsidiaries
generally reflect the financial position, results of operations and cash flows
of the operations expected to be transferred to APW Ltd. from Applied Power in
connection with the Distribution. Accordingly, APW Ltd.'s Combined Financial
Statements have been carved out from the consolidated financial statements of
Applied Power using the historical results of operations and historical basis
of the assets and liabilities of APW Ltd.'s businesses and the allocation
methodology described under "Allocations" below. Management believes the
assumptions underlying APW Ltd.'s financial statements are reasonable.
Overview
On January 27, 2000, Applied Power's board of directors authorized various
actions intended to put Applied Power in a position to distribute its
Electronics Business segment (APW Ltd.) to its shareholders. In the
Distribution, Applied Power shareholders will receive one share of APW Ltd.
common stock for each share of Applied Power common stock held in the form of
a special dividend, and APW Ltd. will become a separately traded, publicly
held company. As part of the Distribution, APW Ltd. will be converted to a
Bermuda corporation. The Distribution should be tax-free to Applied Power
shareholders.
APW Ltd. is a leading global electronic manufacturing services (EMS)
provider focused on the rapidly growing integrated electronic enclosure
systems market. Operating in over 50 locations throughout North America,
Europe and Asia, APW Ltd. supplies a broad range of individual components and
integrated manufacturing services to OEM's primarily in the datacom,
networking, computing and telecommunications markets. APW Ltd. provides a
comprehensive portfolio of electronic products, including electronic
enclosures, power supplies, thermal management systems, backplanes and
cabling, either as individual standard products, or as integrated custom
systems. In addition, APW Ltd. provides a wide range of integrated design,
manufacturing and logistics services to their customers, including product
design, supply chain management, manufacturing, assembly, testing and drop-
shipping capabilities.
Since September 1996, APW Ltd. has completed 17 acquisitions of EMS
companies. These acquisitions have allowed APW Ltd. and its subsidiaries to
strengthen their product and service offering, establish their leading global
capabilities and diversify their customer base. Through these acquisitions and
internal growth, APW Ltd. has established a leading global position in the
integrated enclosure systems segment of the EMS industry.
APW Ltd.'s customers include industry leaders such as Applied Materials,
Cisco, Compaq, Dell, EMC, Ericsson, Fujitsu, Hewlett Packard, IBM, Lucent,
Motorola, NCR, Nortel Networks and Sun Microsystems. APW Ltd. believes that
these customers provide substantial growth opportunities due to their
significant rate of organic growth and their increased utilization of
outsourced manufacturing services.
Business Combinations
Six Months Ended February 29, 2000
On January 28, 2000, APW Ltd., through a wholly-owned subsidiary, acquired
all of the outstanding stock of Metalade of Pennsylvania, Inc. ("Metalade").
Metalade specializes in metal fabrication relating to electronic enclosures.
The purchase price of the acquisition totaled $8.7 million, including fees and
expenses, plus future consideration not to exceed $5.0 million based on future
achieved sales levels. The acquisition was funded by borrowings under current
Applied Power credit facilities. The acquisition has been accounted for using
the purchase method and the results of operations of Metalade have been
included in the Combined Statements of Earnings from the acquisition date.
Preliminary allocations of the purchase price resulted in approximately $6.7
million of goodwill.
40
<PAGE>
Fiscal 1999
On September 29, 1998, APW Ltd., through its wholly-owned subsidiary, APW
Enclosure Systems Limited, accepted for payment all shares of Rubicon Group
plc ("Rubicon") common stock which had been tendered pursuant to the APW
Enclosure Systems Limited tender offer for all outstanding shares of common
stock at 2.35 pounds sterling per share and all outstanding shares of
cumulative preferred stock at 0.50 pounds sterling per share, which
constituted control. Subsequently the remaining outstanding common shares were
acquired. Rubicon is a leading provider of electronic manufacturing services
and engineered magnetic solutions to major OEMs in the information technology
and telecommunication industries. The acquisition was recorded using the
purchase method of accounting. Consideration for the transaction totaled
approximately $371.5 million, including related fees and expenses, with the
purchase price resulting in $340.6 million of goodwill. Funds for the
acquisition were provided through Applied Power's revolving credit facility.
In June 1999, APW Ltd., through a wholly-owned subsidiary, acquired all of
the outstanding stock of Innovative Metal Fabrication, Inc. ("Innovative").
Innovative designs and manufactures technical environments used in electronic
assembly operations, as well as electronic gaming enclosures, in two sites in
Grass Valley, CA and Austin, TX. In May 1999, APW Ltd. also acquired certain
assets of Connector Technology, Inc. ("CTI") of Anaheim, CA. CTI, which
manufactures custom backplanes, was integrated with APW Ltd.'s Electronic
Solutions business unit. The acquisition was recorded using the purchase
method of accounting. The purchase price of the combined Innovative and CTI
acquisitions totaled approximately $13.0 million, including fees and expenses.
The acquisitions were accounted for under the purchase accounting method and
resulted in $7.7 million of goodwill.
Fiscal 1998
On June 5, 1998, Applied Power Limited, a United Kingdom subsidiary of APW
Ltd., accepted for payment all of the VERO Group plc ("VERO") stock tendered,
which totaled over 72% of the outstanding VERO shares, pursuant to Applied
Power Limited's tender offer to acquire the entire issued share capital of
VERO at a price of 192 pence per VERO share (the "Offer"). Applied Power
Limited had previously acquired approximately 10% of VERO's shares, so that
after accepting the shares tendered, Applied Power Limited owned or had
accepted over 82% of VERO's shares. On June 19, 1998, Applied Power Limited
announced that additional shares tendered brought the total of the shares it
owned or had accepted for payment to over 90% of VERO's issued share capital
and that it would invoke Section 429 of the U.K. Companies Act of 1985, as
amended, to acquire the remaining outstanding shares of VERO stock. After the
required procedures were completed, Applied Power Limited owned all of the
issued share capital of VERO. Cash paid for the transaction totaled
approximately $191.7 million. Allocations of the purchase price resulted in
approximately $183.8 million of goodwill. VERO is a United Kingdom based
company that manufactures electronic enclosures, racks, backplanes and power
supplies. The acquisition has been recorded using the purchase method of
accounting. The operating results of VERO subsequent to June 5, 1998 are
included in the Combined Statements of Earnings.
On July 31, 1998, Applied Power completed its merger with ZERO Corporation
("ZERO"), a leading supplier of electrical and electronic system enclosure
products and thermal management products. Approximately 10.6 million shares of
Applied Power common stock were issued in exchange for all outstanding common
stock of ZERO while Applied Power assumed outstanding options to purchase ZERO
common stock that were converted into options to purchase approximately 0.6
million shares of Applied Power's common stock pursuant to the terms of the
merger. The merger has been accounted for as a pooling of interests. As such,
the historical financial results for ZERO's Electronics Businesses have been
included in this Form 10 for all years presented. Prior to the merger, ZERO
had a March 31 fiscal year end. APW Ltd.'s historical results for the year
ended August 31, 1998 have been combined using an August 31 year end for both
ZERO's and Applied Power's Electronics Businesses. For all years preceding the
merger, APW Ltd.'s results of operations and financial position reflect the
combination of ZERO's Electronics Businesses with a March 31 fiscal year end
and Applied Power's Electronics Businesses with an August 31 fiscal year end.
Net sales and net income for ZERO's Electronics Businesses for the period
April 1, 1997 through August 31, 1997 (which results are not included in APW
Ltd.'s historical combined results) were $89.7 million and $7.5 million,
respectively.
41
<PAGE>
In addition to the above transaction, during fiscal year 1998, APW Ltd.
acquired several other businesses to expand its presence within the electronic
enclosures market and to further execute its growth strategy within the EMS
industry. In October 1997, Applied Power acquired all of the outstanding stock
of Versa Technologies Inc.(Versa/tek). Eder Industries, based out of
Milwaukee, Wisconsin, is the sole Electronics Business of Versa/tek to be
included in APW Ltd. or its subsidaries. Substantially all of the assets of
Performance Manufactured Products Inc., located in San Jose, California, and a
related entity ("PMP") were acquired in January 1998. In February 1998, APW
Ltd. acquired AA Manufacturing, Inc. ("AA"), located in Garland, Texas. APW
Ltd. purchased certain assets of Product Technology Inc. ("PTI"), located in
Irvine, California, in May 1998. Premier Industries ("Premier"), located in
Hudson, New Hampshire, was purchased in May 1998. Finally, APW Ltd. purchased
certain assets of Brown Manufacturing Company ("Brown"), located in Austin,
Texas, in June 1998. All of the above acquisitions in aggregate relate to
electronic enclosures manufacturing, assembly, integration and critical
component support such as backplanes, thermal management and power supplies.
Fiscal 1997
During the 1997 fiscal year, APW Ltd. began its aggressive growth strategy
into the electronic enclosures market by acquiring several businesses. Certain
assets of Everest Electronic Equipment, Inc. ("Everest") were acquired on
September 26, 1996. Everest manufactures electronic enclosures and is
headquartered in Anaheim, California. On January 13, 1997, APW Ltd. acquired C
Fab Group Limited ("C Fab"), located in Dublin, Ireland, which also
manufactures electronic enclosures. APW Ltd. purchased certain assets of All-
Round Systemen B.V. ("All-Round") on April 1, 1997. All-Round was a technical
environments distributor based in the Netherlands. Another electronic
equipment business, Hormann Security Systems Limited ("Hormann"), was
purchased on June 5, 1997. Hormann is headquartered in Cork, Ireland.
In all, APW Ltd. has invested approximately $1.1 billion since 1996 to
carry out its electronics acquisition strategy. APW Ltd. intends to continue
this strategy of growth via acquisitions.
For further information regarding these acquisitions, see Note 3--"Merger
and Acquisitions" in Notes to Combined Financial Statements.
42
<PAGE>
Results of Operations
<TABLE>
<CAPTION>
Six Months Six Months
Years Ended August 31, Ended Ended
------------------------- February 28, February 29,
1997 1998(2) 1999 1999 2000(1)
------ ------- ------- ------------ ------------
($ Millions)
<S> <C> <C> <C> <C> <C>
Net Sales................. 375.3 593.2 1,055.3 513.2 566.2
% increase/(decrease)
from prior period...... 58.1% 77.9% 10.3%
Gross Profit.............. 146.7 194.1 291.8 139.9 149.7
% increase/(decrease)
from prior period ..... 32.3% 50.3% 7.0%
Operating Expenses........ 84.8 126.5 188.0 91.4 94.1
% increase/(decrease)
from prior period...... 49.2% 48.6% 3.0%
Amortization of Intangible
Assets 3.0 7.8 20.9 9.7 11.8
% increase/(decrease)
from prior period...... 160.0% 168.0% 21.7%
Operating Earnings 58.8 43.5 82.9 38.7 43.8
% increase/(decrease)
from prior period...... (26.0)% 90.6% 13.2%
Net Financing Costs 9.5 16.6 52.9 23.6 23.6
% increase/(decrease)
from prior period...... 74.7% 218.7% 0.0%
Net Other (Income) Expense (1.3) (8.7) (1.8) (1.3) 1.4
% increase /(decrease)
from prior period...... 569.2% (79.3)% (207.7)%
Earnings Before Income Tax
Expense 50.6 35.5 31.8 16.4 18.9
% increase/(decrease)
from prior period...... (29.8)% (10.4)% 15.2%
Income Tax Expense 18.9 17.2 11.4 5.4 8.0
% increase/(decrease)
from prior period...... (9.0)% (33.7)% 48.1%
Net Earnings 31.7 18.3 20.4 11.0 8.9
% increase/(decrease)
from prior period...... (42.3)% 11.5% (19.0)%
<CAPTION>
Six Months Six Months
Years Ended August 31, Ended Ended
------------------------- February 28, February 29,
1997 1998(2) 1999 1999 2000
------ ------- ------- ------------ ------------
(as a percentage of Net Sales)
<S> <C> <C> <C> <C> <C>
Net Sales................. 100.0% 100.0% 100.0% 100.0% 100.0%
Gross Profit.............. 39.1% 32.7% 27.7% 27.3% 26.4%
Operating Expenses........ 22.6% 21.3% 17.8% 17.8% 16.6%
Amortization of Intangible
Assets................... 0.8% 1.3% 2.0% 1.9% 2.1%
Operating Earnings........ 15.7% 7.3% 7.8% 7.5% 7.7%
Net Financing Costs....... 2.5% 2.8% 5.0% 4.6% 4.2%
Earnings Before Income Tax
Expense.................. 13.5% 6.0% 3.0% 3.2% 3.3%
Income Tax Expense........ 5.0% 2.9% 1.1% 1.1% 1.4%
Net Earnings.............. 8.4% 3.1% 1.9% 2.1% 1.6%
</TABLE>
--------
(1) Excluding two non-recurring items for the six months ended February 29,
2000 that relate to: (i) a $3.3 million make-whole premium ($2.1 million
net of tax benefit) paid for the early retirement of debt which is
recorded as an extraordinary charge, net of tax and (ii) a $2.2 million
allocated charge for costs associated with the Distribution of the
Electronics Business from Applied Power Inc. and incorporating APW Ltd. in
Bermuda, the results of operations for the six months ended February 29,
2000 would have been as follows in millions:
<TABLE>
<S> <C>
. Operating Expenses................................................. $91.9
% increase/(decrease) from prior period............................ 0.6%
as a percentage of Net Sales....................................... 16.2%
. Operating Earnings................................................. $46.0
% increase/(decrease) from prior period............................ 18.9%
as a percentage of Net Sales....................................... 8.1%
. Earnings Before Income Tax Expense................................. $21.1
% increase/(decrease) from prior period............................ 28.7%
as a percentage of Net Sales....................................... 3.7%
</TABLE>
43
<PAGE>
<TABLE>
<S> <C>
. Income Tax Expense................................................. $8.8
% increase/(decrease) from prior period............................ 63.0%
as a percentage of Net Sales....................................... 1.6%
. Net Earnings....................................................... $12.3
% increase/(decrease) from prior period............................ 11.8%
as a percentage of Net Sales....................................... 2.2%
</TABLE>
(2) Excluding allocated non-recurring items related to the ZERO merger, plant
consolidation and product rationalization costs of $27.9 million before
tax, $21.1 million net of applicable income tax as well as an allocated
pre-tax net gain of $6.5 million for gains recognized by ZERO for life
insurance proceeds and a sale of a property, the results of operations for
the twelve months ended August 31, 1999 would have been as follows in
millions:
<TABLE>
<S> <C>
. Gross Profit..................................................... $204.2
% increase/(decrease) from prior period.......................... 39.2%
as a percentage of Net Sales..................................... 34.4%
. Operating Expenses............................................... $125.2
% increase/(decrease) from prior period.......................... 47.6%
as a percentage of Net Sales..................................... 21.1%
. Operating Earnings............................................... $71.3
% increase/(decrease) from prior period.......................... 21.3%
as a percentage of Net Sales..................................... 12.0%
. Net Other (Income) Expense....................................... $(2.2)
% increase/(decrease) from prior period.......................... 69.2%
as a percentage of Net Sales..................................... 0.4%
. Earnings Before Income Tax Expense............................... $56.8
% increase/(decrease) from prior period.......................... 12.3%
as a percentage of Net Sales..................................... 9.6%
. Income Tax Expense............................................... $21.3
% increase/(decrease) from prior period.......................... 12.7%
as a percentage of Net Sales..................................... 3.6%
. Net Earnings..................................................... $35.5
% increase/(decrease) from prior period.......................... 12.0%
as a percentage of Net Sales..................................... 6.0%
</TABLE>
Allocations
Applied Power provides certain general and administrative services to APW
Ltd. including administration, finance, legal, tax, treasury, information
systems, corporate communications and human resources. The amounts allocated
to APW Ltd., excluding one-time items are as follows (in millions):
<TABLE>
<CAPTION>
Years Ended August 31, Six Months Ended February
-------------------------------------------- --------------------------------------------
1997 1998 1999 28, 1999 29, 2000
---- ---- ---- -------- --------
<S> <C> <C> <C> <C>
7.1 9.8 7.4 3.7 3.7
</TABLE>
The cost for these services was allocated to APW Ltd. by Applied Power
based upon a formula that includes sales, operating profit, assets and
headcount. Management of Applied Power believes that the allocation of cost
for these services is reasonable. After the Distribution, APW Ltd. will be
required to perform these general and administrative services using its own
resources or purchased services and will be responsible for the costs and
expenses associated with the management of a public company.
Applied Power's historical practice has been to incur indebtedness for its
consolidated businesses at the parent company level or at a limited number of
subsidiaries, rather than at the operating company level, and to
44
<PAGE>
centrally manage various cash functions. Accordingly, historical amounts for
APW Ltd. include debt and related interest expense allocated from Applied
Power based on the portion of Applied Power's investment in APW Ltd. which is
deemed to be debt. This allocation is generally based upon a cash flow model
which details the historical uses of debt proceeds by APW Ltd. and the deemed
debt repayments by APW Ltd. based on free cash flow. Management believes that
the allocation of corporate debt and related interest expense for the
historical periods is reasonable. This historical allocation, however, is not
indicative of the total amount of debt that APW Ltd. will have upon completion
of Applied Power's realignment of its consolidated debt before the
Distribution. See "Unaudited Pro Forma Combined Financial Statements" of APW
Ltd. for further discussion of APW Ltd. debt levels after the Distribution.
The allocation methodology followed in preparing the combined financial
statements may not necessarily reflect the results of operations, cash flows,
or financial position of APW Ltd. in the future, or what the results would
have been had APW Ltd. been a separate stand-alone public entity for all
periods presented.
The following table displays total Applied Power debt and interest expense
along with APW Ltd.'s allocated share of those items recorded in the
accompanying Combined Financial Statements:
<TABLE>
<CAPTION>
Years Ended August Six Months Six Months
31, Ended Ended
-------------------- February 28, February 29,
1997 1998 1999 1999 2000
------ ------ ------ ------------ ------------
($ millions)
<S> <C> <C> <C> <C> <C>
Applied Power--Total Debt.... $174.6 $512.6 $808.7 $876.4 $795.3
Allocated to APW Ltd....... 119.9 367.8 728.8 715.7 680.8
Applied Power--Net Financing
Costs....................... 16.2 28.5 63.9 29.4 28.4
Allocated to APW Ltd....... 9.5 16.6 52.9 23.6 23.6
</TABLE>
Six Months Ended February 29, 2000 Compared to Six Months Ended February 28,
1999
Net Earnings. Net earnings for the first half of fiscal 2000 were $8.9
million. Excluding one time items recorded in fiscal 2000, net earnings were
$12.3 million, an increase of 12% over the $11.0 million in the prior year
first half. The one-time items in fiscal 2000 relate to (i) a $2.2 million
allocated pre-tax charge, $1.4 million after-tax, related to costs incurred
associated with the Distribution and costs to incorporate APW Ltd. in Bermuda;
and (ii) a $2.1 million after-tax extraordinary charge related to a make-whole
premium paid in connection with the early retirement of the $50.0 million
senior promissory notes due March 8, 2011. The senior promissory notes were
issued by an Electronics entity, therefore, the entire extraordinary charge
was allocated to APW Ltd.
Net Sales. Sales for the six months ended February 29, 2000 were $566.2
million, an increase of 10% over the $513.2 million reported in the comparable
prior year period. Foreign currency translation had a negative effect of $17.6
million, or 3%, on reported fiscal 2000 first half sales versus the first half
of last year. Acquisitions contributed approximately $27.0 million to the
first half of fiscal 2000 sales, which primarily represents an additional
month of sales in fiscal 2000 from fiscal 1999 due to the acquisition of
Rubicon in October 1999. Internal growth contributed to the balance of, and
the majority of the change. Price changes have not had a significant impact on
the comparability of sales for the first half of fiscal 2000 over the first
half of fiscal 1999.
Gross Profit. Fiscal 2000 first half gross profit dollars increased by 7%
over the comparable prior year period from $139.9 million to $149.7 million.
As a percentage of net sales, gross profit declined from 27% in the prior year
first half to 26% in the current year half. As compared to the prior year
period, both the increase in gross profit dollars and the decline in gross
profit as a percentage of sales were a result of lower margin integration
business accounting for a greater percentage of total revenues.
Engineering, Selling and Administrative Expenses. Fiscal 2000 first half
engineering, selling and administrative expenses were $0.4 million or 0.5%
higher than the reported first half of fiscal 1999. ESA
45
<PAGE>
expenses have remained relatively flat despite an additional $3.4 million of
ESA expenses being incurred from businesses acquired since or during the first
half of fiscal 1999, offset almost entirely by initiatives APW Ltd. has put in
place to aggressively manage spending levels across APW Ltd. In total, ESA
expenses were reduced to 16% of net sales for the current year six months
ended compared to 18% for the prior year six months ended. The reduction was
the result of the continued efforts discussed above to manage spending levels
throughout APW Ltd., along with the incremental growth of integration
business, which typically has a lower percentage of ESA expenses to sales.
Historical ESA expenses include an allocation of Applied Power's corporate
general and administrative expenses based upon estimated levels of effort
devoted to APW Ltd. and the relative size of APW Ltd. compared to Applied
Power's total revenues, operating profit, assets and employee headcount.
Management believes that the allocation of Applied Power's corporate general
and administrative expense for the historical periods is reasonable. APW Ltd.
expects that costs for these general corporate type functions will differ
following the Distribution. See "Allocations" above for further discussion of
ESA expenses allocated to APW Ltd. from Applied Power.
Amortization of Intangible Assets. Amortization expense for the first six
months of fiscal 2000 was higher than that reported for the first six months
of fiscal 1999 due to the acquisitions made during and subsequent to the first
half of fiscal 1999, which include Innovative, Metalade and one additional
month of amortization for Rubicon.
Corporate Reorganization Expense. In the second quarter of fiscal 2000,
Applied Power allocated to APW Ltd. $2.2 million of fees and expenses
associated with the Distribution and incorporation of APW Ltd. in Bermuda.
Those fees and expenses represent APW Ltd.'s allocated portion of legal,
accounting, tax and investment banking fees incurred through February 29, 2000
for services related to the transactions.
Operating Earnings. Operating profit margin remained flat for the first
half of fiscal 2000 compared to the first half of fiscal 1999.
Net Financing Costs. For the first six months of fiscal 2000, net financing
costs included a $3.3 million allocated portion of a pre-tax gain related to
the unwinding of interest rate swap agreements in conjunction with final debt
payments. The interest rate swap agreements were unwound by Applied Power in
the second quarter of fiscal 2000 and a portion of the associated gain was
allocated to APW Ltd. Excluding the interest rate swap gains, net financing
costs for the six months ended February 29, 2000 increased over the comparable
prior year period primarily as a result of additional borrowings incurred to
finance acquisitions completed during and subsequent to the first half of
fiscal 1999, coupled with higher interest rates in effect during the current
year period. See "Allocations" above for further discussion of net financing
costs allocated to APW Ltd. from Applied Power.
Income Tax Expense. APW Ltd.'s effective tax rate for the first half of
fiscal 2000 was 42.1%, compared to 32.9% in the first half of fiscal 1999. The
goodwill and subsequent amortization expense recorded as a result of most of
APW Ltd.'s acquisitions is non-deductible for tax purposes. In addition, the
effective tax rate increased between periods due to a change in the mix of
domestic and foreign income. The effective tax rate was higher than the
statutory rate in both periods primarily as a result of state income taxes and
non-deductible amortization of goodwill, offset by net effects of foreign tax
rates and credits.
Management believes that APW Ltd.'s effective tax rate should decrease
significantly once APW Ltd. becomes a Bermuda corporation.
Extraordinary Charge. The fiscal 2000 first half results include a $2.1
million after-tax extraordinary charge related to a make-whole premium paid in
connection with the early retirement of the $50.0 million senior promissory
notes of a business unit of APW Ltd. due March 8, 2011.
46
<PAGE>
Liquidity and Capital Resources
Cash Flows
<TABLE>
<CAPTION>
Six months ended Six months ended
February 28, 1999 February 29, 2000
----------------- -----------------
(in millions)
<S> <C> <C>
Cash Provided By (Used In)
Operating activities..................... $ 4.7 $ 7.3
Investing activities..................... (399.9) (28.6)
Financing activities..................... 396.7 6.2
</TABLE>
Cash and cash equivalents totaled $0.3 million at February 29, 2000 and
$2.9 million at February 28, 1999. In order to minimize net financing costs,
the Company intentionally maintains low cash balances by using available cash
to reduce short-term bank borrowings.
Net cash generated from operations, after considering non-cash items and
changes in operating assets and liabilities, increased between periods due to
a temporary decrease in working capital.
Net cash used in investing activities totaled $28.6 million for the first
half of fiscal 2000. Investing activities included $18.1 million for capital
expenditures and $10.7 million for business acquisitions and investments in
unconsolidated affiliates.
Financing activities in the first six months of fiscal 2000 included $52.3
million of net cash investments by and advances from Applied Power, offset by
$45.3 million of net principal payments on long-term debt, the majority of
which being the $50.0 million of senior promissory notes, due March 8, 2011,
plus the $3.3 million make-whole premium paid for the early retirement of the
promissory notes. In addition, $12.5 million of additional borrowings were
drawn on a United Kingdom revolver.
Capitalization
<TABLE>
<CAPTION>
Percentage of Total
Total Capitalization Capitalization
----------------------- -----------------------
August 31, February 29, August 31, February 29,
1999 2000 1999 2000
---------- ------------ ---------- ------------
($'s in millions )
<S> <C> <C> <C> <C>
Total Debt...................... $728.8 $680.8 80% 73%
Total Equity.................... 172.8 236.6 19% 26%
Deferred Income Taxes........... 8.1 8.1 1% 1%
------ ------ --- ---
Total....................... $909.7 $925.5 100% 100%
====== ====== === ===
</TABLE>
See "Allocations" for discussion of Applied Power debt allocated to APW
Ltd.
"Total equity" in APW Ltd.'s combined financial statements includes
"Combined equity" which represents Applied Power's cumulative net investment
in the combined businesses of APW Ltd. and its subsidiaries. Changes in
"Combined equity" represent the net income (loss) of APW Ltd. and its
subsidiaries, net cash and noncash contributions from (distributions to)
Applied Power, changes in allocated corporate debt and allocated corporate
interest, net of tax. "Total Equity" also includes "Accumulated Other
Comprehensive Income" which represents foreign currency translation
adjustments.
Outstanding debt at February 29, 2000 totaled $680.8 million, a decrease of
approximately $48.0 million since the beginning of the fiscal year. Net
repayments of debt of approximately $45.3 million, offset by additional debt
incurred to fund the Metalade acquisition, contributed to this decrease.
To reduce risk of interest rate increases, APW Ltd. will periodically enter
into interest rate swap agreements. Currently, APW Ltd.'s interest rate swap
activity is not significant.
47
<PAGE>
Capital Commitments
During the next several years, a significant portion of APW Ltd.'s cash
flow is expected to be used to fund business acquisitions, to fund capital
expenditures and to service indebtedness. APW Ltd. periodically evaluates
electronics businesses for potential investment, consistent with its strategic
objectives. Management intends that any acquisition which requires significant
funding would be financed using APW Ltd.'s bank facilities and, depending upon
market conditions, APW Ltd.'s common stock.
APW Ltd. estimates that capital expenditures aggregating approximately
$40.0 million will be required during fiscal 2000 to complete equipment,
facility and information technology upgrade and expansion projects. Certain
commitments have been made in connection with those projects.
Liquidity
In March 2000, APW Ltd. began to take initial steps to obtain financing on
a stand-alone basis, in order to operate as an independent company from
Applied Power. Prior to the Distribution, APW Ltd. expects to enter into
multi-currency revolving credit facilities with a group of banks. In addition,
APW Ltd. intends to establish short-term lines of credit and a receivable
financing facility with a variety of banks. Applied Power believes that both
for APW Ltd. and for API/Actuant, future credit facilities or other
borrowings, plus funds generated from operations, will be adequate to meet
operating, debt service and capital expenditure requirements for the
foreseeable future.
Before the Distribution occurs, Applied Power intends to initiate a
realignment of its debt. The debt realignment contemplates allocating to APW
Ltd. the remaining Applied Power debt balance outstanding after payment of
Distribution transaction costs, the payment of estimated Federal Income Tax in
connection with incorporating APW Ltd. in Bermuda, the receipt of proceeds
from the anticipated divestiture of Air Cargo Equipment Company and Barry
Wright Corporation (both included in Applied Power's Industrial Business), the
payment of charges and expenses in repurchasing Applied Power's existing $200
million senior subordinated notes, the completion of sale-leaseback
transactions and the additional allocation of approximately $392 million of
debt to API/Actuant. This debt realignment will significantly reduce the
amount of debt that is currently being allocated to APW Ltd. from Applied
Power.
Fiscal 1999 Compared to fiscal 1998 Compared to Fiscal 1997
Net Sales. Fiscal 1999 sales increased $462.1 million, or 78%, over fiscal
1998. The acquisition of Rubicon and Innovative in fiscal 1999 and inclusion
of a full year sales of the Vero, AA Manufacturing, PMP, PTI, Premier and
Brown locations acquired in fiscal 1998 contributed $427.8 million in sales in
fiscal 1999. Exclusive of acquisitions and the adverse impact of the stronger
dollar on reported sales, sales increased 7% in fiscal 1999. Fiscal 1999 sales
growth resulted from the continued expansion of the size, territory and
content of APW Ltd.'s enclosure product lines, partially offset by lower
thermal management product sales as these lines were refocused on the higher
growth telecommunications market. Fiscal 1998 sales, excluding acquisitions
and net of the negative impact of the stronger US Dollar, grew 18% primarily
as a result of the continued expansion of end user electronics markets in the
US and Europe.
<TABLE>
<CAPTION>
Percentage
Change from
Sales Prior Year
---------------------- ----------------
1997 1998 1999 1997 1998 1999
------ ------ -------- ---- ---- ----
($ millions)
<S> <C> <C> <C> <C> <C> <C>
Geographic Sales
North America....................... $334.4 $461.0 $ 576.0 32% 38% 25%
Europe and other.................... 40.9 132.2 479.3 359% 223% 263%
------ ------ -------- --- --- ---
Total............................. $375.3 $593.2 $1,055.3 43% 58% 78%
====== ====== ======== === === ===
</TABLE>
48
<PAGE>
APW Ltd. does business in many different geographic regions and is subject
to various and diverse economic conditions. Fiscal 1999 North American sales
grew 25% primarily due to acquisitions made in the prior fiscal year and
internal growth. An improved economic environment in North America and the
effect of acquisitions combined to increase fiscal 1998 North American sales
38% over 1997.
European sales volume in fiscal 1999 more than doubled due primarily to the
September 1998 acquisition of Rubicon and a full year of sales for the VERO
businesses acquired in fiscal 1998, both of which are concentrated in the U.K.
and continental Europe. European sales grew 223% in fiscal 1998 compared to
1997. The combination of the VERO acquisition, which contributed $53.9
million, along with strong internal growth accounted for fiscal 1998 growth.
Sales in Asia and Latin America were approximately 1% of total net sales for
fiscal 1999, 1998 and 1997.
Gross Profit. Gross profit increased 50% in fiscal 1999 to $291.8 million
compared to the $194.1 million in fiscal 1998. Excluding a one-time charge of
$10.1 million to write off obsolete inventory in fiscal 1998 (See further
discussion below under Merger, Restructuring and Other Non-recurring Items),
gross profit increased 43% in fiscal 1999 from $204.2 million in fiscal 1998.
Fiscal 1998 gross profit increased 32% to $194.1 million from the $146.7
million in fiscal 1997. Excluding the fiscal 1998 inventory write-off, gross
profit increased 39% over fiscal 1997. The increases in gross profit dollars
for both years were primarily a result of the increases in sales volume
discussed above.
Gross profit as a percentage of sales has declined in each of the last two
years, reflecting APW Ltd.'s aggressive move from primarily technical
environments and standard products into lower-margin electronic enclosures and
systems integration during the past three years. APW Ltd. believes that the
electronic enclosure and integration markets offer APW Ltd. significant growth
opportunities. The lower gross margins associated with the enclosure and
integration markets, as compared to APW Ltd.'s historic average, are partially
offset by lower ESA expenses to relative sales.
Engineering, Selling and Administrative Expenses. Fiscal 1999 ESA of $188.0
million increased $62.8 million, or 50%, over the 1998 prior year, exclusive
of fiscal 1998 one-time charges. As a percentage of sales and exclusive of
one-time charges in fiscal 1998, ESA declined to 18% in fiscal 1999 from 21%
and 23% in fiscal years 1998 and 1997, respectively. The fiscal 1999 and 1998
declines in ESA expense as a percent of sales were due primarily to
acquisitions of electronic enclosure and electronic integration businesses,
which have a lower ratio of ESA expenses to sales. It is APW Ltd.'s goal to
continually identify ways to be more cost efficient, allowing APW Ltd. to
reduce operating costs as a percent of sales. In addition to variable selling
expenses, ESA expenses have increased as a result of acquisitions, product
development programs and expenditures to support expansion of APW Ltd. and
geographic expansion into emerging markets.
Fiscal 1998 ESA expenses includes $1.4 million in allocated one-time
charges relating to a number of initiatives, including the ZERO merger, the
ZERO headquarters closing and the rationalization of manufacturing facilities
and infrastructure to further integrate acquired companies into the
Electronics Business. These fiscal 1998 restructuring initiatives are further
described below under Merger, Restructuring and Other Non-Recurring Items.
Historical ESA expenses include an allocation of Applied Power's corporate
general and administrative expenses based on estimated levels of effort
devoted to APW Ltd. and the relative size of APW Ltd. compared to Applied
Power's total revenues, operating profit, assets and employee headcount.
Management believes that the allocation of Applied Power's corporate general
and administrative expense for the historical periods is reasonable. APW Ltd.
expects that costs for these corporate type functions will differ following
the Distribution. See "Allocations" above for further discussion of ESA
expenses allocated to APW Ltd. from Applied Power.
Amortization of Intangible Assets. The fiscal 1999 increase in amortization
expense was primarily a result of the acquisition of Rubicon in September 1998
and a full year of amortization expense for acquisitions completed during
fiscal 1998. The fiscal 1998 increase in amortization expense resulted from
the acquisition of
49
<PAGE>
VERO, Brown, PTI, Product, AA and PMP during the 1998 fiscal year, combined
with a full year of amortization expense on Hormann and C Fab which were
acquired during fiscal 1997.
Merger, Restructuring and Other Non-Recurring Items. In the fourth quarter
of fiscal 1998, APW Ltd. recorded merger, restructuring and other one-time
charges of $21.1 million after-tax. The pre-tax charges of $27.9 million
related to costs associated with the ZERO merger, various plant and
infrastructure consolidations, and other cost reduction and product
rationalization efforts of APW Ltd. With the exception of approximately $3.3
million in reserves relating primarily to long-term lease commitments and
other contractual obligations, no accrued restructuring reserves remained at
August 31, 1999. The following table summarizes the manner in which merger,
restructuring and other non-recurring items were recorded in APW Ltd.'s fiscal
1998 Combined Statement of Earnings and how those charges were allocated from
Applied Power.
<TABLE>
<CAPTION>
Total
Original
Charge Allocation of Fiscal 1998 Applied
Related to Corporate APW Ltd. Power
Electronics Charge Charge Charge
----------- ------------- ----------- --------
($ millions)
<S> <C> <C> <C> <C>
Cost of products sold........ $10.1 $-- $10.1 $25.8
Engineering, selling and
administrative expense...... -- 1.4 1.4 8.9
Amortization of intangible
assets...................... -- -- -- 5.1
Restructuring charges........ 8.9 2.3 11.2 20.3
Merger related expenses...... -- 5.2 5.2 9.3
----- ---- ----- -----
Operating Earnings......... $19.0 $8.9 27.9 69.4
===== ====
Less: Income tax benefit..... 6.8 16.8
----- -----
Net Earnings............... $21.1 $52.6
===== =====
</TABLE>
On July 31, 1998, a newly created subsidiary of Applied Power merged into
ZERO Corporation after shareholder approval of both companies. All fees and
expenses related to the ZERO merger and to the integration of the combined
companies have been expensed as required under the pooling of interests method
of accounting. Total fees and expenses amounted to $15.9 million and are
included in the above $27.9 million pre-tax charge recorded in the fourth
quarter of fiscal 1998. This total includes merger transaction costs of
approximately $5.2 million related to legal, accounting and financial advisory
services. The remaining $10.7 million reflects costs associated with
organizational realignment, closure of ZERO headquarters, facility
consolidation, a change in estimate of a receivable valuation and the write-
off of obsolete inventory due to conforming of product lines.
It is APW Ltd.'s strategy to become the premier, global electronic
enclosure manufacturer. In line with that strategy, APW Ltd. completed eleven
electronic enclosure acquisitions in fiscal 1998 and 1997, operating 34
facilities in 11 countries at August 31, 1998. As a result of this rapid
expansion into the electronic enclosure business, there were significant
rationalization and integration opportunities within and between the acquired
businesses. In late fiscal 1998, APW Ltd. formalized a plan to eliminate
redundancies and streamline operations within these acquired businesses. These
rationalization efforts include consolidating three facilities into one in the
northeastern United States, the consolidation of production of several product
lines between facilities, standardization of design and development functions,
and other organizational realignments. As a result of this plan, APW Ltd.
recorded $7.1 million for related charges, including provisions for costs
associated with employee severance and provisions for long-term lease
commitments on closed facilities. APW Ltd. completed the planned
reorganization of its acquired companies in fiscal 1999.
Also in late fiscal 1998, APW Ltd. initiated aggressive programs to
eliminate or reduce product lines and items which were not generating
sufficient economic return. The programs include the elimination of slow
moving or marginal products and the entire exit of less productive product
lines. As a result of these programs, APW Ltd. recorded a $4.9 million charge
to cost of products sold for the write-off of obsolete inventory. APW Ltd.'s
product line initiatives were materially completed by the end of fiscal 1999.
50
<PAGE>
In total, the charges discussed above included $8.9 million for severance
payments for a reduction of approximately 190 employees.
Operating Earnings. Operating profit margin increased to 8% for fiscal 1999
compared to 7% for fiscal 1998. Operating profit margin was 16% for fiscal
1997. Excluding one-time charges discussed above, operating profit margin
decreased to 8% for fiscal 1999 compared to 12% for fiscal 1998. Fiscal 1998
operating profit margin, exclusive of one-time charges, decreased 4% from the
fiscal 1997 operating profit margin. The decrease in operating profit margin
between periods is a result of APW Ltd. expanding into the integrated
electronic enclosures market where operating margins are not as large as those
generated by the technical environment and standard product markets. This
decrease in operating profit margin is offset by continued efforts to manage
spending levels throughout APW Ltd.
Net Financing Costs. Net financing costs for fiscal 1999 and 1998 increased
over the comparable prior year periods primarily as a result of additional
borrowings incurred to finance acquisitions completed during and subsequent to
the previous fiscal years, coupled with a higher weighted average interest
rate during fiscal 1999. See "Allocations" above for further discussion of Net
Financing Costs allocated to APW Ltd. from Applied Power.
Other--Net. Other--Net includes foreign exchange gains and losses, gains
and losses on the sale of fixed assets as well as other miscellaneous, non-
operating income and expenses. In fiscal 1998, APW Ltd. recognized an
allocated portion of gain on the sale of a ZERO corporate property totaling
$5.5 million and an allocated portion of gain from proceeds on a ZERO life
insurance policy of $1.0 million.
Income Tax Expense. APW Ltd.'s effective income tax rate was 35.8%, 48.3%
and 37.4% in fiscal 1999, 1998 and 1997, respectively. The effective income
tax rate for fiscal 1998 was largely impacted by the current non-deductibility
of the one-time charges recorded in the fourth quarter. Excluding the one-time
items, the fiscal 1998 effective income tax rate was 37.7%. The goodwill and
subsequent amortization expense recorded as a result of most of Applied
Power's acquisitions is non-deductible for tax purposes.
Liquidity and Capital Resources
Cash Flows
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1997 1998 1999
------ ------- -------
(in millions)
<S> <C> <C> <C>
Cash Provided By (Used In)
Operating activities............................... $ 25.4 $ 56.7 $ 75.9
Investing activities............................... (93.1) (314.0) (435.3)
Financing activities............................... 74.6 249.3 373.7
</TABLE>
In order to minimize interest expense, APW Ltd. intentionally maintains low
cash balances and uses available cash to reduce short-term bank borrowings.
Cash and cash equivalents increased $13.7 million in fiscal 1999 as compared
to a decrease of $7.8 million in fiscal 1998 and an increase of $7.2 million
in fiscal 1997.
The increase in cash flow from operating activities during fiscal 1999 over
fiscal 1998 resulted primarily from a higher level of earnings before non-cash
depreciation and amortization expenses. In addition, reductions in working
capital provided a source of cash during fiscal 1999. The increase in cash
provided by operations in fiscal 1998 over fiscal 1997 was also a result of
increased operating earnings before non-cash charges, combined with further
reductions in working capital.
Fiscal 1999 uses for investing included $401.9 million for acquisitions,
primarily Rubicon, and a $43.0 million use for capital expenditures, partially
offset by $9.6 million in proceeds from the sale of assets. Fiscal 1998
included uses of $290.3 million to fund acquisitions and $31.6 million to fund
capital expenditures. Investing activities in fiscal 1997 included $77.0
million for acquisitions and $17.7 million for capital expenditures.
51
<PAGE>
Net cash investments by and advances from Applied Power make up the
majority of financing activities for fiscal 1997, 1998 and 1999. Proceeds from
the financing of trade receivables provided $7.7 million, $14.3 million and
$37.1 million for fiscal 1997, 1998 and 1999, respectively. Additionally, in
fiscal 1998, APW Ltd. used $17.8 million of cash to fund the obligations of
two ZERO employee benefit programs as a result of APW Ltd.'s merger with ZERO.
Fiscal 1999 financing activities also included $24.0 million of principal
payments on long-term debt assumed in the VERO and Rubicon acquisitions.
Capitalization
<TABLE>
<CAPTION>
Total Percentage of
Capitalization Total
August 31, Capitalization
--------------- ---------------
1998 1999 1998 1999
------- ------- ------- -------
($'s in
millions)
<S> <C> <C> <C> <C>
Total Debt...................................... $ 367.8 $ 728.8 67% 80%
Total Equity.................................... 172.7 172.8 32% 19%
Deferred Income Taxes........................... 7.0 8.1 1% 1%
------- ------- ------- -------
Totals...................................... $ 547.5 $ 909.7 100% 100%
======= ======= ======= =======
</TABLE>
Outstanding debt totaled $367.8 million and $728.8 million at August 31 of
each of fiscal 1998 and 1999, respectively. Net increase in borrowings in both
fiscal 1998 and 1999 primarily reflects incremental borrowings to fund
acquisitions (see Business Combinations discussion above).
See the Combined Statements of Equity and Comprehensive Income contained
elsewhere in this Information Statement for a description of factors affecting
equity.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which requires that an entity
recognize derivative instruments, including certain derivative instruments
embedded in other contracts, as either assets or liabilities and measure those
instruments at fair value. Gains or losses resulting from changes in the
values of those derivatives would be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. In July 1999, the
FASB issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of SFAS No. 133," which delays the
effective date of SFAS No. 133 by one year. As a result, SFAS No. 133 will be
effective for APW Ltd.'s 2001 fiscal year. Adoption of SFAS No. 133 is not
expected to have a material effect on APW Ltd. based on its current derivative
and hedging activities.
Year 2000 Considerations
In prior years, Applied Power had executed an action plan to ensure that
its computer systems are capable of processing the periods for the Year 2000
and beyond. This action plan was completed in late calendar year 1999. As a
result of those planning and implementation efforts, Applied Power experienced
no significant disruptions in mission critical information technology and non-
information technology systems and believes those systems successfully
responded to the Year 2000 date change. While no disruption has developed as
of the date of this filing, Year 2000 problems may still surface throughout
calendar year 2000. Applied Power will continue to monitor its mission
critical computer applications and those of its suppliers and vendors
throughout the calendar year 2000 to ensure that any latent year 2000 matters
that arise may be addressed promptly.
European Economic Monetary Union
On January 1, 1999, eleven of the European Union countries (including eight
countries where APW Ltd. operations are located) adopted the Euro as their
single currency, resulting in fixed conversion rates between their
52
<PAGE>
existing currencies ("legacy currencies") and the Euro. The Euro trades on
currency exchanges and is available for non-cash transactions. Following the
introduction of the Euro, the legacy currencies remain legal tender in the
participating countries during the transition through January 1, 2002.
Beginning on January 1, 2002, the European Central Bank will issue Euro-
denominated bills and coins for use in cash transactions. On or before July 1,
2002, the participating countries will withdraw all legacy bills and coins and
use the Euro as their legal currency.
APW Ltd.'s various operating units located in Europe which are affected by
the Euro conversion intend to maintain their books in their respective legacy
currency through a portion of the three year introductory period. At this
time, APW Ltd. does not expect the reasonably foreseeable consequences of the
ongoing Euro conversion to have material adverse effects on APW Ltd.'s
business, operations or financial condition.
Inflation
No meaningful measures of inflation are available because APW Ltd. has a
significant number of operations which operate in countries with diverse rates
of inflation and currency rate movements.
Environmental Compliance
APW Ltd. has facilities in a number of geographic locations that are
subject to a range of environmental laws and regulations. Compliance with
these laws has and will require expenditures on a continuing basis. The
predecessor to APW Ltd. has been identified by the United States Environmental
Protection Agency as a "Potentially Responsible Party" regarding various
multi-party Superfund sites. Potentially responsible parties are jointly and
severally liable with respect to Superfund site remediation liabilities. Any
liability in connection with certain of these sites involving Electronics
Businesses has been assumed by APW Ltd. Based on our investigations, we
believe that we are a de minimis participant in any site, and that any
liability, which may be incurred as a result of our involvement with such
Superfund sites, taken together with our expenditures for environmental
compliance, will not have a material adverse effect on our financial position.
Environmental expenditures over the last three years for APW Ltd. have not
been material. Although the level of future expenditures for environmental
remediation is impossible to determine with any degree of certainty, in our
opinion these costs are not likely to have a material adverse effect on our
financial position, results of operations or cash flows. Environmental
remediation accruals of $2.1 million and $2.8 million were included in the
Combined Balance Sheets for APW Ltd. and its subsidiaries at August 31, 1998
and 1999, respectively.
Quantitative and Qualitative Disclosures About Market Risk
APW Ltd. is exposed to market risk from changes in foreign exchange and
interest rates and, to a lesser extent, commodities. To reduce these risks,
APW Ltd. selectively uses financial instruments. All hedging transactions are
authorized and executed pursuant to clearly defined policies and procedures,
which strictly prohibit the use of financial instruments for trading purposes.
A discussion of APW Ltd.'s accounting policies for derivative financial
instruments is included in Note 2--"Summary of Significant Accounting
Policies" in Notes to the Combined Financial Statements. In addition,
quantitative disclosure relating to financial instruments is included in Note
9--"Debt."
Currency Risk--APW Ltd. and its subsidiaries have significant international
operations. In most instances, APW Ltd.'s products are produced at
manufacturing facilities located near the customer. As a result, significant
volumes of finished goods are manufactured in countries for sale into those
markets. For goods purchased from other Company affiliates, APW Ltd.
denominates the transaction in the functional currency of the producing
operation.
53
<PAGE>
APW Ltd. has adopted the following guidelines to manage its foreign
exchange exposures:
(i) increase the predictability of costs associated with goods whose
purchase price is not denominated in the functional currency of the buyer;
(ii) minimize the cost of hedging through the use of naturally
offsetting positions (borrowing in local currency), netting, pooling; and
(iii) where possible, sell product in the functional currency of the
producing operation.
APW Ltd.'s identifiable foreign exchange exposures result primarily from
the anticipated purchase of product from affiliates and third-party suppliers
along with the repayment of intercompany loans with foreign subsidiaries
denominated in foreign currencies. APW Ltd. periodically identifies naturally
occurring offsetting positions and expects that it may from time to time
purchase hedging instruments to protect against anticipated exposures. APW
Ltd.'s financial position is not materially sensitive to fluctuations in
exchange rates as any gains or losses on foreign currency exposures are
generally offset by gains and losses on underlying payables, receivables and
net investments in foreign subsidiaries.
Interest Rate Risk--APW Ltd. expects that it may from time to time enter
into interest rate swaps to stabilize financing costs by minimizing the effect
of potential interest rate increases on floating-rate debt in a rising
interest rate environment. Under these agreements, APW Ltd. contracts with a
counter party to exchange the difference between a fixed rate and a floating
rate applied to the notional amount of the swap. The differential to be paid
or received on interest rate swap agreements is accrued as interest rates
change and is recognized in net income as an adjustment to interest expense.
Gains relating to terminations of qualifying hedges are deferred and
recognized in income at the same time as the underlying hedged transactions.
Commodity Prices--APW Ltd. and Applied Power are exposed to fluctuation in
market prices for steel. Therefore, APW Ltd. has established a program for
centralized negotiation of steel prices. This program allows APW Ltd. to take
advantage of economies of scale as well as to strive to reduce pricing. All
business units are able to purchase steel under this arrangement. In general,
the contracts lock steel pricing for 18 months and enable APW Ltd. to pay less
if market prices fall.
Recent Developments
On May 23, 2000, Applied Power Inc. announced its intention, on behalf of
its APW Ltd. subsidiary, to acquire the shelter business for housing telecom
equipment from Ericsson. Because the proposed transaction is subject to
ongoing due diligence, and no definitive agreements have been executed, there
can be no assurance that the acquisition will be completed or, if it is
completed, that the terms will be favorable to APW Ltd.
FORWARD-LOOKING STATEMENTS AND CAUTIONARY FACTORS
This Information Statement contains statements relating to future results
of APW Ltd. and its subsidiaries. Those statements, which are not historical
facts, are "forward-looking statements" that involve risks and uncertainties.
The terms "anticipate", "believe", "estimate", "expect", "objective", "plan",
"project" and similar expressions are intended to identify forward-looking
statements. Such forward-looking statements are subject to inherent risks and
uncertainties that may cause actual results or events to differ materially
from those contemplated by such forward-looking statements. In addition to the
assumptions and other factors referred to specifically in connection with such
statements, factors that may cause actual results or events to differ
materially from those contemplated by such forward-looking statements include,
without limitation, general economic conditions and market conditions in the
computer, semiconductor, telecommunication, and electronic industries in North
America, Europe and, to a lesser extent, Asia, market acceptance of existing
and new products, successful integration of acquisitions, competitive product
and pricing pressures, foreign currency risk, interest rate risk, the
Company's ability to access capital markets, and other factors that are set
forth under "Risk Factors" in this Information Statement and those that may be
referred to in APW Ltd.'s reports filed with the Securities and Exchange
Commission from time to time.
54
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
All of APW Ltd.'s outstanding stock is currently owned by Applied Power.
The following table sets forth the projected, pro forma beneficial ownership
of APW Ltd.'s shares immediately following the Distribution. This information
is based upon holdings as of March 31, 2000, by each executive officer of APW
Ltd. named in the Summary Compensation Table below and by APW Ltd. executive
officers and directors as a group. With regard to options, the following table
assumes a one-to-one conversion in connection with the Distribution. The
actual number of APW Ltd. options issued will depend upon the price of APW
Ltd. common stock and API/Actuant common stock shortly before the
Distribution. Briefly stated, shares are deemed to be beneficially owned by
any person or group who has the power to vote or direct the vote or the power
to dispose or direct the disposition of such shares, or who has the right to
acquire beneficial ownership thereof within 60 days. To the knowledge of the
Company, no one is likely to be the beneficial owner of more than 5% of APW
Ltd.'s common stock immediately following the Distribution.
<TABLE>
<CAPTION>
Amount and Nature of Percent
Beneficial Owner Beneficial Ownership(1) of Class
---------------- ----------------------- --------
<S> <C> <C>
Richard G. Sim.......................... 1,514,579(2) 3.8%
William J. Albrecht..................... 185,197(3) *
Gustav H.P. Boel........................ 51,697(4) *
Joseph T. Lower......................... 0 *
Richard D. Carroll...................... 12,025(5) *
All Executive Officers and Directors as
a Group (12 persons)................... 2,063,925(6) 4.9%
</TABLE>
--------
*Less than 1%.
(1) Unless otherwise noted, the specified persons have sole voting power
and/or dispositive power over the shares shown as beneficially owned.
(2) Includes options to purchase 900,342 shares exercisable currently or
within 60 days of the Record Date, 5,110 shares allocated to Mr. Sim's
Savings Plan account and 18,710 shares held by a custodian for Mr. Sim's
children (with respect to which Mr. Sim disclaims beneficial ownership).
Excludes 187,201 deferred shares received upon exercise of options in 1998
and 1999 pursuant to Applied Power's option deferral program which
represent the right to receive an equivalent number of shares of common
stock at the end of the deferral period.
(3) Includes options to purchase 174,150 shares exercisable currently or
within 60 days of the Record Date and 8,352 shares allocated to Mr.
Albrecht's Savings Plan account and 2,000 shares held by his spouse.
Excludes 8,036 deferred shares received upon exercise of options in 1999
pursuant to the deferral program which represent the right to receive an
equivalent number of shares of common stock at the end of the deferral
period.
(4) Includes options to purchase 41,100 shares exercisable currently or within
60 days of the Record Date and 2,317 shares allocated to Mr. Boel's
Savings Plan account.
(5) Includes options to purchase 8,950 shares exercisable currently or within
60 days of the Record Date and 475 shares allocated to Mr. Carroll's
Savings Plan account.
(6) Includes options to purchase 1,152,592 shares exercisable currently or
within 60 days of the Record Date, 15,779 shares allocated to executive
officers' Savings Plan accounts, 256,452 shares held by certain trusts
with respect to which certain officers have voting and dispositive power
and 18,710 shares owned by family members of the directors and executive
officers (beneficial ownership of which is, in certain instances,
disclaimed). Excludes 195,237 deferred shares received upon exercise of
options pursuant to Applied Power's deferral program which represent the
rights to receive an equivalent number of shares of common stock at the
end of the deferral period.
The beneficial ownership information set forth above, and below under
"Election of Directors", is based on information furnished by the specified
persons or known to APW Ltd. and is determined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934, as required for purposes of this
Information Statement. It is not necessarily to be construed as an admission
of beneficial ownership for other purposes.
55
<PAGE>
MANAGEMENT OF APW LTD.
Directors
The following table sets forth the names, principal positions, ages and
stock ownership of the persons who are expected to serve as APW Ltd.'s
directors following the Distribution. Each of these persons will serve as
director until their term ends, subject to their earlier death, resignation or
removal.
<TABLE>
<CAPTION>
Common Stock
Beneficially Owned at
March 31, 2000
---------------------------
Director Number of Percent
Name and Principal Position Age Since Shares of Class
--------------------------- --- -------- ------------- ----------
<S> <C> <C> <C> <C>
Peter Douglas........................ 44 2000 0 *
General Manager of ATI International
SRL (Barbados subsidiary of supplier
of 3Dgraphics and multimedia
technology for personal computers
and consumer electronics)
Jack L. Heckel....................... 68 1993 20,000(1) *
Retired President and Chief
Operating Officer, GenCorp. Inc.
(manufacturer of aerospace and
defense, polymer and automotive
products)
L. Dennis Kozlowski.................. 53 1994 15,000(2) *
Chairman of the Board, President and
Chief Executive Officer, Tyco
International Ltd. (manufacturer of
disposable and specialty products,
fire and safety services, flow
control, and electrical and
electronic components)
John J. McDonough.................... 63 1996 21,000(3) *
Vice Chairman and Chief Executive
Officer, Newell Rubbermaid Inc.
(manufacturer of consumer products);
President and Chief Executive
Officer, McDonough Capital Company
LLC (venture capital investment
firm)
Gerald McGoey........................ 51 2000 0 0
President, Jolian Investments
Limited (Toronto based investment
firm)
Richard G. Sim....................... 55 1985 1,514,579(4) 3.8%
Chairman of the Board, President and
Chief Executive Officer,
APW Ltd.
John Ziemniak........................ 45 2000 0 0
Managing Partner at Mentor
International (privately owned U.K
consultancy serving the telecom, IT
and media markets)
</TABLE>
--------
*Less than 1%.
(1) Includes options to purchase 15,000 shares exercisable currently or within
60 days of the Record Date.
(2) Includes options to purchase 13,000 shares exercisable currently or within
60 days of the Record Date.
(3) Includes options to purchase 9,000 shares exercisable currently or within
60 days of the Record Date.
(4) Includes options to purchase 900,342 shares exercisable currently or
within 60 days of the Record Date, 5,110 shares allocated to Mr. Sim's
Savings Plan account and 18,710 shares held by a custodian for Mr. Sim's
children (with respect to which Mr. Sim disclaims beneficial ownership).
Excludes 187,201 deferred shares received upon exercise of options in 1998
and 1999 pursuant to the Company's deferral program which represent the
right to receive an equivalent number of shares of common stock at the end
of the deferral period.
56
<PAGE>
All of the directors have held the positions with Applied Power or other
organizations shown in the above table during the past five years, except that
(i) Jack L. Heckel was President and Chief Operating Officer of GenCorp. Inc.
from January 1987 through December 1993; and (ii) John J. McDonough was
Chairman of SoftNet Systems, Inc. from July 1995 through July 1997 and also
served as its Chief Executive Officer from September 1996 through July 1997,
Vice Chairman of DENTSPLY International Inc. from February 1995 through
October 1995, and Vice Chairman and Chief Executive Officer of DENTSPLY
International Inc. from June 1993 through February 1995.
Jack L. Heckel is a director of WD-40 Co., Inc. and Advanced Tissue
Sciences, Inc. L. Dennis Kozlowski is a director of Tyco International Ltd.
and RJR Nabisco Holdings Corp. John J. McDonough is a director of Newell
Rubbermaid Inc. and CGW Southeast Fund. Richard G. Sim is a director of IPSCO
Inc. and Oshkosh Truck Corporation.
Committees of the Board of Directors
The Audit Committee of the board of directors of APW Ltd., entirely
composed of independent directors: (i) will review the scope and timing of the
audit of APW Ltd.'s financial statements by its independent auditors; (ii)
will review with the independent accountants, and with management, policies
and procedures with respect to internal auditing and financial and accounting
controls; and (iii) will review with the independent accountants their reports
on APW Ltd.'s financial statements and recommendations they make for
improvements in APW Ltd.'s internal controls and the implementation of those
recommendations.
The Compensation Committee of the board of directors of APW Ltd. will
determine the compensation of APW Ltd.'s executive officers, award bonuses to
such key management personnel as the Committee selects and administer APW
Ltd.'s stock incentive plans.
The Nominating Committee of the board of directors of APW Ltd. will seek
qualified persons for the position of director to recommend to the entire
board of directors. In carrying out its responsibilities, the Nominating
Committee will consider candidates suggested by other directors, employees and
shareholders.
Directors' Compensation
Directors who are compensated as employees of APW Ltd. will receive no
additional compensation for service as directors.
The board of directors and compensation committee of APW Ltd. have not yet
established any formal compensation policies, so their actual compensation is
not yet certain. However, management believes that APW Ltd. is likely to
establish policies similar to those of Applied Power. If it does so, each
director of APW Ltd. who is not an employee of APW Ltd. or its subsidiaries
will be paid an annual retainer of approximately $19,000 for serving on the
board of directors and an attendance fee of approximately $1,000 for each
board of directors meeting and committee meeting attended.
While not yet adopted, it is anticipated that each non-employee director
also receives an option grant each year to purchase shares of common stock
under the APW Ltd. 2000 Outside Directors' Stock Option Plan (the "2000
Directors Plan"). The 2000 Directors Plan is intended to promote the growth
and development of the Company by providing incentives for non-employee
directors of the Company through the grant to such directors of nonqualified
stock options to acquire shares of common stock. There is no discretion as to
the amount or timing of options to be granted, which are fixed by the terms of
the 2000 Directors Plan. The exercise price at which shares may be purchased
under each option is equal to the fair market value of the shares on the date
of grant. Options are not exercisable until eleven months after the date of
grant and then become fully exercisable, in whole or in part, at any time
prior to their expiration or termination. Unless earlier exercised or
terminated, the expiration date of each option granted under the 2000
Directors Plan is ten years and one day after the date of grant.
APW Ltd. intends to register the offering of options under the 2000
Directors Plan.
57
<PAGE>
Other Executive Officers
APW Ltd. also has the following additional executive officers: Richard D.
Carroll joined Applied Power as Corporate Controller in 1996 and was appointed
Treasurer and Controller in 1998 and stayed in such position until 1999. In
1999, Mr. Carroll served as Financial Leader--APW Electronics and in January
2000 became Vice President--Finance and Controller. Mr. Carroll was previously
employed with the Northwest Indiana Water Company as its Vice
President/Controller during 1995.
Anthony W. Asmuth III is a partner in the law firm of Quarles & Brady LLP,
Milwaukee, Wisconsin, having joined that firm in 1989. Quarles & Brady LLP
performs legal services for the Company and certain of its subsidiaries. Mr.
Asmuth had previously served as Secretary of the Company from 1986 to 1993 and
from 1994 to the present.
Each officer is appointed by the Board of Directors and holds office until
he resigns, dies, is removed or a different person is appointed to the office.
The Board of Directors generally appoints officers at its meeting following
the Annual Meeting of Shareholders.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth compensation awarded to, earned by or paid
to APW Ltd.'s Chief Executive Officer and individuals who are expected to be
APW Ltd.'s next four most highly compensated executive officers ("named
executive officers") based on their compensation by Applied Power during
fiscal 1999, except that the table sets forth the current base compensation
rate of Joseph T. Lower. During this period, the named executive officers were
compensated in accordance with Applied Power's plans and policies.
<TABLE>
<CAPTION>
Long-Term
Compensa-
tion Awards
-----------
Securities All Other
Other Annual Underlying Compensa-
Compensation Options/ tion
Name and Principal Position Salary Bonus (1) SARs (#)(2) ($)(3)
--------------------------- ------- ------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Richard G. Sim.............. 662,977 120,000 -0- 100,000 18,640
Chairman, President and
Chief Executive Officer
William J. Albrecht......... 290,964 75,600 5,796 90,000 17,720
Senior Vice President--
Americas (4)
Gustav H.P. Boel............ 243,078 155,000 -0- 64,000 20,581
Senior Vice President--
Europe & Asia (5)
Joseph T. Lower............. 185,000 -0- -0- 60,000 -0-
Vice President--Finance and
Business Development
Richard D. Carroll.......... 145,192 70,680 5,027 7,500 7,425
Vice President--Finance
</TABLE>
--------
(1) Consists entirely of interest paid on the Deferred Plan.
(2) Consists entirely of stock options.
(3) These amounts represent: (a) Applied Power's Savings Plan matching
contributions as follows: Mr. Sim--$2,625, Mr. Albrecht--$2,625, Mr.
Boel--$2,625, Mr. Lower--$0 and Mr. Carroll--$2,625; (b) Company
allocations under the Savings Plan as follows: Mr. Sim--$4,800, Mr.
Albrecht--$4,800, Mr. Boel--$4,800, Mr. Lower--$0 and Mr. Carroll--$4,800;
and (c) premiums paid by the Company for split-dollar life insurance as
follows: Mr. Sim--$11,215, Mr. Albrecht--$10,295, Mr. Boel--$13,156, Mr.
Lower--$0 and Mr. Carroll--$0.
(4) Effective November 3, 1998, Mr. Albrecht's title was changed to Senior
Vice President and in May 1999, Mr. Albrecht became Senior Vice
President--Electronics and in February 2000 Senior Vice President--
Americas.
(5) Effective November 3, 1998, Mr. Boel's title was changed to Vice President
and in May 1999, Mr. Boel became Senior Vice President--Industrial and in
February 2000 Senior Vice President--Europe and Asia.
58
<PAGE>
Option/SAR Grants in Last Fiscal Year
The following table sets forth information concerning stock option grants
to purchase Applied Power common stock pursuant to Applied Power's stock
option plan during the last fiscal year to the named executive officers except
for Joseph T. Lower, which represents a grant in March 2000. No stock
appreciation rights ("SARs") were granted in fiscal 1999.
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------
Percent Potential Realizable
of Total Value at Assumed
Number of Options/ Annual Rates of
Securities SARs Stock Price
Underlying Granted to Exercise Appreciation for
Options/ Employees or Base Option Term(3)
SARs in Fiscal Price Expiration ---------------------
Name Granted(#) Year(1) ($/Sh) Date(2) 5%($) 10%($)
---- ---------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard G. Sim.......... 100,000 15.5% 27.719 11/03/08 $1,743,200 $4,417,600
William J. Albrecht..... 30,000 4.6% 27.719 11/03/08 522,960 1,325,280
60,000 9.3% 24.6875 06/01/09 931,550 2,360,731
Gustav H.P. Boel........ 24,000 3.7% 27.719 11/03/08 418,376 1,060,247
40,000 6.2% 24.6875 06/01/09 621,033 1,573,821
Joseph T. Lower......... 60,000 -- 27.3438 3/20/10 1,031,782 2,614,739
Richard D. Carroll...... 7,500 1.2% 27.7190 11/3/08 130,742 331,327
</TABLE>
--------
(1) Based on stock option grants for an aggregate of 646,230 shares made to
all Applied Power employees during the fiscal year ended August 31, 1999
except for Joseph T. Lower, which is based upon a grant in March 2000.
(2) Unless earlier terminated, options expire ten years from the date of grant
and generally become exercisable as to half of the shares granted two
years after the date of grant and fully exercisable five years after the
date of grant. In the event of a change-in-control of Applied Power, the
Compensation Committee may either provide for equivalent substitute
options to be granted to the optionees or a cash-out of the options based
on the highest fair market value per share of Applied Power common stock
during the 60-day period immediately preceding the change-in-control.
Optionees who earn more than $100,000 per year may elect to defer receipt
of option shares upon exercise of an option. Throughout the deferral
period, the deferred shares are credited with "deemed dividends" at the
same rate as dividends paid on Applied Power common stock. At the end of
the deferral period, such accumulated cash dividend equivalent amounts are
converted into shares of common stock and distributed with the shares of
common stock issued to settle the optionee's deferred share account.
(3) The dollar amounts under these columns are the result of calculations at
the 5% and 10% appreciation rates set by the Securities and Exchange
Commission and are not intended to forecast possible future appreciation,
if any, of the common stock price.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
The following table sets forth information for each of the named executive
officers concerning Applied Power options exercised during fiscal 1999 and the
number and value of stock options outstanding at the end of fiscal 1999. No
SARs are outstanding.
<TABLE>
<CAPTION>
Number of
Securities
Underlying Value of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
Fiscal Year-End(#) Fiscal Year-End($)(2)
Shares ------------------ ---------------------
Acquired on Value Exer- Unexer- Exer- Unexer-
Name Exercise (#) Realized ($) cisable cisable(1) cisable cisable(1)
---- ------------ ------------ ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard G. Sim.......... 68,000(3) 1,498,122 875,342 239,100 18,426,193 1,603,700
William J. Albrecht..... 12,000(4) 256,124 166,750 132,400 3,433,166 845,030
Gustav H.P. Boel........ -- -- 34,500 97,700 595,906 593,213
Joseph T. Lower......... -- -- -- 60,000 -- 69,372
Richard D. Carroll...... -- -- 3,900 14,000 58,088 79,884
</TABLE>
--------
(1) Represents unvested options at the end of fiscal 1999.
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<PAGE>
(2) Based on the August 31, 1999, $30.625 closing price of the Applied Power
common stock on the New York Stock Exchange at the end of the fiscal year
except with regard to Mr. Lower, for which the March 31, 2000 closing
price of $28.50 was used.
(3) Options exercised for 68,000 shares under Applied Power's option deferral
program. In connection therewith, Mr. Sim attested to the ownership of
20,755 shares of common stock in lieu of delivering such shares in payment
of the option exercise price and has been allocated 47,245 deferred shares
of common stock.
(4) Options exercised for 12,000 shares under Applied Power's option deferral
program. In connection therewith, Mr. Albrecht attested to the ownership
of 3,964 shares of common stock in lieu of delivering such shares in
payment of the option exercise price and has been allocated 8,036 deferred
shares of common stock.
Stock Options and the Impact of the Distribution
In connection with Distribution, APW Ltd. will adopt its own option plan
and a plan for APW Ltd.'s directors. The APW Ltd. employees and directors who
have options to purchase shares of Applied Power common stock at the time of
the Distribution will have their existing Applied Power stock options
converted to APW Ltd. stock options. The number of shares covered by the APW
Ltd. stock options and the exercise price for the stock options will be
adjusted so that the value of the APW Ltd. common stock covered by the stock
options, based upon the APW Ltd. and API/Actuant common stock price
immediately prior to Distribution, and the aggregate exercise price for the
APW Ltd. and API/Actuant stock options, will be equivalent to the existing
values of the former Applied Power stock options. This adjustment will result
in an increase in the number of shares covered by the options and a reduction
in the exercise price per share, although the aggregate value of the shares
and the aggregate exercise price for the adjusted APW Ltd. options will be
equivalent to the former Applied Power Inc. stock options. The adjustment will
not affect the other terms of the stock options or cause the options to become
exercisable.
APW Ltd. intends to register the offering of securities for the option plan
on a Form S-8.
APW Ltd. 2000 Stock Option Plan
APW Ltd. expects to adopt the APW Ltd. 2000 Stock Plan (the "Stock Plan").
Under the Stock Plan, incentive stock options, nonqualified stock options and
restricted stock (each, an "Award") may be granted to any regular salaried
employee of APW Ltd. or a subsidiary of APW Ltd. who, in the sole opinion of
the compensation committee, contributes significantly to the growth and
success of APW Ltd. or a subsidiary. This includes employees who are members
of the board of directors, but excludes directors who are not employees of APW
Ltd. or any of its subsidiaries. Eligible participants in the Stock Plan are
referred to as "Eligible Employees."
The total number of shares of common stock available for issuance under the
Stock Plan may not exceed five million (5,000,000) shares, although no
Eligible Employee may be granted an Award or Awards covering more than two-
hundred fifty thousand (250,000) shares of common stock in any calendar year.
These stock thresholds are subject to adjustment in the event of a stock
split, stock distribution or other capital event, as described in the Stock
Plan.
Shares available for an Award under the Stock Plan may be either authorized
but unissued or reacquired shares of common stock. Shares subject to, but not
issued under, an option which expires, terminates, is cancelled or forfeited
for any reason under the Stock Plan and shares of restricted stock which have
been forfeited before the grantee has received any benefit of ownership (such
as dividends) shall again become available for the granting of Awards under
the Stock Plan.
The Stock Plan will be administered by the compensation committee of the
board of directors of APW Ltd. (the "Committee"). The Committee shall be
constituted so as to permit the Stock Plan to comply with the provisions of
Section 162(m) of the Code and to afford Stock Plan participants an exemption
for Stock Plan transactions pursuant to Rule 16b-3 under the Securities
Exchange Act of 1934. The Committee will be
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<PAGE>
empowered to adopt such rules, regulations and procedures and take such other
action as it deems necessary or proper for administration of the Stock Plan,
including any modification, extension or renewal of any option granted
thereunder. The Committee will have the authority to interpret the provisions
of the Stock Plan, which interpretations shall be final and conclusive.
Specifically, the Committee will be empowered, subject to any contrary
provisions of the Stock Plan, to designate the persons to whom Awards shall be
granted, to grant Awards in such form and amount as the Committee shall
determine, to impose such limitations, restrictions and conditions upon any
such Award as the Committee shall deem appropriate, and to waive in whole or
in part any limitations, restrictions or conditions imposed upon any such
Award as the Committee shall deem appropriate. The board of directors may also
amend, modify, suspend or terminate the Stock Plan from time to time;
provided, however, that no such action can be taken without shareholder
approval if required by applicable law. Furthermore, subject to the terms and
conditions of the Stock Plan, the Committee may modify, extend or renew
outstanding Awards granted under the Stock Plan, accept the surrender of
outstanding options (to the extent not theretofore exercised), reduce the
exercise price of outstanding options and authorize the granting of new
options in substitution therefor (to the extent not theretofore exercised);
provided, however, that no such modification of an Award (either directly or
through modification of the Stock Plan) shall, without the consent of the
grantee, alter or impair any rights of the grantee under the Award.
Stock Options
Stock Options ("Options") may be granted to Eligible Employees at any time
as determined by the Committee (subject to the volume limitations set forth
above). Options granted under the Stock Plan may be either "Incentive Stock
Options" under Section 422 of the Code or options that are not intended to
qualify as Incentive Stock Options ("Nonqualified Stock Options"). Each Option
must be evidenced by an agreement between APW Ltd. and the grantee which must
contain the terms and conditions required by the Stock Plan and such other
terms and conditions not inconsistent therewith as the Committee may deem
appropriate.
The exercise price of an Option granted under the Stock Plan will be
determined by the Committee; provided, however, that in the case of an
Incentive Stock Option, the exercise price may not be less than 100% of the
Fair Market Value of the common stock (as defined in the Stock Plan) when the
Option is granted; and provided further that the Committee may only grant a
Nonqualified Stock Option with an exercise price of less than 100% of the Fair
Market Value of the common stock on the condition that the grantee makes a
cash payment to APW Ltd. on the date of grant of at least the difference
between the Fair Market Value and the option price (i.e., the sum of the cash
payment and the exercise price must be equal to or in excess of the Fair
Market Value of the common stock on the date of grant).
For purposes of the Stock Plan, an Option will be considered as having been
granted on the date on which the Committee authorizes its grant (unless the
Committee has designated a later grant date). Options granted under the Stock
Plan may be exercisable at such times and subject to such restrictions and
conditions as the Committee in each instance approves, but no Option may be
exercisable until at least six months have elapsed from the date of grant
(except in the case of death or disability) or prior to shareholder approval
of the Stock Plan. Furthermore, the period of exercisability of an Incentive
Stock Option may not exceed 10 years from the date the Option is granted and
no Option may be treated as an Incentive Stock Option unless the grantee
exercises the Option while employed by APW Ltd. (or a subsidiary) or within
three months after termination of employment, unless such termination is
caused by death or disability, in which case the optionee has one year after
such termination within which to exercise.
An Option may be exercised in whole or in part from time to time as
specified in the Option agreement by the grantee giving a written notice of
exercise to APW Ltd. specifying the number of shares to be purchased,
accompanied by payment in full of the exercise price. The exercise price may
be paid either (i) in cash, (ii) by check, or (iii) with the approval of the
Committee, through delivery of shares of common stock which have been
beneficially owned by the grantee, the grantee's spouse or both of them for a
period of at least six months prior to the exercise ("Delivered Stock"), or
(iv) through a combination of cash and Delivered Stock. Delivered Stock is
valued at its Fair Market Value as of the date of the exercise. The holder of
an Option shall not have any rights as a shareholder with respect to the
shares subject to the Option until certificates evidencing such shares are
delivered to him or her.
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<PAGE>
Special provisions will be contained in the Stock Plan covering a merger,
consolidation or reorganization of APW Ltd. with another corporation in which
APW Ltd. is not the surviving corporation. In that circumstance, the Committee
may, subject to the approval of the Board of Directors of APW Ltd. or the
Board of Directors of any corporation assuming the obligations of APW Ltd.
under the Stock Plan, take action regarding each outstanding unexercised
option to either (i) substitute on an equitable and economically equivalent
basis an appropriate number of shares of the surviving corporation for the
shares of common stock covered by the Option, or (ii) cancel the Option and
provide for a payment to the optionee of an amount equal to the cash value of
the Option (determined in accordance with the provisions of the Stock Plan).
In addition, the Stock Plan permits Options to be granted to new Eligible
Employees who become such as a result of APW Ltd.'s acquisition of property or
stock from an unrelated corporation in substitution for options granted to
such Eligible Employees by their former employer.
Restricted Stock
The Committee, at any time, may grant Awards of restricted stock under the
Stock Plan; provided, however, that no more than 150,000 shares of restricted
stock may be granted in the aggregate during any calendar year. The Committee
may condition the grant of restricted stock upon the attainment of specified
levels of revenue, earnings per share, net income, return on assets, return on
sales, customer satisfaction, stock price, costs, individual performance
measures or such other factors or criteria as the Committee shall determine.
The provisions of various restricted stock Awards need not be identical;
provided, however, that such restricted stock Awards shall be subject to the
following terms and conditions: (i) until all applicable restrictions lapse,
the grantee shall not be permitted to sell, assign, transfer, pledge, or
otherwise encumber the shares of restricted stock; (ii) the grantee shall have
all of the rights of a shareholder of APW Ltd. with respect to the shares of
restricted stock (including the right to vote the shares and the right to
receive any cash dividends); (iii) unless otherwise provided in the applicable
restricted stock agreement or pursuant to (iv) below, all shares of restricted
stock shall be forfeited by the grantee upon termination of employment; (iv)
in the event of a hardship or other special circumstances under which a
grantee's employment is involuntarily terminated (other than for cause), the
Committee may waive in whole or in part any or all remaining restrictions
attendant to shares of restricted stock held by such grantee; (v) upon the
lapse of all applicable restrictions, unlegended certificates for such shares
shall be delivered to the grantee; and (vi) each Award shall be subject to the
terms of a restricted stock agreement. All grantees of restricted stock shall
be issued a certificate in respect of such shares, registered in such
grantee's name and bearing an appropriate legend. In its discretion, the
Committee may require that the certificates evidencing such shares of
restricted stock be held in custody by APW Ltd. until the restrictions thereon
have lapsed.
Term of Stock Plan
The Stock Plan will terminate 10 years after its effective date, except as
to Awards then outstanding, which Awards shall remain in effect until they
have been exercised, the restrictions have lapsed or the Awards have expired
or been forfeited.
General Terms
APW Ltd. may require, as a condition to the exercise of an Option or the
issuance of an unrestricted stock certificate, that the grantee concurrently
pay to APW Ltd. any taxes which APW Ltd. is required to withhold by reason of
such exercise or lapse of restrictions. Such payment may be made either in
cash or, at the discretion of the Committee, and subject to all applicable
rules and regulations, through shares of Delivered Stock or shares of stock
withheld from the Award having a Fair Market Value equal to the amount of the
tax obligation. No Award granted under the Stock Plan shall be transferable by
a grantee other than by will or the laws of descent and distribution;
provided, however, that the Committee, in its discretion but in accordance
with Internal Revenue Service guidance, may grant Nonqualified Stock Options
that are transferable, without payment of consideration, to family members of
the grantee or to trusts or partnerships for such family members.
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<PAGE>
Federal Tax Consequences
An Eligible Employee realizes no taxable income at the time an Option is
granted under the Stock Plan. An Eligible Employee generally realizes no
taxable income at the time of an Award of restricted stock, so long as the
restricted stock is not vested. Stock is vested for this purpose if it is
either transferable or is not subject to a substantial risk of forfeiture.
With regard to Incentive Stock Options, no income is recognized by an
Eligible Employee upon transfer to him of shares pursuant to his exercise of
an Incentive Stock Option. In order to avail himself of this tax benefit, the
Eligible Employee must make no disposition of the shares so received before he
has held such shares for at least one year and at least two years have passed
since he was granted the Option. Assuming compliance with this and other
applicable tax provisions, an Eligible Employee will realize long-term capital
gain or loss when he disposes of his shares, measured by the difference
between the exercise price and the amount received for the shares at the time
of disposition. If an Eligible Employee disposes of shares acquired by
exercise of an Incentive Stock Option before the expiration of the above-noted
periods, any amount realized from such disqualifying disposition will be
taxable as ordinary income in the year of disposition to the extent the lesser
of (a) the Fair Market Value of the shares on the date the Option was
exercised, or (b) the amount realized upon such disposition, exceeds the
exercise price. Any amount realized in excess of the Fair Market Value on the
date of exercise is treated as long-term or short-term capital gain, depending
upon the holding period of the shares. If the amount realized upon such
disposition is less than the exercise price the loss will be treated as long-
term or short-term capital loss, depending upon the holding period of the
shares. For purposes of the alternative minimum tax, the Eligible Employee
shall recognize income upon the transfer of shares to him pursuant to the
exercise of an Incentive Stock Option in an amount equal to the difference
between the Fair Market Value of the shares at the time of exercise and the
exercise price.
With regard to Nonqualified Stock Options, ordinary income generally is
realized by the Eligible Employee at the time of his exercise of an Option.
The amount of income is generally equal to the difference between the
exercise price and the Fair Market Value of the shares on the date of
exercise. Tax withholding is currently required on such income. When an
Eligible Employee disposes of shares acquired upon the exercise of a
Nonqualified Stock Option, any amount received in excess of the Fair Market
Value of the shares on the date of exercise will be treated as long-term or
short-term capital gain, depending upon the holding period of the shares, and
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-term or short-term capital
loss, depending upon the holding period of the shares.
With regard to restricted stock, ordinary income is realized by an Eligible
Employee at the time that such restricted stock vests. The amount of income is
generally equal to the excess of the Fair Market Value of the shares at the
time of vesting over the purchase price for such shares, if any. Tax
withholding is required on such income. When an Eligible Employee disposes of
restricted stock, any amount received in excess of the Fair Market Value of
the shares on the date of vesting will be treated as long-term or short-term
capital gain, depending upon the holding period of the shares, and if the
amount received is less than the Fair Market Value on the date of vesting, the
loss will be treated as long-term or short-term capital loss, depending on the
holding period of the shares. Dividends paid on restricted stock which has not
vested and which has not been the subject of an election under Section 83(b)
of the Code are treated as compensation income. Section 83(b) of the Code
permits the Eligible Employee to elect, not more than 30 days after the date
of grant of the restricted stock, to include as ordinary income the difference
between the Fair Market Value of the restricted stock on the date of grant and
the purchase price of the restricted stock, if any. If no Section 83(b)
election is made, then the ordinary income inclusion occurs on the date the
restricted stock becomes vested and the amount of such inclusion will be the
spread between the Fair Market Value of the restricted stock and the purchase
price for the restricted stock at the time of vesting, if any.
If an Eligible Employee pays the exercise price of an Option by tendering
other vested shares then owned by the Eligible Employee, the difference
between the Fair Market Value and adjusted basis of the tendered shares will
not produce a taxable gain or loss to the Eligible Employee; however, the
Eligible Employee's tax basis for
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an equal number of acquired shares will be the same as the Eligible Employee's
tax basis for the tendered shares. The remaining acquired shares will have an
original tax basis equal to the sum of the amount paid in cash, if any, plus
any amount that the optionee is required to recognize as income as a result of
the exercise of the Option.
No deduction will be allowed to APW Ltd. for federal income tax purposes at
the time of the grant or exercise of any Incentive Stock Option. At the time
of a disqualifying disposition by an Eligible Employee, APW Ltd. will be
entitled to a deduction for the amount taxable to the Eligible Employee as
ordinary income. APW Ltd. will be entitled to a deduction for federal income
tax purposes at the same time and in the same amount as the Eligible Employee
is considered to have realized ordinary income in connection with the exercise
of a Nonqualified Stock Option and the grant of restricted stock, assuming
compliance with Section 162(m) of the Code.
APW Ltd. 401(k) Plan
APW Ltd. will adopt a tax-qualified defined contribution retirement plan
(the "401(k) Plan") for its employees. The 401(k) Plan will allow participants
to reduce their taxable income by making voluntary contributions on a "pre-
tax" basis in an amount representing a fixed percent of their defined
compensation, not to exceed 19%, subject to certain Internal Revenue Code
limitations. Participants will also be allowed to make additional
contributions not to exceed 5% of their defined compensation on an after-tax
basis, subject to certain limitations. Plan participants will have the ability
to self-direct their contributions into various investment funds.
APW Ltd. intends to provide a matching contribution on the pre-tax
contributions by employees equal to the first $300 of pre-tax annual
contributions, plus an additional 25% of the pre-tax annual contributions
between $300 and 6% of compensation. In addition, APW Ltd. intends to make a
"core" contribution to the accounts of eligible participants equal to 3% of
compensation for the plan year, subject to certain limitations. Employees must
be employed at plan year end and must have 1,000 or more hours of service in
the plan year to be eligible for the employer contributions. All employer
contributions will be invested in an APW Ltd. stock fund. However,
participants who are age 50 or older and are fully vested will be eligible to
invest one-half of their employer contributions into any of the investment
funds available under the 401(k) Plan.
Participants will be immediately vested in their pre-tax and after-tax
contributions. Vesting in the employer contributions will be based upon years
of credited service. Benefits from employer contributions will be 50% vested
after three years of credited service and 100% after five years of credited
service.
Plan benefits are generally distributed to participants upon termination of
employment. However, plan loans will be available to plan participants under
certain circumstances. In addition, participants will be permitted hardship
distributions under the 401(k) Plan.
APW Ltd. will create a trust to fund the benefits payable pursuant to the
401(k) Plan. The trust will be maintained as part of a plan qualified pursuant
to Code Section 401(a) and will be exempt from federal tax pursuant to Code
Section 501(a).
APW Ltd. Employee Stock Purchase Plan
APW Ltd. intends to adopt an employee stock purchase plan for its
employees. The plan will permit eligible employees to acquire APW Ltd. common
stock with payroll deductions. If specified performance objectives are
achieved, the employees will receive a 10% discount on the purchase price. The
amount of any discount will be includible in employees' taxable income and be
deductible by APW Ltd.
Future Compensation of Executive Officers
The board of directors of APW Ltd. and its compensation committee have not
yet met and established any formal policies concerning compensation of
executive officers of APW Ltd. Nevertheless, management believes the board of
directors is likely to develop guidelines similar to those of Applied Power.
If so, it is likely that the
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<PAGE>
compensation committee will seek to establish a total value of each
executive's pay package approximately equal to the competitive median for like
positions in companies of similar size and type. However, it is likely that
the mix of compensation may be somewhat atypical. It is likely that cash
compensation will be set at a lower level than the median (in recent years
Applied Power's salary standards were targeted at approximately 95% of the
market median and target bonuses were set at approximately 70% of the market
median). Stock incentives, on the other hand, are likely to be generally set
above the median for other companies in order to bring the total compensation
opportunity to a level competitive with others in the marketplace. This
general approach to compensation mix, though varied in certain circumstances
when the compensation committee in its discretion concludes it is appropriate
to do so, is designed to encourage the executive's continued focus on building
shareholder value and align the interests with the shareholders.
DESCRIPTION OF APW LTD. CAPITAL STOCK
The following summary is a description of the material terms of our common
stock. Because this is a summary, it may not contain all of the information
that is important to you. It is subject in all respects to the applicable
provisions of Bermuda law and of our constituent documents. We have filed our
memorandum of association and bye-laws as exhibits to this Information
Statement.
Authorized Capital Stock
Under our memorandum of association, our authorized share capital is
$3,000,000, divided into:
. 250,000,000 shares of common stock, par value $0.01 per share, of which
immediately after the Distribution approximately 39.1 million shares will
be outstanding and additional shares will be subject to employee options
(the actual number will be determined only after the Distribution Date
and cannot yet be determined); and
. 50,000,000 shares of preferred stock, par value $0.01 per share, of which
only the shareholder rights (and the Class A Subordinated Preferred
Stock) associated with the common stock will be outstanding immediately
after the Distribution. See "Summary of Rights Plan," below.
Common Stock
Voting Restrictions. Each share of our common stock generally is entitled
to one vote on all matters properly coming before the shareholders. However,
APW Ltd.'s bye-laws include provisions that limit the voting rights of certain
large shareholders under certain circumstances in a manner comparable to
Section 180.1150 of the Wisconsin Business Corporation Law, which currently
applies to Applied Power. Pursuant to APW Ltd.'s bye-laws, the voting power of
shares, including shares issuable upon conversion of convertible securities or
upon the exercise of options or warrants, held by a person (including persons
acting as a group) in excess of 20% of the voting power in the election of
directors is limited to 10% of the full voting power of the shares in excess
of 20%, unless shareholders of APW Ltd. approve full restoration of the voting
power of the shares at a shareholders meeting. This restriction does not apply
to shares acquired directly from APW Ltd. or in certain specified
transactions.
Amendments to the voting reallocation and transfer restriction provisions
of our bye-laws require both the approval of our board of directors and
approval of shareholders holding at least 75% of the votes of all outstanding
shares of common stock.
These voting and transfer restrictions could make it difficult for any
person or group of persons acting in concert, other than some existing owners,
to acquire control of APW Ltd.
Distributions. Holders of common stock are treated equally with respect to
all distributions to our shareholders.
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Preferred Stock
As noted above, we have authorized 50,000,000 shares of preferred stock,
par value $0.01 per share. As of the date of the Distribution, we will have no
shares of preferred stock issued and outstanding other than the shareholder
rights described below.
Our board of directors is authorized to:
. issue shares of preferred stock in one or more series;
. establish the number of shares in each series; and
. fix the designations, powers, preferences and rights of each series and
the qualifications, limitations or restrictions of each series.
Each time that we issue a new series of preferred stock, we will file with
the Bermuda Monetary Authority and the SEC a definitive certificate of
designations of the preferred stock. In addition, we will specify the
particular amount, price and other terms of that new series. These terms will
include:
. the designation of the title of the series;
. dividend rates;
. redemption provisions, if any;
. special or relative rights in the event of liquidation, dissolution,
distribution or winding up of APW Ltd.;
. sinking fund provisions, if any;
. whether the preferred stock will be convertible into our common stock or
any other of our securities or exchangeable for securities of any other
person;
. voting rights, if any; and
. any other preferences, privileges, powers, rights, qualifications,
limitations and restrictions, not inconsistent with our bye-laws.
The shares of any series of preferred stock will be, when issued, fully
paid and non-assessable. The holders of the preferred stock will not have
preemptive rights.
Ranking. Each new series of preferred stock will rank with respect to each
other series of our preferred stock as specified in the certificate of
designation relating to that new series of preferred stock.
Dividends. Holders of each new series of preferred stock will be entitled
to receive cash dividends or dividends in kind, if declared by our board of
directors out of funds legally available for dividends. For each series of
preferred stock, we will specify:
. the dividend rate;
. whether the dividend rate will be fixed or variable or both;
. the dates of distribution of the cash dividends; and
. whether the dividends on any series of preferred stock will be cumulative
or non-cumulative.
Conversion and Exchange of Preferred Stock. We will determine the terms and
other provisions, if any, on which shares of the new series of preferred stock
are convertible into shares of our common stock.
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Redemption. We will determine for each new series of preferred stock:
. whether that new series will be redeemable at any time, in whole or in
part, at our option or at the option of the holder of the shares of
preferred stock;
. whether that new series will be subject to mandatory redemption under a
sinking fund or on other terms; and
. whether to have redemption prices.
Liquidation Preference. Upon our voluntary or involuntary liquidation,
dissolution or winding up, holders of each series of preferred stock will be
entitled to receive:
. distributions upon liquidation in the amount provided in the certificate
of designation of that series of preferred stock; plus
. any accrued and unpaid dividends.
These payments will be made to holders of preferred stock out of our assets
available for distribution to shareholders before any distribution is made on
any securities ranking junior to the preferred stock regarding liquidation
rights.
After payment of the full amount of the liquidation preference to which
they are entitled, the holders of each series of preferred stock will not be
entitled to any further participation in any distribution of our assets.
Voting Rights. The holders of shares of any series of preferred stock will
have no voting rights except as indicated in the certificate of designation
relating to that series or as required by law.
Transfer Agent and Registrar. We will determine the transfer agent,
registrar, dividend disbursing agent and redemption agent for shares of each
new series of preferred stock.
Summary of Rights Plan
The board of directors of APW Ltd. declared a dividend of one preferred
share purchase right (a "Right") for each outstanding share of common stock on
. Each Right entitles the registered holder to purchase from APW
Ltd. one one-ten thousands of a share of Series A Junior Participating
Preferred Stock, par value $1.00 per share (the "Preferred Shares"), of APW
Ltd. at a price of [$ ] per one one-ten thousands of a Preferred Share (the
"Purchase Price"), subject to adjustment. The description and terms of the
Rights are set forth in a Rights Agreement (the "Rights Agreement") between
APW. Ltd. and Firstar Bank, N.A., as Rights Agent (the "Rights Agent").
Triggering Events. Until the earlier to occur of (i) 10 days following a
public announcement that a person or group of affiliated or associated persons
(subject to certain exceptions) (an "Acquiring Person") have acquired
beneficial ownership of 15% or more of the outstanding common stock or (ii) 10
business days (or such later date as may be determined by action of the board
of directors prior to such time as any Person becomes an Acquiring Person)
following the commencement of, or announcement of an intention to make, a
tender offer or exchange offer the consummation of which would result in the
beneficial ownership by a person or group of 15% or more of such outstanding
common stock (the earlier of such dates being called the "Rights Distribution
Date"), the Rights will be evidenced, with respect to any of the common stock
certificates outstanding as of the Record Date, by the common stock
certificates with a copy of a Summary of Rights Plan attached thereto.
The Rights Agreement provides that, until the Rights Distribution Date, the
Rights will be transferred with and only with the common stock. Until the
Rights Distribution Date (or earlier redemption or expiration of the Rights),
new common share certificates issued after the Record Date, upon transfer or
new issuance of common stock, will contain a notation incorporating the Rights
Agreement by reference. Until the Rights Distribution Date (or earlier
redemption or expiration of the Rights), the surrender for transfer of any
certificates for common stock, outstanding as of the Record Date, even without
such notation or a copy of the Summary of Rights Plan being attached thereto,
will also constitute the transfer of the Rights associated with the common
stock represented by the certificate. As soon as practicable following the
Rights Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of the common stock as of
the close of business on the Rights Distribution Date and thereafter the
separate Right Certificates alone will evidence the Rights.
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The Rights are not exercisable until the Rights Distribution Date. The
Rights will expire on May __, 2010 (the "Final Expiration Date"), unless the
Final Expiration Date is extended or unless the Rights are earlier redeemed by
APW Ltd., in each case, as described below.
Adjustment Provisions. The Purchase Price payable, and the number of
Preferred Shares or other securities or property issuable, upon exercise of
the Rights are subject to adjustment from time to time to prevent dilution (1)
in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Preferred Shares, (2) upon the grant to holders of
the Preferred Shares of certain rights or warrants to subscribe for or
purchase Preferred Shares at a price, or securities convertible into Preferred
Shares with a conversion price, less than the then current market price of the
Preferred Shares or (3) upon the distribution to holders of the Preferred
Shares of evidences of indebtedness or assets (excluding regular periodic cash
dividends paid out of earnings or retained earnings or dividends payable in
Preferred Shares) or of subscription rights or warrants (other than those
referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% of
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are integral multiples of one one-ten thousands of a Preferred
Share, which may, at the election of APW Ltd., be evidenced by depositary
receipts) and in lieu thereof, an adjustment in cash will be made based on the
market price of the Preferred Shares on the last trading day prior to the date
of exercise.
The number of outstanding Rights and the number of one one-ten thousands of
a Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the common stock or a stock
dividend on the common stock payable in common stock or subdivisions,
amalgamations or combinations of the common stock occurring, in any such case,
prior to the Rights Distribution Date.
Dividends, Liquidation and Voting. Preferred Shares purchasable upon
exercise of the Rights are not redeemable. Each Preferred Share will be
entitled to a minimum preferential quarterly dividend payment of $1 per share
but will be entitled to an aggregate dividend of 10,000 times the dividend
declared per common share. In the event of liquidation, the holders of the
Preferred Shares will be entitled to a minimum preferential liquidation
payment of $100 per share plus an amount equal to accrued and unpaid dividends
thereon but will be entitled to an aggregate payment of 10,000 times the
payment made per Common Share. Each Preferred Share will have 10,000 votes,
voting together with the common stock. Finally, in the event of any merger,
amalgamation or other transaction in which common stock is exchanged, each
Preferred Share will be entitled to receive 10,000 times the amount received
per common share. These rights are protected by customary antidilution
provisions.
Because of the nature of the Preferred Shares' dividend, liquidation and
voting rights, the value of the one one-ten thousands interest in a Preferred
Share purchasable upon exercise of each Right holds approximately the value of
one common share.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a Shareholder of APW Ltd., including, without limitation, the right
to vote or to receive dividends.
Flip-Over Provision. In the event that (1) any person becomes an Acquiring
Person or (2) during any time that there is an Acquiring Person, there shall
be a reclassification of securities or a recapitalization or reorganization of
APW Ltd. or other transaction or series of transactions involving APW Ltd.
which has the effect of increasing by more than 1% the proportionate share of
the outstanding shares of any class of equity securities of APW Ltd. or any of
its subsidiaries beneficially owned by the Acquiring Person, proper provision
shall be made so that 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 common stock
having a market value of two times the exercise price of the Right. In the
event that, after a person or a group has become an Acquiring Person, APW Ltd.
is acquired in a merger or other business combination transaction or 50% or
more of its consolidated assets or earning power are sold or transferred
(subject to certain exceptions), proper provision will be made so that 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 the transaction
will have a market value of two times the exercise price of the Right.
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At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of the outstanding
common stock and prior to the acquisition by such person or group of 50% or
more of the outstanding common stock, the board of directors of APW Ltd. may
exchange the Rights (other than Rights owned by such person or group which
have become void), in whole or in part, at an exchange ratio of one common
share per Right (subject to adjustment).
Redemption Provisions. At any time prior to the acquisition by a person or
group of affiliated or associated persons of beneficial ownership of 15% or
more of the outstanding common stock, the board of directors of APW Ltd. may
redeem the Rights in whole, but not in part, at a price of $0.01 per Right
(the "Redemption Price"). The redemption of the Rights may be made effective
at such time on such basis and with such conditions as the board of directors
in its sole discretion may establish. Immediately upon any redemption of the
Rights, the right to exercise the Rights will terminate and the only right of
the holders of Rights will be to receive the Redemption Price.
Amendment Provisions. The terms of the Rights may be amended by the board
of directors of APW Ltd. without the consent of the holders of the Rights,
including an amendment to lower certain thresholds described above to not less
than (1) the greater of the sum of .001% and the largest percentage of the
outstanding common stock then known to APW Ltd. to be beneficially owned by
any person or group of affiliated or associated persons, and (2) 10%. In
addition the board may modify the Expiration Date, except that from and after
such time as any person or group of affiliated or associated persons becomes
an Acquiring Person no such amendment may adversely affect the interests of
the holders of the Rights.
Transfer Agent
APW Ltd.'s transfer agent is Firstar Bank N.A.
COMPARISON OF SHAREHOLDER RIGHTS
Upon the Distribution, holders of Applied Power common stock will become
entitled to receive APW Ltd. common stock. APW Ltd. is a company formed under
the laws of Bermuda, and Applied Power is a corporation incorporated under the
laws of Wisconsin. The Companies Act of 1981 is the statute that governs
Bermuda companies, and the Wisconsin Business Corporation Law is the statute
that governs Wisconsin corporations.
The following is a summary of some material differences between the rights
of holders of Applied Power common stock and APW Ltd. common shares. These
differences arise from differences between the corporate laws of the State of
Wisconsin and the corporate law of Bermuda, as well as differences between the
Applied Power articles of incorporation and the Applied Power by-laws, on the
one hand, and the APW Ltd. memorandum of association and the APW Ltd. bye-
laws, on the other hand. See "Description of APW Ltd. Capital Stock." This
discussion is not a complete statement of all differences between rights of
holders of APW Ltd. common stock and Applied Power common shares. This summary
discusses material differences between the laws of Bermuda and those of
Wisconsin. It also discusses material differences between the APW Ltd.
memorandum of association and bye-laws on the one hand and the Applied Power
restated articles of incorporation and by-laws on the other hand. This summary
is qualified by the full text of each document and the Companies Act 1981 and
the Wisconsin Business Corporation Law. For information as to how to get those
documents, see "Where You Can Find More Information" beginning on page [77].
Size and Classification of the Board of Directors
APW Ltd. Bermuda law permits a company's board of directors to be divided
into classes with staggered terms of office. The APW Ltd. bye-laws provide for
three classes of directors with staggered terms. The APW Ltd. bye-laws mandate
that APW Ltd. have not less than three directors.
Applied Power. Wisconsin law permits a company's board of directors to be
divided into classes with staggered terms of office. While the Applied Power
articles allow for staggered classes, Applied Power has chosen to elect all of
its directors annually.
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Removal of Directors; Vacancies
APW Ltd. The APW Ltd. bye-laws provide that shareholders holding not less
than one-tenth of the paid up share capital of APW Ltd. carrying the right to
vote at general meetings may call a special meeting to consider removal of a
director for cause. Notice of the meeting must be given to the director not
less than 90 days before the meeting, and the director is entitled to be heard
at the meeting. A director is removed if the motion received the affirmative
vote of the holders of at least 75% of the votes cast at the meeting. Any
vacancy created by the removal of a director at a special meeting may be
filled at the meeting by the election of another director or, in the absence
of an election, by the board of directors.
Applied Power. Under Wisconsin law and the Applied Power by-laws,
shareholders holding shares totaling more than 10% of the stock may require
that the corporation call a special meeting and seek to remove directors, with
or without cause. Any vacancy can be filled at the meeting or in the absence
of an election, by the board of directors.
Meetings of Shareholders
APW Ltd. Under Bermuda law, an annual general meeting must be held once
every calendar year. A special general meeting of shareholders may be convened
by a majority of the directors or chairman at any time and must be convened
upon the request of shareholders holding not less than one-tenth of the paid
up share capital of APW Ltd. carrying the right to vote at general meetings.
Applied Power. Under Wisconsin law and Applied Power's by-laws, an annual
meeting generally must be held each year. A special meeting may be called by
the chairman or a majority of the board of directors, and the company is
required to call a special meeting upon the written demand of shareholders
holding 10% of the outstanding shares.
Action by Written Consent of Shareholders; Shareholder Resolutions
APW Ltd. Action by written consent of shareholders is permitted in Bermuda,
except for the purpose of removing an auditor or director before the
expiration of his or her term of office. A written resolution must be signed
by all shareholders entitled to attend and vote at a meeting. In addition, the
APW Ltd. bye-laws provide that, unless a greater percentage is required by the
Companies Act 1981 or by a specific bye-law provision, any matter proposed for
consideration at any general meeting requires the affirmative vote of a
majority of votes that may be cast by all shareholders to be approved.
Applied Power. The Wisconsin Business Corporation Law provides that
shareholders may take any action without a meeting by written consent only if
the consent is signed by the holders of all the outstanding shares entitled to
vote on that action, unless otherwise provided in the articles of
incorporation. Applied Power's articles of incorporation do not permit
shareholder action without a meeting by less than unanimous written consent.
Vote Required for Extraordinary Corporate Transactions
APW Ltd. Bermuda law permits an amalgamation between two or more Bermuda
exempted companies or between one or more Bermuda exempted companies and one
or more foreign corporations subject, unless the bye-laws otherwise provide,
to obtaining a majority vote of the shareholders of each company present and
voting in person or by proxy at a meeting called for that purpose at which the
quorum shall be two or more persons present in person and representing in
person or by proxy in excess of 50% of the issued shares. Short form
amalgamations are permitted between a holding company and one or more of its
wholly owned subsidiary companies or between two or more wholly owned
subsidiary companies of the same holding company subject to approval of the
amalgamation by a resolution of the directors of each amalgamating company.
The APW Ltd. bye-laws provide that an amalgamation requires the approval of a
majority of three-fourths of votes cast at any shareholder's meeting, subject
to specified quorum requirements.
Applied Power. The Wisconsin Business Corporation Law and Applied Power's
articles of incorporation require the affirmative vote of two-thirds of all
outstanding shares entitled to vote thereon to effect a merger, a
consolidation, a share exchange or the sale, lease or disposition of all or
substantially all of the corporation's
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assets. In addition, under some circumstances, holders of shares of a class or
series of a class are entitled to vote together and to vote as a separate
class on the transaction.
Interested Director Transactions
APW Ltd. The APW Ltd. bye-laws provide that a director may be a party to,
or otherwise interested in, any transaction or arrangement with APW Ltd. or in
which APW Ltd. is otherwise interested except that a director or director's
firm, partner or such company cannot act as auditor of APW Ltd. So long as the
director declares the nature of his or her interest in writing as required by
the bye-laws and the Companies Act 1981, he or she will not be accountable to
APW Ltd. for any benefit which he or she derives from a similar transaction or
arrangement. For the purposes of the bye-laws, a director is deemed to have an
interest in a transaction or arrangement with APW Ltd. if he or she is the
holder of or is beneficially interested in 5% or more of any class of stock of
a company with which APW Ltd. is proposing to enter into a transaction or
arrangement.
Applied Power. The Wisconsin Business Corporation Law provides that a
transaction between a corporation and one or more of its directors is not
voidable by the corporation solely for that reason if, after disclosure of
material facts (unless those facts were known):
(1) the disinterested directors or a committee of disinterested
directors approved or specifically ratified the transaction by a vote
sufficient for such purpose without counting the vote of any interested
director, or, if the vote of disinterested directors is insufficient to
constitute an act of the board under Wisconsin law, by the unanimous vote
of the disinterested directors; or
(2) the transaction is approved by a vote of the shareholders; or
(3) the transaction is fair to the corporation.
Business Combination and Anti-takeover Provisions
APW Ltd. The Companies Act 1981 does not contain any business combination
or antitakeover statute similar to the Wisconsin statutes described below.
However, APW Ltd.'s bye-laws contain corresponding provisions.
Similar to the Wisconsin Control Share Statutes these provisions provide
that voting rights of person (including two or more persons acting as a group)
will be limited to 10% of the full voting power in excess of 20% of the
outstanding voting power. A person holding 20% or more of the shares may
request a meeting of the shareholders to approve restoration of full voting
power. In contrast to Wisconsin Law, under APW Ltd.'s bye-laws, a shareholder
must own 20% of the share to call for a shareholder meeting.
Applied Power. Sections 180.1140 to 180.1144 of the Wisconsin Business
Corporation Law (the "Wisconsin Business Combination Statute") regulate a
broad range of "business combinations" between a "resident domestic
corporation" and an "interested stockholder." The Wisconsin Business
Combination Statute defines a "business combination" to include: a merger or
share exchange; a sale, lease, exchange, mortgage, pledge, transfer, or other
disposition of assets equal to at least 5% of the market value of the stock or
assets of the company or 10% of its earning power; the issuance of stock or
rights to purchase stock with a market value equal to at least 5% of the
outstanding stock; the adoption of a plan of liquidation; and certain other
transactions involving an "interested stockholder." An "interested
stockholder" is defined as a person who beneficially owns, directly or
indirectly, 10% or more of the voting power of the outstanding voting stock of
a corporation or who is an affiliate or associate of the corporation and
beneficially owned 10% or more of the voting power of the then outstanding
voting stock within the last three years. The Wisconsin Business Combination
Statute prohibits a corporation from engaging in a business combination (other
than a business combination of a type specifically excluded from the coverage
of the statute) with an interested stockholder for a period of three years
following the date such person becomes an interested stockholder, unless the
board of directors approved the business combination or the acquisition of the
stock that resulted in the person becoming an interested stockholder before
such acquisition. Business combinations after the three-year period following
the stock acquisition date are permitted only if:
(1) the board of directors approved the acquisition of the stock prior
to the acquisition date;
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(2) the business combination is approved by a majority of the
outstanding voting stock not beneficially owned by the interested
stockholder; or
(3) the consideration to be received by shareholders meets certain fair
price requirements of the statute with respect to form and amount.
The Wisconsin Business Corporation Law also provides, in Sections 180.1130
to 180.1133, that certain mergers, share exchanges or sales, leases, exchanges
or other dispositions of assets in a transaction involving a "significant
shareholder" and a "resident domestic corporation" (a "Section 180.1130
business combination") are subject to a supermajority vote of shareholders
(the "Wisconsin Fair Price Statute"), in addition to any approval otherwise
required, unless shareholders receive a fair price for their shares that
satisfies a statutory formula. A "significant shareholder," with respect to a
resident domestic corporation, is defined as a person who beneficially owns,
directly or indirectly, 10% or more of the voting stock of the corporation, or
an affiliate of the corporation which beneficially owned, directly or
indirectly, 10% or more of the voting stock of the corporation within the last
two years. A Section 180.1130 business combination must be approved by 80% of
the voting power of the corporation's stock and at least two-thirds of the
voting power of the corporation's stock not beneficially held by the
significant shareholder who is party to the relevant transaction or any of its
affiliates or associates, in each case voting together as a single group,
unless the following fair price standards have been met:
.the aggregate value of the per share consideration is equal to the highest
of
(a) the highest price paid for any common shares of the corporation by
the significant shareholder in the transaction in which it became a
significant shareholder or within two years before the date of the
business combination,
(b) the market value of the corporation's shares on the date of
commencement of any tender offer by the significant shareholder,
the date on which the person became a significant shareholder or
the date of the first public announcement of the proposed business
combination, whichever is highest, or
(c) the highest liquidation or dissolution distribution to which
holders of the shares would be entitled, and
. either cash, or the form of consideration used by the significant
shareholder to acquire the largest number of shares, is offered.
Under Section 180.1150 (the "Wisconsin Control Share Statute") of the
Wisconsin Business Corporation Law, unless otherwise provided in the articles
of incorporation, the voting power of shares, including shares issuable upon
conversion of convertible securities or exercise of options or warrants, of a
"resident domestic corporation," held by any person (including two or more
persons acting as a group) in excess of 20% of the voting power in the
election of directors is limited (in voting on any matter) to 10% of the full
voting power of those shares. This restriction does not apply to shares
acquired directly from the resident domestic corporation, in certain specified
transactions, or in a transaction in which the corporation's shareholders have
approved restoration of the full voting power of the otherwise restricted
shares. As discussed above, APW Ltd.'s bye-laws include a provision similar to
the Wisconsin Control Share Statute.
Section 180.1134 of the Wisconsin Business Corporation Law provides that,
in addition to the vote otherwise required by law or the articles of
incorporation of a resident domestic corporation such as APW Ltd., the
approval of the holders of a majority of the shares entitled to vote is
required before the corporation can take certain action while a takeover offer
is under way or after a takeover offer has been publicly announced and before
it is concluded. Shareholder approval is required if the corporation desires
to:
. acquire more than 5% of its outstanding voting shares at a price above
the market price from any individual or organization that owns more than
3% of the outstanding voting shares and has held such shares for less
than two years, unless a similar offer is made to acquire all voting
shares, or
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. sell or option assets of the corporation which amount to at least 10% of
the market value of the corporation, unless the corporation has at least
three independent directors (directors who are not officers or employees)
and a majority of the independent directors vote not to have this
provision apply to the corporation.
These restrictions above may have the effect of deterring a shareholder
from acquiring shares with the goal of seeking to have the corporation
repurchase such shares at a premium over the market price.
Shareholder Suits
APW Ltd. Class actions and derivative actions are generally not available
to shareholders under the laws of Bermuda. The Bermuda courts, however, would
ordinarily be expected to permit a shareholder to begin an action in the name
of APW Ltd. to remedy a wrong done to APW Ltd.:
(1) where the act complained of is alleged to be beyond the corporate
power of APW Ltd. or illegal or would result in a violation of APW Ltd.'s
memorandum of association or bye-laws;
(2) where the act complained of is alleged to constitute a fraud against
the minority shareholders; or
(3) where an act requires approval by a greater percentage of our
shareholders than actually approved it.
There is also a statutory remedy under Section 111 of the Companies Act,
which provides that a shareholder may seek redress of the court as long as he
or she can establish that the company's affairs are being conducted, or have
been conducted, in a manner oppressive or prejudicial to the interests of some
of the shareholders, including himself.
Applied Power. Under Wisconsin law, a shareholder may institute a lawsuit
against one or more directors, either on his or her own behalf, or
derivatively on behalf of the corporation.
Dissenters' Rights
APW Ltd. Under Bermuda law a dissenting shareholder of a company
participating in an amalgamation, other than an amalgamation between a company
and its wholly owned subsidiary or between two or more wholly owned
subsidiaries of the same holding company, [ ] may, in specified
circumstances, receive cash or other consideration in the amount of the fair
value of the shareholder's shares as determined by a court, instead of the
consideration he or she would otherwise receive in the amalgamation.
Applied Power. The Wisconsin Business Corporation Law grants dissenters'
rights to shareholders, which are rights to receive payment of the fair value
of one's shares determined by judicial appraisal, in the case of specified
mergers or consolidations, a sale of all or substantially all of the
corporation's assets and, in the case of a shareholder whose shares would be
adversely affected, specified amendments to the articles of incorporation. The
right to receive payment of the fair value is not available, however,
(1) to a shareholder of the surviving corporation in a merger, unless
(A) the articles of amendment alters or abolishes any preferential
rights of the shares having preferences; or
(B) creates, alters or abolishes any provision or right in respect of
the redemption of the shares or any sinking fund for the redemption or
purchase of the shares; or
(C) alters or abolishes any preemptive right of the holder to acquire
shares or other securities; or
(D) excludes or limits the right of the holder to vote on any matter,
except as that right may be limited by the voting rights given to new
shares then being authorized of any existing or new class;
(2) to a shareholder of the parent corporation in a merger between the
parent and subsidiary corporation of which the parent owns at least 90% of
the outstanding shares; or
(3) to a shareholder for the shares that were listed on a national
securities exchange or designated as a national market system security by
the National Association of Securities Dealers, Inc. on the record date for
the related meeting.
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Dividends
APW Ltd. The APW Ltd. bye-laws provide that the board of directors may from
time to time declare dividends or distributions out of contributed surplus to
be paid to the shareholders according to their rights and interests, including
any interim dividends that appear to the board of directors to be justified.
The board of directors must be satisfied on reasonable grounds that at the
time when the dividends are declared and at the time when the dividends are
paid, APW Ltd. is, and would after the payment be, able to pay its debts as
they fall due and that the realizable value of APW Ltd.'s assets would not be
less than the aggregate of its liabilities and its issued share capital and
share premium accounts.
Applied Power. Under the Wisconsin Business Corporation Law, a corporation
may declare and pay dividends on its outstanding shares except when the
corporation is insolvent (meaning that either (a) the corporation is not able
to pay its debts as they become due in the ordinary course of business, or (b)
that the corporation's total assets would be less than its total liabilities
plus certain preferential rights upon dissolution) or would be made insolvent
upon payment of the dividends or when the declaration, payment or distribution
would be contrary to any restrictions contained in the articles of
incorporation.
Voting
APW Ltd. The APW Ltd. bye-laws contain restrictions on voting shares if a
holder owns more than a specified percentage of the voting power. There is no
provision for cumulative voting. See "Description of APW Ltd. Capital Stock--
Voting and Transfer Restrictions" for detailed information.
Applied Power. The Applied Power articles of incorporation and by-laws
contain no similar restriction on voting. However, Wisconsin law applicable to
Applied Power does apply a similar limit under the Wisconsin Control Share
Statute discussed above. There is no provision for cumulative voting.
Preemptive Rights
APW Ltd. Bermuda law does not require that preemptive rights be provided
for in the bye-laws of the company. Preemptive rights may exist by contractual
arrangement or pursuant to the terms of issuance of the shares. The APW Ltd.
bye-laws do not contain any provision concerning preemptive rights, nor has
APW Ltd. entered into any agreement or arrangement granting preemptive rights.
Applied Power. The Applied Power restated articles of incorporation state
that no holder of shares of Applied Power of any class or series, now
authorized or authorized in the future, will have any preemptive rights.
Amendments to Corporate Governance Documents
APW Ltd. Amendments to the memorandum of association or to the bye-laws of
a Bermuda company must be submitted to a general meeting of the shareholders
and will be effective only to the extent approved by the shareholders at that
meeting and, in respect of certain amendments to a company's memorandum of
association, by the Bermuda Minister of Finance. The APW Ltd. bye-laws provide
that the bye-laws may be amended by resolution of a majority of not less than
75% of the votes cast.
Applied Power. The Wisconsin Business Corporation Law generally provides
that amendments to a corporation's articles of incorporation must be proposed
by the board of directors and approved by the shareholders by a majority of
the votes cast by each voting group (class or series of shares) entitled to
vote thereon, if a quorum exists, unless a greater proportion is required by
law or the corporation's articles or bylaws. Neither Applied Power's articles
of incorporation nor its by-laws provide for a greater voting proportion.
Under the Wisconsin Business Corporation Law, certain insignificant amendments
to the articles of incorporation may be made by Applied Power's board of
directors without shareholder approval.
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Limitations on Directors' Liability and Indemnification
APW Ltd. See "Liability and Indemnification of Directors and Officers,"
below, for a discussion of Bermuda law and APW Ltd.'s bye-law provisions
concerning indemnification.
Applied Power. The Wisconsin Business Corporation Law and Applied Power's
by-laws provide for mandatory indemnification of a director or officer against
certain liabilities and expenses if the director or officer was a party to a
proceeding because of his or her status as such:
(a) to the extent such director or officer is successful on the merits
or otherwise in the defense of a proceeding (whether brought derivatively
or by a third party) and
(b) in proceedings in which the director or officer is not successful in
the defense thereof, unless it is determined that the director or officer
breached or failed to perform a duty that he or she owes to the corporation
and the breach or failure to perform constitutes:
(1) a willful failure to deal fairly with the corporation or its
shareholders in connection with a matter in which the director or
officer has a material conflict of interest;
(2) a violation of criminal law, unless the director or officer had
reasonable cause to believe that his or her conduct was lawful or no
reasonable cause to believe that his or her conduct was unlawful;
(3) a transaction from which the director or officer derived an
improper personal profit; or
(4) willful misconduct.
The Wisconsin Business Corporation Law specifically states that it is the
public policy of Wisconsin to require or permit indemnification in connection
with a proceeding involving securities regulation, as described therein, to
the extent otherwise required or permitted under the Wisconsin Business
Corporation Law. Applied Power's by-laws also require payment of a director's
or officer's litigation expenses as incurred, subject to certain conditions.
Consistent with the Wisconsin Business Corporation Law, Applied Power's by-
laws provide that, after receipt of a written request, the corporation shall
indemnify a director or officer, to the extent he or she has been successful
on the merits or otherwise in the defense of a proceeding, for all reasonable
expenses incurred in the proceeding if the director or officer was a party
because he or she is a director or officer of Applied Power. In other cases,
Applied Power must indemnify a director or officer against all liabilities and
expenses incurred by the director or officer in a proceeding to which the
director or officer was a party because he or she is a director or officer of
Applied Power.
Rights of Inspection
APW Ltd. Bermuda law provides the public with a right of inspection of a
Bermuda company's public documents at the office of the Registrar of Companies
in Bermuda and provides a Bermuda company's shareholders with a right of
inspection of the company's bye-laws, minutes of general shareholder meetings
and audited financial statements. The register of shareholders is also open to
inspection by shareholders free of charge and, upon payment of a small fee, by
any other person. A Bermuda company is required to maintain its share register
in Bermuda, but if it is a public company, it may establish a branch register
outside Bermuda. A Bermuda company is required to keep at its registered
office a register of its directors and officers which is open for inspection
by members of the public without charge. Bermuda law does not, however,
provide a general right for shareholders to inspect or obtain copies of any
other corporate records.
Applied Power. By contrast, under the Wisconsin Business Corporation Law,
in order to inspect and copy the corporate records of a corporation, including
the shareholder list, a shareholder must have been a shareholder of the
corporation for at least six months before making a demand or the shareholder
must hold at least 5% of the outstanding shares of the corporation. A
shareholder's demand must also be made for a proper purpose. In addition,
under the Wisconsin Business Corporation Law, all shareholders (regardless of
how long they have owned stock) may, upon written demand, inspect and, subject
to satisfying the proper purpose requirement, copy
75
<PAGE>
the shareholder list during the period beginning two business days after the
notice of a meeting of shareholders is given and continuing to the date of the
meeting, and any shareholder may inspect the list at any time during the
meeting.
Repurchase of Shares
APW Ltd. The APW Ltd. bye-laws provide that APW Ltd. will be entitled to
repurchase its own shares in accordance with the Companies Act 1981. Under the
Companies Act, the Company may repurchase shares provided [ ]
Applied Power. The Applied Power by-laws do not contain any similar
provision regarding repurchase of shares.
Rights Agreement
APW Ltd. APW Ltd. intends to adopt a rights agreement between APW Ltd. and
Firstar Bank, N.A. which contains provisions that may delay, defer or prevent
a change of control of APW Ltd. If it adopts a plan, APW Ltd. intends to send
a summary of the Rights Plan to all shareholders.
Applied Power. Applied Power has not adopted a shareholder rights plan.
Listing
APW Ltd. APW Ltd. common stock will trade on the New York Stock Exchange.
It is expected a "when issued" basis will begin trading beginning
, 2000, under the symbol "APW."
Applied Power. Applied Power common stock is currently listed on the New
York Stock Exchange, and the common stock of API/Actuant will continue to be
listed after the Distribution under the symbol "ATU."
Dividends and Distributions Upon Liquidation
Applied Power and APW Ltd. Under both the articles of incorporation of
Applied Power and Bermuda statutory provisions applicable to APW Ltd., subject
to the prior rights and preferences of any issued and outstanding shares of
preferred stock, such dividends as may be determined by the respective board
of directors may be declared and paid on the common stock from time to time
out of any funds legally available therefor. In the event of a liquidation,
dissolution or winding up, the holders of common stock are entitled to share
equally and ratably in the corporate assets, if any, remaining after the
payment of all debts and liabilities, subject to the prior rights of the
holders of any authorized series of preferred stock.
Statutory Shareholder Liability
APW Ltd. APW Ltd. has no provision imposing personal liability on
shareholders who have paid their share subscriptions in full.
Applied Power. Wisconsin law as judicially interpreted makes shareholders
personally liable for debts owed to employees for services performed, but not
exceeding six months' service in any one case.
Director and Officer Discretion
Applied Power. The Wisconsin Business Corporation Law provides than an
officer or director, in discharging his or her duties to the corporation and
in determining what he or she believes to be in the best interests of the
corporation, may consider the effects of the action on employees, suppliers,
customers, the communities in which the corporation operates and any other
factors that the director or officer considers pertinent, in addition to
considering the effects of any action on shareholders.
APW Ltd. Bermuda law has no comparable provision.
76
<PAGE>
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Limitations on Liability of Directors
The APW Ltd. bye-laws provide that each shareholder agrees to waive any
claim or right of action he or she may have, whether individually or by or in
the right of APW Ltd., against any director of APW Ltd. on account of any
action taken by any director, or the failure of any director to take any
action in the performance of his or her duties with or for APW Ltd.; provided,
however, that this waiver does not apply to any claims or rights of action
arising out of the fraud or dishonesty of a director.
Indemnification and Insurance
The bye-laws of APW Ltd. provide for indemnification of APW Ltd.'s officers
and directors against all liabilities, loss, damage or expense incurred or
suffered by any officer or director in his or her role as an officer or
director of APW Ltd. to the maximum extent permitted by Bermuda law. However,
the indemnification does not extend to any matter which would render it void
pursuant to the Companies Act of 1981 as in effect from time to time in
Bermuda.
The Companies Act provides that a Bermuda company may indemnify its
officers and directors in respect of any loss arising or liability attaching
to them as a result of any negligence, default, breach of duty or breach of
trust of which they may be guilty. A company is also permitted to indemnify
any officer or director against any liability incurred by him or her in
defending any proceedings, whether civil or criminal, in which judgment is
given in favor of the director or officer, or in which he or she is acquitted,
or in connection with any application under relevant Bermuda legislation in
which relief from liability is granted to him or her by the court. However,
the Companies Act also states that any provision, whether contained in APW
Ltd.'s bye-laws or in a contract or arrangement between APW Ltd. and the
director, indemnifying a director against any liability which would attach to
him in respect of his or her fraud or dishonesty will be void.
The directors and officers of APW Ltd. also are covered by directors' and
officers' insurance policies maintained by APW Ltd.
INDEPENDENT PUBLIC ACCOUNTANTS
APW Ltd. anticipates that PricewaterhouseCoopers LLP will be its
independent auditors following the Distribution.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
APW Ltd. has filed with the SEC a registration statement, of which this
Information Statement constitutes a part, under the Securities Act of 1934
with respect to the APW Ltd. common stock that will be received by Applied
Power shareholders in the Distribution. This Information Statement does not
contain all of the information set forth in the registration statement. Also,
the summaries herein of the material terms of certain contracts and other
documents related to the reorganization of Applied Power and APW Ltd. and to
the Distribution may not contain all of the information that is important to
you. In each case where a copy of the contract or document has been filed as
an exhibit to the registration statement, please refer to the registration
statement exhibit.
You may read and copy all or any portion of the registration statement at
the offices of the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of all or any part of the registration statement may be
obtained from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington D.C. 20549 upon payment of the applicable fees. Please call the SEC
at 1-800-SEC-0330 for more information about reference rooms. You may also
visit the SEC's web site, http://www.sec.gov, to view reports, proxy and
77
<PAGE>
information statements, and other information regarding registrants, such as
APW Ltd. and Applied Power, that file electronically with the SEC. Upon
completion of the Distribution, APW Ltd. will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
of 1934, and so will file period reports, proxy statements and other
information with the SEC. These filings will be available for inspection and
copying at the SEC's public reference rooms and at the SEC's web site.
2001 ANNUAL MEETING AND SHAREHOLDER PROPOSALS
The Board has not established a date or location for the next annual
meeting, but anticipates calling a meeting in January 2001. Shareholder
proposals must be received by the Company no later than [August 12, 2000] in
order to be considered for inclusion in the Company's annual meeting proxy
statement. Shareholder proposals not intended to be included in the Company's
annual meeting proxy statement must be received by the Company no later than
[October 26, 2000] to be considered timely.
78
<PAGE>
INDEX TO COMBINED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEX TO COMBINED FINANCIAL STATEMENTS
Report of Independent Accountants....................................... F-2
Combined Statements of Earnings--
For the years ended August 31, 1997, 1998 and 1999; and the six months
ended February 28, 1999 (unaudited) and February 29, 2000 (unaudited).. F-3
Combined Balance Sheets--
As of August 31, 1998 and 1999; and February 29, 2000 (unaudited)...... F-4
Combined Statements of Equity and Comprehensive Income--
For the years ended August 31, 1997, 1998 and 1999; and the six months
ended February 29, 2000 (unaudited).................................... F-5
Combined Statements of Cash Flows--
For the years ended August 31, 1997, 1998 and 1999; and the six months
ended February 28, 1999 (unaudited) and February 29, 2000 (unaudited).. F-6
Notes to Combined Financial Statements.................................. F-7
INDEX TO FINANCIAL STATEMENT SCHEDULE
Report of Independent Accountants on Financial Statement Schedule....... F-25
Schedule II--Valuation and Qualifying Accounts.......................... F-26
</TABLE>
All other schedules are omitted because they are not applicable, not
required or because the required information is included in the combined
financial statements or notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of Applied Power Inc.:
In our opinion, the accompanying combined balance sheets and the related
combined statements of earnings, equity and comprehensive income, and cash
flows present fairly, in all material respects, the combined financial
position of APW Ltd. (the Company) at August 31, 1998 and 1999, and the
combined results of their operations and their cash flows for each of the
three years in the period ended August 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
April 20, 2000
F-2
<PAGE>
APW LTD.
COMBINED STATEMENTS OF EARNINGS
(Dollars in Thousands except per share data)
<TABLE>
<CAPTION>
Years Ended August 31, Six Months Ended
------------------------------ -------------------------
February 28, February 29,
1997 1998 1999 1999 2000
-------- -------- ---------- ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales............... $375,318 $593,210 $1,055,338 $513,240 $566,216
Cost of products sold... 228,645 399,122 763,585 373,388 416,517
-------- -------- ---------- -------- --------
Gross profit.......... 146,673 194,088 291,753 139,852 149,699
Engineering, selling and
administrative
expenses............... 84,847 126,536 187,991 91,415 91,859
Amortization of
intangible assets...... 3,042 7,771 20,876 9,708 11,842
Corporate reorganization
expenses............... -- -- -- -- 2,162
Restructuring charges... -- 11,111 -- -- --
Merger related expenses. -- 5,195 -- -- --
-------- -------- ---------- -------- --------
Operating earnings.... 58,784 43,475 82,886 38,729 43,836
Other expense (income)
Net financing costs... 9,518 16,623 52,857 23,579 23,567
Gain on life insurance
policy............... -- (957) -- -- --
Gain on sale of
building............. -- (5,496) -- -- --
Other--net............ (1,329) (2,201) (1,786) (1,281) 1,353
-------- -------- ---------- -------- --------
Earnings before income
tax expense............ 50,595 35,506 31,815 16,431 18,916
Income tax expense...... 18,899 17,159 11,390 5,413 7,972
-------- -------- ---------- -------- --------
Net earnings before
extraordinary item..... 31,696 18,347 20,425 11,018 10,944
Extraordinary loss on
early retirement of
debt, net of income tax
benefit of $1,250...... -- -- -- -- (2,083)
-------- -------- ---------- -------- --------
Net earnings............ $ 31,696 $ 18,347 $ 20,425 $ 11,018 $ 8,861
======== ======== ========== ======== ========
Basic and diluted
earnings per share:
Earnings per share--
before extraordinary
items................ $ 0.84 $ 0.48 $ 0.53 $ 0.28 $ 0.28
Extraordinary loss net
of tax............... -- -- -- -- (0.05)
-------- -------- ---------- -------- --------
Earnings per share.... $ 0.84 $ 0.48 $ 0.53 $ 0.28 $ 0.23
======== ======== ========== ======== ========
Weighted average
common shares
outstanding (000's).. 37,880 38,380 38,825 38,724 39,023
======== ======== ========== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
APW LTD.
COMBINED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
August 31,
-------------------- February
ASSETS 1998 1999 29, 2000
------ -------- ---------- -----------
(Unaudited)
<S> <C> <C> <C>
Current assets
Cash and cash equivalents.................. $ 1,280 $ 15,002 $ 250
Accounts receivable, net................... 92,930 101,765 98,656
Inventories................................ 78,989 106,794 130,599
Prepaid expenses........................... 6,735 5,710 10,482
Deferred income taxes...................... 12,347 8,496 7,517
-------- ---------- ----------
Total current assets..................... 192,281 237,767 247,504
Property, plant and equipment................ 230,326 357,393 371,591
Less: Accumulated depreciation............. (82,437) (162,489) (176,744)
-------- ---------- ----------
Net property, plant and equipment........ 147,889 194,904 194,847
Goodwill, net................................ 336,525 687,256 682,612
Other intangibles, net....................... 12,352 11,631 11,154
Other assets................................. 30,198 48,420 48,385
-------- ---------- ----------
Total assets............................. $719,245 $1,179,978 $1,184,502
======== ========== ==========
<CAPTION>
LIABILITIES AND EQUITY
----------------------
<S> <C> <C> <C>
Current liabilities
Short-term borrowings...................... $ 30,804 $ 3,207 $ 5,904
Trade accounts payable..................... 77,897 105,154 102,840
Accrued compensation and benefits.......... 19,848 26,749 24,449
Income taxes payable....................... 15,775 37,295 38,108
Other current liabilities.................. 38,068 58,749 49,036
-------- ---------- ----------
Total current liabilities................ 182,392 231,154 220,337
Long-term debt............................... 337,008 725,579 674,885
Deferred income taxes........................ 7,016 8,149 8,149
Other deferred liabilities................... 20,047 42,260 44,476
Equity
Combined equity............................ 174,884 183,328 245,445
Accumulated other comprehensive income..... (2,102) (10,492) (8,790)
-------- ---------- ----------
Total equity............................. 172,782 172,836 236,655
-------- ---------- ----------
Total liabilities and equity............. $719,245 $1,179,978 $1,184,502
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
APW LTD.
COMBINED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME
(Dollars in Thousands)
<TABLE>
<CAPTION>
Years Ended August 31, 1997,
1998 and 1999 and Six Months
Ended February 29, 2000
(unaudited)
--------------------------------
Accumulated
Other
Combined Comprehensive Total
Equity Income Equity
-------- ------------- --------
<S> <C> <C> <C>
Balance at September 1, 1996................. $ 54,292 $ (900) $ 53,392
Net earnings for the year.................. 31,696 31,696
Currency translation adjustments........... 3,010 3,010
--------
Total comprehensive income............... 34,706
--------
Investments by (distributions to) Applied
Power Inc., net........................... (2,040) (2,040)
-------- -------- --------
Balance at August 31, 1997................... 83,948 2,110 86,058
Net earnings for the year.................. 18,347 18,347
Currency translation adjustments........... (4,212) (4,212)
--------
Total comprehensive income............... 14,135
--------
Investments by (distributions to) Applied
Power Inc., net........................... 72,589 72,589
-------- -------- --------
Balance at August 31, 1998................... 174,884 (2,102) 172,782
Net earnings for the year.................. 20,425 20,425
Currency translation adjustments........... (8,390) (8,390)
--------
Total comprehensive income............... 12,035
--------
Investments by (distributions to) Applied
Power Inc., net........................... (11,981) (11,981)
-------- -------- --------
Balance at August 31, 1999................... 183,328 (10,492) 172,836
(Unaudited)
Net earnings for the six month period...... 8,861 8,861
Currency translation adjustments........... 1,702 1,702
--------
Total comprehensive income............... 10,563
--------
Investments by (distributions to) Applied
Power Inc., net........................... 53,256 53,256
-------- -------- --------
Balance at February 29, 2000 (Unaudited)..... $245,445 $ (8,790) $236,655
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
APW LTD.
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Years Ended August 31, Six Months Ended
------------------------------ -------------------------
February 28, February 29,
1997 1998 1999 1999 2000
-------- --------- --------- ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net earnings........... $ 31,696 $ 18,347 $ 20,425 $ 11,018 $ 8,861
Adjustments to
reconcile net earnings
to net cash provided
by operating
activities:
Depreciation and
amortization........ 11,322 23,007 50,942 25,988 29,115
Gain from sale of
assets.............. (511) (7,244) (805) -- --
Provision for
deferred income
taxes............... 1,133 (4,000) 4,649 -- --
Restructuring and
other one-time
charges, net of
income tax benefit.. -- 21,119 -- -- --
Extraordinary loss on
early retirement of
debt................ -- -- -- -- 3,333
Changes in operating
assets and
liabilities,
excluding the
effects of business
acquisitions and
disposals:
Accounts
receivable........ (11,220) (1,439) 741 1,960 3,651
Inventories........ (10,110) (2,622) (7,415) (10,012) (21,005)
Prepaid expenses
and other assets.. (3,590) (9,584) (1,548) (7,058) (3,579)
Trade accounts
payable........... 3,145 4,172 7,471 (15,305) (2,176)
Other liabilities.. 3,575 14,943 1,466 (1,919) (10,927)
-------- --------- --------- --------- --------
Net cash provided
by operating
activities...... 25,440 56,699 75,926 4,672 7,273
Investing activities
Proceeds on sale of
property, plant and
equipment........... 1,577 7,933 9,571 2,569 211
Additions to
property, plant and
equipment........... (17,729) (31,613) (43,017) (20,298) (18,139)
Business
acquisitions, net of
cash acquired....... (76,951) (290,319) (401,891) (382,125) (10,687)
-------- --------- --------- --------- --------
Net cash used in
investing
activities...... (93,103) (313,999) (435,337) (399,854) (28,615)
Financing activities
Investments by
(distributions to)
Applied Power Inc.,
net, including debt
allocations......... 66,894 252,830 359,764 376,192 52,347
Net principal
payments on long-
term debt........... -- -- (24,004) (7,580) (45,297)
Additional
receivables
financed............ 7,716 14,301 37,079 28,051 (820)
Pre-funding of trusts
and other........... -- (17,801) 900 -- --
-------- --------- --------- --------- --------
Net cash provided
by financing
activities...... 74,610 249,330 373,739 396,663 6,230
Effect of exchange rate
changes on cash....... 243 201 (606) 108 360
-------- --------- --------- --------- --------
Net increase (decrease)
in cash and cash
equivalents........... 7,190 (7,769) 13,722 1,589 (14,752)
Cash and cash
equivalents--beginning
of year............... 1,859 9,049 1,280 1,280 15,002
-------- --------- --------- --------- --------
Cash and cash
equivalents--end of
year.................. $ 9,049 $ 1,280 $ 15,002 $ 2,869 $ 250
======== ========= ========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
APW LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 1--Distribution Transaction and Description of Business
On January 26, 2000, Applied Power Inc's. (Applied Power) board of
directors authorized various actions intended to put Applied Power in a
position to distribute its Electronics business segment (APW Ltd.) to its
shareholders. In the Distribution, Applied Power shareholders will receive one
share of APW Ltd. common stock for each share of Applied Power common stock
held in the form of a special dividend, and as a result, APW Ltd. will become
a separately traded, publicly held company. As part of the Distribution, APW
Ltd. will be converted to a Bermuda corporation.
APW Ltd. is a leading global provider of electronics manufacturing services
(EMS) focused on the rapidly growing integrated electronic enclosure systems
market. Operating in over 50 locations in North America, Europe and Asia, APW
Ltd. supplies electronic enclosures, power supplies, thermal systems,
backplanes and cabling, either as individual standard products, or as
integrated custom systems or technical environments, incorporating APW Ltd.'s
product design, supply chain management, manufacturing, assembly, testing and
drop-shipping capabilities. In addition, APW Ltd. provides design, integration
and logistic capabilities to its customers. APW Ltd.'s products are used by
industry leading OEM's in the datacom, networking, telecommunication,
semiconductor equipment, ATM, medical, electronic and manufacturing
industries.
Note 2--Summary of Significant Accounting Policies
Basis of Presentation: The accompanying combined financial statements have
been prepared on a basis which reflects the historical financial position,
results of operations and cash flows of APW Ltd. For all periods presented,
the presentation assumes that the Electronics businesses of Applied Power
expected to be contributed to APW Ltd. in connection with the Distribution
were organized as a separate legal entity. Generally, only assets and
liabilities of the ongoing Applied Power Electronics business segment expected
to be transferred to APW Ltd. prior to the Distribution were included in the
Combined Balance Sheets. In addition, the combined financial statements of APW
Ltd. include allocations of certain Applied Power corporate assets,
liabilities and expenses as discussed below.
The financial statements assume that Applied Power has provided certain
general and administrative services to APW Ltd. including administration,
finance, legal, tax, treasury, information systems, corporate communications
and human resources. The cost for these services has been allocated to APW
Ltd. by Applied Power based upon a formula that includes sales, operating
profit, assets and headcount. Management of Applied Power believes that the
allocation of cost for these services is reasonable. These allocations were
$7.1 million, $9.8 million and $7.4 million in 1997, 1998 and 1999,
respectively, and $3.7 million for the six month periods ended February 28,
1999 (unaudited) and February 29, 2000 (unaudited), respectively. After the
Distribution, APW Ltd. will be required to perform these general and
administrative services using its own resources or purchased services and will
be responsible for the costs and expenses associated with the management of a
public company. Certain assets and liabilities related to the above general
and administrative services have been allocated by Applied Power to APW Ltd.
on a basis consistent with the related expenses.
Applied Power's historical practice has been to incur indebtedness for its
consolidated businesses at the parent company level or at a limited number of
subsidiaries, rather than at the operating company level, and to centrally
manage various cash functions. Accordingly, historical amounts include debt
and related interest expense allocated to APW Ltd. from Applied Power based on
the portion of Applied Power's investment in APW Ltd. which is deemed to be
debt. This allocation is generally based upon a cash flow model which details
the historical uses of debt proceeds by APW Ltd. and the deemed debt
repayments by APW Ltd. based on free cash flow. Management believes that the
allocation of corporate debt and related interest expense for the historical
periods is reasonable.
F-7
<PAGE>
APW LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
The allocation methodology followed in preparing the combined financial
statements may not necessarily reflect the results of operations, cash flows,
or financial position of APW Ltd. in the future, or what the results would
have been had APW Ltd. been a separate, stand-alone public entity for all
periods presented.
Principles of Combination: The combined financial statements of APW Ltd.
include the accounts of the related Electronics businesses of Applied Power.
All significant interdivisional balances, transactions and profits have been
eliminated in combination.
Unaudited Interim Financial Statements: The accompanying interim combined
statements of earnings and cash flows for the six months ended February 28,
1999 and February 29, 2000, the combined statement of equity and comprehensive
income for the six months ended February 29, 2000, and the combined balance
sheet as of February 29, 2000, have not been audited. However, they have been
prepared in conformity with the accounting principles stated in the audited
financial statements for the years ended August 31, 1997, 1998, and 1999. In
the opinion of management, all adjustments have been made, including normal
recurring adjustments, that are necessary to present fairly the unaudited
interim combined financial statements. The results of operations for the
interim periods are not necessarily indicative of the results of operations to
be expected for the full year.
Cash Equivalents: APW Ltd. considers all highly liquid investments with
original maturities of 90 days or less to be cash equivalents.
Inventories: Inventories are comprised of material, direct labor and
manufacturing overhead, and are stated at the lower of cost or market. Cost is
determined using principally the first-in, first-out or average cost methods
for APW Ltd. inventories.
Property, Plant and Equipment: Property, plant and equipment are stated at
cost. Plant and equipment are depreciated over the estimated useful lives of
the assets, ranging from two to thirty years, under the straight-line method
for financial reporting purposes and either the straight-line or regulatory
methods for income tax purposes. Capital leases and leasehold improvements are
amortized over the life of the related asset or the life of the lease,
whichever is shorter. Expenditures for maintenance and repairs not expected to
extend the useful life of an asset beyond its normal useful life are expensed
as incurred.
Goodwill and Other Intangible Assets: Goodwill is amortized on a straight-
line basis over periods of fifteen to forty years. Other intangible assets,
consisting primarily of purchased patents, trademarks and noncompete
agreements, are amortized over periods from two to forty years. APW Ltd.
periodically evaluates the carrying value of goodwill and other intangible
assets. Impairment of goodwill, if any, is measured on the basis of whether
anticipated undiscounted operating cash flows generated by the underlying
assets exceeds the recorded goodwill. No impairment of goodwill was indicated
for all periods presented.
Revenue Recognition: Revenues and costs of products sold are recognized as
the related products are shipped.
Research and Development Costs: Research and development costs are expensed
as incurred. Such costs incurred in the development of new products or
significant improvements to existing products totaled approximately $0.9
million, $2.7 million and $5.5 million in fiscal 1997, 1998 and 1999,
respectively.
Financing Costs: Net financing costs represent APW Ltd.'s allocated portion
of amounts incurred by Applied Power for interest expense, financing fees,
amortization of debt financing costs and accounts receivable financing costs,
net of interest and investment income earned. See Basis of Presentation for
discussion of debt and interest allocation.
F-8
<PAGE>
APW LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Income Taxes: APW Ltd. is included in the consolidated U.S. income tax
return of Applied Power. Therefore, the provision for income taxes of APW Ltd.
has been calculated as if APW Ltd. was a stand-alone corporation filing a
separate tax return. APW Ltd. uses the liability method to record deferred
income tax assets and liabilities relating to the expected future income tax
consequences of transactions that have been recognized in APW Ltd.'s financial
statements. Under this method, deferred tax assets and liabilities are
determined based on the temporary differences between financial statement
carrying amounts and income tax bases of assets and liabilities using enacted
tax rates in effect in the years in which temporary differences are expected
to reverse. For further information, see Note 13--"Income Taxes."
Earnings Per Share: Basic and diluted shares used to calculate earnings per
share are the same as the historical Applied Power Inc. basic shares
outstanding. We have used Applied Power Inc. basic shares outstanding for the
following reasons: (i) upon the Distribution, each shareholder of Applied
Power Inc. will receive an equivalent number of APW Ltd. shares; (ii) there
are no common stock equivalents of APW Ltd. as of the date of this filing;
(iii) we are unable to estimate the impact of converting Applied Power Inc.
common stock equivalents into APW Ltd. common stock equivalents because it
will depend upon the market price of both the equities of APW Ltd. and
API/Actuant after the distribution, each of which could vary significantly.
The following tables sets forth the computation of basic and diluted
earnings per share (fiscal 1998 and six months ended February 29, 2000
(unaudited) results include restructuring charges and other one-time items--
see Note 8--"Merger, Restructuring and Other Non-recurring Items"):
<TABLE>
<CAPTION>
Years Ended August 31, Six Months Ended
----------------------- -------------------------
February 28, February 29,
1997 1998 1999 1999 2000
------- ------- ------- ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Numerator (000's):
Net earnings for basic and
diluted earnings per
share..................... $31,696 $18,347 $20,425 $11,018 $ 8,861
Denominator (000's):
Weighted average common
shares outstanding for
basic and diluted earnings
per share................. 37,880 38,380 38,825 38,724 39,023
Basic and diluted earnings
per share--before
extraordinary items......... $ 0.84 $ 0.48 $ 0.53 $ 0.28 $ 0.28
Extraordinary loss net of
tax....................... -- -- -- -- (0.05)
------- ------- ------- ------- -------
Earnings per share......... $ 0.84 $ 0.48 $ 0.53 $ 0.28 $ 0.23
======= ======= ======= ======= =======
</TABLE>
Foreign Currency Translation: A significant portion of APW Ltd.'s sales,
income and cash flow is derived from its international operations. The
financial position and the results of operations of APW Ltd.'s foreign
operations are measured using the local or regional currency of the countries
in which they operate and are translated into U.S. dollars. Revenues and
expenses of foreign subsidiaries are translated into U.S. dollars at the
average exchange rate effective during the fiscal year. Although the effects
of foreign currency fluctuations are mitigated by the fact that expenses of
foreign subsidiaries are generally incurred in the same currencies in which
the sales are generated, the reported results of operations of APW Ltd.'s
foreign subsidiaries are affected by changes in foreign currency exchange
rates and, as compared to prior periods, will be higher or lower depending on
the weakening or strengthening of the U.S. dollar. In addition, a portion of
APW Ltd.'s net assets are based in its foreign subsidiaries and are translated
into U.S. dollars at the foreign currency rate in effect at the end of each
period. Accordingly, APW Ltd.'s equity and comprehensive income will fluctuate
depending upon the strengthening or weakening of the U.S. dollar versus other
currencies. Such currency translation amounts constitute the balance of
accumulated other comprehensive income in the accompanying Combined Balance
Sheets. Net gains resulting from foreign currency transactions, included in
"Other--net" in the Combined Statements of Earnings, amounted to $0.3 million,
$0.8 million and $0.8 million for the years ended August 31, 1997, 1998 and
1999, respectively.
F-9
<PAGE>
APW LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Foreign Currency Hedging and Derivative Financial Instruments: Borrowings
under long-term foreign currency loans are used to partially hedge against
declines in the value of net investments in certain foreign subsidiaries. APW
Ltd. also periodically enters into foreign currency contracts to hedge certain
exposures related to selected transactions. APW Ltd. had no foreign currency
contracts in place at August 31, 1999.
Derivative financial instruments are primarily utilized by APW Ltd. to
manage risks associated with interest rate market volatility and foreign
exchange exposures. APW Ltd. does not hold or issue derivative financial
instruments for trading purposes. APW Ltd. currently holds only interest rate
swap agreements. For interest rate swap agreements, the differential to be
paid or received is accrued monthly as an adjustment to interest expense. APW
Ltd. also utilizes foreign currency forward contracts to hedge existing
foreign exchange exposures. Gains and losses resulting from these instruments
are recognized in the same period as the underlying transaction. Gains
relating to terminations of qualifying hedges are deferred and recognized in
income at the same time as the underlying hedged transactions.
Fair Value of Financial Instruments: The fair value of APW Ltd.'s cash and
cash equivalents, accounts receivable, accounts payable, short-term borrowings
and other long-term debt approximated book value as of August 31, 1998 and
1999 due to their short-term nature and the fact that the interest rates
approximated year-end market rates of interest. The fair value of debt
instruments is calculated by discounting the cash flow of such obligations
using the market interest rates for similar instruments.
Use of Estimates: The financial statements have been prepared in accordance
with generally accepted accounting principles, which require management to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses for the years presented. They also affect
the disclosure of contingencies. Actual results could differ from those
estimates and assumptions.
New Accounting Pronouncements: In June 1998, SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" was issued and was effective
for all fiscal years beginning after June 15, 1999. SFAS No. 133 was
subsequently amended by SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities--Deferral of the Effective Date of SFAS No. 133," and
will now be effective for fiscal years beginning after June 15, 2000, with
early adoption permitted. SFAS No. 133, as amended, requires APW Ltd. to
recognize all derivatives as either assets or liabilities and measure those
instruments at fair value. Upon adoption, APW Ltd. will be required to report
derivative and hedging instruments at fair value in the balance sheet and
recognize changes in the fair value of derivatives in net earnings or other
comprehensive income, as appropriate. This Statement will be effective for APW
Ltd.'s fiscal year 2001 first quarter financial statements and restatement of
prior years will not be permitted. Given APW Ltd.'s current derivative and
hedging activities, the Statement is not expected to have a material effect on
its financial position or results of operations.
Note 3--Mergers and Acquisitions
Six Months Ended February 29, 2000
Acquisitions
On January 28, 2000, APW Ltd., through a wholly-owned subsidiary, acquired
all of the outstanding stock of Metalade of Pennsylvania, Inc. ("Metalade").
Metalade specializes in metal fabrication relating to electronic enclosures.
The total purchase price of this acquisition totaled $8.7 million, including
fees and expenses, plus future consideration not to exceed $5.0 million based
on future achieved sales levels. The acquisition was funded by borrowings
under current Applied Power credit facilities. The acquisition has been
accounted for using the purchase method and the results of operations of
Metalade are included in the Combined Statements of Earnings from the
acquisition date. Preliminary allocations of the purchase price resulted in
approximately $6.7 million of goodwill.
F-10
<PAGE>
APW LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Fiscal 1999
Acquisitions
On September 29, 1998, APW Ltd., through its wholly-owned subsidiary, APW
Enclosure Systems Limited, accepted for payment all shares of Rubicon Group
plc ("Rubicon") common stock which had been tendered pursuant to the APW
Enclosure Systems Limited tender offer (with a guaranteed loan note
alternative) for all outstanding shares of common stock at 2.35 pounds
sterling per share and all outstanding cumulative preference shares at 0.50
pounds sterling per share. The tendered common shares accepted for payment
exceeded 90% of the outstanding common shares on October 8, 1998, and APW
Enclosure Systems Limited invoked Section 429 of the UK Companies Act of 1985,
as amended, to acquire the remaining outstanding common shares of Rubicon. APW
Enclosure Systems Limited now owns all of the common shares of Rubicon.
Rubicon is a leading provider of electronic manufacturing services and
engineered magnetic solutions to major OEMs in the information technology and
telecommunication industries. Cash paid for Rubicon totaled $371.5 million,
with the purchase price allocation resulting in $340.6 million of goodwill.
Funds for the acquisition were provided through Applied Power's revolving
credit facility. The acquisition was recorded using the purchase method of
accounting. The operating results of Rubicon subsequent to September 29, 1998
are included in the Combined Statements of Earnings.
In June 1999, APW Ltd., through a wholly-owned subsidiary, acquired all of
the outstanding stock of Innovative Metal Fabrication, Inc. ("Innovative").
Innovative designs and manufactures technical environments used in electronic
assembly operations, as well as electronic gaming enclosures, in Grass Valley,
CA and Austin, TX. In May 1999, the APW Ltd. also acquired certain assets of
Connector Technology, Inc. ("CTI") of Anaheim, CA. CTI manufactures custom
backplanes and was integrated with APW Ltd.'s Electronic Solutions business
unit. The total purchase price of the combined Innovative and CTI acquisitions
totaled approximately $13.0 million, including fees and expenses, and was
funded by borrowings under existing Applied Power credit facilities. Both
acquisitions have been accounted for using the purchase method and the results
of operations of the acquired companies are included in the Combined
Statements of Earnings from their respective acquisition dates. Preliminary
allocations of the purchase price resulted in approximately $7.4 million of
goodwill.
Fiscal 1998
Merger
On July 31, 1998, shareholders of Applied Power voted to approve the merger
of a newly created subsidiary of Applied Power into ZERO Corporation (ZERO).
The Merger was completed after the approval of the shareholders of Applied
Power and ZERO at their respective special shareholder meetings. Under the
terms of the Merger Agreement, ZERO stockholders received 0.85 of a share of
Applied Power's Common Stock for each share of ZERO Common Stock. Applied
Power issued approximately 10.6 million shares of its common stock in exchange
for all outstanding common stock of ZERO Corporation and assumed outstanding
options to purchase ZERO common stock that were converted into options to
purchase approximately 0.6 million shares of Applied Power's common stock
pursuant to the terms of the Merger. This equates to a purchase price of
approximately $386 million based on the July 30, 1998 closing stock price of
Applied Power. ZERO's primary business is protecting electronics. ZERO's
system packaging, thermal management and engineered cases serve the
telecommunication, instrumentation and data-processing markets. ZERO also
produces the line of ZERO Halliburton(R) cases for consumers worldwide and
cargo containers and proprietary loading systems to the airline industry. The
Merger has been accounted for using the pooling of interests method of
accounting, and, therefore, the financial statements of APW Ltd. reflect the
combined financial position, operating results and cash flows of Applied
Power's Electronics businesses and ZERO's Electronics businesses as if they
had been combined for all periods presented.
F-11
<PAGE>
APW LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Prior to the merger, ZERO had a March 31 fiscal year end. APW Ltd.'s
historical results for the year ended August 31, 1998 have been combined using
an August 31 year end for both ZERO's and Applied Power's Electronics
Businesses. For all years preceding the merger, APW Ltd.'s results of
operations and financial position reflect the combination of ZERO's
Electronics Businesses with a March 31 fiscal year end and Applied Power's
Electronics Businesses with an August 31 fiscal year end. Net sales and net
income for ZERO's Electronics Businesses for the period April 1, 1997 through
August 31, 1997 (which results are not included in APW Ltd.'s historical
combined results) were $89.7 million and $7.5 million, respectively, and have
been included in the Combined Statements of Equity and Comprehensive Income as
a fiscal 1998 adjustment within "Investments by (Distributions to) Applied
Power Inc., net."
All fees and expenses related to the ZERO merger and to the integration of
the combined companies have been expensed as required under the pooling of
interests method of accounting. A portion of such fees and expenses have been
allocated to APW Ltd. from Applied Power. Transaction costs of $5.2 million,
related to legal, accounting and financial advisory services for the Merger
were allocated to APW Ltd. from Applied Power. In addition, APW Ltd. was
allocated $3.3 million for expenses incurred associated with closure of ZERO
corporate headquarters and a change in estimate of a ZERO corporate receivable
valuation. Also related to the ZERO merger, APW Ltd. recorded $7.4 million of
expense for costs associated primarily with facility consolidation and
realignment, and the write-off of obsolete inventory due to conforming of
product lines. See Note 8--"Merger, Restructuring and Other Non-recurring
Items" for further discussion of these charges.
Acquisitions
On June 5, 1998, Applied Power Limited, a United Kingdom subsidiary of APW
Ltd., accepted for payment all of the VERO Group plc ("VERO") stock tendered,
which totaled over 72% of the outstanding VERO shares, pursuant to Applied
Power Limited's tender offer to acquire the entire issued share capital of
VERO at a price of 192 pence per VERO share (the "Offer"). Applied Power
Limited had previously acquired approximately 10% of VERO's shares, so that
after accepting the shares tendered, Applied Power Limited owned or had
accepted over 82% of VERO's shares. On June 19, 1998, Applied Power Limited
announced that additional shares tendered brought the total of the shares it
owned or had accepted for payment to over 90% of VERO's issued share capital
and that it would invoke Section 429 of the U.K. Companies Act of 1985, as
amended, to acquire the remaining outstanding shares of VERO stock. After the
required procedures were completed, Applied Power Limited owned all of the
issued share capital of VERO. Total purchase price for the transaction
amounted to approximately $191.7 million. Allocations of the purchase price
resulted in approximately $183.8 million of goodwill. VERO is a United Kingdom
based company that manufactures electronic enclosures, racks, backplanes and
power supplies. The acquisition has been recorded using the purchase method of
accounting. The operating results of VERO subsequent to June 5, 1998 are
included in the Combined Statements of Earnings.
In addition to the VERO acquisition discussed above, in fiscal 1998 APW
Ltd. acquired seven other companies, for an aggregate purchase price of
approximately $140.5 million, including $133.9 million in cash and the
assumption of approximately $6.6 million in debt. The cash portion of the
acquisitions was funded by borrowings under existing Applied Power credit
facilities. Each of these acquisitions was accounted for using the purchase
method of accounting and the results of operations of the acquired companies
are included in the Combined Statements of Earnings from their respective
acquisition dates. As a result of the acquisitions, approximately $103.2
million of goodwill was recorded by APW Ltd.
The following 1998 unaudited pro forma data summarize the results of
operations as if the acquisitions of Rubicon and VERO had been completed on
September 1, 1997, the beginning of APW Ltd.'s 1998 fiscal year. The following
1999 unaudited pro forma data summarize the results of operations as if the
acquisition of Rubicon had been completed on September 1, 1998, the beginning
of APW Ltd.'s 1999 fiscal year. The pro forma data
F-12
<PAGE>
APW LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
give effect to actual operating results prior to the respective acquisition
dates and appropriate adjustments to interest expense, goodwill amortization
and income tax expense. These pro forma amounts do not purport to be
indicative of the results that would have actually been obtained if the
acquisitions had occurred on the dates indicated above or that may be obtained
in the future. The pro forma effects of all other acquisitions are not
included in the below data as they are not significant to the net sales and
net earnings reported in the accompanying financial statements.
<TABLE>
<CAPTION>
Fiscal Year Ended
August 31,
---------------------
1998 1999
---------- ----------
(in thousands)
<S> <C> <C>
Net Sales........................................... $1,020,246 $1,079,977
Net Earnings........................................ 16,867 19,501
</TABLE>
Fiscal 1997 -
Acquisitions
On September 26, 1996, APW Ltd. acquired the net assets of Everest
Electronic Equipment, Inc. ("Everest") for cash consideration of $52.0
million, which was funded through borrowings under then existing Applied Power
credit facilities. Approximately $43.0 million of the purchase price was
assigned to goodwill. Everest is a manufacturer of custom and standard
electronic enclosures used by the computer, telecommunication, datacom and
other industries and is headquartered in Anaheim, California. The acquisition
has been recorded using the purchase method of accounting. The results of
Everest subsequent to the acquisition date are included in the Combined
Statements of Earnings.
In addition to the acquisition of Everest discussed above, in fiscal 1997
APW Ltd. acquired three other companies for an aggregate of approximately
$22.8 million in cash plus $5.8 million in subsequent earn-out payments. The
cash portion of the acquisitions' purchase price was funded by borrowings
under then existing Applied Power credit facilities. Each of these
acquisitions was accounted for as a purchase and the results of operations of
the acquired companies are included in the Combined Statements of Earnings
from their respective acquisition dates. As a result of the acquisitions,
approximately $17.0 million in goodwill was recorded by APW Ltd.
Note 4--Transactions and Agreements with Applied Power
In order to effect the Distribution, Applied Power and APW Ltd. will enter
into the following agreements:
. Contribution Agreement, Plan and Agreement of Reorganization and
Distribution
. General Assignment, Assumption and Agreement regarding Litigation,
Claims, and other Liabilities
. Transitional Trademark Use and License Agreement
. Insurance Matters Agreement
. Bill of Sale and Assumption of Liabilities
. Employee Benefits and Compensation Agreement
. Tax Sharing and Indemnification Agreement
. Interim Administrative Services Agreement
. Confidentiality and Non Disclosure Agreement
. Assumption of Applied Power Inc. Debt Obligation
F-13
<PAGE>
APW LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
These Agreements define the ongoing relationship between the parties after
the Distribution. Applied Power and APW Ltd. have set pricing terms for
services believed to be comparable to what could be achieved through arms-
length negotiations. Following the Distribution, additional or modified
agreements, arrangements and transactions may be entered into and such
agreements and transactions will be determined through arms-length
negotiations.
Note 5--Accounts Receivable Financing
Applied Power and certain subsidiaries (collectively, "Originators"), sell
trade accounts receivable to Applied Power Credit Corporation ("APCC"), a
wholly-owned limited purpose subsidiary of Applied Power. APCC is a separate
corporate entity that sells participating interests in its pool of accounts
receivable to financial institutions ("Purchasers"). The Purchasers, in turn,
receive an ownership and security interest in the pool of receivables.
Participation interests in new receivables generated by the Originators are
purchased by APCC and resold to the Purchasers as collections reduce
previously sold participation interests. The sold accounts receivable to
Purchasers are reflected as a reduction of receivables in Applied Power's
Consolidated Balance Sheet. APCC has the risk of credit loss on such
receivables up to a maximum recourse amount of 16% of sold receivables.
Applied Power retains collection and administrative responsibilities on the
participation interests sold as servicer for APCC and the Purchasers.
APW Ltd. sells trade receivables to a third party in the ordinary course of
business through the above accounts receivable financing facility. At August
31, 1998 and 1999, APW Ltd. accounts receivable were reduced by $38.4 million
and $75.5 million, respectively, representing receivable interests sold under
this program. Sales of trade receivables are reflected as a reduction of
accounts receivable in the accompanying Combined Balance Sheets and the
proceeds received, which are used to reduce debt, are included in cash flows
from financing activities in the accompanying Combined Statements of Cash
Flow. APW Ltd. expects to establish their own accounts receivable financing
facility prior to the Distribution.
APW Ltd.'s allocated portion of accounts receivable financing costs
totaling $1.2 million, $1.7 million and $2.9 million for the years ended
August 31, 1997, 1998 and 1999, respectively, are included in net financing
costs in the accompanying Combined Statements of Earnings.
Note 6--Net Inventories
The nature of APW Ltd.'s products in several significant parts of its
business is such that they have a very short production cycle. Consequently,
the amount of work-in-process at any point in time is minimal. In addition,
many parts or components are ultimately either sold individually or assembled
with other parts making a distinction between raw materials and finished goods
impractical to determine. At these locations, APW Ltd. has not deemed it
necessary or cost effective to categorize inventory by state of completion,
but rather between material, labor and overhead.
As a result of these factors, it is neither practical nor cost effective to
segregate the amounts of raw materials, work-in-process or finished goods
inventories at the respective balance sheet dates, as segregation would only
be possible as the result of physical inventories which are taken at dates
different from the balance sheet dates.
Note 7--Combined Equity
The "Combined equity" caption in the accompanying combined financial
statements represents Applied Power's cumulative net investment in the
combined businesses of APW Ltd. Changes in the "Combined equity"
F-14
<PAGE>
APW LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
caption represent the net income (loss) of APW Ltd., net cash and noncash
contributions from (distributions to) Applied Power, changes in allocated
corporate debt and allocated corporate interest, net of tax. See the
accompanying Combined Statements of Equity and Comprehensive Income for an
analysis of the activity in the "Combined equity" caption for the three years
ended August 31, 1999 and the six months ended February 29, 2000 (unaudited).
Note 8--Merger, Restructuring and Other Non-recurring Items
Six Months Ended February 29, 2000
In the second quarter of fiscal 2000, Applied Power allocated to APW Ltd.
$2.2 million of fees and expenses associated with the Distribution transaction
and incorporating APW Ltd. in Bermuda. Those fees and expenses are classified
under the caption "Corporate Reorganization Expenses" in the Combined
Statements of Earnings for the six months ended February 29, 2000 (unaudited),
and represent APW Ltd.'s allocated portion of legal, accounting, tax and
investment banking fees incurred through February 29, 2000 (unaudited), for
services related to the transaction.
Also in the second quarter of fiscal 2000, a subsidiary of APW Ltd. paid a
$3.3 million pre-payment premium for the early retirement of debt in
anticipation of the Distribution transaction. This charge is recorded in the
Combined Statements of Earnings for the six months ended February 29, 2000
(unaudited), as an extraordinary loss, net of the $1.2 million tax benefit.
Fiscal 1998
In the fourth quarter of fiscal 1998, APW Ltd. recorded merger,
restructuring and other one-time charges of $21.1 million. The pre-tax charges
of $27.9 million related to costs associated with the ZERO merger, various
plant and infrastructure consolidations, and other cost reduction and product
rationalization efforts of APW Ltd. With the exception of approximately $3.3
million in reserves relating primarily to long-term lease commitments and
other contractual obligations, no accrued restructuring reserves remained at
August 31, 1999. The following table summarizes the manner in which these
merger, restructuring and other non-recurring items were recorded in APW
Ltd.'s fiscal 1998 Combined Statement of Earnings:
<TABLE>
<CAPTION>
(in thousands)
--------------
<S> <C>
Merger, Restructuring and Other Non-recurring Items
Cost of products sold.................................... $10,125
Engineering, selling and administrative expenses......... 1,429
Restructuring charges.................................... 11,111
Merger related expenses.................................. 5,195
-------
Subtotal............................................... 27,860
Less: Income tax benefit................................... 6,741
-------
Total.................................................. $21,119
=======
</TABLE>
On July 31, 1998, a newly created subsidiary of APW Ltd. merged into ZERO
Corporation after shareholder approval of both companies. All fees and
expenses related to the ZERO merger and to the integration of the combined
companies have been expensed as required under the pooling of interests method
of accounting. Such fees and expenses, which have been allocated from Applied
Power, amounted to $15.9 million and are included in the above $27.9 million
pre-tax charge recorded in the fourth quarter of fiscal 1998. The total ZERO
fees and expenses include transaction costs of approximately $5.2 million
related to legal, accounting and financial advisory services. The remaining
$10.7 million reflects costs associated with organizational realignment,
closure
F-15
<PAGE>
APW LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
of ZERO headquarters, facility consolidation, a change in estimate of a
receivable valuation and the write-off of obsolete inventory due to conforming
of product lines.
It is APW Ltd.'s strategy to become the premier, global electronic
enclosure manufacturer. In line with that strategy, APW Ltd. completed eleven
electronic enclosure acquisitions in fiscal 1997 and 1998, operating 34
facilities in 11 countries at August 31, 1998. As a result of this rapid
expansion into the electronic enclosure business, there were significant
rationalization and integration opportunities within and between the acquired
businesses. In late fiscal 1998, APW Ltd. formalized a plan to eliminate
redundancies and streamline operations within these acquired businesses. These
rationalization efforts included consolidating three facilities into one in
the northeastern United States, the consolidation of production of several
product lines between facilities, standardization of design and development
functions, and other organizational realignments. As a result of this plan,
APW Ltd. recorded $7.1 million for related charges, including provisions for
costs associated with employee severance and provisions for long-term lease
commitments on closed facilities. APW Ltd. completed the planned
reorganization of its acquired companies in fiscal 1999.
Also in late fiscal 1998, APW Ltd. initiated aggressive programs to
eliminate or reduce product lines and items which were not generating
sufficient economic return. The programs include the elimination of slow
moving or marginal products and the entire exit of less productive product
lines. As a result of these programs, APW Ltd. recorded a $4.9 million charge
to cost of products sold for the write-off of obsolete inventory. APW Ltd.'s
product line initiatives were materially completed by the end of fiscal 1999.
In total, the above $27.9 million pre-tax charge included $8.9 million for
severance payments for a reduction of approximately 190 employees.
In addition to the above fourth quarter fiscal 1998 $21.1 million after-tax
charge, APW Ltd. recorded an allocated portion of two non-operating gains
incurred by the corporate headquarters of ZERO. In the first quarter of fiscal
1998, APW Ltd. recorded a $1.0 million pre-tax gain related to proceeds
received on a ZERO corporate officer life insurance policy. Also, in the third
quarter of fiscal 1998, APW Ltd. recognized a $5.5 million pre-tax gain for
APW Ltd.'s allocated share of a gain on the sale of ZERO corporate property.
Note 9--Debt
<TABLE>
<CAPTION>
August 31,
-----------------
1998 1999
-------- --------
(in thousands)
<S> <C> <C>
Long-term Debt:
Borrowings under:
General borrowings allocated from Applied Power.......... $233,404 $639,275
Senior promissory notes, due March 8, 2011............... 50,000 50,000
Floating rate unsecured loan notes, due 2003............. 27,386 30,681
Pound Sterling multi-currency revolving credit agreement. 26,218 5,623
-------- --------
Total long-term debt................................... $337,008 $725,579
======== ========
</TABLE>
General borrowings allocated from Applied Power were determined based on a
model that allocated API's debt proceeds on a where incurred basis and
allocated Applied Power's net debt paydowns based on APW Ltd's free cash flow.
The debt allocated to APW Ltd. from Applied Power includes portions of
balances outstanding under Applied Power's multi-currency revolving credit
agreement, Applied Power's $200 million senior subordinated notes due 2009,
amounts outstanding from Applied Power's commercial paper program and other
general debt. At August 31, 1999, the portion of Applied Power's multi-
currency revolving credit facility allocated to APW Ltd. is $322.1 million. Of
the APW Ltd. allocation of the multi-currency credit agreement,
F-16
<PAGE>
APW LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
$125.4 million and $196.7 million were denominated in the EURO and US Dollar
on an allocated basis, respectively. See Note 2 -"Summary of Significant
Accounting Policies--Basis of Presentation" for further discussion of Applied
Power debt allocation.
The Senior promissory notes due March 8, 2011 bear interest at 7.13%, and
are payable in 11 annual installments of $4.5 million beginning March 8, 2001.
The proceeds from the notes were used solely for the repurchase of ZERO's
common stock in a Dutch Auction Tender Offer in fiscal 1996 and for payment of
related expenses.
The floating rate unsecured loan notes were entered into by APW Ltd. as a
result of its acquisitions of VERO and Rubicon. The notes were exchanged with
individual shareholders of VERO and Rubicon, at their option, in lieu of
receiving cash payment for their tendered shares. The notes carry an interest
rate of LIBOR minus 0.50% and can be redeemed at the option of the note holder
on various dates through 2003.
The Pound Sterling multi-currency revolving credit agreement was entered
into by VERO in April 1998, prior to the acquisition of VERO by APW Ltd. The
facility provides up to 27.5 million Pounds Sterling of multi-currency
borrowings and expires in 2003. Any borrowings under this agreement carry an
interest rate of LIBOR plus 0.65%, determined by the underlying currency of
the debt which is being borrowed. At August 31, 1999, the facility had
outstanding borrowings denominated in Pounds Sterling, German Marks, French
Francs, US Dollars, Danish Krone and Italian Lira. The agreement has certain
covenants regarding tangible net worth and debt-to-net worth, neither of which
were deemed restrictive at August 31, 1999. The total unused line of credit
available under this agreement at August 31, 1999 was approximately $38.4
million.
Derivative Financial Instruments: As part of Applied Power's central
interest rate management program, Applied Power has periodically entered into
interest rate swap agreements with respect to portions of its outstanding
debt. The purpose of these swaps is to protect Applied Power from the effect
of an increase in interest rates. Applied Power's interest rate swap
agreements in place at August 31, 1999 effectively converted $436.8 million of
Applied Power's variable rate debt to a weighted average fixed rate of 5.03%.
The Applied Power swap agreements in effect at August 31, 1999 expire on
varying dates through 2006. Applied Power's Consolidated Balance Sheet at
August 31, 1999 did not reflect a value for these interest rate swap
agreements. If Applied Power were to terminate its interest rate swap
agreements, Applied Power would have had to pay $4.2 million at August 31,
1998, and would have received $3.5 million at August 31, 1999.
APW Ltd.'s allocated portion of the above interest rate swap activity in
place at August 31, 1999 would effectively convert approximately $393 million
of APW Ltd. allocated variable rate debt to a weighted average fixed rate of
5.03%. APW Ltd.'s allocated portion of the fair value of Applied Power's
interest rate swaps is ($3.0) million and $3.2 million at August 31, 1998 and
1999, respectively.
The purpose of APW Ltd.'s foreign currency hedging activities is to protect
APW Ltd. from the risk that the eventual US Dollar cash flows resulting from
the sale and purchase of products in foreign currencies will be adversely
affected by changes in exchange rates. In addition, APW Ltd. seeks to manage
the impact of foreign currency fluctuations related to the repayment of
intercompany borrowings and, to a lessor degree, the impact of foreign
currency fluctuations on the net assets of foreign subsidiaries. Fluctuations
in the value of hedging instruments are offset by fluctuations in the value of
the underlying exposures being hedged. APW Ltd. uses forward exchange
contracts to hedge certain firm purchase and sales commitments and the related
receivables and payables including other third party or intercompany foreign
currency transactions. Cross-currency swaps are used to hedge foreign currency
denominated payments related to intercompany loan agreements. Hedged
transactions are denominated primarily in European currencies. The net
realized and unrealized gains or losses on forward contracts deferred at
August 31, 1999 were negligible. APW Ltd. also uses borrowings under long-
F-17
<PAGE>
APW LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
term foreign currency loans to partially hedge against declines in the value
of net investments in certain foreign subsidiaries. APW Ltd. had no
significant foreign currency contracts in place at August 31, 1999.
The counterparties to these financial instruments consist of major
financial institutions with investment grade or better credit ratings. APW
Ltd. does not expect any losses from nonperformance by these counterparties.
Adoption of SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," in fiscal 2001 will require APW Ltd. to record these
instruments at their fair values. See Note 2--"Summary of Significant
Accounting Policies--New Accounting Pronouncements."
Short-term Debt: APW Ltd. had other short-term borrowings under unsecured
non-committed lines of credit with banks at August 31, 1998 and 1999. Interest
rates vary depending on the currency being borrowed. The weighted average
interest rates on the US and non-US short-term borrowings were 5.24% and 5.45%
at August 31, 1998 and 1999, respectively.
Aggregate Maturities: Total APW Ltd. debt is based on the allocation of
general corporate borrowings from Applied Power to APW Ltd. As such, the long-
term debt principal maturities are based on the APW Ltd. percentage of debt
relative to the maturities of Applied Power's historical debt being allocated.
Long-term debt principal outstanding at August 31, 1999, on an allocated
basis, would be payable as follows: fiscal 2000--$0, fiscal 2001--$10.7
million, fiscal 2002--$0, fiscal 2003--$21.8 million, fiscal 2004--$468.6
million, and $224.5 million thereafter.
Note 10--Leases
APW Ltd. leases certain facilities, computers, equipment and vehicles under
various lease agreements generally over periods of one to twenty years. Under
most arrangements, APW Ltd. pays the property taxes, insurance, maintenance
and expenses related to the leased property. Many of the leases include
provisions which enable APW Ltd. to renew the lease based upon the fair values
on the date of expiration of the initial lease.
Future obligations on non-cancelable operating leases in effect at August
31, 1999 are: $17.9 million in fiscal 2000; $15.6 million in fiscal 2001;
$21.2 million in fiscal 2002; $12.6 million in fiscal 2003; $9.6 million in
fiscal 2004 and $114.4 million thereafter.
Total rental expense under operating leases was $3.3 million, $9.1 million
and $17.1 million in fiscal 1997, 1998 and 1999, respectively.
Note 11--Stock Option Plans
Certain employees of APW Ltd. participate in stock option plans sponsored
by Applied Power and have stock options outstanding under Applied Power's 1990
Stock Plan and 1996 Stock Plan, and ZERO's 1994 Stock Plan. No further options
may be granted under Applied Power's 1990 Stock Plan and ZERO's 1994 Stock
Plan, although options previously issued and outstanding under these plans
remain exercisable pursuant to the provisions of the plans. Under the terms of
Applied Power's 1996 Plan, options may be granted to officers and key
employees. Options granted under Applied Power's plans generally have a
maximum term of ten years and an exercise price equal to 100% of the fair
market value of a share of Applied Power's common stock at the date of grant.
Options generally vest 50% after two years and 100% after five years. ZERO's
options have an exercise price not less than the fair market value of ZERO
common stock on the date of grant. In addition, ZERO's options were granted
with terms of five to eight years and become exercisable in annual
installments (generally one-third of the total grant) commencing one year from
the date of grant, on a cumulative basis.
F-18
<PAGE>
APW LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
As part of the Distribution, APW Ltd. will adopt their own stock option
plan and the outstanding stock options of APW Ltd. employees will be converted
to an equivalent number of options to purchase the same value of APW Ltd.
common stock based on the fair market value of APW Ltd. common stock at the
time of the Distribution.
A summary of option activity for these APW Ltd. employees under the Applied
Power and ZERO stock option plans is as follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price
--------- ----------------
<S> <C> <C>
Outstanding at August 31, 1996 1,506,572 $ 9.90
Granted..................................... 208,850 19.01
Exercised................................... (11,072) 16.19
--------- ------
Outstanding at August 31, 1997 1,704,350 $10.98
Granted..................................... 187,322 31.96
Exercised................................... (233,999) 9.05
--------- ------
Outstanding at August 31, 1998 1,657,673 $13.62
Granted..................................... 427,400 27.13
Exercised................................... (109,379) 11.31
Cancelled................................... (9,300) 28.30
--------- ------
Outstanding at August 31, 1999................ 1,966,394 $16.62
Exercisable at August 31, 1999................ 1,224,988 $11.17
</TABLE>
APW Ltd. applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its employee stock option plans. Accordingly, no compensation expense has been
recognized by APW Ltd. for these stock-based compensation plans. If APW Ltd.
had accounted for these stock options issued to APW Ltd. employees in
accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," APW
Ltd.'s net earnings would have decreased by $0.2 million, $0.4 million and
$1.0 million in fiscal 1997, 1998 and 1999, respectively.
The pro forma effects of applying SFAS No. 123 may not be representative of
the effects on reported net income for future years since options vest over
several years and additional awards are made each year.
The fair value of APW Ltd. employee stock options used to compute pro forma
net earnings disclosures is the estimated present value at grant date using
the Black-Scholes option-pricing model. The weighted average fair values per
share of APW Ltd. options granted in fiscal 1997, 1998 and 1999 are $5.03,
$11.40 and $10.44, respectively. The following weighted average assumptions
were used in completing the model:
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Dividend yield........................... 0.33% 0.24% 0.20%
Expected volatility...................... 19.0% 23.5% 31.9%
Risk-free rate of return................. 6.3% 5.5% 6.4%
Expected life............................ 5.0 years 5.6 years 5.1 years
</TABLE>
Note 12--Employee Benefit Plans
Defined Benefit Pension Plan--APW Ltd. provides defined benefit pension
benefits to certain United Kingdom employees of VERO who were entitled to
those benefits prior to VERO's acquisition by APW Ltd.
F-19
<PAGE>
APW LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
The following tables provide a reconciliation of benefit obligations, plan
assets, funded status and net periodic benefit cost for those plans:
<TABLE>
<CAPTION>
VERO Pension
Benefits
------------------
1998 1999
-------- --------
(in thousands)
<S> <C> <C>
Change in benefit obligation--
Benefit obligation at beginning of year............. $ -- $ 50,698
Service cost........................................ -- 2,497
Interest cost....................................... -- 3,315
Acquisition......................................... 50,698 --
Translation difference.............................. -- (1,030)
Employee contributions.............................. -- 1,071
Actuarial loss...................................... -- 9,553
Benefits paid....................................... -- (2,429)
-------- --------
Benefit obligation at end of year................. $ 50,698 $ 63,675
======== ========
Change in plan assets--
Fair value of plan assets at beginning of year...... $ -- $ 39,938
Actual return on plan assets........................ -- 6,709
Acquisition......................................... 39,938 --
APW Ltd. contributions.............................. -- 2,262
Employee contributions.............................. -- 1,071
Translation difference.............................. -- (792)
Benefits paid from plan assets...................... -- (2,429)
-------- --------
Fair value of plan assets at end of year.......... $ 39,938 $ 46,759
======== ========
Funded status of the plans............................ $(10,760) $(16,916)
Unrecognized net loss................................. -- 5,993
-------- --------
Accrued benefit cost.............................. $(10,760) $(10,923)
======== ========
Weighted-average assumptions as of August 31--
Discount rate....................................... 6.30% 5.80%
Expected return on plan assets...................... 8.00% 7.50%
Rate of compensation increase....................... 3.90% 3.80%
</TABLE>
<TABLE>
<S> <C> <C>
=== ===
</TABLE>
<TABLE>
<CAPTION>
VERO Pension
Benefits
-------------------
1997 1998 1999
----- ----- -------
(in thousands)
<S> <C> <C> <C>
Components of net periodic benefit cost--
Service cost....................................... $ -- $ -- $ 3,569
Employee contributions............................. -- -- (1,071)
Interest cost...................................... -- -- 3,315
Expected return on assets.......................... -- -- (3,189)
----- ----- -------
Benefit cost..................................... $ -- $ -- $ 2,624
===== ===== =======
</TABLE>
The VERO pension benefits consist of two plans which cover the majority of
VERO's United Kingdom employees, executives and directors. The assets of the
plans are held in a separately administered trust and contributions are
determined based on triennial actuarial valuations using the projected unit
credit funding method. APW Ltd. assumed the accrued benefit obligation upon
acquisition of VERO in June of 1998.
F-20
<PAGE>
APW LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Defined Contribution Benefit Plans
Substantially all of APW Ltd.'s full-time US employees have been eligible
to participate in a qualified 401(k) plan under the APW 401(k) Plan. Under the
provisions of the 401(k) Plan, the plan administrator acquires shares of Class
A Common Stock on the open market and allocates such shares to accounts set
aside for APW Ltd. employee's retirements. APW Ltd. core contributions
generally equal 3% of each employee's annual cash compensation, subject to IRS
limitations. Additionally, employees generally may contribute up to 15% of
their base compensation. APW Ltd. also matches approximately 25% of each
employee's contribution up to the participant's first 6% earnings.
During the years ended August 31, 1997, 1998 and 1999, pre-tax expense
related to the above defined contribution plan was approximately $3.2 million,
$3.7 million and $5.3 million, respectively.
Non-US Benefit Plans--APW Ltd. contributes to a number of retirement
programs for employees outside the US. Pension expense under these programs
amounted to approximately $0.1 million, $0.9 million and $1.9 million in
fiscal 1997, 1998 and 1999, respectively. As these plans are not significant
APW Ltd. does not determine the actuarial value of accumulated plan benefits
or net assets available for benefits.
Note 13--Income Taxes
Income tax expense consists of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Currently payable:
Federal...................................... $15,224 $17,513 $(3,029)
Foreign...................................... (53) 1,190 9,281
State........................................ 2,595 2,456 489
------- ------- -------
Subtotals.................................. 17,766 21,159 6,741
------- ------- -------
Deferred:
Federal...................................... 1,097 (5,215) 5,276
Foreign...................................... -- 1,958 (1,328)
State........................................ 36 (743) 701
------- ------- -------
Subtotals.................................. 1,133 (4,000) 4,649
------- ------- -------
Totals..................................... $18,899 $17,159 $11,390
======= ======= =======
</TABLE>
Income tax expense differs from the amounts computed by applying the
Federal income tax rate to earnings before income tax expense. A
reconciliation of income taxes at the US statutory rate to the effective tax
rate follows:
<TABLE>
<CAPTION>
% of Pretax Earnings
-----------------------
1997 1998 1999
------ ------ -------
<S> <C> <C> <C>
Federal statutory rate........................... 35.0% 35.0% 35.0%
State income taxes, net of Federal effect........ 3.4 3.1 2.4
Non-deductible amortization and other expenses... 0.3 11.1 14.3
Net effects of foreign tax rates and credits..... (1.6) 0.8 (16.0)
Other items...................................... 0.3 (1.7) 0.1
------ ------ -------
Effective tax rate............................... 37.4% 48.3% 35.8%
====== ====== =======
</TABLE>
F-21
<PAGE>
APW LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Temporary differences and carryforwards which gave rise to the deferred tax
assets and liabilities included the following items (in thousands):
<TABLE>
<CAPTION>
August 31,
----------------
1998 1999
------- -------
<S> <C> <C>
Deferred income tax assets:
Operating loss and state tax credit carryforwards..... $ 772 $ 1,159
Compensation and other employee benefits.............. 10,711 9,053
Inventory items....................................... 1,671 2,822
Restructuring expenses................................ 5,349 1,362
Deferred income....................................... 405 994
Book reserves and other items......................... 3,459 1,369
------- -------
Total deferred assets............................... 22,367 16,759
Valuation allowance................................... (772) (1,159)
------- -------
Net deferred income tax assets...................... 21,595 15,600
------- -------
Deferred income tax liabilities:
Depreciation and amortization......................... 13,800 15,450
Inventory items....................................... 442 442
Other items........................................... 2,022 (639)
------- -------
Net deferred income tax liabilities................. 16,264 15,253
------- -------
Net deferred income taxes............................... $ 5,331 $ 347
======= =======
</TABLE>
The valuation allowance represents a reserve for foreign and domestic
operating loss and state tax credit carryforwards for which utilization is
uncertain. The increase in the valuation allowance represents the current year
increase in such loss carryforwards. The majority of the foreign losses may be
carried forward indefinitely. The state loss carryforwards expire in various
years through 2014.
APW Ltd.'s policy is to remit earnings from foreign subsidiaries only to
the extent any resultant foreign income taxes are creditable in the US.
Accordingly, APW Ltd. does not currently provide for the additional US and
foreign income taxes which would become payable upon remission of
undistributed earnings of foreign subsidiaries. Undistributed earnings on
which additional income taxes have not been provided amounted to approximately
$31.8 million at August 31, 1999. If all such undistributed earnings were
remitted, an additional provision for income taxes of approximately $0.8
million would have been necessary as of August 31, 1999.
Earnings from continuing operations before income taxes from non-US
operations were $1.9 million, $7.9 million and $25.9 million for 1997, 1998
and 1999, respectively.
F-22
<PAGE>
APW LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Note 14--Supplemental Combined Balance Sheet Information
<TABLE>
<CAPTION>
August 31,
-----------------
1998 1999
-------- --------
(in thousands)
<S> <C> <C>
Accounts receivable--
Accounts receivable........................................ $ 95,429 $105,302
Less allowances............................................ 2,499 3,537
-------- --------
Accounts receivable, net................................. $ 92,930 $101,765
======== ========
Property, plant and equipment--
Property................................................... $ 3,065 $ 15,739
Plant...................................................... 47,320 33,508
Machinery and equipment.................................... 179,941 308,146
-------- --------
Total.................................................... 230,326 357,393
Less accumulated depreciation.............................. 82,437 162,489
-------- --------
Property, plant and equipment, net....................... $147,889 $194,904
======== ========
<CAPTION>
August 31,
-----------------
1998 1999
-------- --------
<S> <C> <C>
Goodwill--
Goodwill................................................... $343,810 $719,717
Less accumulated amortization.............................. 7,285 32,191
-------- --------
Goodwill, net............................................ $336,525 $687,526
======== ========
Other Intangibles--
Other intangibles.......................................... $ 17,892 $ 18,662
Less accumulated amortization.............................. 5,540 7,031
-------- --------
Other intangibles, net................................... $ 12,352 $ 11,631
======== ========
</TABLE>
Note 15--Business Segment, Geographic and Customer Information
APW Ltd. is organized as one reportable segment. APW Ltd. supplies
electronic enclosures, power supplies, thermal systems, backplanes, and
cabling either as individual products, or as an integrated system
incorporating certain of APW Ltd.'s product design, supply chain management,
assembly and test capabilities. Sales between geographic areas are
insignificant and are accounted for at prices intended to yield a reasonable
return to the selling affiliate.
The following table summarizes financial information by geographic region.
The information for Operating Earnings includes the effects of the merger,
restructuring and other non-recurring items discussed in Note 8--"Merger,
Restructuring and Other Non-recurring Items." Fiscal 2000 results include $2.2
million in fees and expenses allocated by Applied Power to APW Ltd. associated
with the spin-off and incorporating APW Ltd. offshore with the entire amount
being allocated to General corporate and other. Fiscal 1998 results include a
F-23
<PAGE>
APW LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
$27.9 million restructuring and merger charge that was allocated by geographic
region as follows: $18.3 million in North America, $8.8 million General
Corporate and $0.8 million in Europe.
<TABLE>
<CAPTION>
Years Ended August 31, Six Months Ended
------------------------------ -------------------------
February 28, February 29,
1997 1998 1999 1999 2000
-------- -------- ---------- ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales:
North America......... $334,391 $460,998 $ 576,034 $266,247 $ 327,082
Europe and other...... 40,927 132,212 479,304 246,993 239,134
-------- -------- ---------- -------- ----------
Totals.............. $375,318 $593,210 $1,055,338 $513,240 $ 566,216
======== ======== ========== ======== ==========
Operating earnings:
North America......... $ 64,355 $ 53,502 $ 58,727 $ 21,093 $ 38,076
Europe and other...... 1,536 8,548 31,536 21,383 11,608
General corporate and
other................ (7,107) (18,575) (7,377) (3,747) (5,848)
-------- -------- ---------- -------- ----------
Totals.............. $ 58,784 $ 43,475 $ 82,886 $ 38,729 $ 43,836
======== ======== ========== ======== ==========
Assets:
North America......... $370,602 $ 367,475 $ 391,180
Europe and other...... 334,049 760,435 743,813
General corporate and
other................ 14,594 52,068 49,509
-------- ---------- ----------
Totals.............. $719,245 $1,179,978 $1,184,502
======== ========== ==========
</TABLE>
Corporate assets, which are not allocated, represent principally cash and
deferred income taxes.
No single customer accounted for more than 10% of total net sales in 1997,
1998 or 1999. Export sales from domestic operations were less than 3% of total
net sales in each of the periods presented.
Note 16--Contingencies and Litigation
APW Ltd. is a party to various legal proceedings which have arisen in the
normal course of its business. These legal proceedings typically include
product liability, environmental, labor, patent claims and commission
disputes. APW Ltd. has recorded reserves for loss contingencies based on the
specific circumstances of each case. Such reserves are recorded when it is
probable that a loss has been incurred as of the balance sheet date and such
loss can be reasonably estimated. In the opinion of management, the resolution
of these contingencies will not have a material adverse effect on APW Ltd.'s
financial condition, results of operations or cash flows.
APW Ltd. has facilities at numerous geographic locations which are subject
to a range of environmental laws and regulations. Compliance with these laws
has and will require expenditures on a continuing basis. The predecessor to
APW Ltd. has been identified by the United States Environmental Protection
Agency as a "Potentially Responsible Party" regarding various multi-party
Superfund sites. Potentially responsible parties are jointly and severally
liable with respect to Superfund site remediation liabilities. Any liability
in connection with certain of these sites involving Electronics Business has
been assumed by APW Ltd. Based on our investigations, we believe that we are a
de minimis participant in any site, and that any liability, which may be
incurred as a result of our involvement with such Superfund sites, taken
together with our expenditures for environmental compliance, will not have a
material adverse effect on our financial position. Environmental costs are
expensed or capitalized depending on their future economic benefits.
Expenditures that have no future economic value are expensed. Liabilities are
recorded when environmental remediation is probable and the costs can be
reasonably estimated. Environmental expenditures over the last three years
have not been material. Although the level of future expenditures for
environmental remediation is impossible to determine with any degree of
certainty, it is
F-24
<PAGE>
APW LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
management's opinion that such costs will not have a material adverse effect
on APW Ltd.'s financial position, results of operations or cash flows.
Environmental remediation accruals of $2.1 million and $2.8 million were
included in the Combined Balance Sheets at August 31, 1998 and 1999,
respectively.
Note 17--Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
Fiscal 1998
----------------------------------
First Second Third Fourth(1)
------ ---------- ------ ---------
(In millions)
<S> <C> <C> <C> <C>
Net sales.................................... $124.6 $125.5 $139.2 $203.9
Gross profit................................. 44.7 44.1 48.3 57.0
Net earnings................................. 8.8 7.3 10.0 (7.8)
<CAPTION>
Fiscal 1999
----------------------------------
First Second Third Fourth
------ ---------- ------ ---------
(In millions)
<S> <C> <C> <C> <C>
Net sales.................................... $263.2 $250.1 $260.5 $281.5
Gross profit................................. 75.9 64.5 72.4 79.0
Net earnings................................. 7.8 3.3 3.9 5.4
<CAPTION>
Fiscal 2000
-----------------
First Second (2)
------ ----------
(In millions)
<S> <C> <C> <C> <C>
Net sales.................................... $289.1 $277.1
Gross profit................................. 77.4 72.3
Net earnings................................. 6.4 2.5
</TABLE>
--------
(1) Fiscal 1998 fourth quarter results include a pre-tax charge of $27.9
million related to costs associated with the ZERO merger, various plant
and infrastructure consolidations, and other cost reduction and product
rationalization efforts of APW Ltd.
(2) Includes $2.2 million allocated charge for fees and expenses associated
with the Distribution and the incorporating of APW Ltd. offshore. Those
fees and expenses which are included in the Combined Statements of
Earnings for the six months ended February 29, 2000, represent APW Ltd.'s
allocated portion of legal, accounting, tax and investment banking fees
incurred through February 29, 2000 for services related to the
transaction.
Also in the second quarter of fiscal 2000, a $3.3 million make-whole
premium ($2.1 million net of tax benefit) was paid in connection with the
early retirement of debt in anticipation of the Distribution. This charge
is recorded in the Combined Statements of Earnings for the six months ended
February 29, 2000, as an extraordinary item, net of tax.
F-25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Directors of Applied Power Inc.:
Our audits of the combined financial statements referred to in our report
dated April 20, 2000 on page F-1 of this Form 10 also included an audit of the
information as of and for the years ended August 31, 1997, 1998 and 1999,
respectively, set forth in the Financial Statement Schedule included in this
Form 10. In our opinion, this Financial Statement Schedule presents fairly, in
all material respects, the information set forth therein as of and for the
years ended August 31, 1997, 1998, and 1999, when read in conjunction with the
related combined financial statements.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
April 20, 2000
F-26
<PAGE>
APW LTD. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Additions Deductions
------------------- ----------
Accounts
Balance at Effect of Charged to Written Balance
Beginning Excluded Costs and Net Off Less at End
Description of Period Activity Expenses Acquired Recoveries Other of Period
----------- ---------- --------- ---------- -------- ---------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Deducted from assets to
which they apply:
Allowance for losses--
trade accounts
receivable
August 31, 1997..... $ 760 $ -- $ 220 $ 133 $ 216 $ -- $ 897
======= ===== ====== ====== ====== ===== =======
August 31, 1998..... $ 897 $ 59 $1,295 $ 509 $ 233 $ (28) $ 2,499
======= ===== ====== ====== ====== ===== =======
August 31, 1999..... $ 2,499 $ -- $ 641 $1,254 $ 801 $ (56) $ 3,537
======= ===== ====== ====== ====== ===== =======
Allowance for losses--
Inventory
August 31, 1997..... $ 626 $ -- $1,048 $ 280 $ 141 $ -- $ 1,813
======= ===== ====== ====== ====== ===== =======
August 31, 1998..... $ 1,813 $ 162 $7,604 $4,627 $ 827 $(192) $13,187
======= ===== ====== ====== ====== ===== =======
August 31, 1999..... $13,187 $ -- $4,197 $1,359 $6,521 $(286) $11,936
======= ===== ====== ====== ====== ===== =======
</TABLE>
F-27
<PAGE>
BERMUDA
THE COMPANIES ACT 1981
MEMORANDUM OF CONTINUANCE OF
COMPANY LIMITED BY SHARES
(Section 132C(2))
MEMORANDUM OF CONTINUANCE
OF
APW Ltd.
(hereinafter referred to as "the Company")
1. The liability of the members of the Company is limited to the amount (if
any) for the time being unpaid on the shares respectively held by them.
2. The Company is an exempted company as defined by the Companies Act 1981.
3. The authorised share capital of the Company is US$3,000,000 divided into
300,000,000 shares of US$0.01 each. The minimum share capital of the
company is US$12,000.
4. The Company shall not have power to hold land situated in Bermuda.
5. Details of Incorporation:
The Company was incorporated in TEXAS under the Texas Business Corporation
Act, on the 25th day of May, 2000 under the name Wright Line Texas Inc.
6. The objects of the Company from the date of continuance are:
1. packaging of goods of all kinds;
2. buying, selling and dealing in goods of all kinds;
3. designing and manufacturing of goods of all kinds;
4. mining and quarrying and exploration for metals, minerals, fossil fuel
and precious stones of all kinds and their preparation for sale or use;
5. exploring for, the drilling for, the moving, transporting and refining
petroleum and hydro carbon products including oil and oil products;
6. scientific research including the improvement discovery and development
of processes, inventions, patents and designs and the construction,
maintenance and operation of laboratories and research centres;
7. land, sea and air undertakings including the land, ship and air
carriage of passengers, mails and goods of all kinds;
8. ships and aircraft owners, managers, operators, agents, builders and
repairers;
9. acquiring, owning, selling, chartering, repairing or dealing in ships
and aircraft;
10. travel agents, freight contractors and forwarding agents;
11. dock owners, wharfingers, warehousemen;
12. ship chandlers and dealing in rope, canvas oil and ship stores of all
kinds;
13. all forms of engineering;
14. farmers, livestock breeders and keepers, graziers, butchers, tanners
and processors of and dealers in all kinds of live and dead stock,
wool, hides, tallow, grain, vegetables and other produce;
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15. acquiring by purchase or otherwise and holding as an investment
inventions, patents, trade marks, trade names, trade secrets, designs
and the like;
16. buying, selling, hiring, letting and dealing in conveyances of any
sort;
17. employing, providing, hiring out and acting as agent for artists,
actors, entertainers of all sorts, authors, composers, producers,
directors, engineers and experts or specialists of any kind;
18. to acquire by purchase or otherwise and hold, sell, dispose of and deal
in real property situated outside Bermuda and in personal property of
all kinds wheresoever situated; and
19. to enter into any guarantee, contract of indemnity or suretyship and to
assure, support or secure with or without consideration or benefit the
performance of any obligations of any person or persons and to
guarantee the fidelity of individuals filling or about to fill
situations of trust or confidence.
7. Powers of the Company
1. The Company shall, pursuant to the Section 42 of the Companies Act 1981,
have the power to issue preference shares which are, at the option of
the holder, liable to be redeemed.
2. The Company shall, pursuant to Section 42A of the Companies Act 1981,
have the power to purchase its own shares.
Signed by a duly authorised person in the presence of at least one witness
attesting the signature thereof:
/s/ Anthony W. Asmuth III /s/ Susan T. Lapinski
------------------------------------- --------------------------------------
Anthony W. Asmuth III, Director Witness
Dated this 30th day of May, 2000.
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B Y E - L A W S
of
APW LTD.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Bye-law Page
------- ----
<C> <S> <C>
1 Interpretation..................................................
2 Board of Directors..............................................
3 Management of the Company.......................................
4 Power to appoint managing director or chief executive officer...
5 Power to appoint manager........................................
6 Power to authorise specific actions.............................
7 Power to appoint attorney.......................................
8 Power to delegate to a committee................................
9 Power to appoint and dismiss employees..........................
10 Power to borrow and charge property.............................
Exercise of power to purchase shares of or discontinue the
11 Company.........................................................
12 Election of Directors...........................................
13 Defects in appointment of Directors.............................
14 Alternate Directors.............................................
15 Removal of Directors............................................
16 Vacancies on the Board..........................................
17 Notice of meetings of the Board.................................
18 Quorum at meetings of the Board.................................
19 Meetings of the Board...........................................
20 Unanimous written resolutions...................................
21 Contracts and disclosure of Directors' interests................
22 Remuneration of Directors.......................................
23 Officers of the Company.........................................
24 Appointment of Officers.........................................
25 Remuneration of Officers........................................
26 Duties of Officers..............................................
27 Chairman of meetings............................................
28 Register of Directors and Officers..............................
29 Obligations of Board to keep minutes............................
30 Indemnification of Directors and Officers of the Company........
31 Waiver of claim by Member.......................................
32 Notice of annual general meeting................................
33 Notice of special general meeting...............................
34 Advance Notice..................................................
35 Accidental omission of notice of general meeting................
36 Meeting called on requisition of members........................
37 Short notice....................................................
38 Postponement of meetings........................................
39 Quorum for general meeting......................................
40 Adjournment of meetings.........................................
41 Attendance at meetings..........................................
42 Written resolutions.............................................
43 Attendance of Directors.........................................
44 Voting at meetings..............................................
45 Voting on show of hands.........................................
46 Decision of chairman............................................
47 Demand for a poll...............................................
48 Seniority of joint holders voting...............................
49 Instrument of proxy.............................................
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Bye-law Page
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<C> <S> <C>
50 Representation of corporations at meetings......................
51 Rights of shares................................................
52 Voting Cutback..................................................
53 Power to issue shares...........................................
Variation of rights, alteration of share capital and purchase of
54 shares of the Company...........................................
55 Registered holder of shares.....................................
56 Death of a joint holder.........................................
57 Share certificates..............................................
58 Calls on shares.................................................
59 Forfeiture of Shares............................................
60 Contents of Register of Members.................................
61 Inspection of Register of Members...............................
62 Determination of record dates...................................
63 Instrument of transfer..........................................
64 Restriction on Transfer.........................................
65 Transfers by joint holders......................................
66 Representative of deceased Member...............................
67 Registration on death or bankruptcy.............................
68 Declaration of dividends by Board...............................
69 Other distributions.............................................
70 Reserve fund....................................................
71 Deduction of amounts due to the Company.........................
72 Issue of bonus shares...........................................
73 Records of account..............................................
74 Financial year end..............................................
75 Financial statements............................................
76 Appointment of Auditor..........................................
77 Remuneration of Auditor.........................................
78 Vacation of office of Auditor...................................
79 Access to books of the Company..................................
80 Report of the Auditor...........................................
81 Legends on Share Certificates...................................
82 Business Combinations...........................................
83 Notices to Members of the Company...............................
84 Notices to joint Members........................................
85 Service and delivery of notice..................................
86 The seal........................................................
87 Manner in which seal is to be affixed...........................
88 Winding-up/distribution by liquidator...........................
89 Alteration of Bye-laws..........................................
Schedule--Form A (Proxy) (Bye-law 49)....................................
Schedule--Form B (Notice of Forfeiture) (Bye-law 59).....................
Schedule--Form C (Form of Transfer) (Bye-law 63).........................
Schedule--Form D (Form of Transfer on death/bankruptcy) (Bye-law 67).....
</TABLE>
ii
<PAGE>
INTERPRETATION
1. Interpretation
In the Bye-laws the following words and expressions shall, where not
inconsistent with the context, have the following meanings respectively:
(a) "Act" means the Companies Act 1981 as amended from time to time;
(b) "acting in concert" includes:
(i) persons who, pursuant to an agreement actively cooperate either
in acquiring or holding or seeking to acquire or hold shares or the
beneficial ownership of shares, or rights over shares, carrying voting
rights in the Company, or in the exercise of voting rights with respect
to shares in the Company;
(ii) a company with any of its directors (or their spouses, minor
children, nominees, related trusts or companies in which any director
holds or beneficially owns ten percent (10%) or more of the shares, or
rights over shares, carrying voting rights);
(iii) a company with the trustees or managers of any of its pension,
provident or employee benefit funds or any of its employee stock option
schemes;
(iv) a person who is a fund manager, with an investment company, unit
trust or other person whose investments such person manages on a
discretionary basis, in respect of the relevant investment accounts;
(v) a company with its parent company or any of its subsidiaries; and
(vi) a company, in which ten percent (10%) or more of the shares, or
rights over shares, carrying voting rights are held or beneficially
owned by a person, with any other company in which ten percent (10%) or
more of the shares, or rights over shares, carrying voting rights are
held or beneficially owned by the same person;
(c) "affiliate" means a person that directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common
control with another person and any person who is the beneficial owner of
ten percent (10%) or more of a company's outstanding voting shares shall be
deemed to control such company;
(d) "agreement" includes any arrangements, undertakings, or
understandings and (without prejudice to the generality of the foregoing)
provisions whether express or implied and whether conditional or absolute;
(e) "Alternate Director" means an alternate director appointed in
accordance with these Bye-laws;
(f) "Auditor" includes any individual or partnership;
(g) "beneficial owner" means a person (excluding an underwriter, acting
in the ordinary course of business as an underwriter, who acquires shares
pursuant to any issue or offer of shares underwritten by him):
(i) who individually or with or through any affiliate or beneficially
owns shares
(ii) who individually or with or through any affiliate has;
(a) the right to acquire shares (whether such right is
exercisable immediately or only after the passage of time) pursuant
to any agreement or upon the exercise of conversion rights, exchange
rights, warrants or options or otherwise; PROVIDED THAT a person
shall not be deemed the beneficial owner of any share tendered
pursuant to a tender or exchange offer until such offer is accepted;
or
(b) the right to vote shares pursuant to any agreement PROVIDED
THAT a person shall not be deemed the beneficial owner of any share
under this subparagraph b. if the right to vote such share arises
solely from a revocable proxy or consent given in response to a
proxy or consent solicitation made to Members or any class of
Members generally; or solely under a nominee
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agreement or trust where the nominee or trustee has no economic
interest in the share (other than the right to be paid normal
nominee or trustee fees or remuneration); or
(iii) who has any agreement for the purpose of acquiring, holding,
voting (except where the right to vote is within the exclusion of
subparagraph (ii) b. above) or disposing of any shares with any other
person who beneficially owns, or whose affiliates directly or
indirectly beneficially own, shares or any interest therein;
(h) "Board" means the Board of Directors of the Company appointed or
elected pursuant to these Bye-laws and acting by resolution in accordance
with the Act and these Bye-laws or the Directors present at a meeting of
directors at which there is a quorum;
(i) "Business Combination" means any scheme of arrangement,
reconstruction, amalgamation takeover or similar business combination
involving the Company or any subsidiaries and any other person;
(j) "Cause" means (i) conviction on indictment of an indictable offence
or (ii) incapacity as determined by two doctors selected by the board of
directors;
(k) "Company" means the company incorporated in Bermuda for which these
Bye-laws are approved and confirmed;
(l) "Controlled Member" means (subject to any grandfather provisions in
these bye-laws) any Member whose interest in shares comprising Controlled
Shares would, upon giving effect to the principle that Members shall have
one vote for each share, confer upon that Member, twenty percent (20%) or
more of the votes that may be cast by all holders of shares;
(m) "Controlled Shares" means:
(i) all shares directly, indirectly, or constructively owned or
beneficially owned by a Controlled Member which confer in excess of
twenty percent (20%) of the votes that may be cast by all holders of
shares; and
(ii) all shares directly, indirectly or constructively owned or
beneficially owned as a result of voting power held or shared by any
person or group of persons acting in concert which confer in excess of
twenty percent (20%) of the votes that may be cast by all holders of
shares;
(n) "Cut-back Formula" means C - (20% of T) X 10 + (20% of T)
T
that is (((C-(20% of T)) divided by T) X 10) plus (20% of T) where "T" is
the aggregate number of votes conferred by all shares in issue, and "C" is
the number of shares owned by that Controlled Member;
(o) "Director" means a director of the Company and includes an Alternate
Director;
(p) "Member" means the person registered in the Register of Members,
directly or indirectly, including beneficial ownership as the holder of
shares in the Company and, when two or more persons are so registered as
joint holders of shares, means the person whose name stands first in the
Register of Members as one of such joint holders or all of such persons as
the context so requires;
(q) "Notice" means written notice unless otherwise specifically stated;
(r) "Officer" means any person appointed by the Board to hold an office
in the Company;
(s) "paid up" means paid up or credited as paid up;
(t) "Register of Members" means the Register of Members of the Company
and includes any branch or sub-register;
(u) "Resident Representative" means any person appointed to act as
resident representative and includes any deputy or assistant resident
representative;
(v) "Resolution" means a resolution of the Board or, as the case may be
the Members or, where required, of a separate class or separate classes of
Members in general meeting or by unanimous written resolution in accordance
with the provisions of the Act and these Bye-laws;
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(w) "Seal" means the common seal of the Company and includes any
duplicate thereof;
(x) "Secretary" includes a deputy or temporary or assistant Secretary
and any person appointed by the Board to perform any of the duties of the
Secretary;
(y) "Signed" includes signature, reproduction of signatures by
mechanical means, telecopy or faxed, and cognate expressions shall be
construed similarly;
(z) "Special Resolution" means a resolution passed by both (i) a
majority of not less than 75% of votes cast by such Members as, being
entitled so to do, vote in person or by proxy or by duly authorised
corporate representative, unless the matter involves a merger, business
combination or amalgamation recommended by a majority of the board, in
which case not less than 50% of the vote cast needed to pass such
resolution and (ii) a majority of 75% or 50%, as the case may be, in number
of the Members present in person or by proxy or by duly authorised
corporate representative at a general meeting of which not less than
twenty-one (21) clear days' notice (save where a longer period is required
by these Bye-laws), specifying the intention to propose the resolution as a
Special Resolution, has been duly given PROVIDED THAT when shares are held
by members of another company, firm or partnership, association or other
body corporate or unincorporate and such persons act in concert, or when
shares are held by or for a group of Members who act in concert, such
persons shall be deemed to be one Member;
(aa) "these Bye-laws" means these Bye-laws in their present form or as
amended from time to time;
(ii) (i) words importing the singular number also include the plural
number and vice versa;
(ii) words importing the masculine gender also include the feminine and
neuter genders, respectively;
(iii) words importing persons include companies or associations or
bodies of persons, whether corporate or un-incorporate;
(iv) reference to writing shall include typewriting, printing,
lithography, photography, electronic and other modes of representing or
reproducing words in a legible and non-transitory form; any words or
expressions defined in the Act in force at the date when these Bye-laws or
any part thereof are adopted shall bear the same meaning in these Bye-laws
or such part (as the case may be);
(v) the word "may" shall be construed as permissive and the word "shall"
shall be construed as imperative;
(vi) any words or expressions defined in the Companies Act in force at
the date when these Bye-laws or any part thereof are adopted shall bear the
same meaning in these Bye-laws or such part (as the case may be);
(vii) headings used in these Bye-laws are for convenience only and shall
not be used in constructing the terms of these Bye-laws.
BOARD OF DIRECTORS
2. Board of Directors
The business of the Company shall be managed and conducted by the Board.
3. Management of the Company
(1) In managing the business of the Company, the Board may exercise all the
powers of the Company which are not, by statute or by these Bye-laws,
expressly required to be exercised by the Company in general meeting.
(2) No direction regulation or alteration to these Bye-laws made by the
Company in general meeting shall invalidate any prior act of the Board which
would have been valid if that direction regulation or alteration had not been
made.
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(3) The Board may procure that the Company pays all expenses incurred in
promoting and incorporating the Company.
4. Power to appoint managing director or chief executive officer
The Board may from time to time appoint one or more Directors to the office
of managing director or chief executive officer of the Company who shall,
subject to the control of the Board, supervise and administer all of the
general business and affairs of the Company.
5. Power to appoint manager
The Board may appoint a person to act as manager of the Company's day to
day business and may entrust to and confer upon such manager such powers and
duties as it deems appropriate for the transaction or conduct of such
business.
6. Power to authorise specific actions
The Board may from time to time and at any time authorise any company,
firm, person or body of persons to act on behalf of the Company for any
specific purpose and in connection therewith to execute any agreement,
document or instrument on behalf of the Company.
7. Power to appoint attorney
The Board may from time to time and at any time by power of attorney
appoint any company, firm, person or body of persons, whether nominated
directly or indirectly by the Board, to be an attorney of the Company for such
purposes and with such powers, authorities and discretions (not exceeding
those vested in or exercisable by the Board) and for such period and subject
to such conditions as it may think fit and any such power of attorney may
contain such provisions for the protection and convenience of persons dealing
with any such attorney as the Board may think fit and may also authorise any
such attorney to sub-delegate all or any of the powers, authorities and
discretions so vested in the attorney. Such attorney may, if so authorised
under the seal of the Company, execute any deed or instrument under such
attorney's personal seal with the same effect as the affixation of the seal of
the Company.
8. Power to delegate to a committee
The Board may delegate any of its powers to a committee (including, without
limitation, an audit committee, a compensation committee and a committee to
nominate the appointment of directors) appointed by the Board which may
consist partly or entirely of non-Directors and every such committee shall
conform to such directions as the Board shall impose on them. The meeting and
proceedings of any such committee shall be governed by the provisions of these
Bye-laws regulating the meetings and proceedings of the Board, so far as the
same are applicable and are not superseded by directions imposed by the Board.
9. Power to appoint and dismiss employees
The Board may appoint, suspend or remove any manager, secretary, clerk,
agent or employee of the Company and may fix their remuneration and determine
their duties.
10. Power to borrow and charge property
The Board may exercise all the powers of the Company to borrow money and to
mortgage or charge its undertaking, property and uncalled capital, or any part
thereof, and may issue debentures, debenture stock and other securities
whether outright or as security for any debt, liability or obligation of the
Company or any third party.
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11. Exercise of power to purchase shares of or discontinue the Company
(1) The Board may exercise all the powers of the Company to purchase all or
any part of its own shares pursuant to Section 42A of the Act.
(2) The Board may exercise all the powers of the Company to discontinue the
Company to a named country or jurisdiction outside Bermuda pursuant to Section
132G of the Act.
12. Election of Directors
(1) The Board shall consist of not less than two Directors or such number
in excess thereof as the Board may from time to time determine but not more
than eight (8).
(2) There shall be a rotating Board consisting of three classes of
Directors which shall be known as Class 1, Class 2 and Class 3. Class 1 shall
retire at the first annual general meeting; Class 2 shall retire at the second
annual general meeting and Class 3 shall retire at the third annual general
meeting. This sequence shall be repeated thereafter. Each director in a Class
shall be eligible for re-election at the annual general meeting of the Company
at which such Class retires to hold office for three years or until successors
are elected or appointed.
(3) Any additional Directors elected so as to increase the total number of
Directors then in office shall be elected to such Class as will ensure that
the number of Directors in each Class remains equal and if that is not
possible to the Class which is retiring at the annual general meeting at which
such Director is elected or, if any such Director is elected otherwise than at
an annual general meeting to the Class which was elected at the most recent
prior annual general meeting.
(4) If at the meeting at which a Director retires by rotation, the Company
does not fill the vacancy so created, the retiring Director shall, if willing
to act, be deemed to have been reappointed unless at the meeting it is
resolved not to fill the vacancy or unless a resolution for the reappointment
of the Director is put to the meeting and lost.
(5) No person other than a Director retiring by rotation shall be appointed
or reappointed a Director at any general meeting unless:
(a) he is recommended by the Board; or
(b) not less than 60 nor more than 90 clear days before the date
appointed for the meeting, notice executed by a Member qualified to vote at
the meeting has been given to the Company of the intention of that Member
to propose that person for appointment or reappointment as a Director; or
(c) the appointment or reappointment is approved by a Special Resolution
of the Members.
(6) the appointment or re-appointment of any person proposed as a Director
shall be effected by a separate resolution.
(7) The Board may appoint one or more persons willing to act to be a
Director, either to fill a vacancy or vacancies or, as an additional Director
or Directors. A Director so appointed shall hold office only until the next
following annual general meeting, and shall not be taken into account in
determining the Directors who are to retire by rotation at the meeting, and
shall then be eligible for re-election.
13. Defects in appointment of Directors
All acts done bona fide by any meeting of the Board or by a committee of
the Board or by any person acting as a Director shall, notwithstanding that it
be afterwards discovered that there was some defect in the appointment of any
Director or person acting as aforesaid, or that they or any of them were
disqualified, be as valid as if every such person had been duly appointed and
was qualified to be a Director.
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14. Alternate Directors
(1) Any general meeting of the Company may elect a person or persons to act
as a Director in the alternative to any one or more of the Directors of the
Company or may authorise the Board to appoint such Alternate Directors. Unless
the Members otherwise resolve, any Director may appoint a person or persons to
act as a Director in the alternative to himself or herself by notice in
writing deposited with the Secretary. Any person so elected or appointed shall
have all the rights and powers of the Director or Directors for whom such
person is appointed in the alternative PROVIDED THAT such person shall not be
counted more than once in determining whether or not a quorum is present.
(2) An Alternate Director shall be entitled to receive notice of all
meetings of the Board and to attend and vote at any such meeting at which a
Director for whom such Alternate Director was appointed in the alternative is
not personally present and generally to perform at such meeting all the
functions of such Director for whom such Alternate Director was appointed.
(3) An Alternate Director shall cease to be such if the Director for whom
such Alternate Director was appointed ceases for any reason to be a Director
but may be re-appointed by the Board as alternate to the person appointed to
fill the vacancy in accordance with these Bye-laws.
15. Removal of Directors
(1) The Members may, at any special general meeting convened and held in
accordance with these Bye-laws only, solely remove a Director for Cause
PROVIDED THAT
(a) the notice of any such meeting convened for the purpose of removing
a Director shall contain a statement of the intention so to do and be
served on such Director not less than 30 days before the meeting and at
such meeting such Director shall be entitled to be heard on the motion for
such Director's removal;
(b) the resolution is passed as a Special Resolution;
(c) no more than one third of the Directors for the time being in office
shall be removed at any general meeting.
(2) A vacancy on the Board created by the removal of a Director under the
provisions of subparagraph (1) of this Bye-law may be filled by the Members at
the meeting at which such Director is removed and, in the absence of such
election or appointment, the Board may fill the vacancy.
16. Vacancies on the Board
(1) The Board shall have the power from time to time and at any time to
appoint any person as a Director to fill a vacancy on the Board occurring as
the result of the death, disability, disqualification or resignation of any
Director and to appoint an Alternate Director to any Director so appointed.
(2) The Board may act notwithstanding any vacancy in its number but, if and
so long as its number is reduced below the number fixed by these Bye-laws as
the quorum necessary for the transaction of business at meetings of the Board,
the continuing Directors or Director may act for the purpose of (i) summoning
a general meeting of the Company or (ii) preserving the assets of the Company.
(3) At the option of the board, the office of Director shall be vacated if
the Director:
(a) is removed from office pursuant to these Bye-laws or is prohibited
from being a Director by law;
(b) is or becomes bankrupt or makes any arrangement or composition with
his creditors generally;
(c) is or becomes of unsound mind or dies;
(d) resigns his or her office by notice in writing to the Company.
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17. Notice of meetings of the Board
(1) The Chairman or a majority of the Directors may, and the Secretary on
the requisition of a Director shall, at any time summon a meeting of the
Board.
(2) Notice of a meeting of the Board shall be deemed to be duly given to a
Director if it is given to such Director verbally in person or by telephone or
otherwise communicated or sent to such Director by post, cable, telex,
telecopier, facsimile or other mode of representing words in a legible and
non-transitory form at such Director's last known address or any other address
given by such Director to the Company for this purpose.
18. Quorum at meetings of the Board
The quorum necessary for the transaction of business at a meeting of the
Board may be fixed by the Directors and, unless so fixed, shall be a majority
of the Directors.
19. Meetings of the Board
(1) The Board may meet for the transaction of business, adjourn and
otherwise regulate its meetings as it sees fit subject to the provisions of
these Bye-laws.
(2) Directors may participate in any meeting of the Board by means of such
telephone, electronic or other communication facilities as permit all persons
participating in the meeting to communicate with each other simultaneously and
instantaneously, and participation in such a meeting shall constitute presence
in person at such meeting.
(3) A resolution put to the vote at a meeting of the Board shall be carried
by the affirmative votes of a majority of the votes cast and in the case of an
equality of votes the Chairman of the Board shall have a second or casting
vote.
20. Unanimous written resolutions
A resolution in writing signed by all the Directors which may be in
counterparts, shall be as valid as if it had been passed at a meeting of the
Board duly called and constituted, such resolution to be effective on the date
on which the last Director signs the resolution. For the purposes of this Bye-
law only, "Director" shall not include an Alternate Director.
21. Contracts and disclosure of Directors' interests
(1) Any Director, or any Director's firm, partner or any company with whom
any Director is associated, may act in a professional capacity for the Company
and such Director or such Director's firm, partner or such company shall be
entitled to remuneration for professional services as if such Director were
not a Director, PROVIDED THAT nothing herein contained shall authorise a
Director or Director's firm, partner or such company to act as Auditor of the
Company.
(2) A Director who is directly or indirectly interested in a contract or
proposed contract or arrangement with the Company shall declare the nature of
such interest as required by the Act.
(3) Following a declaration being made pursuant to this Bye-law, and unless
disqualified by the chairman of the relevant Board meeting, a Director may
vote in respect of any contract or proposed contract or arrangement in which
such Director is interested and may be counted in the quorum at such meeting.
22. Remuneration of Directors
The remuneration (if any) of the Directors shall be determined by the Board
and shall be deemed to accrue from day to day. The Directors may also be paid
all travel, hotel and other expenses properly incurred by them in attending
and returning from meetings of the Board, any committee appointed by the
Board, general meetings of the Company, or in connection with the business of
the Company or their duties as Directors generally.
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OFFICERS
23. Officers of the Company
The Officers of the Company shall consist of a President and a Vice
President or a Chairman and a Deputy Chairman, a Secretary and such additional
Officers as the Board may from time to time determine all of whom shall be
deemed to be Officers for the purposes of these Bye-laws.
24. Appointment of Officers
(1) The Board shall, as soon as possible after the statutory meeting of
Members and after each annual general meeting, appoint a President and a Vice
President or a Chairman and a Deputy Chairman who shall be Directors.
(2) The Secretary and additional Officers, if any, shall be appointed by
the Board from time to time.
25. Remuneration of Officers
The Officers shall receive such remuneration as the Board may from time to
time determine.
26. Duties of Officers
The Officers shall have such powers and perform such duties in the
management, business and affairs of the Company as may be delegated to them by
the Board from time to time.
27. Chairman of meetings
The Chairman of the Company or the President shall preside as chairman at
all meetings of the Members and of the Board. If at any meeting the Chairman
or the President is not present within 15 minutes after the time appointed for
holding the meeting, or if the Chairman or President is not willing to act as
chairman, the Deputy Chairman or Vice President, if present and willing to
act, shall act as chairman of the meeting. In the absence (or event of
unwillingness to act) of the Chairman or President and the Deputy Chairman or
Vice President a chairman of the meeting shall be appointed or elected from
one of their number by those Directors present at the meeting. If no Director
present is willing to act as chairman the Members present and entitled to vote
shall elect one of their number to be chairman of the meeting.
28. Register of Directors and Officers
The Board shall cause to be kept in one or more books at the registered
office of the Company a Register of Directors and Officers and shall enter
therein the particulars required by the Act.
MINUTES
29. Obligations of Board to keep minutes
(1) The Board shall cause minutes to be duly entered in books provided for
the purpose:-
(a) of all elections and appointments of Officers;
(b) of the names of the Directors present at each meeting of the Board
and of any committee appointed by the Board; and
(c) of all resolutions and proceedings of general meetings of the
Members, meetings of the Board, meetings of managers and meetings of
committees appointed by the Board.
(2) Minutes prepared in accordance with the Act and these Bye-laws shall be
kept by the Secretary at the registered office of the Company.
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INDEMNITY
30. Indemnification of Directors and Officers of the Company
The Directors, Secretary and other Officers (such term to include any
person appointed to any committee by the Board) for the time being acting in
relation to any of the affairs of the Company and the liquidator or trustees
(if any) for the time being acting in relation to any of the affairs of the
Company and every one of them, and their heirs, executors and administrators,
shall be indemnified and secured harmless out of the assets of the Company
from and against all actions, costs, charges, losses, damages and expenses
which they or any of them, their heirs, executors or administrators, shall or
may incur or sustain by or by reason of any act done, concurred in or omitted
in or about the execution of their duty, or supposed duty, or in their
respective offices or trusts, and none of them shall be answerable for the
acts, receipts, neglects or defaults of the others of them or for joining in
any receipts for the sake of conformity, or for any bankers or other persons
with whom any moneys or effects belonging to the Company shall or may be
lodged or deposited for safe custody, or for insufficiency or deficiency of
any security upon which any moneys of or belonging to the Company shall be
placed out on or invested, or for any other loss, misfortune or damage which
may happen in the execution of their respective offices or trusts, or in
relation thereto, PROVIDED THAT this indemnity shall not extend to any matter
in respect of any fraud or dishonesty which may attach to any of said persons.
31. Waiver of claim by Member
Each Member agrees to waive any claim or right of action such Member might
have, whether individually or by or in the right of the Company, against any
Director or Officer on account of any action taken by such Director or
Officer, or the failure of such Director or Officer to take any action in the
performance of his duties with or for the Company, PROVIDED THAT such waiver
shall not extend to any matter in respect of any fraud or dishonesty which may
attach to such Director or Officer.
MEETINGS
32. Notice of annual general meeting
The annual general meeting of the Company shall be held in each year other
than the year of incorporation at such time and place as the President or the
Chairman or any two Directors or any Director and the Secretary or the Board
shall appoint. At least twenty days notice of such meeting shall be given to
each Member (PROVIDED THAT that Member is not in breach of the provisions of
these Bye-laws) stating the date, place and time at which the meeting is to be
held, that the election of Directors will take place thereat, and as far as
practicable, the other business to be conducted at the meeting. The notice
shall be exclusive of the day on which it is served or deemed to be served and
of the day for which it is given.
33. Notice of special general meeting
The President or the Chairman or a majority of Directors or any Director
and the Secretary or the Board may convene a special general meeting of the
Company whenever in their judgment such a meeting is necessary, upon not less
than five days notice which shall state the date, time, place and the general
nature of the business to be considered at the meeting. The notice shall be
exclusive of the day on which it is served or deemed to be served and of the
day for which it is given.
34. Advance notice
Not less than ninety days advance notice in writing shall at all times be
required for the nomination, other than by or at the direction of the Board,
of candidates for election as directors, as well as any other proposals,
statements or resolutions to be put forward by Members for consideration at an
annual general meeting or special general meeting. In the case of an annual
general meeting such notice must be received by the Company not less than
ninety days prior to the anniversary of the prior year's annual general
meeting. The notice must contain the
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name and business background of the person to be nominated as director and all
material information on the proposal, statement or resolution to be put to the
meeting and details of the Member submitting the proposal, statement or
resolution as well as other information which may from time to time be
specified by the Board. The notice shall be exclusive of the day on which it
is served or deemed to be served and of the day for which it is given.
35. Accidental omission of notice of general meeting
The accidental omission to give notice of a general meeting to, or the non-
receipt of notice of a general meeting by, any person entitled to receive
notice shall not invalidate the proceedings at that meeting.
36. Meeting called on requisition of Members
Notwithstanding anything in these Bye-laws the Board shall, on the
requisition of Members holding at the date of the deposit of the requisition
not less than one-tenth of such of the paid-up share capital of the Company as
at the date of the deposit carries the right to vote at general meetings of
the Company, forthwith proceed to convene a special general meeting of the
Company and the provisions of Section 74 of the Act shall apply.
37. Short notice
A general meeting of the Company shall, notwithstanding that it is called
by shorter notice than that specified in these Bye-laws, be deemed to have
been properly called if it is so agreed by (i) all the Members entitled to
attend and vote thereat in the case of an annual general meeting; and (ii) by
a majority in number of the Members having the right to attend and vote at the
meeting holding not less than 95% in nominal value of the shares giving a
right to attend and vote thereat in the case of a special general meeting.
38. Postponement of meetings
The Secretary may postpone any general meeting called in accordance with
the provisions of these Bye-laws (other than a meeting requisitioned under
these Bye-laws) PROVIDED THAT notice of postponement is given to each Member
before the time for such meeting. Fresh notice of the date, time and place for
the postponed meeting shall be given to each Member in accordance with the
provisions of these Bye-laws.
39. Quorum for general meeting
At any general meeting of the Company two or more persons present in person
and representing in person or by proxy in excess of 50% of the total issued
voting shares in the Company throughout the meeting shall form a quorum for
the transaction of business, PROVIDED THAT if the Company shall at any time
have only one Member, one Member present in person or by proxy shall form a
quorum for the transaction of business at any general meeting of the Company
held during such time. If within half an hour from the time appointed for the
meeting a quorum is not present, the meeting shall stand adjourned to the same
day one week later, at the same time and place or to such other day, time or
place as the Board may determine.
40. Adjournment of meetings
(1) The chairman of a general meeting may, without the consent of the
Members at any general meeting at which a quorum is present (and shall if so
directed), adjourn the meeting. In addition the chairman may adjourn the
meeting to another time and place without such consent or direction if it
appears to him that:
(a) it is likely to be impracticable to hold or continue that meeting
because of the number of Members wishing to attend who are not present; or
(b) the unruly conduct of persons attending the meeting prevents, or is
likely to prevent, the orderly continuation of the business of the meeting;
or
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(c) an adjournment is otherwise necessary so that the business of the
meeting may be properly conducted.
(2) Unless the meeting is adjourned to a specific date and time, fresh
notice of the date, time and place for the resumption of the adjourned meeting
shall be given to each Member in accordance with the provisions of these Bye-
laws.
41. Attendance at meetings
Members (PROVIDED THAT they are not in breach of the provisions of these
Bye-laws) may participate in any general meeting by means of in person or by
proxy and participation in such a meeting shall constitute presence in person
at such meeting.
42. Written resolutions
(1) Subject to subparagraph (6), anything which may be done by resolution
of the Company in general meeting or by resolution of a meeting of any class
of the Members of the Company, may, without a meeting and without any previous
notice being required, be done by resolution in writing signed by, or, in the
case of a Member that is a corporation whether or not a company within the
meaning of the Act, on behalf of, all the Members who at the date of the
resolution would be entitled to attend the meeting and vote on the resolution.
(2) A resolution in writing may be signed by, or, in the case of a Member
that is a corporation whether or not a company within the meaning of the Act,
on behalf of, all the Members, or any class thereof, in as many counterparts
as may be necessary.
(3) For the purposes of this Bye-law, the date of the resolution is the
date when the resolution is signed by, or, in the case of a Member that is a
corporation whether or not a company within the meaning of the Act, on behalf
of, the last Member to sign and any reference in any Bye-law to the date of
passing of a resolution is, in relation to a resolution made in accordance
with this Bye-law, a reference to such date.
(4) A resolution in writing made in accordance with this Bye-law is as
valid as if it had been passed by the Company in general meeting or by a
meeting of the relevant class of Members, as the case may be, and any
reference in any Bye-law to a meeting at which a resolution is passed or to
Members voting in favour of a resolution shall be construed accordingly.
(5) A resolution in writing made in accordance with this Bye-law shall
constitute minutes for the purposes of Sections 81 and 82 of the Act.
(6) This Bye-law shall not apply to:
(a) a resolution passed pursuant to Section 89(5) of the Act; or
(b) a resolution passed for the purpose of or the consequence of
removing a Director before the expiration of his term of office under these
Bye-laws.
43. Attendance of Directors
The Directors of the Company shall be entitled to receive notice of and to
attend and be heard at any general meeting.
44. Voting at meetings
(1) Subject to the provisions of the Act and these Bye-laws, any question
proposed for the consideration of the Members at any general meeting shall be
decided by the affirmative votes of a majority of the votes cast in accordance
with the provisions of these Bye-laws and in the case of an equality of votes
the chairman of the meeting shall have a second or casting vote.
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(2) No Member shall be entitled (save as proxy for another Member) to be
present or vote at any meeting, either in person or by proxy, or to exercise
any privilege in relation to meetings of the Company in respect of any share
held by him (whether alone or jointly with any other person) on which there
shall not have been paid all calls for the time being due and payable,
together with interest and expenses (if any):
AND the right to attend whether in person or by proxy, to speak and to
vote which would have attached to the Controlled Shares had they not been
Controlled Shares/shares comprised in the interests of a Controlled Member
had that person not been a Controlled Member shall vest in the chairman of
any such meeting. The manner in which the chairman exercises or refrains
from exercising any such rights shall be entirely at his discretion.
45. Voting on show of hands
At any general meeting a resolution put to the vote of the meeting shall,
in the first instance, be voted upon by a show of hands and, subject to any
rights or restrictions for the time being lawfully attached to any class of
shares and subject to the provisions of these Bye-laws, every Member present
in person and every person holding a valid proxy at such meeting shall be
entitled to one vote and shall cast such vote by raising his or her hand.
46. Decision of chairman
At any general meeting a declaration by the chairman of the meeting that a
question proposed for consideration has, on a show of hands, been carried, or
carried unanimously, or by a particular majority, or lost, and an entry to
that effect in a book containing the minutes of the proceedings of the Company
shall, subject to the provisions of these Bye-laws, be conclusive evidence of
that fact.
47. Demand for a poll
(1) Notwithstanding the provisions of these Bye-laws, at any general
meeting of the Company, in respect of any question proposed for the
consideration of the Members (whether before or on the declaration of the
result of a show of hands as provided for in these Bye-laws), a poll may be
demanded by any of the following persons:
(a) the chairman of such meeting; or
(b) at least three Members present in person or represented by proxy; or
(c) any Member or Members present in person or represented by proxy and
holding between them not less than one-tenth of the total voting rights of
all the Members having the right to vote at such meeting; or
(d) any Member or Members present in person or represented by proxy
holding shares in the Company conferring the right to vote at such meeting,
being shares on which an aggregate sum has been paid up equal to not less
than one-tenth of the total sum paid up on all such shares conferring such
right;
PROVIDED THAT such Members are not in breach of the provisions of these
Bye-laws.
(2) Where, in accordance with the provisions of subparagraph (1) of this
Bye-law, a poll is demanded, subject to any rights or restrictions for the
time being lawfully attached to any class of shares and subject to the
provisions of these Bye-laws, every person present at such meeting shall have
one vote for each share of which such person is the holder or for which such
person holds a proxy and such vote shall be counted in the manner set out in
subparagraph (4) of this Bye-Law or in the case of a general meeting at which
one or more Members are present by telephone in such manner as the chairman of
the meeting may direct and the result of such poll shall be deemed to be the
resolution of the meeting at which the poll was demanded and shall replace any
previous resolution upon the same matter which has been the subject of a show
of hands.
(3) A poll demanded in accordance with the provisions of subparagraph (1)
of this Bye-law, for the purpose of electing a chairman of the meeting or on a
question of adjournment, shall be taken forthwith and a poll
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demanded on any other question shall be taken in such manner and at such time
and place as the Chairman (or acting chairman) may direct and any business
other than that upon which a poll has been demanded may be proceeded with
pending the taking of the poll.
(4) Where a vote is taken by poll, each person present and entitled to vote
shall be furnished with a ballot paper on which such person shall record his
or her vote in such manner as shall be determined at the meeting having regard
to the nature of the question on which the vote is taken, and each ballot
paper shall be signed or initialled or otherwise marked so as to identify the
voter and the registered holder in the case of a proxy. At the conclusion of
the poll, the ballot papers shall be examined and counted by a committee of
not less than two Members or proxy holders appointed by the chairman for the
purpose and the result of the poll shall be declared by the chairman.
48. Seniority of joint holders voting
In the case of joint holders the vote of the senior who tenders a vote,
whether in person or by proxy, shall be accepted to the exclusion of the votes
of the other joint holders, and for this purpose seniority shall be determined
by the order in which the names stand in the Register of Members.
49. Instrument of proxy
The instrument appointing a proxy shall be in writing in the form of Form
"A" in the Schedule hereto or in such other form as the Board may approve,
under the hand of the appointor or of the appointor's attorney duly authorised
in writing, or if the appointor is a corporation, either under its seal, or
under the hand of a duly authorised officer or attorney. The decision of the
chairman of any general meeting as to the validity of any instrument of proxy
shall be final.
50. Representation of corporations at meetings
A corporation which is a Member may, by written instrument, authorise such
person as it thinks fit to act as its representative at any meeting of the
Members and the person so authorised shall be entitled to exercise the same
powers on behalf of the corporation which such person represents as that
corporation could exercise if it were an individual Member. Notwithstanding
the foregoing, the chairman of the meeting may accept such assurances as he or
she thinks fit as to the right of any person to attend and vote at general
meetings on behalf of a corporation which is a Member.
SHARE CAPITAL AND SHARES
51. Rights of shares
Subject to any resolution of the Members to the contrary and without
prejudice to any special rights previously conferred on the holders of any
existing shares or class of shares, the share capital of the Company shall be
divided into shares of a single class the holders of which shall, subject to
the provisions of these Bye-laws:
(a) be entitled to one vote per share;
(b) be entitled to such dividends as the Board may from time to time
declare;
(c) in the event of a winding-up or dissolution of the Company, whether
voluntary or involuntary or for the purpose of a reorganisation or
otherwise or upon any distribution of capital, be entitled to the surplus
assets of the Company; and
(d) generally be entitled to enjoy all of the rights attaching to
shares.
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The Company shall not be liable to the Member for late payment or non-
payment of any dividends or capital or other monies and the Company may retain
money otherwise payable for its own use and benefit during such period of
suspension. No trust shall be created in respect of any such debt, no interest
shall be payable in respect of the same and the Company shall not be required
to account for any money earned on such amount, which may be employed in the
business of the Company or invested in such investments as the Directors may
from time to time think fit.
52. Voting Cutback
(1) Each issued share comprised in the Controlled Shares of any Controlled
Member shall confer only a fraction of a vote determined by applying the Cut-
back Formula.
(2) The Board shall make all determinations that may be required to effect
the provisions of this Bye-law, including any required determination of the
number of shares that may be deemed to be held by any person, and such
determinations shall be conclusive.
(3) All Members shall provide the Board, at such times and in such detail
as the Board may reasonably request, any information that the Board may
require in order to make such determinations.
(4) The Members can agree by resolution passed by not less than two-thirds
( 2/3) of votes cast by such Members as, being entitled so to do, vote in
person or by proxy or by duly authorised corporate representative to the
restoration of full voting power as if the Cut-back Formula had not been
applied provided that the Members must hold at least 20% of the outstanding
shares of common stock before any member is able to request restoration of the
voting power.
53. Power to issue shares
(1) Subject to these Bye-laws and without prejudice to any special rights
previously conferred on the holders of any existing shares or class of shares,
the Board shall have power to issue any unissued shares of the Company on such
terms and conditions as the Board may determine and any shares or class of
shares may be issued with such preferred, deferred or other special rights or
such restrictions, whether in regard to dividend, voting, return of capital or
otherwise as the Board may from time to time prescribe.
(2) The Board shall, in connection with the issue of any share, have the
power to pay such commission and brokerage as may be permitted by law.
(3) The Company shall not give, whether directly or indirectly, whether by
means of loan, guarantee, provision of security or otherwise, any financial
assistance for the purpose of a purchase or subscription made or to be made by
any person of or for any shares in the Company, but nothing in this Bye-Law
shall prohibit transactions mentioned in Sections 39A, 39B and 39C of the Act.
(4) The Board may from time to time do any one or more of the following
things:
(a) make arrangements on the issue of shares for a difference between
the Members in the amounts and times of payments of calls on their shares;
(b) accept from any Member the whole or a part of the amount remaining
unpaid on any shares held by him, although no part of that amount has been
called up;
(c) pay dividends in proportion to the amount paid up on each share
where a larger amount is paid up on some shares than on others; and
(d) issue shares in fractional denominations and deal with such
fractions to the same extent as its whole shares and shares in fractional
denominations shall have in proportion to the respective fractions
represented thereby all of the rights of whole shares including (but
without limiting the generality of the foregoing) the right to vote, to
receive dividends and distributions and to participate in a winding up.
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54. Variation of rights, alteration of share capital and purchase of shares of
the Company
(1) Subject to the provisions of Sections 42 and 43 of the Act any
preference shares may be issued or converted into shares that, at a
determinable date or at the option of the Company, are liable to be redeemed
on such terms and in such manner as the Company before the issue or conversion
may by resolution of the Members determine.
(2) If at any time the share capital is divided into different classes of
shares, the rights attached to any class (unless otherwise provided by the
terms of issue of the shares of that class) may, whether or not the Company is
being wound-up, be varied with the consent in writing of the holders of three-
fourths of the issued shares of that class or with the sanction of a
resolution passed by a majority of the votes cast at a separate general
meeting of the holders of the shares of the class in accordance with Section
47 (7) of the Act. The rights conferred upon the holders of the shares of any
class issued with preferred or other rights shall not, unless otherwise
expressly provided by the terms of issue of the shares of that class, be
deemed to be varied by the creation or issue of further shares ranking pari
passu therewith.
(3) The Company may from time to time by resolution of the Members change
the currency denomination of, increase, alter or reduce its share capital in
accordance with the provisions of Sections 45 and 46 of the Act. Where, on any
alteration of share capital, fractions of shares or some other difficulty
would arise, the Board may deal with or resolve the same in such manner as it
thinks fit including, without limiting the generality of the foregoing, the
issue to Members, as appropriate, of fractions of shares and/or arranging for
the sale or transfer of the fractions of shares of Members.
(4) The Company may from time to time purchase its own shares in accordance
with the provisions of Section 42A of the Act.
55. Registered holder of shares
(1) The Company shall be entitled to treat the registered holder of any
share as the absolute owner thereof and accordingly shall not be bound to
recognise any equitable or other claim to, or interest in, such share on the
part of any other person.
(2) Any dividend, interest or other moneys payable in cash in respect of
shares may be paid by cheque or draft sent through the post directed to the
Member at such Member's address in the Register of Members or, in the case of
joint holders, to such address of the holder first named in the Register of
Members, or to such person and to such address as the holder or joint holders
may in writing direct. If two or more persons are registered as joint holders
of any shares any one can give an effectual receipt for any dividend paid in
respect of such shares.
56. Death of a joint holder
Where two or more persons are registered as joint holders of a share or
shares then in the event of the death of any joint holder or holders the
remaining joint holder or holders shall be absolutely entitled to the said
share or shares and the Company shall recognise no claim in respect of the
estate of any joint holder except in the case of the last survivor of such
joint holders.
57. Share certificates
(1) Every Member shall be entitled to a certificate under the seal of the
Company (or a facsimile thereof) specifying the number and, where appropriate,
the class of shares held by such Member and whether the same are fully paid up
and, if not, how much has been paid thereon. The Board may by resolution
determine, either generally or in a particular case, that any or all
signatures on certificates may be printed thereon or affixed by mechanical
means.
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(2) The Company shall be under no obligation to complete and deliver a
share certificate unless specifically called upon to do so by the person to
whom such shares have been allotted.
(3) If any share certificate is proved to the satisfaction of the Board to
have been defaced, worn out, lost, or destroyed the Board may require an
indemnity for the lost certificate and cause a new certificate to be issued to
the holder of such certificate entered in the Register of Members.
58. Calls on shares
(1) The Board may from time to time make such calls as it thinks fit upon
the Members in respect of any monies unpaid on the shares allotted to or held
by such Members and, if a call is not paid on or before the day appointed for
payment thereof, the Member may at the discretion of the Board be liable to
pay the Company interest on the amount of such call at such rate as the Board
may determine, from the date when such call was payable up to the actual date
of payment. The joint holders of a share shall be jointly and severally liable
to pay all calls in respect thereof.
(2) The Board may, on the issue of shares, differentiate between the
holders as to the amount of calls to be paid and the times of payment of such
calls.
59. Forfeiture of shares
(1) If any Member fails to pay, on the day appointed for payment thereof,
any call in respect of any share allotted to or held by such Member, the Board
may, at any time thereafter during such time as the call remains unpaid,
direct the Secretary to forward to such Member a notice in the form of Form
"B" in the Schedule hereto or in such other form as the Board may approve.
(2) If the requirements of such notice are not complied with, any such
share may at any time thereafter before the payment of such call and the
interest due in respect thereof be forfeited by a resolution of the Board to
that effect, and such share shall thereupon become the property of the Company
and may be disposed of as the Board shall determine.
(3) A Member whose share or shares have been forfeited as aforesaid shall,
notwithstanding such forfeiture, be liable to pay to the Company all calls
owing on such share or shares at the time of the forfeiture and all interest
due thereon.
REGISTER OF MEMBERS
60. Contents of Register of Members
The Board shall cause to be kept in one or more books a Register of Members
and shall enter therein the particulars required by the Act.
61. Inspection of Register of Members
The Register of Members shall be open to inspection at the registered
office of the Company on every business day, subject to such reasonable
restrictions as the Board may impose, so that not less than two hours in each
business day be allowed for inspection. The Register of Members may, after
notice has been given by advertisement in an appointed newspaper to that
effect, be closed for any time or times not exceeding in the whole thirty days
in each year.
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62. Determination of record dates
Notwithstanding any other provision of these Bye-laws, the Board may fix
any date as the record date for:
(a) determining the Members entitled to receive any dividend; and
(b) determining the Members entitled to receive notice of and to vote at
any general meeting of the Company.
TRANSFER OF SHARES
63. Instrument of transfer
(1) An instrument of transfer shall be in the form or as near thereto as
circumstances admit of Form "C" in the Schedule hereto or in such other form
as the Board may approve. Such instrument of transfer shall be signed by or on
behalf of the transferor and transferee PROVIDED THAT, in the case of a fully
paid share, the Board may accept the instrument signed by or on behalf of the
transferor alone. The transferor shall be deemed to remain the holder of such
share until the same has been transferred to the transferee in the Register of
Members.
(2) The Board may refuse to recognise any instrument of transfer unless it
is accompanied by the certificate in respect of the shares to which it relates
and by such other evidence as the Board may reasonably require to show the
right of the transferor to make the transfer.
64. Restriction on transfer
(1) The Board may in its absolute discretion and without assigning any
reason therefor refuse to register the transfer of a share. The Board shall
refuse to register a transfer if the transferor is in breach of these Bye-laws
or all applicable consents, authorisations and permissions of any governmental
body or agency in Bermuda have not been obtained.
(2) If the Board refuses to register a transfer of any share the Secretary
shall, within three months after the date on which the transfer was lodged
with the Company, send to the transferor and transferee notice of the refusal.
65. Transfers by joint holders
The joint holders of any share or shares may transfer such share or shares
to one or more of such joint holders, and the surviving holder or holders of
any share or shares previously held by them jointly with a deceased Member may
transfer any such share to the executors or administrators of such deceased
Member.
TRANSMISSION OF SHARES
66. Representative of deceased Member
In the case of the death of a Member, the survivor or survivors where the
deceased Member was a joint holder, and the legal personal representatives of
the deceased Member where the deceased Member was a sole holder, shall be the
only persons recognised by the Company as having any title to the deceased
Member's interest in the shares. Nothing herein contained shall release the
estate of a deceased joint holder from any liability in respect of any share
which had been jointly held by such deceased Member with other persons.
Subject to the provisions of Section 52 of the Act, for the purpose of this
Bye-law, legal personal representative means the executor or administrator of
a deceased Member or such other person as the Board may in its absolute
discretion decide as being properly authorised to deal with the shares of a
deceased Member.
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67. Registration on death or bankruptcy
Any person becoming entitled to a share in consequence of the death or
bankruptcy of any Member may be registered as a Member upon such evidence as
the Board may deem sufficient or may elect to nominate some person to be
registered as a transferee of such share, and in such case the person becoming
entitled shall execute in favour of such nominee an instrument of transfer in
the form of Form "D" in the Schedule hereto or in such other form as the Board
may approve. On the presentation thereof to the Board, accompanied by such
evidence as the Board may require to prove the title of the transferor, the
transferee shall be registered as a Member but the Board shall, in either
case, have the same right to decline or suspend registration as it would have
had in the case of a transfer of the share by that Member before such Member's
death or bankruptcy, as the case may be.
DIVIDENDS AND OTHER DISTRIBUTIONS
68. Declaration of dividends by the Board
The Board may, subject to these Bye-laws and in accordance with Section 54
of the Act, declare a dividend to be paid to the Members, in proportion to the
number of shares held by them, and such dividend may be paid in cash or wholly
or partly in specie in which case the Board may fix the value for distribution
in specie of any assets.
69. Other distributions
The Board may declare and make such other distributions (in cash or in
specie) to the Members as may be lawfully made out of the assets of the
Company.
70. Reserve fund
The Board may from time to time before declaring a dividend set aside, out
of the surplus or profits of the Company, such sum as it thinks proper as a
reserve to be used to meet contingencies or for equalising dividends or for
any other special purpose.
71. Deduction of Amounts due to the Company
The Board may deduct from the dividends or distributions payable to any
Member all monies due from such Member to the Company on account of calls or
otherwise.
CAPITALISATION
72. Issue of bonus shares
(1) The Board may resolve to capitalise any part of the amount for the time
being standing to the credit of any of the Company's share premium or other
reserve accounts or to the credit of the profit and loss account or otherwise
available for distribution by applying such sum in paying up unissued shares
to be allotted as fully paid bonus shares pro rata to the Members.
(2) The Company may capitalise any sum standing to the credit of a reserve
account or sums otherwise available for dividend or distribution by applying
such amounts in paying up in full partly paid shares of those Members who
would have been entitled to such sums if they were distributed by way of
dividend or distribution.
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ACCOUNTS AND FINANCIAL STATEMENTS
73. Records of account
The Board shall cause to be kept proper records of account with respect to
all transactions of the Company and in particular with respect to:
(a) all sums of money received and expended by the Company and the
matters in respect of which the receipt and expenditure relates;
(b) all sales and purchases of goods by the Company; and
(c) the assets and liabilities of the Company.
Such records of account shall be kept at the registered office of the
Company or, subject to Section 83 (2) of the Act, at such other place as the
Board thinks fit and shall be available for inspection by the Directors during
normal business hours.
74. Financial year end
The financial year end of the Company may be determined by resolution of
the Board and failing such resolution shall be 31st December in each year.
75. Financial statements
Subject to any rights to waive laying of accounts pursuant to Section 88 of
the Act, financial statements as required by the Act shall be laid before the
Members in general meeting.
AUDIT
76. Appointment of Auditor
Subject to Section 88 of the Act, at the annual general meeting or at a
subsequent special general meeting in each year, an independent representative
of the Members shall be appointed by them as Auditor of the accounts of the
Company. Such Auditor may be a Member but no Director, Officer or employee of
the Company shall, during his or her continuance in office, be eligible to act
as an Auditor of the Company.
77. Remuneration of Auditor
The remuneration of the Auditor shall be fixed by the Company in general
meeting or in such manner as the Members may determine.
78. Vacation of office of Auditor
If the office of Auditor becomes vacant by the resignation or death of the
Auditor, or by the Auditor becoming incapable of acting by reason of illness
or other disability at a time when the Auditor's services are required, the
Board shall, as soon as practicable, convene a special general meeting to fill
the vacancy thereby created.
79. Access to books of the Company
The Auditor shall at all reasonable times have access to all books kept by
the Company and to all accounts and vouchers relating thereto, and the Auditor
may call on the Directors or Officers of the Company for any information in
their possession relating to the books or affairs of the Company.
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80. Report of the Auditor
(1) Subject to any rights to waive laying of accounts or appointment of an
Auditor pursuant to Section 88 of the Act, the accounts of the Company shall
be audited at least once in every year.
(2) The financial statements provided for by these Bye-laws shall be
audited by the Auditor in accordance with generally accepted auditing
standards. The Auditor shall make a written report thereon in accordance with
generally accepted auditing standards and the report of the Auditor shall be
submitted to the Members in general meeting.
(3) The generally accepted auditing standards referred to in subparagraph
(2) of this Bye-law may be those of a country or jurisdiction other than
Bermuda. If so, the financial statements and the report of the Auditor must
disclose this fact and name such country or jurisdiction.
LEGEND ON SHARE CERTIFICATES
81. [include necessary provisions]
BUSINESS COMBINATIONS
82. Business Combinations
Any Business Combination shall require the approval of the Board and a
Special Resolution of the Members.
NOTICES
83. Notices to Members of the Company
A notice may be given by the Company to any Member either by delivering it
to such Member in person or by sending it to such Member's address in the
Register of Members or to such other address given for the purpose. For the
purposes of this Bye-law, a notice may be sent by mail, courier service,
cable, telex, telecopier, facsimile or other mode of representing words in a
legible and non-transitory form.
84. Notices to joint Members
Any notice required to be given to a Member shall, with respect to any
shares held jointly by two or more persons, be given to whichever of such
persons is named first in the Register of Members and notice so given shall be
sufficient notice to all the holders of such shares.
85. Service and delivery of notice
Any notice shall be deemed to have been served at the time when the same
would be delivered in the ordinary course of transmission and, in proving such
service, it shall be sufficient to prove that the notice was properly
addressed and prepaid, if posted, and the time when it was posted, delivered
to the courier or to the cable company or transmitted by telex, facsimile or
other method as the case may be.
SEAL OF THE COMPANY
86. The seal
The seal of the Company shall be in such form as the Board may from time to
time determine. The Board may adopt one or more duplicate seals for use
outside Bermuda.
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87. Manner in which seal is to be affixed
The seal of the Company shall not be affixed to any instrument except
attested by the signature of a Director and the Secretary or any two
Directors, or any person appointed by the Board for the purpose, PROVIDED THAT
any Director, Officer or Resident Representative, may affix the seal of the
Company attested by such Director, Officer or Resident Representative's
signature to any authenticated copies of these Bye-laws, the incorporating
documents of the Company, the minutes of any meetings or any other documents
required to be authenticated by such Director, Officer or Resident
Representative.
WINDING-UP
88. Winding-up/distribution by liquidator
If the Company shall be wound up the liquidator may, with the sanction of a
resolution of the Members, divide amongst the Members in specie or in kind the
whole or any part of the assets of the Company (whether they shall consist of
property of the same kind or not) and may, for such purpose, set such value as
he or she deems fair upon any property to be divided as aforesaid and may
determine how such division shall be carried out as between the Members or
different classes of Members. The liquidator may, with the like sanction, vest
the whole or any part of such assets in trustees upon such trusts for the
benefit of the Members as the liquidator shall think fit, but so that no
Member shall be compelled to accept any shares or other securities or assets
whereon there is any liability.
ALTERATION OF BYE-LAWS
89. Alteration of Bye-laws
No Bye-law shall be rescinded, altered or amended and no new Bye-law shall
be adopted until the same has first been approved by a resolution of the Board
and second by a Special Resolution of the Members.
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SCHEDULE
FORM A
(Bye-law 49)
PROXY
I/We of the
holder(s) of share(s) in the above-named company hereby appoint
or failing him/her or
failing him/her as my/our proxy to vote on my/our
behalf at the general meeting of the Company to be held on the day of
, 20 , and at any adjournment thereof.
Dated this day of , 20
*GIVEN under the seal of the Company
*Signed by the above-named
-------------------------------------
-------------------------------------
Witness
*Delete as applicable.
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SCHEDULE
FORM B
(Bye-law 59)
NOTICE OF LIABILITY TO FORFEITURE FOR NON PAYMENT OF CALL
You have failed to pay the call of [amount of call] made on the day of
, 20 last, in respect of the [number] share(s) [numbers in figures]
standing in your name in the Register of Members of the Company, on the
day of , 20 last, the day appointed for payment of such call. You
are hereby notified that unless you pay such call together with interest
thereon at the rate of per annum computed from the said day of
, 20 last, on or before the day of , 20 next at the
place of business of the Company the share(s) will be liable to be forfeited.
Dated this day of , 20 .
[Signature of Secretary]
By order of the Board
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SCHEDULE
FORM C
(Bye-law 63)
TRANSFER OF A SHARE OR SHARES
FOR VALUE RECEIVED [amount]
[transferor] hereby sell assign and transfer unto
[transferee] of [address]
[number of shares] shares of
[name of Company]
Dated _______________________________
-------------------------------------
(Transferor)
In the presence of:
-------------------------------------
(Witness)
-------------------------------------
(Transferee)
In the presence of:
-------------------------------------
(Witness)
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SCHEDULE
FORM D
(Bye-law 67)
TRANSFER BY A PERSON BECOMING ENTITLED ON DEATH/BANKRUPTCY OF A MEMBER
I/We having become entitled in consequence of the [death/bankruptcy] of
[name of the deceased Member] to [number] share(s) standing in the register of
members of [Company] in the name of the said [name of deceased Member] instead
of being registered myself/ourselves elect to have [name of transferee] (the
"Transferee") registered as a transferee of such share(s) and I/we do hereby
accordingly transfer the said share(s) to the Transferee to hold the same unto
the Transferee his or her executors administrators and assigns subject to the
conditions on which the same were held at the time of the execution thereof;
and the Transferee does hereby agree to take the said share(s) subject to the
same conditions.
WITNESS our hands this day of , 20
Signed by the above-named
[person or persons entitled]
in the presence of:
Signed by the above-named
[transferee]
in the presence of:
B-25
<PAGE>
EXHIBIT 10.1
APW LTD.
2000 STOCK PLAN
I. Introduction
1.01 Purpose. This plan shall be known as the APW Ltd. 2000 Stock Option
Plan (the "2000 Plan" or the "Plan"). The purpose of the Plan is to provide
incentive for key employees of APW Ltd. and its Subsidiaries to improve
corporate performance on a long-term basis, and to attract and retain key
employees.
1.02 Effective Date. The effective date of the Plan shall be
, 2000, subject to approval of the Plan by the shareholders of
APW Ltd. Any Award granted prior to such shareholder approval shall be
expressly conditioned upon such shareholder approval of the Plan.
1.03 Substitute Options. APW Ltd. is the result of a spin-off from Applied
Power Inc. Certain APW Ltd. employees were previously granted options to
purchase Applied Power Inc. common stock. The Committee shall have the power
to grant APW Ltd. employees substitute options under this Plan on terms which
are to be economically consistent with the prior Applied Power Inc. stock
options.
II. Plan Definitions
2.01 Definitions. For Plan purposes, except where the context clearly
indicates otherwise, the following terms shall have the meanings set forth
below:
(a) "Award" shall mean the grant of any form of stock option or
restricted stock.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(d) "Committee" shall mean the Compensation Committee of the Board, as
described in Section 4.01.
(e) "Company" shall mean APW Ltd., a Bermuda corporation.
(f) "Company Stock" shall mean common stock of the Company and such
other stock and securities as may be substituted therefor pursuant to
Section 3.02.
(g) "Eligible Employee" shall mean any regular salaried employee of the
Company or a Subsidiary who satisfies all of the requirements of Section
5.01.
(h) "Fair Market Value" on any date shall mean, with respect to Company
Stock, if the stock is then listed and traded on a registered national
securities exchange, or is quoted in the NASDAQ National Market System, the
mean of the high and low sale prices recorded in composite transactions as
reported in the Wall Street Journal (Midwest Edition). In the absence of
reported sales on such date, or if the stock is not so listed or quoted,
but is traded in the over-the-counter market, "Fair Market Value" shall be
the mean of the closing bid and asked prices for such shares on such date
as reported in the Wall Street Journal (Midwest Edition), or, if not so
reported as obtained from a bona fide market maker in such shares.
(i) "Grantee" shall mean any person who has been granted an Award, under
the Plan.
(j) "Option Period" shall mean the period of time provided pursuant to
Section 6.04 within which a stock option may be exercised.
(k) "Subsidiary" shall mean any corporation now or hereafter in
existence in which the Company owns, directly or indirectly, a voting stock
interest of more than fifty percent (50%).
(l) "Substitute Options" shall mean an option granted under the Plan in
substitution for an option to purchase common stock of Applied Power Inc.
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III. Shares Subject to Option
3.01 Available Shares. The total number of shares of Company Stock that may
be issued under the Plan, including shares that may be issued upon exercise of
a Substitute Option, shall in the aggregate not exceed five million
(5,000,000) shares. Shares subject to and not issued under an option which
expires, terminates, is canceled or forfeited for any reason under the Plan
and shares of restricted Company Stock which have been forfeited before the
Grantee has received any benefits of ownership, such as dividends from the
forfeited shares, shall again become available for the granting of Awards.
3.02 Changes in the Number of Available Shares. If any stock dividend is
declared upon the Company Stock, or if there is any stock split, stock
distribution, or other recapitalization of the Company with respect to the
Company Stock, resulting in a split or combination or exchange of shares, the
aggregate number and kind of shares which may thereafter be offered under the
Plan shall be proportionately and approximately adjusted and the number and
kind of shares then subject to options granted to employees under the Plan and
the per share option price therefor shall be proportionately and appropriately
adjusted, without any change in the aggregate purchase prices to be paid
therefor.
IV. Administration
4.01 Administration by the Committee. The Plan shall be administered by the
Compensation Committee of the Board, or such other committee of the Board as
the Board may from time to time determine. The Committee shall be constituted
so as to permit the Plan to comply with the provisions of Rule 16b-3 under the
Securities Exchange Act of 1934 (or any successor rule) and Section 162(m) of
the Code.
4.02 Committee Powers. The Committee is empowered to adopt such rules,
regulations and procedures and take such other action as it shall deem
necessary or proper for the administration of the Plan and, in its discretion,
may modify, extend or renew any option theretofore granted. The Committee
shall also have authority to interpret the Plan, and the decision of the
Committee on any questions concerning the interpretation of the Plan shall be
final and conclusive. The Committee may consult with counsel, who may be
counsel for the Company, and shall not incur any liability for any action
taken in good faith in reliance upon the advice of counsel. The Committee may
adopt such procedures and subplans as are necessary or appropriate to permit
participation in the Plan by Eligible Employees who are foreign nationals or
employed outside of the United States.
Subject to the provisions of the Plan, the Committee shall have full and
final authority to:
(a) designate the persons to whom Awards shall be granted;
(b) grant Awards in such form and amount as the Committee shall
determine;
(c) impose such limitations, restrictions and conditions upon any such
Award as the Committee shall deem appropriate, and
(d) waive in whole or in part any limitations, restrictions or
conditions imposed upon any such Award as the Committee shall deem
appropriate.
V. Participation
5.01 Eligibility. Key employees of the Company and its Subsidiaries
(including officers and employees who may be members of the Board) who, in the
sole opinion of the Committee, contribute significantly to the growth and
success of the Company or a Subsidiary shall be eligible for Awards under the
Plan. From among all such Eligible Employees, the Committee shall determine
from time to time those Eligible Employees to whom Awards shall be granted. No
Eligible Employee may be granted an Award or Awards covering more than two
hundred fifty thousand (250,000) shares of Company Stock in any calendar year.
No Eligible Employee shall have any right whatsoever to receive an Award
unless so determined by the Committee.
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<PAGE>
5.02 No Employment Rights. The Plan shall not be construed as conferring
any rights upon any person for a continuation of employment, nor shall it
interfere with the rights of the Company or any Subsidiary to terminate the
employment of any person or to take any other action affecting such person.
VI. Stock Options
6.01 General. Stock options granted under the Plan may be in the form of
incentive stock options (within the meaning of the Code) or nonqualified stock
options. Each option granted under the Plan shall be evidenced by a stock
option agreement between the Company and the Grantee which shall contain the
terms and conditions required by this Article VI, and such other terms and
conditions, not inconsistent herewith, as the Committee may deem appropriate
in each case.
6.02 Option Price. The price at which each share of Company Stock covered
by an option may be purchased shall be determined in each case by the
Committee and set forth in each stock option agreement. In no event shall such
price be less than one hundred percent (100%) of the Fair Market Value of the
Company Stock when the option is granted. Notwithstanding the foregoing, the
Committee may grant nonqualified stock options with an option price of less
than 100% of the Fair Market Value of the Company Stock on the condition that
the Grantee make a cash payment to the Company on the date of grant of at
least the difference between the Fair Market Value of the Company Stock and
the option price (i.e., the sum of the cash payment and the option price must
be equal to or in excess of the Fair Market Value of the Company Stock on the
date of grant). Employees who own, directly or indirectly, within the meaning
of Code 425(d), more than 10% of the voting power of all classes of stock of
the Company or any parent or subsidiary corporation shall not be eligible to
receive an incentive stock option hereunder unless the purchase price per
share under such option is at least 110% of the Fair Market Value of the stock
subject to the option and such option by its terms is not exercisable after
the expiration of 5 years from the date such option is granted.
6.03 Date Option Granted. For purposes of the Plan, a stock option shall be
considered as having been granted on the date on which the Committee
authorized the grant of the option, except where the Committee has designated
a later date, in which event the later date shall constitute the date of grant
of the option; provided, however, that in either case notice of the grant of
the option shall be given to the employee within a reasonable time.
6.04 Period for Exercise. Each stock option agreement shall state the
period or periods of time within which the option may be exercised by the
Grantee, in whole or in part, which shall be the period or periods of time as
may be determined by the Committee, provided that:
(a) No option granted under this Plan may be exercised prior to
shareholder approval of the Plan,
(b) No Option Period for an incentive stock option may exceed ten (10)
years from the date the option is granted, and
(c) No option may be treated as an incentive stock option unless the
Grantee exercises the option while employed by the Company or a Subsidiary
or within three months after termination of employment, or if termination
is caused by death or disability, within one year after such termination.
6.05 Special Rule for Incentive Stock Options. For so long as Section 422
(or any successor provision) of the Code so provides, the aggregate Fair
Market Value (determined as of the date the incentive stock option is granted)
of the number of shares with respect to which incentive stock options are
exercisable for the first time by a Grantee during any calendar year shall not
exceed One Hundred Thousand Dollars ($100,000) or such other limit as may be
required by the Code.
6.06 Method of Exercise. Subject to Section 6.04, each option may be
exercised in whole or in part from time to time as specified in the stock
option agreement. Each Grantee may exercise an option by giving written notice
of the exercise to the Company, specifying the number of shares to be
purchased, accompanied by payment in full of the purchase price therefor. The
purchase price may be paid in cash, by check, or, with the
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<PAGE>
approval of the Committee, by delivering shares of Company Stock which have
been beneficially owned by the Grantee, the Grantee's spouse, or both of them
for a period of at least six months prior to the time of exercise ("Delivered
Stock") or a combination of cash and Delivered Stock. Delivered Stock shall be
valued at its Fair Market Value determined as of the date of exercise of the
option. No Grantee shall be under any obligation to exercise any option
hereunder. The holder of an option shall not have any rights of a stockholder
with respect to the shares subject to the option until such shares shall have
been delivered to him or her.
6.07 Merger, Consolidation or Reorganization. In the event of a merger,
consolidation or reorganization with another corporation in which the Company
is not the surviving corporation, the Committee may, subject to the approval
of the Board of Directors of the Company, or the board of directors of any
corporation assuming the obligations of the Company hereunder, take action
regarding each outstanding and unexercised option pursuant to either clause
(a) or (b) below:
(a) Appropriate provision may be made for the protection of such option
by the substitution on an equitable basis of appropriate shares of the
surviving corporation, provided that the excess of the aggregate Fair
Market Value of the shares subject to such option immediately before such
substitution over the exercise price thereof is not more than the excess of
the aggregate fair market value of the substituted shares made subject to
option immediately after such substitution over the exercise price thereof;
or
(b) The Committee may cancel such option. In such event, the Company, or
the corporation assuming the obligations of the Company hereunder, shall
pay the employee an amount of cash (less normal withholding taxes) equal to
the excess of the highest Fair Market Value per share of the Company Stock
during the 60-day period immediately preceding the merger, consolidation or
reorganization over the option exercise price, multiplied by the number of
shares subject to such option.
6.08 Substitute Options. Notwithstanding the provisions of Sections 6.02
and 6.03 above, in the event that the Company or a Subsidiary consummates a
transaction described in Section 424(a) of the Code (e.g., the acquisition of
property or stock from an unrelated corporation), persons who become Eligible
Employees on account of such transaction may be granted options in
substitution for options granted by their former employer. If such substitute
options are granted, the Committee, in its sole discretion and consistent with
Section 424(a) of the Code, may determine that such substitute options shall
have an exercise price less than one hundred (100%) of the Fair Market Value
of the shares on the grant date.
6.09 Deferral of Stock Option Gain. The Committee may permit, in its
discretion, an optionee who exercises a stock option to defer the taxable
income attributable to such exercise. In the event the Committee elects to
permit such deferrals, the Committee shall identify the optionees to whom such
deferral elections shall be made available and establish procedures for
implementing such deferrals. An optionee who defers a stock option gain under
this Plan or any other Company stock option plan shall be credited with deemed
dividends under this Plan on such terms as the Committee shall prescribe. All
deferrals which are permitted under this section and all deemed dividends
shall be distributed in APW Ltd. common stock.
VII. Restricted Stock
7.01 Administration. Shares of restricted stock may be issued either alone
or in addition to other Awards granted under the Plan; provided that a maximum
of 150,000 shares of restricted stock may be granted in any calendar year. The
Committee shall determine the Eligible Employees to whom and the time or times
at which grants of restricted stock will be made, the number of shares to be
awarded, the time or times within which such Awards may be subject to
forfeiture and any other terms and conditions of the Awards. The Committee may
condition the grant of restricted stock upon the attainment of specified
levels of revenue, earnings per share, net income, return on assets, return on
sales, customer satisfaction, stock price, costs, individual performance
measures or such other factors or criteria as the Committee shall determine.
The provisions of restricted stock Awards need not be the same with respect to
each recipient.
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7.02 Awards and Certificates. Each individual receiving a restricted stock
Award shall be issued a certificate in respect of such shares of restricted
stock. Such certificate shall be registered in the name of such individual and
shall bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such Award, substantially in the following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the APW Ltd. 2000 Stock Plan and a Restricted Stock
Agreement. Copies of such Plan and Agreement are on file at the offices of
APW Ltd."
The Committee may require that the certificates evidencing such shares be held
in custody by the Company until the restrictions thereon shall have lapsed and
that, as a condition of any restricted stock Award, the Grantee shall have
delivered a stock power, endorsed in blank, relating to the Company Stock
covered by such Award.
7.03 Terms and Conditions. Shares of restricted stock shall be subject to
the following terms and conditions:
(a) Until the applicable restrictions lapse, the Grantee shall not be
permitted to sell, assign, transfer, pledge or otherwise encumber shares of
restricted stock.
(b) The Grantee shall have, with respect to the shares of restricted
stock, all of the rights of a stockholder of the Company, including the
right to vote the shares and the right to receive any cash dividends.
Unless otherwise determined by the Committee, cash dividends shall be
automatically paid in cash and dividends payable in Company Stock shall be
paid in the form of additional restricted stock.
(c) Except to the extent otherwise provided in the applicable Restricted
Stock Agreement and (d) below, all shares still subject to restriction
shall be forfeited by the Grantee upon termination of a Grantee's
employment for any reason.
(d) In the event of hardship or other special circumstances of a Grantee
whose employment is involuntarily terminated (other than for cause), the
Committee may waive in whole or in part any or all remaining restrictions
with respect to such Grantee's shares of restricted stock.
(e) If and when the applicable restrictions lapse, unlegended
certificates for such shares shall be delivered to the Grantee.
(f) Each Award shall be confirmed by, and be subject to the terms of, a
Restricted Stock Agreement.
VIII. Withholding Taxes
8.01 General Rule. Pursuant to applicable federal and state laws, the
Company is or may be required to collect withholding taxes upon the exercise
of an option or the lapse of stock restrictions. The Company may require, as a
condition to the exercise of an option or the issuance of a stock certificate,
that the Grantee concurrently pay to the Company (either in cash or, at the
request of Grantee but in the discretion of the Committee and subject to such
rules and regulations as the Committee may adopt from time to time, in shares
of Delivered Stock) the entire amount or a portion of any taxes which the
Company is required to withhold by reason of such exercise or lapse of
restrictions, in such amount as the Committee or the Company in its discretion
may determine.
8.02 Withholding from Shares to be Issued. In lieu of part or all of any
such payment, the Grantee may elect, subject to such rules and regulations as
the Committee may adopt from time to time, or the Company may require that the
Company withhold from the shares to be issued that number of shares having a
Fair Market Value equal to the amount which the Company is required to
withhold.
8.03 Special Rule for Insiders. Any such request or election (to satisfy a
withholding obligation using shares) by an individual who is subject to the
provisions of Section 16 of the Securities Exchange Act of 1934 shall be made
in accordance with the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
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IX. General
9.01 Nontransferability. No Award shall be transferable by a Grantee
otherwise than by will or the laws of descent and distribution, provided that
in accordance with Internal Revenue Service guidance, the Committee, in its
discretion, may grant nonqualified stock options that are transferable,
without payment of consideration, to family members of the Grantee or to
trusts or partnerships for such family members. The Committee may also amend
outstanding stock options to provide for such transferability.
9.02 General Restriction. Each Award shall be subject to the requirement
that if at any time the Board or the Committee shall determine, in its
discretion, that the listing, registration, or qualification of securities
upon any securities exchange or under any state or federal law, or the consent
or approval of any government regulatory body, is necessary or desirable as a
condition of, or in connection with, the granting of such Award or the issue
or purchase of securities thereunder, such Award may not be exercised in whole
or in part unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Board or the Committee.
9.03 Expiration and Termination of the Plan. The Plan will terminate ten
(10) years after the effective date of the Plan, except as to Awards then
outstanding under the Plan, which Awards shall remain in effect until they
have been exercised, the restrictions have lapsed or the Awards have expired
or been forfeited. The Plan may be abandoned or terminated at any time by the
Board of Directors of the Company, except with respect to any Awards then
outstanding under the Plan.
9.04 Amendments. The Board may from time to time amend, modify, suspend or
terminate the Plan; provided, however, that no such action shall be made
without shareholder approval where such change would be required in order to
comply with Rule 16b-3 under the Securities Exchange Act of 1934 (or any
successor rule) or the Code. Subject to the terms and conditions and within
the limitations of the Plan, the Committee may modify, extend or renew
outstanding Awards granted under the Plan, accept the surrender of outstanding
options (to the extent not theretofore exercised), reduce the exercise price
of outstanding options, or authorize the granting of new options in
substitution therefor (to the extent not theretofore exercised).
Notwithstanding the foregoing, no modification of an Award (either directly or
through modification of the Plan) shall, without the consent of the Grantee,
alter or impair any rights of the Grantee under the Award.
9.05 Construction. Except as otherwise required by applicable federal laws,
the Plan shall be governed by, and construed in accordance with, the laws of
the State of Wisconsin.
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EXHIBIT 10.12
APW LTD.
OUTSIDE DIRECTORS' STOCK OPTION PLAN
I. Introduction
1.01 Purpose. This plan shall be known as the APW Ltd. Outside Directors'
Stock Option Plan (the "Plan"). The purpose of this Plan is to promote the
growth and development of APW Ltd. by providing increased incentives for the
directors of the Company. This Plan provides for the granting of non-qualified
stock options.
1.02 Effective Date. The effective date of the Plan shall be
, 2000, subject to approval of the Plan by the shareholders of
APW Ltd. Options granted prior to such shareholder approval shall be expressly
conditioned upon such shareholder approval of the Plan.
1.03 Substitute Options. APW Ltd. is the result of a spin-off from Applied
Power Inc. APW Ltd. directors who were previously directors of Applied Power
Inc. and were granted options to purchase Applied Power Inc. common stock
shall be granted substitute options to purchase APW Ltd. common stock under
this Plan on terms which are to be economically consistent with the prior
Applied Power Inc. stock options.
II. Plan Definitions
2.01 Definitions. For Plan purposes, except where the context clearly
indicates otherwise, the following terms shall have the meanings set forth
below:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(c) "Committee" shall mean the Compensation Committee of the Board, as
described in Section 4.01.
(d) "Company" shall mean APW Ltd., a Bermuda corporation.
(e) "Company Stock" shall mean common stock of the Company and such
other stock and securities as may be substituted therefor pursuant to
Section 3.02.
(f) "Fair Market Value" on any date shall mean, with respect to Company
Stock, if the stock is then listed and traded on a registered national
securities exchange, or is quoted in the NASDAQ National Market System, the
mean of the high and low sale prices recorded in composite transactions as
reported in the Wall Street Journal (Midwest Edition). In the absence of
reported sales on such date, or if the stock is not so listed or quoted,
but is traded in the over-the-counter market, "Fair Market Value" shall be
the mean of the closing bid and asked prices for such shares on such date
as reported in the Wall Street Journal (Midwest Edition), or, if not so
reported as obtained from a bona fide market maker in such shares.
(g) "Optionee" shall mean any person who has been granted an option
under the Plan.
(h) "Outside Director" shall mean a director of the Company who is not
also an employee of the Company.
(i) "Substitute Options" shall mean an option granted under the Plan in
substitution for an option to purchase common stock of Applied Power Inc.
III. Shares Subject to Option
3.01 Available Shares. The total number of shares of Company Stock that may
be issued under the Plan, including shares that may be issued upon exercise of
a Substitute Option, shall in the aggregate not exceed two hundred thousand
(200,000) shares. Shares subject to and not issued under an option which
expires, terminates, is canceled or forfeited for any reason under the Plan
shall again become available for the granting of options.
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3.02 Changes in the Number of Available Shares. If any stock dividend is
declared upon the Company Stock, or if there is any stock split, stock
distribution, or other recapitalization of the Company with respect to the
Company Stock, resulting in a split or combination or exchange of shares, the
aggregate number and kind of shares which may thereafter be offered under the
Plan shall be proportionately and approximately adjusted and the number and
kind of shares then subject to options granted to employees under the Plan and
the per share option price therefor shall be proportionately and appropriately
adjusted, without any change in the aggregate purchase prices to be paid
therefor.
IV. Administration
4.01 Administration by the Committee. The Plan shall be administered by the
Compensation Committee of the Board, or such other committee of the Board as
the Board may from time to time determine. The Committee shall be constituted
so as to permit the Plan to comply with the provisions of Rule 16b-3 under the
Securities Exchange Act of 1934 (or any successor rule).
4.02 Committee Powers. The Committee is empowered to adopt such rules,
regulations and procedures and take such other action as it shall deem
necessary or proper for the administration of the Plan and, in its discretion,
may modify, extend or renew any option theretofore granted. The Committee
shall also have authority to interpret the Plan, and the decision of the
Committee on any questions concerning the interpretation of the Plan shall be
final and conclusive. The Committee may consult with counsel, who may be
counsel for the Company, and shall not incur any liability for any action
taken in good faith in reliance upon the advice of counsel.
Subject to the provisions of the Plan, the Committee shall have full and
final authority to:
(a) designate the persons to whom options shall be granted;
(b) grant options in such form and amount as the Committee shall
determine;
(c) impose such limitations, restrictions and conditions upon any such
option as the Committee shall deem appropriate, and
(d) waive in whole or in part any limitations, restrictions or
conditions imposed upon any such option as the Committee shall deem
appropriate.
V. Stock Options
5.01 General. Each year, upon the first meeting of the Company's Board of
Directors following the Company's annual meeting of shareholders, each person
then serving the Company as an Outside Director at that time shall
automatically be granted an option to purchase four thousand (4,000) shares,
subject to adjustment under Section 3.02 hereof. Each option granted under the
Plan shall be evidenced by a stock option agreement between the Company and
the Grantee which shall contain the terms and conditions required by this
Article V, and such other terms and conditions, not inconsistent herewith, as
the Committee may deem appropriate in each case.
5.02 Option Price. The price at which each share of Company Stock covered
by an option may be purchased shall be one hundred percent (100%) of the Fair
Market Value of the Company Stock on the date the option is granted.
5.03 Period for Exercise. Each stock option agreement shall state the
period or periods of time within which the option may be exercised by the
Optionee, in whole or in part, which shall be the period or periods of time as
may be determined by the Committee, provided that unless otherwise determined
by the Committee:
(a) Options will vest eleven (11) months after grant.
(b) If the option is not earlier exercised or terminated, all rights to
exercise an option shall expire ten (10) years from the date the option was
granted.
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(c) Upon termination of service as a director of the Company for any
reason other than death, after the director shall have continuously so
served for eleven (11) months after the date of option grant, the director
may, at any time within two (2) years after the date of such termination,
but in no event later than the date of expiration of the option, exercise
the option to the extent he or she was entitled to do so on the date of
termination.
(d) If an Optionee dies while serving as a director of the Company, or
within two (2) years after termination of such service, the personal
representative of the Optionee's estate or the person or persons to whom
the option is transferred by will or the laws of descent and distribution
may, at any time within two (2) years after the date of death, but not
later than the date of expiration of the option, exercise the option to the
extent the Optionee was entitled to do so on the date of death.
(e) All options shall become immediately exercisable in full upon a
change in control (as determined by the Committee).
5.04 Method of Exercise. Each option may be exercised in whole or in part
from time to time as specified in the stock option agreement. Each Optionee
may exercise an option by giving written notice of the exercise to the
Company, specifying the number of shares to be purchased, accompanied by
payment in full of the purchase price therefor. The purchase price may be paid
in cash, by check, or, with the approval of the Committee, by delivering
shares of Company Stock which have been beneficially owned by the Optionee,
the Optionee's spouse, or both of them for a period of at least six months
prior to the time of exercise ("Delivered Stock") or a combination of cash and
Delivered Stock. Delivered Stock shall be valued at its Fair Market Value
determined as of the date of exercise of the option. No Optionee shall be
under any obligation to exercise any option hereunder. An Optionee shall not
have any rights of a stockholder with respect to the shares subject to the
option until such shares shall have been delivered to him or her.
5.05 Merger, Consolidation or Reorganization. In the event of a merger,
consolidation or reorganization with another corporation in which the Company
is not the surviving corporation, the Committee may, subject to the approval
of the Board of Directors of the Company, or the board of directors of any
corporation assuming the obligations of the Company hereunder, take action
regarding each outstanding and unexercised option pursuant to either clause
(a) or (b) below:
(a) Appropriate provision may be made for the protection of such option
by the substitution on an equitable basis of appropriate shares of the
surviving corporation, provided that the excess of the aggregate Fair
Market Value of the shares subject to such option immediately before such
substitution over the exercise price thereof is not more than the excess of
the aggregate fair market value of the substituted shares made subject to
option immediately after such substitution over the exercise price thereof;
or
(b) The Committee may cancel such option. In such event, the Company, or
the corporation assuming the obligations of the Company hereunder, shall
pay the Optionee an amount of cash (less normal withholding taxes) equal to
the excess of the highest Fair Market Value per share of the Company Stock
during the 60-day period immediately preceding the merger, consolidation or
reorganization over the option exercise price, multiplied by the number of
shares subject to such option.
5.06 Withholding Taxes. Pursuant to applicable federal and state laws, the
Company is or may be required to collect withholding taxes upon the exercise
of an option or the lapse of stock restrictions. The Company may require, as a
condition to the exercise of an option or the issuance of a stock certificate,
that the Optionee concurrently pay to the Company (either in cash or, at the
request of Grantee but in the discretion of the Committee and subject to such
rules and regulations as the Committee may adopt from time to time, in shares
of Delivered Stock) the entire amount or a portion of any taxes which the
Company is required to withhold by reason of such exercise or lapse of
restrictions, in such amount as the Committee or the Company in its discretion
may determine. In lieu of part or all of any such payment, the Optionee may
elect, subject to such rules and regulations as the Committee may adopt from
time to time, or the Company may require that the Company withhold from the
shares to be issued that number of shares having a Fair Market Value equal to
the amount which the Company is required to withhold.
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VI. General
6.01 Nontransferability. No option shall be transferable by an Optionee
otherwise than by will or the laws of descent and distribution, provided that
in accordance with Internal Revenue Service guidance, the Committee, in its
discretion, may grant options that are transferable, without payment of
consideration, to family members of the Optionee or to trusts or partnerships
for such family members. The Committee may also amend outstanding stock
options to provide for such transferability.
6.02 General Restriction. Each option shall be subject to the requirement
that if at any time the Board or the Committee shall determine, in its
discretion, that the listing, registration, or qualification of securities
upon any securities exchange or under any state or federal law, or the consent
or approval of any government regulatory body, is necessary or desirable as a
condition of, or in connection with, the granting of such option or the issue
or purchase of securities thereunder, such option may not be exercised in
whole or in part unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Board or the Committee.
6.03 No Promise of Continued Service as a Director. Nothing in the Plan or
in any option granted under the Plan shall confer on any director any right to
continue as a director of the Company or affect the right of the Company to
terminate his or her service to the Company at any time.
6.04 Expiration and Termination of the Plan. The Plan will terminate ten
(10) years after the effective date of the Plan, except as to options then
outstanding under the Plan, which options shall remain in effect until they
have been exercised, the restrictions have lapsed or the options have expired
or been forfeited. The Plan may be abandoned or terminated at any time by the
Board of Directors of the Company, except with respect to any options then
outstanding under the Plan.
6.05 Amendments. The Board may from time to time amend, modify, suspend or
terminate the Plan; provided, however, that no such action shall be made
without shareholder approval where such change would be required in order to
comply with Rule 16b-3 under the Securities Exchange Act of 1934 (or any
successor rule) or the Code. Subject to the terms and conditions and within
the limitations of the Plan, the Committee may modify, extend or renew
outstanding options granted under the Plan, accept the surrender of
outstanding options (to the extent not theretofore exercised), reduce the
exercise price of outstanding options, or authorize the granting of new
options in substitution therefor (to the extent not theretofore exercised).
Notwithstanding the foregoing, no modification of an option (either directly
or through modification of the Plan) shall, without the consent of the
Optionee, alter or impair any rights of the Optionee under the option.
6.06 Construction. Except as otherwise required by applicable federal laws,
the Plan shall be governed by, and construed in accordance with, the laws of
the State of Wisconsin.
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