<PAGE> 1
As filed with the Securities and Exchange Commission on July 16, 1997
REGISTRATION NO. 333-27665
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CONTINENTAL GLOBAL GROUP, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 3535 34-1506889
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification No.)
incorporation or organization)
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CO-REGISTRANTS AND SUBSIDIARY GUARANTORS
<TABLE>
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CONTINENTAL CONVEYOR & EQUIPMENT COMPANY DELAWARE 3535 34-1603197
GOODMAN CONVEYOR COMPANY DELAWARE 3535 34-1603196
</TABLE>
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<TABLE>
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Continental Global Group, Continental Conveyor &
Inc. Equipment Company Goodman Conveyor Company
<S> <C> <C>
438 INDUSTRIAL DRIVE 438 INDUSTRIAL DRIVE ROUTE 178, SOUTH
WINFIELD, ALABAMA 35594 WINFIELD, ALABAMA 35594 P.O. BOX 866
(205) 487-6492 (205) 487-6492 BELTON, SOUTH CAROLINA 29627
(864) 338-7793
</TABLE>
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
C. EDWARD BRYANT, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CONTINENTAL GLOBAL GROUP, INC.
438 INDUSTRIAL DRIVE
WINFIELD, ALABAMA 35594
(205) 487-6492
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
JEFFREY J. MARGULIES, ESQ.
SQUIRE, SANDERS & DEMPSEY L.L.P.
4900 KEY TOWER, 127 PUBLIC SQUARE
CLEVELAND, OHIO 44114-1304
(216) 479-8500
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
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=================================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED NOTE PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------
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11% Series B Senior Notes
due 2007................. $120,000,000 100% $120,000,000 $36,364(2)
Guarantees of Senior
Notes.................... (3) (3) (3) (3)
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</TABLE>
(1) Estimated solely for purposes of computing the registration fee pursuant to
Rule 457(f).
(2) Paid with initial filing of this Registration Statement.
(3) Continental Conveyor & Equipment Company and Goodman Conveyor Company will
guarantee the payment of the 11% Series B Senior Notes due 2007. Pursuant to
Rule 457(n), no separate filing fee is required for the guarantees.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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<PAGE> 2
PROSPECTUS
, 1997
CONTINENTAL GLOBAL GROUP, INC.
OFFER TO EXCHANGE
11% SERIES B SENIOR NOTES DUE 2007
FOR ANY AND ALL OUTSTANDING
11% SERIES A SENIOR NOTES DUE 2007
(ALL SENIOR NOTES GUARANTEED BY CONTINENTAL CONVEYOR &
EQUIPMENT COMPANY AND GOODMAN CONVEYOR COMPANY)
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1997, UNLESS EXTENDED.
Continental Global Group, Inc., a Delaware corporation (the "Company"),
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal") to exchange its 11% Series B Senior Notes due 2007 (the "Series B
Notes") for an equal principal amount of its 11% Series A Senior Notes due 2007
(the "Series A Notes"), of which $120 million principal amount is outstanding
(the "Exchange Offer"). The Series B Notes have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement (as defined) of which this Prospectus is a part. The
Series B Notes and the Series A Notes are collectively referred to herein as the
"Senior Notes."
Upon the terms and subject to the conditions set forth in this Prospectus
and the Letter of Transmittal, the Company will accept for exchange any and all
Series A Notes that are validly tendered and not withdrawn by 5:00 p.m., New
York City time, on , 1997, unless the Exchange Offer is extended (the
"Expiration Date"). Tenders of Series A Notes may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Offer is
not conditioned upon any minimum principal amount of Series A Notes being
tendered for exchange. Series A Notes may be tendered only in integral multiples
of $1,000. See "The Exchange Offer."
The Series B Notes will evidence the same debt as the Series A Notes for
which they are exchanged, and will be entitled to the benefits of the same
indenture, dated as of April 1, 1997 (the "Indenture"), among the Company, the
Subsidiary Guarantors (as defined and currently consisting of Continental
Conveyor & Equipment Company and Goodman Conveyor Company) and Norwest Bank
Minnesota, National Association, as trustee (the "Trustee"). The form and terms
of the Series B Notes are the same as the form and terms of the Series A Notes,
except that the Series B Notes have been registered under the Securities Act and
the holders of the Series B Notes will not be entitled to the benefit of certain
registration and exchange rights granted to the holders of the Series A Notes
under the Registration Rights Agreement (as defined), which rights will
terminate upon the consummation of the Exchange Offer. See "The Exchange Offer"
and "Description of Senior Notes."
The Series B Notes will be senior unsecured obligations of the Company and
will rank pari passu in right of payment with all current and future unsecured
senior indebtedness (as defined) of the Company and senior to all subordinated
indebtedness of the Company. The Company's obligations under the Series B Notes
will be jointly and severally guaranteed by each direct and indirect Subsidiary
(as defined) of the Company (other than Foreign Subsidiaries (as defined))
existing on the closing date of the Exchange Offer and by certain other
Subsidiaries of the Company formed or acquired thereafter. The Subsidiary
Guarantees (as defined) will be senior unsecured obligations of the Subsidiary
Guarantors and will rank pari passu in right of payment with all current and
future unsecured senior indebtedness of the Subsidiary Guarantors and senior to
all subordinated indebtedness of the Subsidiary Guarantors. The Subsidiary
Guarantees will be limited as described herein. See "Description of Senior
Notes--Subsidiary Guarantees." Certain of the Company's Subsidiaries are parties
to the Revolving Credit Facility (as defined) and all obligations thereunder are
secured by a first priority lien on substantially all of the assets of such
Subsidiaries. BCE Holdings Pty. Ltd. ("BCE") is a party to the Australian
Revolving Credit Facility (as defined) and all obligations thereunder are
secured by a first priority lien on substantially all of the assets of the BCE
Subsidiaries (as defined). BCE is a Foreign Subsidiary and thus is not a
Subsidiary Guarantor. On a pro forma basis, as of March 31, 1997, after giving
effect to (i) the Series A Notes Offering (as defined), (ii) the application of
the net proceeds therefrom, (iii) the BCE Acquisition (as defined) and (iv) the
Hewitt-Robins Acquisition (as defined), the aggregate principal amount of
secured indebtedness of the Company, secured indebtedness of the Subsidiary
Guarantors and indebtedness of the Company's Foreign Subsidiaries which would
have effectively ranked senior to the Senior Notes would have been approximately
$5.9 million. The Indenture will permit the Company and its Subsidiaries to
incur additional indebtedness, including secured indebtedness, subject to
certain limitations. See "Description of Senior Notes."
(Cover continued on following page)
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SERIES
B NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 3
(Continued from previous page)
The Series B Notes will bear interest at the same rate and on the same terms
as the Series A Notes. Accordingly, interest on the Series B Notes will be
payable semiannually in cash in arrears on April 1 and October 1 of each year,
commencing October 1, 1997, accruing from April 1, 1997 (which was the date of
issuance of the Series A Notes) at the rate of 11% per annum, and the Series B
Notes will mature on April 1, 2007. Holders of Series A Notes whose Series A
Notes are accepted for exchange will be deemed to have waived the right to
receive any payment in respect of interest on the Series A Notes accrued up
until the date of the issuance of the Series B Notes. Because the Series B Notes
will bear interest from the issue date of the Series A Notes, such waiver will
not result in the loss of interest income to such holders.
The Series B Notes will be redeemable at the option of the Company, in whole
or in part, at any time on or after April 1, 2002 at the redemption prices set
forth herein, plus accrued and unpaid interest and Liquidated Damages (as
defined), if any, to the date of redemption. Notwithstanding the foregoing, at
any time prior to April 1, 2000, the Company may redeem up to 33 1/3% of the
original aggregate principal amount of the Senior Notes with the net proceeds of
one or more offerings of common stock of the Company at a redemption price equal
to 110% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of redemption; provided, that after any
such redemption, 66 2/3% of the original aggregate principal amount of the
Senior Notes remains outstanding. Upon the occurrence of a Change of Control (as
defined), the Company will be required to offer to purchase the Senior Notes at
a purchase price equal to 101% of the aggregate principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, to the date of
purchase. See "Description of Senior Notes."
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes that the Series B Notes issued pursuant to this
Exchange Offer in exchange for Series A Notes may be offered for resale, resold
and otherwise transferred by a holder thereof (other than (i) a person that is
an affiliate of the Company within the meaning of Rule 405 under the Securities
Act or (ii) a broker-dealer that purchases such Series B Notes directly from the
Company to resell pursuant to Rule 144A or any other available exemption under
the Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that the holder is acquiring
the Series B Notes in the ordinary course of its business and is not
participating, and had no arrangement or understanding with any person to
participate, in the distribution of the Series B Notes. See Morgan Stanley & Co.
Incorporated, SEC No-Action Letter (available June 5, 1991) and Exxon Capital
Holdings Corporation, SEC No-Action Letter (available May 13, 1988). Holders of
Series A Notes wishing to accept the Exchange Offer must represent to the
Company, as required by the Registration Rights Agreement, that such conditions
have been met. The Company believes that none of the registered holders of the
Series A Notes is an affiliate (as such term is defined in Rule 405 under the
Securities Act) of the Company. Each broker-dealer that receives Series B Notes
for its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Series B Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Series B Notes received in exchange for Series A
Notes where such Series A Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company has agreed
to make this Prospectus (as it may be amended or supplemented) available to any
broker-dealer for use in connection with any such resale for a period of 120
days after the consummation of the Exchange Offer. See "Plan of Distribution"
and "The Exchange Offer--Resale of the Series B Notes."
There is no public market for the Senior Notes. The Company does not intend
to list the Series B Notes on any national securities exchange or to apply for
quotation of the Series B Notes through the National Association of Securities
Dealers Automated Quotation System. There can be no assurance that an active
public market for the Series B Notes will develop. If a market for the Series B
Notes should develop, the market value of the Series B Notes will depend on a
variety of factors and the Series B Notes could trade at a discount from their
principal amount. See "Risk Factors--Absence of a Public Market."
The Company will not receive any proceeds from this Exchange Offer. The
Company has agreed to bear the expenses of this Exchange Offer. No underwriter
is being used in connection with this Exchange Offer.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
OR THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING
LETTER OF TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
The Series B Notes will be available initially only in book-entry form. The
Company expects that the Series B Notes issued pursuant to this Exchange Offer
will be issued in the form of one or more fully registered global notes which
will be deposited with, or on behalf of, DTC (as defined) and registered in its
name or in the name of Cede & Co., its nominee. Beneficial interests in the
global notes representing the Series B Notes will be shown on, and transfers
thereof will be effected only through, records maintained by DTC and its
participants. After the initial issuance of such global notes, Series B Notes in
certificated form will be issued in exchange for the global notes only as set
forth in the Indenture. See "Description of Senior Notes -- Book Entry; Delivery
and Form."
2
<PAGE> 4
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement") under the Securities Act with respect to the
Series B Notes offered hereby. This Prospectus, which forms a part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and the Series B Notes offered hereby, reference is made
to the Registration Statement. Statements contained in this Prospectus as to the
contents of certain documents filed as exhibits to the Registration Statement
are not necessarily complete and, in each case, are qualified by reference to
the copy of the document so filed. The Registration Statement can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the Commission's regional offices at Suite 1400, Northwestern Atrium Center,
500 West Madison Street, Chicago, Illinois 60661-2511 and 7 World Trade Center,
13th Floor, New York, New York 10048. Copies of such material may be obtained
from the Public Reference Section of the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such
material also can be reviewed through the Commission's Electronic Data
Gathering, Analysis, and Retrieval System, which is publicly available through
the Commission's Web site (http://www.sec.gov).
As a result of the Exchange Offer, the Company will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Pursuant to the Indenture, the Company has agreed that,
whether or not required by the rules and regulations of the Commission, so long
as any Senior Notes are outstanding, the Company shall furnish to the registered
holders of Senior Notes copies of (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if the Company were required to file such reports. In addition, whether or
not required by the rules and regulations of the Commission, the Company will
file a copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing) within the
time periods that would have been applicable had the Company been subject to
such rules and regulations and make such information available to securities
analysts and prospective investors upon request. The Company has agreed further
that, for so long as any Senior Notes remain outstanding, it shall furnish to
the holders of the Senior Notes, to securities analysts, and to prospective
investors, upon request, the information required to be delivered pursuant to
Rule 144A(d)(4) under the Securities Act. The Company also will furnish to each
registered holder of the Senior Notes such other reports as may be required by
applicable law.
The principal executive offices of the Company and of Continental Conveyor
& Equipment Company are located at 438 Industrial Drive, Winfield, Alabama
35594, telephone number: (205) 487-6492. The principal executive offices of
Goodman Conveyor Company are located at Route 178, South, P.O. Box 866, Belton,
South Carolina 29627, telephone number: (864) 338-7793.
3
<PAGE> 5
EXCHANGE RATE DATA
The following table sets forth, for the periods indicated, certain
information concerning the closing exchange rate, the average and the high and
low exchange rates for Australian dollars expressed in United States dollars per
A$1.00. On May 20, 1997, the closing exchange rate was US$.77 per A$1.00.
<TABLE>
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AT AND FOR AT AND FOR THE AT AND FOR THE
THE YEAR ENDING SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, DECEMBER 31, MARCH 31,
------------------ ------------------ ------------------
1995 1996 1995 1996 1996 1997
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Exchange rate at end of period............. US$ .71 US$ .79 US$ .74 US$ .79 US$ .78 US$ .78
Average exchange rate during period(1)..... .74 .76 .74 .79 .75 .78
Highest exchange rate during period........ .78 .80 .77 .82 .78 .80
Lowest exchange rate during period......... .71 .71 .71 .77 .73 .76
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(1) The average of the daily closing exchange rates during the applicable
period.
4
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Holders of Series A Notes are urged to read this
Prospectus in its entirety before exchanging their Series A Notes for Series B
Notes. Continental Global Group, Inc. (the "Company") is a recently-formed
holding company, the principal assets of which consist of the capital stock of
its direct subsidiaries, Continental Conveyor & Equipment Company
("Continental") and Goodman Conveyor Company ("Goodman"), and, indirectly, the
capital stock of BCE, an Australian conveyor, engineering and materials handling
equipment holding company. See "The Company." Unless the context indicates or
otherwise requires, references in this Prospectus to the "Company" are to
Continental Global Group, Inc. and its subsidiaries on a consolidated basis. The
sources of all factual information and forecasts regarding the coal industry are
identified under "Business--Coal Industry." Unless otherwise indicated,
references in this Prospectus to "$" or "dollars" are to United States dollars
and references to "Conveyor Equipment" mean equipment and services of the type
described in "Business-- Products and Markets." Unless otherwise indicated, pro
forma information in this Prospectus gives effect to the Series A Notes Offering
(as defined), the application of the net proceeds therefrom, the BCE Acquisition
(as defined) and the Hewitt-Robins Acquisition (as defined).
THE COMPANY
The Company believes it is a leading international manufacturer and
supplier of Conveyor Equipment for use in the coal mining industry. Based on
1996 pro forma net sales, the Company estimates it has approximately a 40% share
of the United States market for idlers used in aboveground Conveyor Equipment
applications and a significantly higher share of the United States underground
coal mining Conveyor Equipment market. In addition, the Company believes it has
a significant share of the Australian underground coal mining Conveyor Equipment
market. The Company supplies 18 of the top 25 coal producers in the United
States with its products, which include substantially all of the components
required to transport coal by conveyor from the coalface to the surface. The
Company also provides design and engineering assistance and upgrade and
maintenance services with respect to Conveyor Equipment. Approximately 25% of
the Company's pro forma net sales in 1996 were derived from the sale of
replacement components. The Company has also utilized its technical knowledge
and engineering capabilities to expand its customer base to include producers of
rock and aggregate products, metals and minerals mining companies, tunneling
firms and other industrial concerns. Sales to such customers comprised
approximately 22% of the Company's Conveyor Equipment net sales in 1996. In
1996, the Company had pro forma net sales and Adjusted EBITDA (as defined) of
$191.1 million and $22.5 million, respectively.
The Company benefits from a reputation among its customers for high-quality
and reliable Conveyor Equipment products. The Company believes the quality and
consistent performance of its products is an important determinant of its
customers' selection of Conveyor Equipment because, although conveyors are a
relatively small part of the total cost of a mining project, a conveyor system
failure can have a disproportionately high impact on customer profitability. As
a result of, among other things, its reputation for quality, the Company has
developed preferred supplier arrangements with several of the world's largest
coal and mineral mining companies. Under these arrangements, the Company
supplies substantially all of such customers' Conveyor Equipment needs and
customers are assured of enhanced equipment availability. Sales from such
arrangements accounted for approximately $45.0 million, or 24%, of the Company's
1996 pro forma net sales.
The Company believes it is well positioned to continue to benefit from
favorable trends in the coal industry worldwide. During the last ten years, coal
consumption in the United States has generally experienced steady annual growth,
reaching a record level of 941 million tons in 1995, the most recent year for
which data are available. This steady growth in coal consumption is attributable
to similar growth in the demand for electricity over such period and to the fact
that in excess of 85% of domestic coal consumption is by the electric utility
industry. Given coal's status as a relatively inexpensive and abundant resource
for the production of electricity, domestically produced coal is expected to
continue to play a significant role in production of electricity in the future.
Historically, the volume of coal imported into the United States has not
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<PAGE> 7
represented more than approximately 1% of domestic coal production. The Company
believes the costs of transporting coal and the abundance of domestic coal
reserves will continue to limit the level of coal imports in the future. In
addition, the Company believes it will benefit from the increasing use of
longwall mining in the coal mining industry, which accounted for 45% of domestic
underground coal production in 1995 as compared to 27% in 1983. Longwall mining
yields higher production of coal than conventional mining techniques, but also
requires the use of more efficient and reliable high-load Conveyor Equipment of
the type manufactured by the Company. The Company believes it has a significant
share of the United States Conveyor Equipment market for longwall mining due to,
among other things, its technological innovation and the reliability of its
products. See "Business--Coal Industry."
Industry sources predict that, through 2015, worldwide coal consumption
will grow at a faster rate than coal consumption in the United States. By 2015,
industry sources project worldwide coal consumption will reach 7.5 billion tons,
an increase of approximately 50% from 1993 worldwide consumption levels. This
forecasted increase is due principally to projected increases in demand for
electricity in the newly industrialized countries of the Pacific Rim as a result
of anticipated rapid economic growth in that region. Such sources forecast that
much of the increase in demand for coal will be satisfied by increased
production in Australia. Coal production in Australia is projected to grow at a
compound annual growth rate of 2.8% through 2015, due primarily to its large
coal reserves and its position as the world's largest coal exporter, with
exports principally to Japan. Australia accounted for approximately 33% of world
coal exports in 1993 and its coal exports are projected to grow from 142 million
tons in 1993 to 260 million tons in 2015. The Company's recent acquisition of
BCE significantly expands its presence in Australia and improves its ability to
serve this high-growth region.
COMPETITIVE STRENGTHS
The Company believes its strong competitive position in Conveyor Equipment
is attributable to a number of factors, including:
- - Broad Product Line Permits One-Stop Shopping. The Company's broad array of
products enables it to supply substantially all of the Conveyor Equipment
needs of its customers in the coal mining industry. Furthermore, the Company
can provide integrated system solutions for underground mining utilizing
computerized in-house "dynamic analysis" capabilities, thereby enabling it to
develop customized equipment solutions while eliminating much of the
engineering cost involved in integrating components from different vendors and
enhancing customer productivity, safety and belt maintenance. The Company
believes that its ability to provide such a range of products and services is
a critical determinant in establishing preferred supplier arrangements with
customers.
- - Significant Installed Equipment Base. The Company believes its significant
installed base of Conveyor Equipment is a key factor in obtaining orders for
higher margin replacement components, which represented approximately 25% of
1996 pro forma net sales. This is principally because, once a supplier is
established in an underground mine, it is time-consuming and expensive for a
customer to switch to a competitor's product. In addition, underground mining
customers frequently use a single vendor for all of their Conveyor Equipment
needs.
- - Technology and Quality Enhance Customer Productivity. The Company believes its
Conveyor Equipment product development has contributed to overall productivity
gains being sought by its customers. The Company employs over 70 engineers
dedicated to customer-focused, productivity-enhancing, product and application
development. Through its use of dynamic analysis and technological innovation,
the Company has developed (i) the largest and some of the most technically
demanding Conveyor Equipment applications in the United States, including an
approximately four-mile underground mine conveyor and an approximately
nine-mile tunnel-waste material conveyor and (ii) the High Angle Conveyor
(HAC(R)), which permits the use of a conveyor in applications where
higher-cost transportation alternatives, such as trucks, would otherwise be
required. In an independent study of Conveyor Equipment products conducted in
1994, the Company's products had the highest ratings for product reliability
and performance. In addition, the Company believes that the high availability
rate, or "uptime," of its products in its customers'
6
<PAGE> 8
operations promotes customer loyalty and is a substantial factor in generating
business from new and existing customers.
- - Low Cost Due to Economies of Scale. The Company believes its market share
enables it to achieve enhanced margins due to economies of scale in
manufacturing and better fixed cost absorption.
- - Experienced Management Team. The Company's senior managers, who have an
average of over 20 years of experience in the Conveyor Equipment industry,
have developed strong relationships with the Company's customers and have
introduced significant new products to increase customer productivity.
BUSINESS STRATEGY
The Company's business strategy is to continue to increase its market share
in the international Conveyor Equipment market. To implement this strategy, the
Company will:
- - Increase Market Share Through Extending Preferred Supplier Arrangements. The
Company seeks to enter into additional preferred supplier arrangements with
new and existing customers, emphasizing the benefits of (i) its broad product
range, (ii) the quality and reliability of its products, (iii) its ability to
offer productivity-enhancing engineered solutions and (iv) its ability to
serve such customers' Conveyor Equipment needs in designated geographic
regions.
- - Increase Market Share In Related Conveyor Applications. The Company seeks to
expand its existing market share in Conveyor Equipment products for
applications in specific industries, including: aggregates, such as rock,
gravel, glass and cement materials; pulp, paper and forest products;
aboveground hard rock and mineral mining; food and grains; environmental,
sewage and waste water treatment; and tunneling. The Company believes it can
continue to grow in these sectors by providing customers with products that
lower maintenance and operating costs and improve productivity.
- - Increase Market Share Through Product Line Extensions and Geographic
Expansion. The international Conveyor Equipment market remains highly
fragmented with many specialized manufacturers serving numerous market niches.
The Company believes that many of these companies lack the capital resources,
marketing network and depth of management to fully exploit their competitive
positions. The Company will continue to search for strategic acquisitions that
will allow it to fulfill substantially all of the Conveyor Equipment needs of
new and existing customers or expand its technological capabilities. In
addition, the Company seeks to expand its geographic reach through
acquisitions that allow it to (i) enter into further global preferred supplier
arrangements and (ii) exploit favorable trends in coal production and
consumption outside the United States.
ACQUISITIONS
In January 1997, the Company acquired BCE, which, through its subsidiaries,
is a major manufacturer and supplier of Conveyor Equipment in Australia (the
"BCE Acquisition"). The BCE Acquisition has further broadened the Company's
product line with large ball bearing idler rollers preferred by certain
equipment users and not previously offered by the Company. In addition, the BCE
Acquisition has significantly increased the Company's manufacturing, engineering
and service capabilities, as well as its customer base, in Australia, enabling
the Company to serve Australian and Pacific Rim markets more efficiently and
cultivate and/or strengthen relationships with major mining companies that are
headquartered or have significant operations in Australia. Based on these
factors, the Company believes the BCE Acquisition will strengthen its
competitive position in the high-growth markets of the Pacific Rim and enhance
its ability to obtain worldwide preferred supplier arrangements with
multinational mining companies. The Company believes that the BCE Acquisition
has already helped it to secure approximately $20 million of new business.
On April 1, 1997, the Company acquired substantially all of the assets of
W. S. Tyler Incorporated's Hewitt-Robins Conveyor Components Division
("Hewitt-Robins"), a United States manufacturer of idlers with net sales in 1996
of $15.1 million (the "Hewitt-Robins Acquisition"). The purchase price for the
Hewitt-Robins Acquisition was approximately $12.6 million in cash plus the
assumption of approximately $1.1 million of liabilities, subject to a negotiated
price adjustment for working capital. See "Business--Acquisitions."
7
<PAGE> 9
In addition, the Company presently is in discussions with other potential
acquisition candidates. There can be no assurance that the Company will be able
to identify other desirable acquisition candidates or that the Company will be
successful in consummating any acquisition on terms favorable to the Company, if
at all. See "Risk Factors--Risks Attendant to Acquisition Strategy."
COMPANY ORGANIZATION
The Company is a recently-formed holding company organized under the
Delaware General Corporation Law for the purpose of owning all of the capital
stock of two operating companies, Continental and Goodman, each of which is a
Delaware corporation and each of which is a Subsidiary Guarantor with respect to
the Senior Notes. The Company also owns indirectly all of the capital stock of:
(i) two Australian holding companies, Continental Conveyor & Equipment Pty. Ltd.
("CCE Pty. Ltd.") and BCE; and (ii) five Australian operating companies,
Continental ACE Pty. Ltd., Continental ACE Services Pty. Ltd., Continental ACE
Components Pty. Ltd., A. Crane Pty. Ltd. and Continental Control Systems Pty.
Ltd. (formerly known as Ringway Pty. Ltd.) (such operating companies are
collectively, the "BCE Subsidiaries"). The Company conducts all of its
operations through Continental, Goodman and the BCE Subsidiaries.
* * *
The principal executive offices of the Company and Continental are located
at 438 Industrial Drive, Winfield, Alabama 35594 and their telephone number is
(205) 487-6492. The principal executive offices of Goodman are located at Route
178, South, P.O. Box 866, Belton, South Carolina 29627 and its telephone number
is (864) 338-7793.
8
<PAGE> 10
THE EXCHANGE OFFER
THE EXCHANGE OFFER............ The Company is offering to exchange $1,000
principal amount of Series B Notes for each
$1,000 principal amount of Series A Notes
validly tendered pursuant to the Exchange
Offer. As of the date hereof, there is $120
million aggregate principal amount of Series A
Notes outstanding. The Company will issue the
Series B Notes to tendering holders of Series A
Notes promptly after the Expiration Date. See
"The Exchange Offer--Background" and
"--General."
REGISTRATION RIGHTS
AGREEMENT................... The Series A Notes were issued and sold by the
Company to Donaldson, Lufkin and Jenrette
Securities Corporation, the initial purchaser
of the Series A Notes (the "Initial
Purchaser"), on April 1, 1997 pursuant to a
Purchase Agreement (the "Purchase Agreement")
dated as of March 26, 1997 by and among the
Company, the Subsidiary Guarantors and the
Initial Purchaser (the "Series A Notes
Offering"). Pursuant to the Purchase Agreement,
the Company, the Subsidiary Guarantors and the
Initial Purchaser entered into a Registration
Rights Agreement dated as of April 1, 1997 (the
"Registration Rights Agreement") which grants
the holders of the Series A Notes registration
and exchange rights, certain of which terminate
upon the consummation of the Exchange Offer.
The Exchange Offer is intended to satisfy
certain obligations of the Company and the
Subsidiary Guarantors under the Registration
Rights Agreement. See "The Exchange Offer" and
"Description of Senior Notes--Registration
Rights; Liquidated Damages."
EXPIRATION DATE............... The Exchange Offer will expire at 5:00 p.m.,
New York City time, on , 1997,
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the
latest date and time to which the Exchange
Offer is extended. See "The Exchange
Offer--Expiration Date; Delay, Extension,
Amendment, and Termination."
ACCRUED INTEREST ON THE SERIES B
NOTES AND SERIES A NOTES.... The Series B Notes will bear interest from
April 1, 1997. Holders of Series A Notes whose
Series A Notes are accepted for exchange will
be deemed to have waived the right to receive
any interest accrued on such Series A Notes.
See "The Exchange Offer--Interest on the Series
B Notes."
CONDITIONS TO THE EXCHANGE
OFFER....................... The Exchange Offer is subject to certain
customary conditions which may be waived by the
Company. The conditions are limited and relate
in general to proceedings which have been
instituted or laws which have been adopted that
might impair the ability of the Company to
proceed with the Exchange Offer. As of the date
of this Prospectus, none of these events has
occurred, and the Company believes their
occurrence to be unlikely. The Exchange Offer
is not conditioned upon any minimum aggregate
principal amount of Series A Notes being
tendered for exchange. See "The Exchange
Offer--Conditions."
9
<PAGE> 11
PROCEDURES FOR TENDERING
SERIES A NOTES.............. Each holder of Series A Notes wishing to accept
the Exchange Offer must complete, sign and date
the Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal,
or such facsimile, together with the Series A
Notes to be exchanged and any other required
documentation to the Exchange Agent (as
defined) at the address set forth herein and
therein by 5:00 p.m., New York City time, on
the Expiration Date. See "The Exchange
Offer--Procedures for Tendering." By executing
the Letter of Transmittal, each holder will
represent to the Company that, among other
things, (i) it is not an "affiliate," as
defined under Rule 405 of the Securities Act,
of the Company, (ii) it is not engaged in, and
does not intend to engage in, and has no
arrangement or understanding with any person to
participate in, a distribution of the Series B
Notes, and (iii) it is acquiring the Series B
Notes in the ordinary course of business. See
"The Exchange Offer--Procedures for Tendering."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS........... Any beneficial owner whose Series A Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender in the Exchange Offer
should contact such registered holder promptly
and instruct such registered holder to tender
the Series A Notes on such beneficial owner's
behalf. See "The Exchange Offer--Procedures for
Tendering."
GUARANTEED DELIVERY
PROCEDURES.................. Holders of Series A Notes who wish to tender
their Series A Notes and whose Series A Notes
are not immediately available or who cannot
deliver their Series A Notes and a properly
completed Letter of Transmittal or any other
documents required by the Letter of Transmittal
to the Exchange Agent prior to the Expiration
Date may tender their Series A Notes according
to the guaranteed delivery procedures set forth
in "The Exchange Offer--Guaranteed Delivery
Procedures."
ACCEPTANCE OF SERIES A NOTES
AND DELIVERY OF SERIES B
NOTES....................... Subject to the satisfaction or waiver of the
conditions of the Exchange Offer, the Company
will accept for exchange any and all Series A
Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date. The Series B
Notes issued pursuant to the Exchange Offer
will be delivered on the earliest practicable
date after the Expiration Date. See "The
Exchange Offer--General."
WITHDRAWAL RIGHTS............. Tenders of Series A Notes may be withdrawn at
any time prior to 5:00 p.m., New York City
time, on the Expiration Date. See "The Exchange
Offer--Withdrawal of Tenders."
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS.............. For a discussion of certain federal income tax
considerations relating to the exchange of the
Series B Notes for the Series A Notes, see
"Certain Federal Income Tax Considerations."
10
<PAGE> 12
EXCHANGE AGENT................ Norwest Bank Minnesota, National Association is
serving as the
exchange agent (the "Exchange Agent") in
connection with the Exchange Offer. See "The
Exchange Offer--Exchange Agent."
THE SERIES B NOTES
The Series B Notes will be obligations of the Company evidencing the same
indebtedness as the Series A Notes for which they are exchanged, and will be
entitled to the benefit of the same Indenture. The form and terms of the Series
B Notes are the same as the form and terms of the Series A Notes, except that
the Series B Notes have been registered under the Securities Act and the holders
of the Series B Notes will not be entitled to the benefit of certain
registration and exchange rights granted to the holders of the Series A Notes
under the Registration Rights Agreement, which rights will terminate upon the
consummation of the Exchange Offer. See "The Exchange Offer" and "Description of
Senior Notes."
MATURITY DATE................. April 1, 2007.
INTEREST...................... The Series B Notes will bear interest at a rate
of 11% per annum, payable semiannually in cash
in arrears on each April 1 and October 1,
commencing October 1, 1997. See "The Exchange
Offer--Interest on the Series B Notes" and
"Description of Senior Notes--Principal,
Maturity and Interest."
OPTIONAL REDEMPTION........... At any time on or after April 1, 2002, the
Series B Notes will be redeemable at the option
of the Company, in whole or in part, at the
redemption prices set forth herein, plus
accrued and unpaid interest and Liquidated
Damages, if any, to the date of redemption.
Notwithstanding the foregoing, at any time
prior to April 1, 2000, the Company may redeem
up to 33 1/3% of the original aggregate
principal amount of the Senior Notes with the
net proceeds of one or more offerings of common
stock of the Company at a redemption price
equal to 110% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of redemption;
provided, that, after any such redemption,
66 2/3% of the original aggregate principal
amount of the Senior Notes remains outstanding.
See "Description of Senior Notes--Optional
Redemption."
CHANGE OF CONTROL............. Upon the occurrence of a Change of Control (as
defined), the Company will be required to offer
to purchase the Series B Notes at a purchase
price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any,
to the date of purchase. See "Description of
Senior Notes--Repurchase at the Option of
Holders--Change of Control."
SUBSIDIARY GUARANTEES......... The Series B Notes will be jointly and
severally guaranteed (the "Subsidiary
Guarantees"), by each direct and indirect
Subsidiary of the Company (other than Foreign
Subsidiaries) existing on the closing date of
the Exchange Offer and by certain other
Subsidiaries of the Company formed or acquired
thereafter (the "Subsidiary Guarantors"). The
Subsidiary Guarantors' liability under the
Subsidiary Guarantees will be limited as
described herein and the Subsidiary Guarantees
will be automatically released in connection
11
<PAGE> 13
with certain asset sales and dispositions. See
"Description of Senior Notes--Subsidiary
Guarantees."
RANKING....................... The Series B Notes will be senior unsecured
obligations of the Company, and will rank pari
passu in right of payment with all current and
future unsecured senior indebtedness of the
Company and senior to all subordinated
indebtedness of the Company. The Subsidiary
Guarantees will be senior unsecured obligations
of the Subsidiary Guarantors and will rank pari
passu in right of payment with all current and
future unsecured senior indebtedness of the
Subsidiary Guarantors and senior to all
subordinated indebtedness of the Subsidiary
Guarantors. Certain of the Company's
Subsidiaries are parties to the Revolving
Credit Facility and all obligations thereunder
are secured by a first priority lien on
substantially all of the assets of such
Subsidiaries. BCE is a party to the Australian
Revolving Credit Facility and all obligations
thereunder are secured by a first priority lien
on substantially all of the assets of the BCE
Subsidiaries. As a Foreign Subsidiary, BCE is
not a Subsidiary Guarantor. On a pro forma
basis, as of March 31, 1997, after giving
effect to (i) the Series A Notes Offering, (ii)
the application of the net proceeds therefrom,
(iii) the BCE Acquisition and (iv) the
Hewitt-Robins Acquisition, the aggregate
principal amount of secured indebtedness of the
Company, secured indebtedness of the Subsidiary
Guarantors and indebtedness of the Company's
Foreign Subsidiaries which would have
effectively ranked senior to the Series B Notes
would have been approximately $5.9 million. In
addition, on a pro forma basis as of March 31,
1997 the Company would have had an aggregate
undrawn availability under the Revolving Credit
Facility and the Australian Revolving Credit
Facility of approximately $34.1 million which,
if drawn, would effectively rank senior to the
Series B Notes. The Indenture will permit the
Company and its Subsidiaries to incur
additional indebtedness, including secured
indebtedness, subject to certain limitations.
See "Description of Senior Notes--General."
CERTAIN COVENANTS............. The Indenture contains certain covenants that,
among other things, limit the ability of the
Company and its Subsidiaries (i) to pay
dividends and make other Restricted Payments
(as defined) or investments, (ii) to incur
additional indebtedness, (iii) to enter into
transactions with Affiliates (as defined), (iv)
to merge or consolidate with any other entity,
(v) to transfer all or substantially all of
their assets and (vi) to incur certain liens.
In addition, under certain circumstances, the
Company will be required to offer to purchase
Series B Notes at a price equal to 100% of the
principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any,
to the date of purchase with the proceeds of
certain Asset Sales (as defined). See
"Description of Senior Notes--Certain
Covenants."
RESALES....................... Based on an interpretation by the staff of the
Commission set forth in no-action letters
issued to third parties, the Company believes
that the Series B Notes issued pursuant to this
Exchange Offer in exchange for Series A Notes
may be offered for resale, resold and
12
<PAGE> 14
otherwise transferred by a holder thereof
(other than (i) a broker-dealer that purchases
such Series B Notes directly from the Company
to resell pursuant to Rule 144A or any other
available exemption under the Securities Act or
(ii) a person that is an affiliate of the
Company within the meaning of Rule 405 under
the Securities Act), without compliance with
the registration and prospectus delivery
provisions of the Securities Act, provided that
the holder is acquiring the Series B Notes in
the ordinary course of its business and is not
participating, and had no arrangement or
understanding with any person to participate,
in the distribution of the Series B Notes. See
Morgan Stanley & Co. Incorporated, SEC
No-Action Letter (available June 5, 1991) and
Exxon Capital Holdings Corporation, SEC
No-Action Letter (available May 13, 1988). Each
broker-dealer that receives the Series B Notes
for its own account in exchange for the Series
A Notes, where such Series A Notes were
acquired by such broker-dealer as a result of
market-making activities or other trading
activities, must acknowledge that it will
deliver a prospectus in connection with any
resale of such Series B Notes. The Company has
agreed to make this Prospectus (as it may be
amended or supplemented) available to any
broker-dealer for use in connection with any
such resale for a period of 120 days after
consummation of the Exchange Offer. See "The
Exchange Offer--Resale of the Series B Notes"
and "Plan of Distribution."
RISK FACTORS
For a discussion of certain factors that should be considered by holders of
the Series A Notes and by prospective investors in connection with an investment
in the Series B Notes, see "Risk Factors."
13
<PAGE> 15
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table presents summary unaudited pro forma consolidated
financial data of the Company. The unaudited pro forma consolidated financial
data give effect to the Series A Notes Offering on April 1, 1997, the
application of the net proceeds therefrom, the BCE Acquisition on January 7,
1997 and the Hewitt-Robins Acquisition on April 1, 1997, as if such transactions
had taken place on January 1, 1996, with respect to the Income Statement Data
and Other Data for the year ended December 31, 1996; as if the Series A Notes
Offering and the application of the net proceeds therefrom and the Hewitt-Robins
Acquisition had occurred on January 1, 1997, with respect to the Income
Statement Data and Other Data for the three months ended March 31, 1997, and
March 31, 1997, with respect to the Balance Sheet Data. The pro forma data do
not purport to represent what the consolidated results of operations or
consolidated financial position of the Company would have been had the Series A
Notes Offering, the application of the net proceeds therefrom, the BCE
Acquisition and the Hewitt-Robins Acquisition actually occurred at the beginning
of the relevant period, and do not purport to project the consolidated financial
position or the consolidated results of operations of the Company for the
current year or any future date or period. The summary financial data set forth
below should be read in conjunction with "Selected Historical and Pro Forma
Financial Data," "Unaudited Pro Forma Consolidated Financial Statements,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements of the Company, the Consolidated
Financial Statements of BCE and the Financial Statements of Hewitt-Robins and
the related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH
1996 31, 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales.................................................... $191,143 $ 50,809
Gross profit................................................. 42,462 10,553
Operating income............................................. 19,697 4,605
Total interest expense....................................... 14,111 3,527
Income before income taxes and extraordinary item............ 5,376 1,029
OTHER DATA:
Adjusted EBITDA(1)........................................... $ 22,497 $ 5,356
Depreciation and amortization................................ 2,800 751
Capital expenditures......................................... 1,549 2,654
Cash interest expense(2)..................................... 13,631 3,407
Ratio of Adjusted EBITDA to cash interest expense(1)......... 1.7x 1.6x
Ratio of net debt to Adjusted EBITDA(1)(3)................... 4.4 4.6
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
1997
---------------------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................... $ 27,780
Total assets................................................. 118,250
Long-term debt, including current portion.................... 125,909
Stockholder's equity (deficit)............................... (37,371)
</TABLE>
- ---------------
(1) Adjusted EBITDA represents earnings before interest, taxes, depreciation,
amortization and miscellaneous expense (income) and gives effect, on a pro
forma basis, to $1,184 and $282 in management fees for the year ended
December 31, 1996 and the three months ended March 31, 1997, respectively,
to be paid pursuant to the Management Agreement (as defined). See "Related
Transactions--Management Agreement." Adjusted EBITDA and related ratios have
been included because the Company uses them as one means of analyzing its
ability to service its debt, the Company's lenders use them for the purpose
of analyzing the Company's performance with respect to the credit agreement
and the Indenture and the Company understands that they are used by certain
investors as measures of a Company's historical ability to service debt.
However, holders tendering Series A Notes in the Exchange Offer should
consider
14
<PAGE> 16
the following factors in evaluating such measures: Adjusted EBITDA and
related measures (i) should not be considered in isolation, (ii) are not
measures of performance calculated in accordance with generally accepted
accounting principles ("GAAP"), (iii) should not be construed as
alternatives or substitutes for income from operations, net income or cash
flows from operating activities in analyzing the Company's operating
performance, financial position or cash flows (in each case, as determined
in accordance with GAAP) and (iv) should not be used solely as indicators of
the Company's operating performance, measures of its liquidity or ability to
meet all cash needs. Additionally, because all companies do not calculate
Adjusted EBITDA and related measures in a uniform fashion, the calculations
presented in this Prospectus may not be comparable to other similarly titled
measures of other companies. Adjusted EBITDA is calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
1996 1997
------------ ---------------
<S> <C> <C>
Net income...................................... $ 3,172 $ 520
Interest expense................................ 14,111 3,527
Income taxes.................................... 2,204 509
Depreciation and amortization................... 2,800 751
Miscellaneous expense........................... 210 49
------- ------
Adjusted EBITDA................................. $ 22,497 $ 5,356
</TABLE>
(2) Cash interest expense excludes non-cash amortization of financing fees.
(3) Net debt represents total long-term debt, including current portion, net of
cash.
15
<PAGE> 17
RISK FACTORS
Holders of Series A Notes should consider carefully the risk factors set
forth below, as well as the other information set forth in this Prospectus.
This Prospectus contains statements which constitute forward-looking
statements. Those statements appear in a number of places in this Prospectus and
include statements regarding the intent, belief or current expectations of the
Company, primarily with respect to the future operating performance of the
Company or related industry developments. Holders of Series A Notes are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ from those described in the forward-looking statements as a result of
various factors, many of which are beyond the control of the Company. The
information contained in this Prospectus, including without limitation the
information set forth below and the information under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
identifies important factors that could cause such differences.
LEVERAGE AND DEBT SERVICE REQUIREMENTS
The Company has substantial indebtedness and significant debt service
obligations. As of March 31, 1997, on a pro forma basis after giving effect to
the Series A Notes Offering, the application of the net proceeds therefrom, the
BCE Acquisition and the Hewitt-Robins Acquisition, the Company would have had
total long-term indebtedness, including current maturities, of $125.9 million
and a stockholder's deficit of $37.4 million. The Indenture permits the Company
and its Subsidiaries to incur additional indebtedness, including secured
indebtedness, subject to certain limitations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Capitalization" and
"Description of Senior Notes--Certain Covenants." As of December 31, 1996, on a
pro forma basis, after giving effect to the Series A Notes Offering, the
application of the net proceeds therefrom, the BCE Acquisition and the
Hewitt-Robins Acquisition, the Company would have had a ratio of earnings to
fixed charges of 1.4.
The Company's high degree of leverage could have important consequences to
the holders of the Series B Notes including, without limitation, (i) a
substantial portion of the Company's cash provided from operations will be
committed to the payment of debt service and will not be available to the
Company for other purposes, (ii) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures or
acquisitions may be limited and (iii) the Company's levels of indebtedness may
limit the Company's flexibility in reacting to changes in its business
environment. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources," "Description of
Certain Indebtedness" and "Description of Senior Notes."
The Company's ability to pay principal and interest on the Series B Notes
and to satisfy its other debt obligations will depend upon the future operating
performance of its Subsidiaries, which will be affected by prevailing economic
conditions in the markets they serve and financial, business and other factors,
certain of which are beyond their control, as well as the availability of
borrowings under the Revolving Credit Facility, the Australian Revolving Credit
Facility or successor facilities. The Company may be required to refinance all
or a portion of its existing indebtedness at or prior to maturity, including the
Series B Notes, or sell assets or seek to raise additional equity capital. No
assurance can be given that any such debt or equity financing will be available
to the Company on acceptable terms, if at all.
HOLDING COMPANY STRUCTURE; RANK OF SERIES B NOTES
The Company is a holding company that conducts all of its operations
exclusively through its Subsidiaries. The Company's only significant assets are
the capital stock of its wholly owned Subsidiaries, Continental and Goodman, and
indirectly the capital stock of CCE Pty. Ltd., BCE and the BCE Subsidiaries. As
a holding company, the Company is dependent on dividends or other distributions
of funds from its Subsidiaries to meet the Company's debt service and other
obligations, including its obligations under the Series B Notes. The Revolving
Credit Facility and all obligations thereunder are secured by a first priority
lien on substantially all of the assets of the Company's Subsidiaries (other
than the Company's Foreign
16
<PAGE> 18
Subsidiaries) and thus the Series B Notes will be effectively subordinated to
all indebtedness under the Revolving Credit Facility. The Australian Revolving
Credit Facility is secured by a first priority lien on substantially all of the
assets of the BCE Subsidiaries and thus the Series B Notes will be effectively
subordinated to all indebtedness under the Australian Revolving Credit Facility.
In addition, the Australian Seller Notes (as defined), which are guaranteed by
Continental, are secured by a second priority lien on substantially all of the
assets of BCE and the BCE Subsidiaries. See "Description of Certain
Indebtedness." The Company's obligations under the Series B Notes will be
jointly and severally guaranteed by the Subsidiary Guarantors. The Series B
Notes will not, subject to certain exceptions, be guaranteed by the Company's
Foreign Subsidiaries and will be effectively subordinated to all current and
future indebtedness of such Foreign Subsidiaries. The Indenture will restrict,
but not prohibit, the incurrence of indebtedness by Foreign Subsidiaries.
As of March 31, 1997, on a pro forma basis after giving effect to the
Series A Notes Offering, the application of the net proceeds therefrom, the BCE
Acquisition and the Hewitt-Robins Acquisition, the aggregate principal amount of
secured indebtedness of the Company, secured indebtedness of the Subsidiary
Guarantors and indebtedness of the Company's Foreign Subsidiaries which would
have effectively ranked senior to the Series B Notes would have been
approximately $5.9 million. In addition, on a pro forma basis as of March 31,
1997 the Company would have had aggregate undrawn availability under the
Revolving Credit Facility and the Australian Revolving Credit Facility of
approximately $34.1 million which, if drawn, would effectively rank senior to
the Series B Notes.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
The Company's net sales and operating results could fluctuate significantly
from period to period. The Company's net sales historically have fluctuated by
as much as $15 million from year to year, after adjusting for acquisitions.
Given the relatively large sales price of the Company's contracts, a limited
number of contracts may account for a substantial portion of net sales in any
particular period. Because the Company generally recognizes net sales upon the
completion of a contract, the timing of a small number of contracts in any
particular quarter or year may adversely affect operating results. In addition,
net sales and gross profit may fluctuate due to the size of contracts and the
requirements of each contract. The Company generally realizes a higher gross
margin on sales of products under privately negotiated agreements. As a result
of these and other factors, the Company could experience significant
fluctuations in net sales and operating results in future periods. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RELIANCE UPON SIGNIFICANT CUSTOMERS
For the calendar year 1996, the Company's pro forma net sales to A.T.
Massey Group constituted approximately 12.4% of the Company's total pro forma
net sales and pro forma net sales to the Cyprus Amax Group constituted
approximately 8.0% of total pro forma net sales. For the calendar years 1995 and
1994, net sales to A.T. Massey Group constituted approximately 13.9% and 6.1% of
total net sales, respectively, and net sales to the Cyprus Amax Group
constituted approximately 7.6% and 4.7% of total net sales, respectively. Pro
forma net sales to the Company's top five customers (A.T. Massey, Cyprus Amax,
Consolidation Coal Group, Drummond Coal and United Central Industrial Supplies)
represented approximately 26.1% of the Company's total pro forma net sales for
1996. Although the Company has preferred supplier arrangements with A.T. Massey,
Cyprus Amax, and other of its major customers pursuant to which the Company and
such customers effectively operate on a long-term basis, such arrangements
generally are not governed by long-term contracts and may be terminated at any
time. A substantial portion of the Company's sales is on a project-by-project
basis. The loss of the business from any of the top five customers, or a
significant decrease or interruption in the business from A.T. Massey or Cyprus
Amax, could have a material adverse effect upon the results of operations and
financial condition of the Company. See "Business--Customers."
SIGNIFICANCE OF COAL MINING INDUSTRY TO THE COMPANY
Approximately 60% of the business of the Company is comprised of the
manufacture and sale of conveyor systems and components to companies engaged in
underground and surface mining of coal at various locations
17
<PAGE> 19
throughout the world. Accordingly, the results of operations and financial
condition of the Company may be materially affected by regional or worldwide
developments in the coal mining industry, including the risks and hazards that
are inherent in such industry. Specific factors that may cause coal production
levels to fluctuate include operational and geological factors related to
available mine reserves and the ease or difficulty of mining such reserves,
severe weather, mechanical equipment performance, effects of compliance with
environmental, occupational safety and other applicable regulations, together
with labor situations.
Labor stoppages can have a particularly significant and broad-based effect
upon the coal industry. The last significant labor stoppage in the United States
occurred in 1993 and adversely affected the results of operations of the
Company. The national union contract resulting from that labor stoppage is
subject to expiration in 1998 and may, by its terms, be reopened during 1997 in
order to renegotiate specific matters.
In addition, a significant portion of worldwide coal production is utilized
by electric utilities and thus the demand for coal is highly dependent upon the
demand for electricity, which in turn depends to a large extent upon the level
of economic activity. The demand by electric utilities for coal also is related
to the availability and cost in any given location of alternative sources of
energy, such as natural gas, oil or nuclear power. See "Business--Coal
Industry."
INTERNATIONAL OPERATIONS
As a result of the BCE Acquisition, the Company has significant operations
in Australia and revenues derived from foreign markets are expected to increase
in the future. During the year ended December 31, 1996, $41.0 million of the
Company's pro forma net sales were generated outside the United States,
representing approximately 23.3% of the Company's total pro forma net sales
during the period, without giving effect to the Hewitt-Robins Acquisition.
The value of the Company's foreign sales and earnings varies with currency
exchange rate fluctuations. Changes in currency exchange rates could have an
adverse effect upon the Company's results of operations, which in turn could
adversely affect the Company's ability to meet its interest and principal
obligations on its indebtedness, including the Series B Notes. The Company does
not engage in hedging activities or invest in derivative financial instruments
to address risks inherent in exchange rate fluctuations. Furthermore,
international manufacturing and sales are subject to other inherent risks
including labor unrest, political instability, restrictions on transfer of
funds, export duties and quotas, domestic and foreign customs and tariffs,
current and changing regulatory environments, difficulty in obtaining
distribution and support and potentially adverse tax consequences. There can be
no assurance that these factors will not have a material adverse effect on the
Company's international operations or sales or upon its financial condition and
results of operations.
CONTROL BY PRINCIPAL STOCKHOLDER
The Company is a wholly owned subsidiary of NES Group, Inc., all of the
capital stock of which is beneficially owned by Robert J. Tomsich. Due to his
control of NES Group, Inc., Mr. Tomsich will be able to control the election of
the directors of the Company and to determine the corporate and management
policies of the Company, including decisions relating to any mergers or
acquisitions of the Company, sales of all or substantially all of the Company's
assets and other significant corporate transactions, which transactions may
result in a Change of Control under the Indenture. The Company's board of
directors is comprised entirely of designees of NES Group, Inc. See "Principal
Stockholder."
DEPENDENCE UPON MANAGEMENT PERSONNEL
The Company's success depends to a significant extent upon its management
personnel as well as the management personnel of its operating subsidiaries. The
loss of the services of certain of such personnel, specifically, C. Edward
Bryant, Jr., President and Chief Executive Officer of Continental, Richard M.
Sickinger, President of Goodman, and Gary Williams, Managing Director of CCE
Pty. Ltd, could have a material adverse effect upon a particular operating
subsidiary or the Company, or both. As a general matter, the Company does not
have long-term employment agreements or noncompete agreements with such
management personnel. The Company will be dependent on NESCO, Inc. for certain
management oversight
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services. NESCO, Inc. also provides management oversight services for certain
affiliates of the Company, including NES Group, Inc. See "Related Transactions."
RISKS ATTENDANT TO ACQUISITION STRATEGY
The Company regularly considers the acquisition of other companies engaged
in the manufacture and sale of Conveyor Equipment and related businesses. At any
given time, the Company may be in various stages of considering such
opportunities and presently is in discussions with potential acquisition
candidates. Such acquisitions are subject to the negotiation of definitive
agreements and to conditions typical in acquisition transactions, certain of
which conditions may be beyond the Company's control. There is no assurance that
the Company will be able to identify desirable acquisition candidates or will be
successful in entering into any definitive agreements with respect to desirable
acquisitions. Moreover, even if definitive agreements are entered into, there is
no assurance that any future acquisition will thereafter be completed or, if
completed, that the anticipated benefits of the acquisition will be realized.
The process of integrating acquired operations into the Company's operations may
result in unforeseen operating difficulties, may absorb significant management
attention and may require significant financial resources that would otherwise
be available for the ongoing development or expansion of the Company's existing
operations. Future acquisitions by the Company could result in the incurrence of
additional debt and contingent liabilities, which could have a material adverse
effect on the Company's financial condition and results of operations.
LABOR RELATIONS
Approximately 220 of the Company's hourly employees at its production
facility in Winfield, Alabama, are covered by a collective bargaining agreement
that expires in May 1998, and approximately 100 of the Company's hourly
employees at two of its production facilities in Australia are covered by
collective bargaining agreements that expire in 1998 and 1999, respectively.
Although the Company has not experienced any work stoppages since 1971, there
can be no assurances that new collective bargaining agreements, with terms
satisfactory to the Company, can be reached upon expiration of the current
agreements without a work stoppage. Depending upon its magnitude, a work
stoppage could have a material adverse effect upon the Company.
COMPETITION
Most of the Company's products are sold in highly competitive markets. The
Company competes throughout the world with a significant number of companies of
varying sizes in a wide variety of markets, on the basis of quality, price,
reliability, availability and service. Competitive pressures or other factors
could cause the Company to lose market share or could result in significant
price erosion, either of which could have a material adverse effect upon the
Company's results of operations. Continental and Goodman are operated separately
and compete against each other in certain markets. Such competition could have
an adverse effect on the Company's overall margins.
PURCHASE OF SERIES B NOTES UPON A CHANGE OF CONTROL
Upon a Change of Control, the Company is required, subject to certain
conditions, to offer to purchase all outstanding Series B Notes at 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of purchase. The source of funds for any
such purchase would be the Company's available cash or cash generated from other
sources, including borrowings, sales of assets, sales of equity or funds
provided by a new controlling person. The Revolving Credit Facility prohibits
the payment of dividends to the Company for purposes of purchasing Series B
Notes upon a Change of Control. A Change of Control likely would constitute an
event of default under the Revolving Credit Facility that would permit the
lenders to accelerate the debt under such Revolving Credit Facility. In such
event, the Company likely would attempt to refinance the indebtedness
outstanding under the Revolving Credit Facility and the Series B Notes. There
can be no assurance that sufficient funds will be available at the time of any
Change of Control to make any required purchases of Series B Notes tendered and
to repay indebtedness
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under the Revolving Credit Facility. See "Description of Certain
Indebtedness--Revolving Credit Facility" and "Description of Senior
Notes--Repurchase at the Option of the Holders--Change of Control."
ABSENCE OF A PUBLIC MARKET
There is no public market for the Series A Notes. The Series B Notes will
be new securities for which there is also no public market. The Company does not
intend to list the Series B Notes on any national securities exchange or to seek
the admission thereof to trading in the National Association of Securities
Dealers Automated Quotation System. Although the Initial Purchaser has advised
the Company that it currently intends to make a market in the Series B Notes, it
is not obligated to do so and may discontinue such market making activity at any
time without notice. Accordingly, there can be no assurance as to the
development or liquidity of any market for the Series B Notes, the ability of
the holders of the Series B Notes to sell their Series B Notes, or the price at
which such holders would be able to sell their Series B Notes. Future trading
prices of the Series B Notes will depend on many factors, including prevailing
interest rates, the Company's operating results and the market for similar
securities.
To the extent that Series A Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered and tendered but unaccepted Series A
Notes could be adversely affected.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Series A Notes were sold pursuant to an exemption from the registration
requirements of the Securities Act and their transfer is subject to certain
restrictions under the Securities Act. In general, Series A Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. Holders of Series A Notes who do not exchange
their Series A Notes for Series B Notes pursuant to the Exchange Offer will
continue to be subject to such restrictions on transfer of the Series A Notes.
The Company currently does not anticipate that it will register the Series A
Notes under the Securities Act.
The Series B Notes will be issued in exchange for Series A Notes only after
timely receipt by the Exchange Agent of such Series A Notes, a properly
completed and duly executed Letter of Transmittal and all other required
documents. Therefore, holders of Series A Notes desiring to tender such Series A
Notes in exchange for Series B Notes should allow sufficient time to ensure
timely delivery. Neither the Exchange Agent nor the Company is under any duty to
give notification of defects or irregularities with respect to tenders of Series
A Notes for exchange. Series A Notes that are not tendered or are tendered but
not accepted will, following consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof. In addition, any
holder of Series A Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Series B Notes will be required to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Each broker-dealer that receives
Series B Notes for its own account in exchange for Series A Notes, where such
Series A Notes were acquired by such broker-dealer as a result of market-making
activities or any other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such Series B Notes. See
"Plan of Distribution." To the extent that Series A Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Series A Notes could be adversely affected. See "The Exchange
Offer--Consequences of Failure to Exchange."
FRAUDULENT TRANSFER CONSIDERATIONS
Under federal or state fraudulent transfer laws, if a court were to find
that at the time any of the Senior Notes or Subsidiary Guarantees were issued,
the Company or a Subsidiary Guarantor, as the case may be, (i) issued such
Senior Notes or Subsidiary Guarantee with the intent of hindering, delaying or
defrauding current or future creditors or (ii)(A) received less than fair
consideration or reasonably equivalent value for incurring the indebtedness
represented by such Senior Notes or Subsidiary Guarantee, and (B)(1) was
insolvent or was rendered insolvent by reason of the issuance of such Senior
Notes or Subsidiary Guarantee, (2) was engaged, or about to engage, in a
business or transaction for which its assets were unreasonably small
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or (3) intended to incur, or believed (or should have believed) it would incur,
debts beyond its ability to pay as such debts mature (as all of the foregoing
terms are defined in or interpreted under such fraudulent transfer statutes),
such court could avoid all or a portion of the Company's or a Subsidiary
Guarantor's obligations to the holders of Senior Notes, subordinate the
Company's or a Subsidiary Guarantor's obligations to the holders of the Senior
Notes to other existing and future indebtedness of the Company or such
Subsidiary Guarantor, as the case may be, the effect of which would be to
entitle such other creditors to be paid in full before any payment could be made
on the Senior Notes, and take other action detrimental to the holders of the
Senior Notes, including in certain circumstances, invalidating the Senior Notes.
In that event, there would be no assurance that any repayment on the Senior
Notes would ever be recovered by the holders of the Senior Notes.
The definition of insolvency for purposes of the foregoing considerations
varies among jurisdictions depending upon the federal or state law that is being
applied in any such proceeding. However, the Company or a Subsidiary Guarantor
generally would be considered insolvent at the time it incurs the indebtedness
constituting any of the Senior Notes or any Subsidiary Guarantee, as the case
may be, if (i) the fair market value (or fair saleable value) of its assets is
less than the amount required to pay its total existing debts and liabilities
(including the probable liability on contingent liabilities) as they become
absolute or matured or (ii) it is incurring debts beyond its ability to pay as
such debts mature. There can be no assurance as to what standard a court would
apply in order to determine whether the Company or a Subsidiary Guarantor was
"insolvent" as of the date a Senior Note or Subsidiary Guarantee was issued, or
that, regardless of the method of valuation, a court would not determine that
the Company or a Subsidiary Guarantor was insolvent on that date. Nor can there
be any assurance that a court would not determine, regardless of whether the
Company or a Subsidiary Guarantor was insolvent on the date a Senior Note or
Subsidiary Guarantee was issued, that the payments constituted fraudulent
transfers on another ground. To the extent that proceeds from the sale of Senior
Notes are used to repay indebtedness under the Revolving Credit Facility or
Australian Revolving Credit Facility, or to make a distribution to a stockholder
on account of the ownership of capital stock, a court may find that the Company
or a Subsidiary Guarantor did not receive fair consideration or reasonably
equivalent value for the incurrence of the indebtedness represented by such
Senior Notes or any related Subsidiary Guarantee, as the case may be.
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THE COMPANY
The Company is a recently-formed holding company organized under the
Delaware General Corporation Law for the purpose of owning all of the capital
stock of Continental and Goodman, each of which is also a Delaware corporation.
Prior to the formation of the Company, all of the assets and businesses of the
Company were owned and operated by Continental Conveyor and Equipment Co. L.P.
("CCEC") and Goodman Conveyor Co. L.P. ("GCC"). CCEC and GCC were both Delaware
limited partnerships with NES Group, Inc. as their sole limited partner and
Continental Conveyor & Equipment Company and Goodman Conveyor Company (referred
to herein as Continental and Goodman, respectively) as their respective general
partners. After acquiring all of the capital stock of Continental and Goodman
from one of its affiliates, NES Group, Inc. transferred its entire interest in
CCEC and GCC to Continental and Goodman, respectively, resulting in the
dissolution of the partnerships and the transfer of all assets and liabilities
of the partnerships to Continental and Goodman, respectively. NES Group, Inc.
then transferred its entire interest in Continental and Goodman to the Company.
On April 1, 1997, the Company acquired substantially all of the assets of
Hewitt-Robins, a United States manufacturer of idlers with net sales in 1996 of
$15.1 million. The purchase price for the Hewitt-Robins Acquisition was
approximately $12.6 million in cash plus the assumption of approximately $1.1
million of liabilities, subject to a negotiated price adjustment for working
capital. See "Business -- Acquisitions."
In January 1997, through CCE Pty. Ltd., Continental acquired all of the
capital stock of BCE. BCE is an Australian holding company that owns 100% of the
capital stock of four Australian operating companies: Continental ACE Pty. Ltd.,
Continental ACE Services Pty. Ltd., Continental ACE Components Pty. Ltd. and A.
Crane Pty. Ltd.; and a majority of the capital stock of a fifth Australian
operating company, Continental Control Systems Pty. Ltd. (formerly known as
Ringway Pty. Ltd.). The remainder of the capital stock of Continental Control
Systems Pty. Ltd. was acquired by CCE Pty. Ltd. after the BCE Acquisition.
In October 1993, the Company acquired substantially all of the assets of
Buck Moore Axle Company, a recycled mobile homes axle products business located
in Eatonton, Georgia.
NES Group, Inc., the sole stockholder of the Company, is a Cleveland,
Ohio-based holding company with subsidiaries engaged in the manufacture and sale
of industrial products, equipment and machinery, the provision of engineering,
industrial and computer personnel services and the development and management of
real estate.
The principal executive offices of the Company and Continental are located
at 438 Industrial Drive, Winfield, Alabama 35594 and their telephone number is
(205) 487-6492. The principal executive offices of Goodman are located at Route
178, South, P.O. Box 866, Belton, South Carolina 29627 and its telephone number
is (864) 338-7793.
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THE EXCHANGE OFFER
BACKGROUND
Upon the respective terms and conditions of the Indenture and the Purchase
Agreement, the Series A Notes were issued and sold by the Company to the Initial
Purchaser on April 1, 1997 (the "Series A Issue Date"). Thereafter, the Series A
Notes were resold by the Initial Purchaser to certain purchasers in reliance
upon one or more exemptions from the registration requirements of the Securities
Act. Pursuant to the Registration Rights Agreement entered into by the Company,
the Subsidiary Guarantors and the Initial Purchaser as a condition to the
obligations of the Initial Purchaser under the Purchase Agreement, the Company
and the Subsidiary Guarantors agreed that, unless the Exchange Offer is not
permitted by applicable law, they would (i) cause to be filed with the
Commission, on or prior to 60 days after the Series A Issue Date, a Registration
Statement under the Securities Act relating to the Series B Notes, (ii) use
their reasonable best efforts to cause the Registration Statement to become
effective at the earliest possible time, but in no event later than 150 days
after the Series A Issue Date and (iii) upon effectiveness of the Registration
Statement, commence the Exchange Offer, maintain the effectiveness of the
Registration Statement for at least 20 business days (or a longer period if
required by law) and deliver to the Exchange Agent Series B Notes in the same
aggregate principal amount as the Series A Notes that were tendered by the
holders thereof pursuant to the Exchange Offer. A copy of the Registration
Rights Agreement has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part. The Registration Statement of which this
Prospectus is a part is intended to satisfy certain of the obligations of the
Company and the Subsidiary Guarantors under the Registration Rights Agreement
and the Purchase Agreement.
GENERAL
This Prospectus, together with the Letter of Transmittal, is being sent to
all beneficial owners of Series A Notes who are known to the Company as of the
date hereof. Upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal, the Company will
accept all Series A Notes properly tendered and not withdrawn prior to 5:00
p.m., New York City time, on the Expiration Date. The Company will issue $1,000
principal amount of Series B Notes in exchange for each $1,000 principal amount
of outstanding Series A Notes accepted in the Exchange Offer. Holders may tender
some or all of their Series A Notes pursuant to the Exchange Offer, but Series A
Notes may be tendered only in integral multiples of $1,000.
The form and terms of the Series B Notes are the same as the form and terms
of the Series A Notes, except that the Series B Notes have been registered under
the Securities Act and holders of the Series B Notes will not be entitled to
certain registration and exchange rights granted to the holders of the Series A
Notes under the Registration Rights Agreement, which rights will terminate upon
the consummation of the Exchange Offer. The Series B Notes will evidence the
same debt as the Series A Notes for which they are exchanged and will be issued
under, and be entitled to the benefits of, the Indenture, which also authorized
the issuance of the Series A Notes, such that both series will be treated as a
single class of debt securities under the Indenture.
As of the date of this Prospectus, $120 million aggregate principal amount
of the Series A Notes are outstanding and registered in the name of Cede & Co.,
as nominee for the Depository Trust Company ("DTC"). Only a registered holder of
the Series A Notes, as reflected on the records of the Trustee under the
Indenture, or such holder's legal representative or attorney-in-fact (including
any beneficial owner of Series A Notes that obtains a properly completed bond
power and proxy from the registered holder of such Series A Notes), may
participate in the Exchange Offer. There will be no fixed record date for
determining registered holders of the Series A Notes entitled to participate in
the Exchange Offer.
Holders of the Series A Notes do not have any appraisal or dissenters'
rights under the Indenture in connection with the Exchange Offer. The Company
intends to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the Securities
Act, the Exchange Act and the rules and regulations of the Commission
thereunder.
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The Company shall be deemed to have accepted validly tendered Series A
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders of Series A Notes for the purposes of receiving the Series B Notes from
the Company and delivering Series B Notes to such holders. If any tendered
Series A Notes are not accepted for any reason set forth in the terms and
conditions of the Exchange Offer or if Series A Notes are withdrawn or are
submitted for a greater principal amount than the holders desire to exchange,
such unaccepted, withdrawn or non-exchanged Series A Notes will be returned
without expense to the tendering holder thereof (or, in the case of Series A
Notes tendered by book-entry transfer into the Exchange Agent's account at DTC
pursuant to the book-entry transfer procedures described below, such Series A
Notes will be credited to an account maintained with DTC) as promptly as
practicable after the Expiration Date.
Holders of Series A Notes who tender in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of Series
A Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes described below in connection with
the Exchange Offer. See "--Fees and Expenses."
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to bear the expenses of the Exchange Offer pursuant to the
Registration Rights Agreement. No underwriter is being used in connection with
the Exchange Offer.
EXPIRATION DATE; DELAY, EXTENSION, AMENDMENT AND TERMINATION
The term "Expiration Date" shall mean the expiration date set forth on the
cover page of this Prospectus, unless the Company, in its sole discretion,
extends the Exchange Offer, in which case the term "Expiration Date" shall mean
the latest date to which the Exchange Offer is extended.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Series A Notes, (ii) to extend the Exchange Offer, (iii) to amend
the terms of the Exchange Offer or (iv) to terminate the Exchange Offer.
However, in all cases, the Exchange Offer will remain open for at least 20
business days and, in the event the Company decreases the percentage of Series A
Notes being sought, the Exchange Offer will remain open for at least ten
business days from the date notice of such decrease is first published or sent
or given to the holders of the Series A Notes. Any delay, extension, amendment
or termination will be followed as promptly as practicable by oral or written
notice to the Exchange Agent and a public announcement thereof. In the case of
an extension, such public announcement shall include disclosure of the
approximate number of Series A Notes deposited to date and shall be made prior
to 9:00 a.m., New York City time, on the next business day after the previously
scheduled Expiration Date. Without limiting the manner in which the Company may
choose to make a public announcement of any extension, amendment or termination
of the Exchange Offer, the Company shall have no obligation to publish,
advertise, or otherwise communicate any such public announcement, other than by
making a timely release to the Dow Jones News Service.
INTEREST ON THE SERIES B NOTES
The Series B Notes will bear interest from April 1, 1997, payable
semiannually on April 1 and October 1 of each year, commencing October 1, 1997,
at the rate of 11% per annum. Holders of Series A Notes whose Series A Notes are
accepted for exchange will receive interest, as interest on the Series B Notes,
accrued from the Series A Issue Date and will be deemed to have waived the right
to receive interest accrued on the Series A Notes.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder of Series A Notes must properly
complete, sign and date the Letter of Transmittal, or a facsimile thereof, have
the signatures thereon guaranteed if required by the Letter of Transmittal, and
mail or otherwise deliver such Letter of Transmittal or such facsimile to the
Exchange Agent. In addition, either (i) certificates for such Series A Notes
must be received by the Exchange Agent along with the Letter of Transmittal, or
(ii) a timely confirmation of a book-entry transfer (a "Book-Entry
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Confirmation") of such Series A Notes, if such procedure is available, into the
Exchange Agent's account at DTC pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the holder must comply with the guaranteed delivery
procedures described below.
The tender by a holder of Series A Notes will constitute an agreement
between such holder and the Company in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal.
THE METHOD OF DELIVERY OF SERIES A NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY TO
THE EXCHANGE AGENT BY 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR SERIES A NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS
MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES
OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Series A Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of Transmittal and delivering such
owner's Series A Notes, either make appropriate arrangements to register
ownership of the Series A Notes in such owner's name or obtain a properly
completed bond power from the registered holder and a proxy which authorizes
such owner to tender the Series A Notes on behalf of the registered holder, in
each case signed by the registered holder as the name of such registered holder
appears on the Series A Notes. The transfer of record ownership may take
considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in the United
States (an "Eligible Institution") unless the Series A Notes tendered pursuant
thereto are tendered (i) by a registered holder who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" on
the Letter of Transmittal or (ii) for the account of an Eligible Institution. In
the event that signatures on a Letter of Transmittal or a notice of withdrawal,
as the case may be, are required to be guaranteed, such guarantee must be by an
Eligible Institution.
If the Letter of Transmittal or any Series A Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or other acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority so to act must
be submitted with the Letter of Transmittal.
The Exchange Agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may utilize DTC's Automated Tender Offer
Program to tender Series A Notes.
All questions as to the validity, form, eligibility (including time of
receipt), and withdrawal of the tendered Series A Notes will be determined by
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Series A
Notes not properly tendered or any Series A Notes the Company's acceptance of
which would, in the opinion of counsel for the Company, be unlawful. The Company
also reserves the right to waive any defects, irregularities or conditions of
tender as to particular Series A Notes. The Company's interpretation of the
terms and conditions of the Exchange Offer (including the instructions in the
Letter of Transmittal) will be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of Series A Notes must
be cured within such time as the Company shall determine. Although the Company
presently intends to notify holders of defects or irregularities with respect to
tenders of Series A Notes, neither the Company, the Exchange Agent nor any other
person shall be under any duty to give such notification, nor shall any of them
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incur any liability for failure to give such notification. Tenders of Series A
Notes will not be deemed to have been made until such irregularities have been
cured or waived. Any Series A Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned without cost to such holder by the Exchange
Agent to the tendering holders of Series A Notes, unless otherwise provided in
the Letter of Transmittal, as soon as practicable following the Expiration Date.
While the Company has no present plan to acquire any Series A Notes which
have not been tendered in the Exchange Offer or to file a registration statement
to permit resales of Series A Notes which are not tendered pursuant to the
Exchange Offer, subject to the terms of the Indenture, the Company reserves the
right in its sole discretion to (i) purchase or make offers for any Series A
Notes that remain outstanding subsequent to the Expiration Date and (ii) to the
extent permitted by applicable law, terminate the Exchange Offer and purchase
Series A Notes in the open market, in privately negotiated transactions or
otherwise. The term of any such purchases or offers will differ from the terms
of the Exchange Offer.
By tendering, each holder will represent to the Company that, among other
things, (i) it is not an "affiliate," as defined under Rule 405 of the
Securities Act, of the Company, (ii) it is not engaged in, and does not intend
to engage in, and has no arrangement or understanding with any person to
participate in, a distribution of the Series B Notes, and (iii) it is acquiring
the Series B Notes in the ordinary course of business.
Each broker-dealer that receives Series B Notes for its own account in
exchange for Series A Notes, where such Series A Notes were acquired by such
broker-dealer as a result of market-making or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Series B Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Series B Notes received in
exchange for Series A Notes where such Series A Notes were acquired by such
broker-dealer as result of market-making activities or other trading activities.
The Company has agreed that, for a period of 120 days after the consummation of
the Exchange Offer, it will make this Prospectus, as it may be amended or
supplemented from time to time, available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Series A Notes and (a) whose Series A
Notes are not immediately available or (b) who cannot deliver their Series A
Notes, the Letter of Transmittal or any other required documents to the Exchange
Agent prior to the Expiration Date, may effect a tender if:
(i) the tender is made through an Eligible Institution;
(ii) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of the Series A Notes, the
certificate number or numbers of such Series A Notes and the principal
amount of Series A Notes tendered, stating that the tender is being made
thereby, and guaranteeing that, within three business days after the
Expiration Date, the Letter of Transmittal (or facsimile thereof) together
with the certificate(s) representing the Series A Notes to be tendered in
proper form for transfer or a Book-Entry Confirmation, as the case may be,
and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent; and
(iii) such properly completed and executed Letter of Transmittal (or
facsimile thereof) together with the certificate(s) representing all
tendered Series A Notes in proper form for transfer and all other documents
required by the Letter of Transmittal are received by the Exchange Agent
within three business days after the Expiration Date.
26
<PAGE> 28
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Series A Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date, unless previously accepted for exchange.
To withdraw a tender of Series A Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Series A Notes to be withdrawn (the
"Depositor"), (ii) identify the Series A Notes to be withdrawn (including the
certificate number or numbers and principal amount of such Series A Notes),
(iii) be signed by the Depositor in the same manner as the original signature on
the Letter of Transmittal by which such Series A Notes were tendered (including
any required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the Series A Notes register the
transfer of such Series A Notes into the name of the Depositor withdrawing the
tender and (iv) specify the name in which any such Series A Notes are to be
registered, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) of such withdrawal
notices will be determined by the Company, whose determination shall be final
and binding on all parties. Any Series A Notes so withdrawn will be deemed not
to have been validly tendered for purposes of the Exchange Offer and no Series B
Notes will be issued with respect thereto unless the Series A Notes so withdrawn
are validly retendered. Properly withdrawn Series A Notes may be retendered by
following one of the procedures described above under "--Procedures for
Tendering" at any time prior to the Expiration Date.
CONDITIONS
The Exchange Offer is subject to certain customary conditions which may be
waived by the Company. The conditions are limited and relate in general to
proceedings which have been instituted or laws which have been adopted that
might impair the ability of the Company to proceed with the Exchange Offer.
Notwithstanding any other term of the Exchange Offer, if the Exchange Offer
violates applicable law, rule or regulation or an applicable interpretation of
the staff of the Commission, (i) the Company will not be required to accept for
exchange, or exchange Series B Notes for, any Series A Notes not theretofore
accepted for exchange and (ii) the Company may delay accepting any Series A
Notes, amend the terms of the Exchange Offer, or extend or terminate the
Exchange Offer, as provided herein. All conditions (other than certain necessary
government approvals, if any, required to consummate the offer) must be
satisfied or waived prior to the Expiration Date. See "Expiration Date; Delay,
Extension, Amendment and Termination."
EXCHANGE AGENT
Norwest Bank Minnesota, National Association has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance and requests
for additional copies of this Prospectus or the Letter of Transmittal and
deliveries of completed Letters of Transmittal with tendered Series A Notes
should be directed to the Exchange Agent addressed as follows:
<TABLE>
<S> <C>
By Registered or Certified Mail: By Overnight Courier:
Norwest Bank Minnesota, National Norwest Bank Minnesota, National
Association Association
Corporate Trust Operations Corporate Trust Operations
P.O. Box 1517 Norwest Center
Minneapolis, MN 55480-1517 Sixth and Marquette
Minneapolis, MN 55479-0069
By Hand: By Facsimile:
Norwest Bank Minnesota, National Norwest Bank Minnesota, National
Association Association
Corporate Trust Operations Corporate Trust Operations
Northstar East, 12th Floor (612) 667-4927
608 2nd Avenue Confirm by telephone:
Minneapolis, MN 55479-0113 (612) 667-9764
</TABLE>
27
<PAGE> 29
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of the Company and its affiliates in person, by
telephone or facsimile.
The Company will not make any payments to brokers, dealers, or other
persons soliciting acceptances of the Exchange Offer. The Company, however, will
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith. The Company may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus, Letters of Transmittal
and related documents to the beneficial owners of the Series A Notes, and in
handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer,
including registration fees, fees and expenses of the Exchange Agent and
Trustee, accounting and legal fees and expenses, and printing costs, will be
paid by the Company and are estimated in the aggregate to be approximately
$175,000.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Series A Notes pursuant to the Exchange Offer. If, however, a transfer
tax is imposed for any reason other than the exchange of Series A Notes pursuant
to the Exchange Offer, then the amount of any such transfer taxes (whether
imposed on the registered holder or any other persons) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.
CONSEQUENCE OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Series A
Notes are urged to consult their financial and tax advisors prior to determining
whether or not to tender their Series A Notes.
Series A Notes which are not exchanged for the Series B Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such Series A
Notes may be resold only (i) to a person whom the seller reasonably believes is
a qualified institutional buyer (as defined in Rule 144A under the Securities
Act) in a transaction meeting the requirements of Rule 144A, (ii) in a
transaction meeting the requirements of Rule 144 under the Securities Act, (iii)
outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, (iv) in accordance with
another exemption from the registration requirements of the Securities Act (and
based upon an opinion of counsel if the Company so requests), (v) to the Company
or (vi) pursuant to an effective registration statement and, in each case, in
accordance with any applicable securities laws of any state of the United States
or any other applicable jurisdiction.
RESALE OF THE SERIES B NOTES
With respect to the Series B Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to third
parties, the Company believes that a holder (other than (i) a broker-dealer that
purchases such Series B Notes directly from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) a
person that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) who exchanges the Series A Notes for the Series B
Notes in the ordinary course of business and who is not participating, does not
intend to participate, and has no arrangement with any person to participate, in
the distribution of the Series B Notes, will be allowed to resell the Series B
Notes to the public without further registration under the Securities Act and
without delivering to the purchasers of the Series B Notes a prospectus that
satisfies the requirements of Section 10 of the Securities Act. However, if any
holder acquires the Series B Notes in the Exchange Offer for the purpose of
distributing or participating in the distribution of the Series B Notes or is a
broker-dealer, such holder cannot rely on the position of the staff of the
Commission enumerated in certain no-action letters issued
28
<PAGE> 30
to third parties and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction,
unless an exemption from registration is otherwise available. Each broker-dealer
that receives Series B Notes for its own account in exchange for Series A Notes,
where such Series A Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Series B Notes.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Series B Notes received in exchange for Series A
Notes where such Series A Notes were acquired by such broker-dealer as a result
of market-making or other trading activities. Pursuant to the Registration
Rights Agreement, the Company has agreed to make this Prospectus, as it may be
amended or supplemented from time to time, available to broker-dealers for use
in connection with any resale for a period of 120 days after consummation of the
Exchange Offer. See "Plan of Distribution."
ACCOUNTING TREATMENT
The Company will not recognize any gain or loss for accounting purposes
upon the consummation of the Exchange Offer. The expenses of the Exchange Offer
will be amortized by the Company over the term of the Series B Notes.
29
<PAGE> 31
CAPITALIZATION
The following table sets forth the (i) actual consolidated cash and
capitalization of the Company at March 31, 1997 and (ii) the consolidated cash
and capitalization of the Company at March 31, 1997 as adjusted to give effect
to the Series A Notes Offering, the application of the net proceeds therefrom,
and the Hewitt-Robins Acquisition as if the same had occurred as of such date.
The table should be read in conjunction with the Unaudited Pro Forma
Consolidated Financial Statements of the Company and the related notes thereto
and the Financial Statements of the Company, the Consolidated Financial
Statements of BCE and the Financial Statements of Hewitt-Robins and related
notes thereto included elsewhere in this Prospectus. See "Selected Historical
and Pro Forma Financial Data," "Unaudited Pro Forma Consolidated Financial
Statements" and the Financial Statements of the Company, the Consolidated
Financial Statements of BCE and the Financial Statements of Hewitt-Robins and
the related notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
-------------------------
(IN THOUSANDS)
ACTUAL AS ADJUSTED
<S> <C> <C>
Cash and cash equivalents.......................................... $ 1,207 $ 27,780
======= ========
Short term obligations:
Existing credit facility(1)...................................... $18,877 $ --
======= ========
Long term obligations (including current portion):
Series A Notes................................................... $ -- $120,000
Existing credit facility(1)...................................... 16,459 --
Revolving Credit Facility(2)..................................... -- --
Capital lease obligations........................................ 1,367 1,367
Australian Seller Notes(3)....................................... 4,542 4,542
Subordinated secured promissory note............................. 300 --
Subordinated note payable to affiliate........................... 350 --
------- --------
Total long-term obligations................................... $23,018 $125,909
Total stockholder's equity (deficit).......................... 2,967 (37,371)
------- --------
Total capitalization............................................... $25,985 $ 88,538
======= ========
</TABLE>
- -----------------------------
(1) In connection with the Series A Notes Offering, the outstanding balances of
the existing credit facility were repaid in full. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
(2) As of the closing date of the Series A Notes Offering, $30 million was
available for borrowing under this Revolving Credit Facility.
(3) The Australian Seller Notes were issued to the sellers of BCE in connection
with the Company's acquisition of BCE. The notes bear interest at a variable
rate which was approximately 7% at March 31, 1997. See "Description of
Certain Indebtedness."
30
<PAGE> 32
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table presents: (i) historical financial data of the Company
and its predecessor companies, Continental and Goodman, on a combined basis for
each of the five years during the period ended December 31, 1996, which have
been derived from the audited financial statements; (ii) historical financial
data of the Company and its predecessor companies, Continental and Goodman, on a
combined basis for the three months ended March 31, 1996 and 1997; (iii)
historical financial data of BCE for each of the three fiscal years during the
period ended June 30, 1996 and for the six-month period ended December 31, 1996,
which have been derived from the audited Consolidated Financial Statements of
BCE, which are in Australian dollars and presented in Australian GAAP; (iv)
unaudited historical financial data of BCE for the six-month period ended
December 31, 1995, which have been derived from unaudited financial statements
of BCE which are in Australian dollars and presented in Australian GAAP; and (v)
unaudited pro forma financial data of the Company giving effect to (1) the
Series A Notes Offering on April 1, 1997, (2) the application of the net
proceeds therefrom, (3) the BCE Acquisition on January 7, 1997 and (4) the
Hewitt-Robins Acquisition on April 1, 1997, as if such transactions had occurred
on January 1, 1996, with respect to the Statement of Operating Data and Other
Data for the year ended December 31, 1996; as if the Series A Notes Offering and
the application of the net proceeds therefrom and the Hewitt-Robins Acquisition
had occurred on January 1, 1997, with respect to the Statement of Operating Data
and Other Data for the three months ended March 31, 1997, and March 31, 1997
with respect to the Balance Sheet Data. The pro forma data do not purport to
represent what the consolidated results of operations or consolidated financial
position of the Company would have been had the Series A Notes Offering, the
application of the net proceeds therefrom, the BCE Acquisition and the
Hewitt-Robins Acquisition actually occurred at the beginning of the relevant
periods, and do not purport to project the consolidated financial position or
the consolidated results of operations of the Company for the current year or
any date or future period. The summary financial data set forth below should be
read in conjunction with "Unaudited Pro Forma Consolidated Financial Statements"
and the Financial Statements of the Company, the Consolidated Financial
Statements of BCE and the Financial Statements of Hewitt-Robins and the notes
related thereto as described elsewhere herein.
31
<PAGE> 33
<TABLE>
<CAPTION>
CONTINENTAL GLOBAL GROUP, INC.
----------------------------------------------------------------------------------------------------
PRO FORMA
THREE MONTHS PRO FORMA THREE MONTHS
ENDED YEAR ENDED ENDED
YEARS ENDED DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31,
-------------------------------------------------- ----------------- ------------ ------------
1992 1993(1) 1994 1995 1996 1996 1997 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATING DATA:
Net sales................. $80,422 $84,778 $114,025 $153,230 $143,524 $40,025 $47,076 $191,143 $ 50,809
Cost of products sold..... 63,413 68,308 94,285 124,948 114,716 32,282 37,697 148,681 40,256
------- ------- -------- -------- -------- ------- ------- -------- -------
Gross profit............. 17,009 16,470 19,740 28,282 28,808 7,743 9,379 42,462 10,553
Selling, general and
administrative
expenses................ 9,345 9,693 13,062(2) 11,670 13,473 3,349 5,442 21,581 5,666
Management fee............ 1,565 1,747 1,736 2,102 3,187 849 776 1,184 282
------- ------- -------- -------- -------- ------- ------- -------- -------
Operating income......... 6,099 5,030 4,942 14,510 12,148 3,545 3,161 19,697 4,605
Interest expense.......... 590 1,214 1,493 2,506 2,889 785 1,187 14,111 3,527
Other (income) expense.... (109) 85 (166) 219 319 101 49 210 49
------- ------- -------- -------- -------- ------- ------- -------- -------
Income before income taxes
and extraordinary
item.................... 5,618 3,731 3,615 11,785 8,940 2,659 1,925 5,376 1,029
Foreign income tax
credit.................. -- -- -- -- -- -- (250) -- --
Pro forma income taxes.... -- -- -- -- -- -- -- 2,204 509
------- ------- -------- -------- -------- ------- ------- -------- -------
Income before
extraordinary item...... 5,618 3,731 3,615 11,785 8,940 2,659 2,175 3,172 520
Extraordinary item (3).... 932 932 --
------- ------- -------- -------- -------- ------- ------- -------- -------
Net income................ $ 5,618 $3,731 $ 3,615 $ 11,785 $ 9,872 $ 3,591 $ 2,175 $ 3,172 $ 520
======= ======= ======== ======== ======== ======= ======= ======== =======
Ratio of earnings to fixed
charges (4)............. 7.5x 3.5 x 3.0x 5.0x 3.7x 4.2x 2.5x 1.4x 1.3x
TAX ADJUSTED DATA (5):
Income before income taxes
and extraordinary
item.................... $ 5,618 $3,731 $ 3,615 $ 11,785 $ 8,940 $ 2,659 $ 1,925
Pro forma income taxes.... 2,069 1,388 1,447 4,680 3,749 1,096 936
------- ------- -------- -------- -------- ------- -------
Income before
extraordinary item...... 3,549 2,343 2,168 7,105 5,191 1,563 989
Extraordinary item, net of
pro forma income
taxes................... -- -- -- -- 559 559 --
------- ------- -------- -------- -------- ------- -------
Net income................ $ 3,549 $2,343 $ 2,168 $ 7,105 $ 5,750 $ 2,122 $ 989
======= ======= ======== ======== ======== ======= =======
OTHER DATA:
Net cash provided by (used
in) operating activities
(6)..................... $ 7,668 $3,562 $ (1,797) $ 10,550 $ 9,873 $ 3,835 $ (856) -- --
Net cash provided by (used
in) investing activities
(6)..................... (629) (1,586) (1,181) (794) (598) (169) (7,728) -- --
Net cash provided by (used
in) financing activities
(6)..................... (707) 544 (2,570) (11,318) (8,586) (2,968) 8,785 -- --
Adjusted EBITDA (7)....... 8,169 7,371 7,444 17,506 16,347 4,643 4,526 $ 22,497 $ 5,356
Depreciation and
amortization............ 505 594 766 894 1,012 249 589 2,800 751
Capital expenditures...... 629 1,237 1,181 794 618 190 539 1,549 2,654
</TABLE>
<TABLE>
<CAPTION>
CONTINENTAL GLOBAL GROUP, INC.
---------------------------------------------------------------------------------
PRO FORMA
AS OF AS OF
AS OF DECEMBER 31, MARCH 31, MARCH 31,
------------------------------------------------------ --------- ---------
1992 1993 1994 1995 1996 1997 1997
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $ 6,273 $ 7,405 $ 1,856 $ 295 $ 1,022 $ 1,207 $ 27,780
Total assets................................ 31,049 35,543 40,870 46,195 46,499 72,132 118,250
Long-term debt, including current portion... 12,313 11,616 10,605 16,837 14,143 23,018 125,909
Stockholder's equity (deficit).............. 3,836 6,448 8,877 (3,862) 1,994 2,967 (37,371)
</TABLE>
- -----------------------------
(1) In October 1993, the Company acquired substantially all of the assets of
Buck Moore Axle Company, a recycled mobile homes axle business. See "The
Company."
(2) Includes net contract settlement costs of $2,338.
(3) Reflects gain on early extinguishment of debt.
(4) Earnings consist of income before taxes plus fixed charges. Fixed charges
consist of interest expense, amortization of deferred financing costs and
the portion of rental expense that is representative of interest expense.
(5) Represents pro forma tax adjustments of Continental and Goodman on a
combined basis pursuant to the terms of the Tax Payment Agreement with the
parent company, NES Group, Inc., as if such agreement had been in effect for
each of the years presented. See "Related Transactions--Tax Payment
Agreement."
(6) These items are measures of the Company's operating performance and
liquidity, which have been calculated in accordance with generally accepted
accounting principles ("GAAP"). They should be considered by the holders
tendering Series A Notes in the Exchange Offer and have been taken from the
audited and unaudited financial statements included elsewhere in the
Prospectus.
(7) Adjusted EBITDA represents earnings before interest, taxes, depreciation,
amortization and miscellaneous expense (income) and gives effect on a pro
forma basis to $1,184 and $282 in management fees for the year ended
December 31, 1996 and the three months ended March 31, 1997 respectively to
be paid pursuant to the Management Agreement. On a historical basis,
Adjusted EBITDA excludes management fees for the years ended December 31,
1992, 1993, 1994, 1995 and 1996 in the amounts of $1,565, $1,747, $1,736,
$2,102 and $3,187, respectively, and for the three months ended March 31,
1996 and 1997 in the amounts of $849 and $766, respectively, because such
amounts were paid pursuant to an agreement
32
<PAGE> 34
that was terminated in connection with the Series A Notes Offering and
replaced with the Management Agreement. See "Related Transactions --
Management Agreement." Adjusted EBITDA amounts have been included because
the Company uses them to analyze its ability to service its debt, the
Company's lenders use them for the purpose of analyzing the Company's
performance with respect to the credit agreement and the Indenture and the
Company understands that they are used by certain investors as measures of a
Company's historical ability to service debt. However, holders tendering
Series A Notes in the Exchange Offer should consider the following factors:
Adjusted EBITDA (i) should not be considered in isolation, (ii) is not a
measure of performance calculated in accordance with GAAP, (iii) should not
be construed as an alternative or substitute for income from operations, net
income or cash flows from operating activities in analyzing the Company's
operating performance, financial position or cash flows (in each case, as
determined in accordance with GAAP) and (iv) should not be used solely as an
indicator of the Company's operating performance, measures of its liquidity
or ability to meet all cash needs. Additionally, because all companies do
not calculate Adjusted EBITDA in a uniform fashion, the calculations
presented in this Prospectus may not be comparable to other similarly titled
measures of other companies.
Adjusted EBITDA is calculated as follows:
<TABLE>
<CAPTION>
PRO FORMA
THREE MONTHS PRO FORMA THREE MONTHS
ENDED YEAR ENDED ENDED
YEAR ENDED DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31,
-------------------------------------------- --------------- ------------ ------------
1992 1993 1994 1995 1996 1996 1997 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income.......... $5,618 $3,731 $3,615 $11,785 $ 9,872 $3,591 $2,175 $ 3,172 $ 520
Extraordinary
gain.............. -- -- -- -- (932) (932) -- -- --
Interest expense.... 590 1,214 1,493 2,506 2,889 785 1,187 14,111 3,527
Income taxes........ -- -- -- -- -- -- (250) 2,204 509
Depreciation and
amortization...... 505 594 766 894 1,012 249 589 2,800 751
Miscellaneous
(income)
expense........... (109) 85 (166) 219 319 101 49 210 49
Management fee...... 1,565 1,747 1,736 2,102 3,187 849 776 -- --
Adjusted EBITDA..... $8,169 $7,371 $7,444 $17,506 $16,347 $4,643 $4,526 $ 22,497 $5,356
</TABLE>
33
<PAGE> 35
<TABLE>
<CAPTION>
BCE
-----------------------------------------------------
YEARS ENDED SIX MONTHS ENDED
JUNE 30, DECEMBER 31,
--------------------------- ---------------------
1994 1995 1996 1995 1996
(UNAUDITED)
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATING DATA:
Total revenue........................... $17,777 $38,096 $50,940 $28,269 $19,734
Operating and other costs............... 17,041 36,014 43,661 23,624 19,083
Depreciation............................ 461 615 897 387 486
Interest expense........................ 207 235 179 164 72
------- ------- ------- ------- -------
Operating profit before abnormal items
and income tax........................ 68 1,232 6,203 4,094 93
Abnormal items before income tax........ -- -- (1,105) -- 137
------- ------- ------- ------- -------
Operating profit before income tax...... 68 1,232 5,098 4,094 230
Income tax attributable to operating
profit................................ 114 26 1,840 1,474 91
------- ------- ------- ------- -------
Operating profit (loss) after income
tax................................... $ (46) $ 1,206 $ 3,258 $ 2,620 $ 139
======= ======= ======= ======= =======
Ratio of earnings to fixed charges
(1)................................... 1.3x 5.3x 23.6x 22.4x 1.9x
OTHER DATA:
Net cash provided by (used in) operating
activities (2)........................ $ (539) $ 2,349 $ 2,281 $ 609 $ 841
Net cash provided by (used in) investing
activities (2)........................ 82 (1,011) (1,267) (690) (316)
Net cash provided by (used in) financing
activities (2)........................ 312 (277) (2,016) (1,172) (496)
Adjusted EBITDA (3)..................... 736 2,082 7,279 4,645 651
Depreciation and amortization........... 461 615 897 387 486
Capital expenditures.................... -- 1,189 1,449 698 324
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
----------------------------- ---------------------
1994 1995 1996 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash.................................. $ 22 $ 776 $ 208 $ 616 $ 11
Total assets.......................... 11,973 17,320 19,585 20,656 18,561
Long-term debt, including current
portion............................. 2,527 2,541 603 629 557
Total stockholders' equity............ 2,636 3,808 6,319 6,429 2,706
</TABLE>
- -----------------------------
(1) Earnings consist of operating profit before income tax plus fixed charges.
Fixed charges consist of interest expense, amortization of deferred
financing costs and the portion of rental expense that is representative of
interest expense.
(2) These items are measures of the Company's operating performance and
liquidity, which have been calculated in accordance with accounting
principles generally accepted in Australia. They should be considered by the
holders tendering Series A Notes in the Exchange Offer and have been taken
from the audited and unaudited financial statements included elsewhere in
the Prospectus.
(3) Adjusted EBITDA, with respect to BCE only, is operating profit before
interest, taxes, depreciation, amortization and abnormal items. Adjusted
EBITDA amounts have been included because the Company uses them to analyze
its ability to service its debt, the Company's lenders use them for the
purpose of analyzing the Company's performance with respect to the credit
agreement and the Indenture and the Company understands that they are used
by certain investors as measures of a Company's historical ability to
service debt. However, holders tendering Series A Notes in the Exchange
Offer should consider the following factors: Adjusted EBITDA (i) should not
be considered in isolation, (ii) is not a measure
34
<PAGE> 36
of performance calculated in accordance with accounting principles generally
accepted in Australia, (iii) should not be construed as an alternative or
substitute for operating profit, operating profit after income tax, or net
cash provided by operating activities in analyzing the Company's operating
performance, financial position or cash flows and (iv) should not be used
solely as an indicator of the Company's operating performance, measures of
its liquidity or ability to meet all cash needs. Additionally, because all
companies do not calculate Adjusted EBITDA in a uniform fashion, the
calculations presented in this Prospectus may not be comparable to other
similarly titled measures of other companies.
Adjusted EBITDA is calculated as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
-------------------------- -----------------
1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C>
Operating profit (loss) after
income tax....................... $(46) $1,206 $3,258 $2,620 $ 139
Interest expense................... 207 235 179 164 72
Income taxes....................... 114 26 1,840 1,474 91
Depreciation and amortization...... 461 615 897 387 486
Abnormal items..................... -- -- 1,105 -- (137)
Adjusted EBITDA.................... $736 $2,082 $7,279 $4,645 $ 651
</TABLE>
35
<PAGE> 37
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Consolidated Financial Statements are
based upon the historical Financial Statements of the Company, the Consolidated
Financial Statements of BCE and the Financial Statements of Hewitt-Robins
included elsewhere in this Prospectus.
The Unaudited Pro Forma Consolidated Financial Statements are adjusted to
give effect to (i) the Series A Notes Offering on April 1, 1997, (ii) the
application of the net proceeds therefrom, (iii) the BCE Acquisition on January
7, 1997 and (iv) the Hewitt-Robins Acquisition on April 1, 1997, as if such
transactions had occurred as of January 1, 1996, with respect to the Unaudited
Pro Forma Consolidated Statement of Income for the year ended December 31, 1996;
as if the Series A Notes Offering and the application of the net proceeds
therefrom and the Hewitt-Robins Acquisition had occurred on January 1, 1997,
with respect to the Unaudited Pro Forma Statement of Income for the three months
ended March 31, 1997, and March 31, 1997, with respect to the Unaudited Pro
Forma Consolidated Balance Sheet.
The unaudited pro forma adjustments are based upon available information
and certain assumptions which management believes are factually supportable. The
Unaudited Pro Forma Consolidated Financial Statements do not purport to
represent what the Company's consolidated results of operations or consolidated
financial position would have been had the transactions described above actually
occurred at the beginning of the relevant period. In addition, the Unaudited Pro
Forma Consolidated Financial Statements do not purport to project the Company's
consolidated results of operations or consolidated financial position for the
current year or any future date or period. Historical data for BCE are presented
in U.S. dollars and were prepared in accordance with U.S. Generally Accepted
Accounting Principles.
The Unaudited Pro Forma Consolidated Financial Statements should be read in
conjunction with the Financial Statements of the Company, the Consolidated
Financial Statements of BCE and the Financial Statements of Hewitt-Robins and
the related notes thereto included elsewhere in this Prospectus.
36
<PAGE> 38
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
---------------------------------------------------------------------------------
CONTINENTAL PURCHASE
GLOBAL ACCOUNTING OFFERING
GROUP, INC. HEWITT-ROBINS ADJUSTMENTS(1) ADJUSTMENTS(2) AS ADJUSTED
------------ ------------- -------------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 1,208 $ 104 $ (104)(a) $ 26,572(a) $ 27,780
Accounts receivable..... 25,457 2,223 (2,223)(a) 25,457
Inventories............. 22,687 2,490 25,177
Other current assets.... 1,293 64 1,357
------- ------ ------- -------- --------
Total current
assets............. 50,645 4,881 (2,327) 26,572 79,771
Property, plant and
equipment, net.......... 10,765 1,601 (1,000)(a) 11,866
500 (b)
Goodwill.................. 10,295 11,429 (b) 21,724
Other assets.............. 427 4,800 (b) 4,889
(338)(c)
------- ------ ------- -------- --------
$ 72,132 $ 6,482 $ 8,602 $ 31,034 $ 118,250
======= ====== ======= ======== ========
LIABILITIES AND OWNER'S
EQUITY
Current liabilities:
Note payable............ $ 18,877 $ -- $ -- $(18,877)(d) $ --
Trade accounts
payable.............. 18,844 788 19,632
Accrued compensation and
employee benefits.... 2,630 343 (262)(c) 2,711
Other accrued
liabilities.......... 5,795 274 1,300 (d) 7,369
Current maturities of
long-term
obligations.......... 3,166 (2,332)(d) 834
------- ------ ------- -------- --------
Total current
liabilities........ 49,312 1,405 1,038 (21,209) 30,546
Long-term obligations,
less current maturities
Series A Notes.......... 12,641 (e) 107,359 (e) 120,000
Existing credit
facility............. 14,128 (14,128)(d)
Australian Seller
Notes................ 4,278 4,278
Subordinated notes...... 650 (650)(d)
Other................... 797 797
------- ------ ------- -------- --------
19,853 12,641 92,581 125,075
Owner's equity
(deficit)............... 2,967 5,077 (5,077)(f) (40,000)(f) (37,371)
(338)(c)
------- ------ ------- -------- --------
$ 72,132 $ 6,482 $ 8,602 $ 31,034 $ 118,250
======= ====== ======= ======== ========
</TABLE>
37
<PAGE> 39
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1997
(IN THOUSANDS)
(1) Purchase accounting adjustments to reflect the Hewitt-Robins Acquisition:
(a) Represents the elimination of assets which will not be acquired in the
Hewitt-Robins Acquisition.
(b) Represents the excess of purchase price over net assets acquired in
connection with the Hewitt-Robins Acquisition in the amount of $11,429.
The purchase price includes a net write up of $500 to property, plant
and equipment. The final purchase price is subject to a negotiated price
adjustment for working capital.
(c) Certain selected liabilities will be paid by W.S. Tyler, Incorporated in
connection with the acquisition of Hewitt-Robins.
(d) Represents accruals for costs to be incurred by the Company related to
the termination of certain employees in connection with the closure of
Hewitt-Robins' West Caldwell facility in the amount of $270 and the
assumption and cancellation of the computer lease and the West Caldwell
building lease in the amount of $1,030.
(e) Represents the issuance of the Series A Notes to the extent used in
connection with the financing of the Hewitt-Robins Acquisition.
(f) Represents the elimination of the owners' equity related to
Hewitt-Robins.
(2) Adjustments to reflect the issuance on April 1, 1997 of 11% Series A Notes
due 2007.
(a) Represents the excess of the cash proceeds received from the Series A
Notes Offering.
(b) Represents capitalized financing costs associated with the Series A
Notes Offering.
(c) Represents write-off of capitalized financing costs associated with the
repayment of certain existing indebtedness.
(d) Represents repayment of existing indebtedness with a portion of the
proceeds of the Series A Notes Offering.
(e) Represents the Series A Notes Offering as follows:
<TABLE>
<S> <C>
Gross Proceeds................................... $120,000
Portion of Series A Notes recognized in the
Hewitt-Robins Acquisition...................... (12,641)
--------
$107,359
========
</TABLE>
(f) Represents payment of a dividend to the sole stockholder of the Company.
38
<PAGE> 40
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------------------------------------------
CONTINENTAL PURCHASE
GLOBAL ACCOUNTING OFFERING
GROUP, INC. HEWITT-ROBINS ADJUSTMENTS(1) ADJUSTMENTS(2) PRO FORMA
----------- ------------- -------------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATING DATA:
Net sales..................... $47,076 $ 3,733 $ -- $ -- $50,809
Costs of products sold........ 37,697 2,628 14 (a) 40,256
(83)(b)
------- ------ ----- ------- -------
Gross profit........ 9,379 1,105 69 10,553
Operating expenses:
Selling and
engineering............ 2,509 245 (162)(b) 2,592
General and
administrative......... 2,933 258 2 (a) 3,074
(190)(b)
71 (c)
Management fee........... 776 (494)(a) 282
------- ------ ----- ------- -------
Total operating
expenses.......... 6,218 503 (279) (494) 5,948
------- ------ ----- ------- -------
Operating Income.... 3,161 602 348 494 4,605
Other expenses (income):
Interest expense......... 1,187 348 (d) 1,992 (b) 3,527
Miscellaneous, net....... 49 49
------- ------ ----- ------- -------
Total other
expenses.......... 1,236 348 1,992 3,576
------- ------ ----- ------- -------
Income before income taxes.... 1,925 602 0 (1,498) 1,029
Pro forma income taxes........ 936 247 (674)(c) 509
------- ------ ----- ------- -------
Net income.......... $ 989 $ 355 $ 0 $ (824) $ 520
======= ====== ===== ======= =======
OTHER DATA:
Adjusted EBITDA(3)....... $ 4,525 $ 678 $ 435 $ (282) $ 5,356
Depreciation and
amortization........... 588 76 87 751
Capital expenditure...... 2,639 15 2,654
Total interest expense... 3,527
Cash interest
expense(4)............. 3,407
Ratio of Adjusted EBITDA
to cash interest
expense(3)............. 1.6x
Ratio of net debt to
Adjusted EBITDA(3)..... 4.6
Ratio of earnings to
fixed charges(5)....... 1.3
</TABLE>
39
<PAGE> 41
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS)
(1) Adjustments to reflect the Hewitt-Robins Acquisition.
(a) Represents the increased depreciation expense related to the write-up in
property, plant and equipment acquired in the Hewitt-Robins Acquisition.
(b) Represents net cost savings resulting from the closure of the
Hewitt-Robins, West Caldwell facility. Includes field sales, accounting,
warehousing, order processing, production control and engineering costs
that are redundant and will be provided at other Company locations at an
incremental cost of $600 annually and $150 quarterly.
<TABLE>
<CAPTION>
WEST CALDWELL WEST CALDWELL
ANNUAL COST QUARTERLY
SAVINGS COST SAVINGS
------------- -------------
<S> <C> <C>
Warehouse costs............................ $ 333 $ 83
Selling costs.............................. 650 162
Administrative costs....................... 758 190
------ ----
Net costs savings related to closure of
West Caldwell............................ $ 1,741 $ 435
====== ====
</TABLE>
(c) Represents the amortization expense related to goodwill incurred
pursuant to the Hewitt-Robins Acquisition, amortized over a period of 40
years.
(d) Represents the change in interest expense related to the Hewitt-Robins
Acquisition calculated as follows:
<TABLE>
<CAPTION>
PRINCIPAL ANNUAL QUARTERLY
AMOUNT INTEREST INTEREST
OF DEBT EXPENSE EXPENSE
--------- ------- ---------
<S> <C> <C> <C>
Series A Notes issued April 1, 1997 due 2007..... $ 12,641 $1,391 $ 348
</TABLE>
(2) Adjustments to reflect the issuance on April 1, 1997 of 11% Series A Notes
due 2007.
(a) To reflect the reduction in the management fees owed to NESCO, Inc.
Management fees are limited to 5% of earnings before interest, taxes,
depreciation, amortization and miscellaneous expense (income) based upon
the terms of the Indenture governing the Series A Notes issued on April
1, 1997.
(b) To reflect the interest expense on a pro forma basis at the following
rates:
<TABLE>
<CAPTION>
PRINCIPAL ANNUAL QUARTERLY
AMOUNT INTEREST INTEREST
OF DEBT EXPENSE EXPENSE
--------- ------- ---------
<S> <C> <C> <C>
Series A Notes issued on April 1, 1997......... $ 120,000 $13,200 $ 3,300
Australian Seller Notes, at a rate of 7%....... 4,542 318 79
Other, at a blended rate of 8%................. 1,367 109 28
------
Cash interest expense.......................... $ 3,407
Amortization of financing fees................. 120
------
Total pro forma interest expense............... $ 3,527
------
Required pro forma interest adjustment......... $ 1,992
======
</TABLE>
(c) Represents the income tax effect related to the net Offering Adjustments
assuming an effective tax rate of 45%.
40
<PAGE> 42
(3) Adjusted EBITDA represents earnings before interest, taxes, depreciation,
amortization and miscellaneous expense (income) and gives effect on a pro
forma basis to $282 in management fees to be paid pursuant to the Management
Agreement (as defined). See "Related Transactions -- Management Agreement."
On a historical basis, Adjusted EBITDA for Continental and Goodman excludes
management fees of $776. Adjusted EBITDA and related ratios have been
included because the Company uses them as one means of analyzing its ability
to service its debt, the Company's lenders use them for the purpose of
analyzing the Company's performance with respect to the credit agreement and
the Indenture and the Company understands that they are used by certain
investors as measures of a company's historical ability to service debt.
However, holders tendering Series A Notes in the Exchange Offer should
consider the following factors in evaluating such measures: Adjusted EBITDA
and related measures (i) should not be considered in isolation, (ii) are not
measures of performance calculated in accordance with generally accepted
accounting principles ("GAAP"), (iii) should not be construed as
alternatives or substitutes for income from operations, net income or cash
flows from operating activities in analyzing the Company's operating
performance, financial position or cash flows (in each case, as determined
in accordance with GAAP) and (iv) should not be used solely as indicators of
the Company's operating performance, measures of its liquidity or ability to
meet all cash needs. Additionally, because all companies do not calculate
Adjusted EBITDA and related measures in a uniform fashion, the calculations
presented in this Prospectus may not be comparable to other similarly titled
measures of other companies.
Adjusted EBITDA is calculated as follows:
<TABLE>
<CAPTION>
CONTINENTAL PURCHASE
GLOBAL HEWITT- ACCOUNTING OFFERING
GROUP, INC. ROBINS ADJUSTMENTS ADJUSTMENTS PRO FORMA
----------- ------ ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net income.......... $ 989 $355 $ 0 $ (824) $ 520
Interest expense.... 1,187 348 1,992 3,527
Income taxes........ 936 247 -- (674) 509
Depreciation and
amortization...... 588 76 87 -- 751
Miscellaneous
expense........... 49 -- -- -- 49
Management fee...... 776 -- -- (776) --
Adjusted EBITDA..... $ 4,525 $678 $ 435 $ (282) $ 5,356
</TABLE>
(4) Cash interest expense excludes non-cash amortization of financing fees.
(5) Earnings consist of income before taxes plus fixed charges. Fixed charges
consist of interest expense, amortization of deferred financing costs and
the portion of rental expense that is representative of interest expense.
41
<PAGE> 43
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------------------------------------------------------
HISTORICAL PRO FORMA
CONTINENTAL AND HISTORICAL HISTORICAL ACQUISITION FOR OFFERING
GOODMAN BCE(1) HEWITT-ROBINS ADJUSTMENTS(2) ACQUISITIONS ADJUSTMENTS(3) PRO FORMA
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATING DATA:
Net sales.......... $ 143,524 $ 32,559 $15,060 $ -- $191,143 $ -- $ 191,143
Cost of products
sold............. 114,716 23,319 10,693 286 (a) 148,681 148,681
(333)(b)
-------- ------- ------- ------- -------- ------ --------
Gross profit..... 28,808 9,240 4,367 47 42,462 42,462
Operating expenses:
Selling and
engineering.... 9,666 505 940 (650)(b) 10,461 10,461
General and
administrative... 3,807 6,953 1,069 (758)(b) 11,120 11,120
495 (c)
39 (a)
(485)(d)
Management
fees........... 3,187 3,187 (2,003)(a) 1,184
-------- ------- ------- ------- -------- ------ --------
Total operating
expenses..... 16,660 7,458 2,009 (1,359) 24,768 (2,003) 22,765
-------- ------- ------- ------- -------- ------ --------
Operating
income....... 12,148 1,782 2,358 1,406 17,694 2,003 19,697
Other expenses:
Interest
expense........ 2,889 100 2,803 (e) 5,792 8,319 (b) 14,111
Miscellaneous,
net............ 319 (109) 210 210
Superannuation
payment........ 628 (628)(f)
Legal and
consulting
fees........... 127 (127)(g)
-------- ------- ------- ------- -------- ------ --------
Total other
expenses..... 3,208 746 2,048 6,002 8,319 14,321
-------- ------- ------- ------- -------- ------ --------
Income before
income taxes
and
extraordinary
item......... 8,940 1,036 2,358 (642) 11,692 (6,316) 5,376
Pro forma income
tax.............. 3,749 375 967 (297)(h) 4,794 (2,590)(c) 2,204
-------- ------- ------- ------- -------- ------ --------
Income before
extraordinary
item......... $ 5,191 $ 661 $ 1,391 $ (345) $ 6,898 $(3,726) $ 3,172
======== ======= ======= ======= ======== ====== ========
OTHER DATA:
Adjusted
EBITDA(4)...... $ 16,347 $ 2,505 $ 2,603 $ 2,226 $ 23,681 $(1,184) $ 22,497
Depreciation and
amortization... 1,012 723 245 820 2,800 2,800
Capital
expenditures... 618 850 81 1,549 1,549
Total interest
expense........ 14,111
Cash interest
expense(5)..... 13,631
Ratio of Adjusted
EBITDA to cash
interest
expense(4)..... 1.7x
Ratio of net debt
to Adjusted
EBITDA(4)...... 4.4
Ratio of earnings
to fixed
charges(6)..... 1.4
</TABLE>
42
<PAGE> 44
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
(1) Historical BCE amounts presented are for the twelve months ended December
31, 1996. Consolidated financial statements of BCE for this twelve-month period
are not included in this Prospectus as BCE's fiscal year end is June 30.
(2) Adjustments to reflect the BCE Acquisition and the Hewitt-Robins Acquisition
(the final purchase price allocation will be based upon a final determination of
the fair values of the net assets acquired):
(a) Represents increased depreciation expense related to the write-up of
$2,100 and $500 in property, plant and equipment acquired in the BCE
Acquisition and the Hewitt-Robins Acquisition, respectively.
(b) Represents net cost savings resulting from the closure of the
Hewitt-Robins, West Caldwell facility. Includes field sales, accounting,
warehousing, order processing, production control and engineering costs
that are redundant and will be provided at other Company locations at an
incremental cost of $600.
<TABLE>
<CAPTION>
WEST CALDWELL
COST SAVINGS
<S> <C>
Warehouse costs.................................. $ 333
Selling costs.................................... 650
Administrative costs............................. 758
------
Net cost savings related to closure of West
Caldwell....................................... $1,741
======
</TABLE>
(c) Represents the amortization expense related to goodwill incurred of
$9,635 and $11,429 pursuant to the BCE Acquisition and the Hewitt-Robins
Acquisition, respectively, amortized over a period of 40 years.
(d) Represents cost savings resulting from work force reductions and
realignments related to the closure of the CCE Pty. Ltd. operations. The
Company will close the CCE Pty. Ltd. facility during 1997 pursuant to
the BCE Acquisition. The following costs are duplicative and certain
sales force and technical personnel are redundant:
<TABLE>
<CAPTION>
CCE PTY. LTD.
OPERATING COST
<S> <C>
Workforce reductions............................. $ 68
Elimination of office and sales rental and other
office expenses................................ 172
Elimination of joint venture costs............... 110
Elimination of redundant consulting, legal,
technical and accounting fees.................. 135
----
Net cost savings related to closure of CCE Pty.
Ltd. operations................................ $485
====
</TABLE>
43
<PAGE> 45
(e) Represents the change in interest expense related to the BCE Acquisition
and the Hewitt-Robins Acquisition calculated as follows:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT INTEREST
OF DEBT EXPENSE
<S> <C> <C>
The BCE Acquisition:
Note payable, interest rate of 9.25%.................... $ 6,800 $ 629
Existing credit facility, interest rate of 10%.......... 4,500 450
Australian Seller Notes, interest rate of 7%............ 4,757 333
-------- ------
$1,412
The Hewitt-Robins Acquisition:
Series A Notes offered at a rate of 11%................. $ 12,641 $1,391
------
$2,803
======
</TABLE>
(f) Represents the elimination, pursuant to the terms of the BCE Acquisition
and subsequent employment agreements, of a one time superannuation
benefit payment made to the former stockholders of BCE in the amount of
$628.
(g) Represents the related legal and consulting fees in connection with the
BCE Acquisition in the amount of $127.
(h) Represents adjustment to reconcile income taxes to an effective income
tax rate of 41%.
(3) Adjustments to reflect the Series A Notes Offering:
(a) To reflect the reduction in the management fees owed to NESCO, Inc.
Management fees are limited to 5% of earnings before interest, taxes,
depreciation, amortization and miscellaneous expense (income) based upon
the terms of the Indenture governing the Series A Notes.
(b) To reflect the interest expense on a pro forma basis at the following
rates:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT INTEREST
OF DEBT EXPENSE
<S> <C> <C>
Historical interest expense............................. $ 27,232 $ 2,989
Acquisitions interest expense at a weighted average rate
of approximately 9.8%................................. 28,698 2,803
-------
Pro forma interest expense for Acquisitions............. $ 5,792
=======
Series A Notes offered at a rate of 11%................. $ 120,000 $13,200
Australian Seller Notes, at a rate of 7%................ 4,757 333
Other, at a blended rate of 8%.......................... 1,226 98
-------
Cash interest expense................................... 13,631
Amortization of financing fees.......................... 480
-------
Total pro forma interest expense........................ $14,111
=======
Pro forma interest adjustment........................... $ 8,319
=======
</TABLE>
(c) Represents adjustment to reconcile income taxes to an effective income
tax rate of 41%.
(4) Adjusted EBITDA represents earnings before interest, taxes, depreciation,
amortization and miscellaneous expense (income) and gives effect on a pro
forma basis to $1,184 in management fees to be paid pursuant to the
Management Agreement (as defined). See "Related Transactions--Management
Agreement." On a historical basis, Adjusted EBITDA for Continental and
Goodman excludes management fees of $3,187. Adjusted EBITDA and related
ratios have been included because the Company uses them as one means of
analyzing its ability to service its debt, the Company's lenders use them
for the purpose of analyzing the Company's performance with respect to the
credit agreement and the Indenture
44
<PAGE> 46
and the Company understands that they are used by certain investors as
measures of a company's historical ability to service debt. However, holders
tendering Series A Notes in the Exchange Offer should consider the following
factors in evaluating such measures: Adjusted EBITDA and related measures
(i) should not be considered in isolation, (ii) are not measures of
performance calculated in accordance with generally accepted accounting
principles ("GAAP"), (iii) should not be construed as alternatives or
substitutes for income from operations, net income or cash flows from
operating activities in analyzing the Company's operating performance,
financial position or cash flows (in each case, as determined in accordance
with GAAP) and (iv) should not be used solely as indicators of the Company's
operating performance, measures of its liquidity or ability to meet all cash
needs. Additionally, because all companies do not calculate Adjusted EBITDA
and related measures in a uniform fashion, the calculations presented in
this Prospectus may not be comparable to other similarly titled measures of
other companies.
Adjusted EBITDA is calculated as follows:
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA
CONTINENTAL HISTORICAL HEWITT- ACQUISITION FOR OFFERING
AND GOODMAN BCE ROBINS ADJUSTMENTS ACQUISITIONS ADJUSTMENTS PRO FORMA
----------- ---------- ---------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Income
before
extraordinary
item...... $ 5,191 $ 661 $1,391 $ (345) $ 6,898 $ (3,726) $ 3,172
Interest
expense... 2,889 100 -- 2,803 5,792 8,319 14,111
Income
taxes..... 3,749 375 967 (297) 4,794 (2,590) 2,204
Depreciation
and
amortization.. 1,012 723 245 820 2,800 -- 2,800
Miscellaneous
expense... 319 646 -- (755) 210 -- 210
Management
fee....... 3,187 -- -- -- 3,187 (3,187) --
Adjusted
EBITDA.... $16,347 $2,505 $2,603 $ 2,226 $ 23,681 $ (1,184) $22,497
</TABLE>
(5) Cash interest expense excludes non-cash amortization of financing fees.
(6) Earnings consist of income before taxes plus fixed charges. Fixed charges
consist of interest expense, amortization of deferred financing costs and
the portion of rental expense that is representative of interest expense.
45
<PAGE> 47
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company believes it is a leading international manufacturer and
supplier of Conveyor Equipment for use in the coal mining industry. Based on
1996 pro forma net sales, the Company estimates it has approximately a 40% share
of the United States market for idlers used in aboveground Conveyor Equipment
and a significantly higher share of the United States underground coal mining
Conveyor Equipment market. In addition, the Company believes it has a
significant share of the Australian underground coal Conveyor Equipment market.
The Company supplies 18 of the top 25 coal producers in the United States
with its products, which include substantially all of the components required to
transport coal by conveyor from the coalface to the surface. The Company also
provides design and engineering assistance and upgrade and maintenance services.
The Company has developed preferred supplier arrangements with several of the
world's largest coal mining companies. Under these arrangements, the Company
supplies substantially all of such customers' Conveyor Equipment needs and
customers are assured of enhanced equipment availability. Sales from such
arrangements accounted for approximately $45 million, or 24%, of the Company's
1996 pro forma net sales.
The Company's Conveyor Equipment business is divided into four main
business areas. The Mining Equipment business area is principally engaged in the
design, manufacture and testing (and, outside the United States, installation,
monitoring and maintenance) of complete belt conveyor systems and components for
mining applications in the coal industry. The Conveyor Components business area
manufactures and sells components for Conveyor Equipment systems. The Engineered
Systems business area uses specialized project management and engineering skills
to combine mining equipment products, purchased equipment, steel fabrication and
other outside services into complete Conveyor Equipment systems that meet
specific customer requirements. The Bulk Conveyor Equipment business area
designs and manufactures a complete range of Conveyor Equipment used to
transport bulk materials, such as cement, lime, food products and industrial
waste.
Approximately 60% of the Company's sales are derived from the coal mining,
minerals and aggregates industries. The complexity of these projects render them
subject to delays due to operational or logistical reasons, which impact the
timing of orders for the Company's products. Because the Company generally
recognizes revenue from sales at the time of shipment rather than at the time a
contract is awarded, these delays have caused, and are expected to continue to
cause, material fluctuations in the Company's operating results on a quarterly
and annual basis. The Company's net sales historically have fluctuated by as
much as $15 million from year to year, after adjusting for acquisitions.
In addition to its core business, the Company engages in two noncore
businesses, the manufacturing of (i) axle components for mobile homes and (ii)
air filtration equipment for use in enclosed environments, principally in the
textile industry. The manufacturing requirements for these products are
generally compatible with conveyor component production and thus maximize
utilization of the Company's manufacturing facilities for its primary products.
The terms of the Indenture restrict, on a going forward basis, the
Company's ability to pay management fees pursuant to the Management Agreement
(as defined). See "Related Transactions" and "Description of Senior
Notes--Certain Covenants--Restricted Payments."
ACQUISITIONS
Pursuant to its business strategy, in January 1997, the Company consummated
the acquisition of BCE, a group of Conveyor Equipment companies in Australia,
and on April 1, 1997, the Company consummated the acquisition of Hewitt-Robins,
a United States manufacturer of idlers. See "Business -- Acquisitions."
The Company will continue to search for strategic acquisitions that add
complementary product lines, expand its technological capabilities, broaden its
geographic reach or otherwise support its business strategy
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<PAGE> 48
and presently is in discussions with other potential acquisition candidates.
There can be no assurance that the Company will be able to identify other
desirable acquisition candidates or that the Company will be successful in
consummating any acquisition on terms favorable to the Company, if at all. See
"Risk Factors--Risks Attendant to Acquisition Strategy."
THE FOLLOWING DISCUSSION OF RESULTS OF OPERATIONS AND BACKLOG REFLECTS THE
RESULTS OF CONTINENTAL (INCLUDING BCE) AND GOODMAN ON A COMBINED BASIS,
EXCLUDING THE HEWITT-ROBINS ACQUISITION. PRIOR TO THE FORMATION OF THE COMPANY,
CONTINENTAL AND GOODMAN WERE OPERATED SEPARATELY BUT WERE UNDER THE COMMON
CONTROL OF NES GROUP, INC. SEE "THE COMPANY." A DISCUSSION OF THE RESULTS OF
OPERATIONS AND BACKLOG OF BCE FOLLOWS THE DISCUSSION OF CONTINENTAL AND GOODMAN
COMBINED.
THE COMPANY AND ITS PREDECESSOR COMPANIES,
CONTINENTAL AND GOODMAN COMBINED
RESULTS OF OPERATIONS
The following table sets forth, on a comparative basis, certain income
statement data as a percentage of net sales for the last three fiscal years
ended December 31 and the three-month periods ended March 31, 1996 and March 31,
1997.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
------------------------ ---------------
1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C>
Net sales......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products sold............................. 82.7 81.5 79.9 80.7 80.1
Gross profit...................................... 17.3 18.5 20.1 19.3 19.9
SG&A expenses..................................... 11.5 7.6 9.4 8.4 11.6
Management fee.................................... 1.5 1.4 2.2 2.1 1.6
Operating income.................................. 4.3 9.5 8.5 8.9 6.7
Adjusted EBITDA(1)................................ 6.5 11.4 11.4 11.6 9.6
</TABLE>
- ---------------
(1) Adjusted EBITDA represents earnings before interest, taxes, depreciation,
amortization and miscellaneous expense (income). On a historical basis,
Adjusted EBITDA excludes management fees. Adjusted EBITDA (i) should not be
considered in isolation, (ii) is not a measure of performance calculated in
accordance with generally accepted accounting principles ("GAAP"), (iii)
should not be construed as an alternative or substitute for income from
operations, net income or cash flows from operating activities in analyzing
the Company's operating performance and (iv) should not be used solely as an
indicator of the Company's operating performance or ability to meet all cash
needs.
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Net Sales. Net sales increased $7.1 million, or 17.8%, from $40.0 million
in 1996 to $47.1 million in 1997. Of the increase, $6.5 million was due to the
acquisition of BCE and the balance of the increase of $0.6 million was due to
increases of $2.6 million in the Company's Mining Equipment business due to a
major mining project and $1.4 million in Conveyor Components, partially offset
by decreases of $2.1 million in the Engineered Systems relating to completion of
two international projects and a decrease of $1.3 million in Other Products,
primarily Mobile Home axles.
Gross Profit. Gross profit increased $1.7 million, or 22.1%, from $7.7
million in 1996 to $9.4 million in 1997 due to the BCE acquisition for $1.6
million and $0.1 million of the net sales increase from Mining Equipment,
Conveyor Components, Engineered Systems and Other Products.
SG&A Expenses. Selling, General and Administrative expenses, not including
management fees ("SG&A Expenses"), increased $2.1 million, or 63.6%, from $3.3
million in 1996 to $5.4 million in 1997. This increase results from $2.0 million
of expenses for BCE which includes redundancies of $0.2 million for staffing
47
<PAGE> 49
and office expenses which are in the process of being eliminated and will be
reflected in future periods and $0.1 million of increased expenses for customer
sales support and marketing for the domestic subsidiaries of the Company.
Operating Income. Operating income decreased $0.3 million, or 8.6%, from
$3.5 million in 1996 to $3.2 million in 1997 due to the increase in SG&A
Expenses of $2.1 million which was partially offset by the increase in gross
profit of $1.7 million and a decrease in management fee of $0.1 million. As a
result of these factors, operating income from the Company's U.S. operations
increased $0.1 million from 1996 to 1997. This increase was offset by a $0.5
million operating loss from BCE in the first quarter of 1997 due to delays in
receipt of major contracts anticipated early in the quarter, which were recently
awarded to BCE.
Extraordinary Item. The extraordinary gain of $0.9 million in 1996
resulted from the early extinguishment of a subordinated promissory note with a
carrying value of $1.4 million. The extraordinary gain has been excluded from
Adjusted EBITDA.
Adjusted EBITDA. Adjusted EBITDA decreased $0.1 million, or 2.2%, from $4.6
million in 1996 to $4.5 million in 1997 due to the decrease in operating income
partially offset by an increase in depreciation and amortization expenses from
BCE.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net Sales. Net sales decreased $9.7 million, or 6.3%, from $153.2 million
in 1995 to $143.5 million in 1996. This decrease was primarily due to a
reduction of $13.4 million attributable to lower sales in the Engineered Systems
and Mining Equipment business areas. Engineered Systems sales in 1995 included
sales related to a major dam project which were not repeated in 1996. The
balance of the decrease primarily occurred in the Conveyor Components business
area. The aggregate decrease was partially offset by a $0.6 million increase in
Bulk Conveyor Equipment sales and a $4.0 million increase attributable to sales
from the Company's Australian subsidiary, which in 1995 was part of a joint
venture which was terminated in 1996. Net sales pursuant to preferred supplier
arrangements were $45.0 million, or approximately 31.4% of 1996 net sales
compared to $45.0 million, or 29.4% of net sales, in 1995.
Gross Profit. Gross profit increased $0.5 million, or 1.9%, from $28.3
million in 1995 to $28.8 million in 1996 due to an increase in the Company's
gross profit margin (expressed as a percentage of net sales) from 18.5% in 1995
to 20.1% in 1996. The increase in gross profit margin resulted from reduced
warranty expenses and margin improvements in the Mining Equipment, Bulk Conveyor
Equipment, Engineered Systems and Other Products business areas.
SG&A Expenses. SG&A expenses, which do not include management fees ("SG&A
Expenses"), increased $1.8 million, or 15.4%, from $11.7 million in 1995 to
$13.5 million in 1996. This increase consisted primarily of $0.8 million of
expenses related to the Company's Australian Subsidiary, and expenses related to
the BCE Acquisition and the Company's Australian subsidiary, increased travel
expenses for United States-based salespeople, and increased research and
development and sales support services.
Operating Income. Operating income decreased $2.4 million, or 16.3%, from
$14.5 million in 1995 to $12.1 million in 1996 due to the increase in SG&A
Expenses of $1.8 million and an increase in management fees of $1.1 million,
which was partially offset by the increase in gross profit of $0.5 million.
Extraordinary Item. The extraordinary gain of $0.9 million in 1996
resulted from the early extinguishment of a subordinated promissory note with a
carrying value of $1.4 million. The extraordinary gain has been excluded from
Adjusted EBITDA.
Adjusted EBITDA. Adjusted EBITDA decreased $1.2 million, or 6.6%, from
$17.5 million in 1995 to $16.3 million in 1996, primarily due to the factors
discussed above.
48
<PAGE> 50
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net Sales. Net sales increased $39.2 million, or 34.4%, from $114.0 million
in 1994 to $153.2 million in 1995. The Company's underground Mining Equipment
and Engineered Systems business areas accounted for $31.9 million, or 81.4%, of
this increase due to increases in orders primarily from the Company's major coal
customers pursuant to preferred supplier arrangements and due to new orders
received in connection with a major civil engineering project. The balance of
$7.3 million is comprised of $4.9 million from the Other Products area and $2.4
million from Bulk Conveyor Equipment net sales due to increased emphasis by the
Company on the Bulk Conveyor Equipment market. Sales pursuant to preferred
supplier arrangements in 1995 were $45.0 million, or approximately 29.4% of 1995
net sales, as compared to $11.5 million, or 10.1% of 1994 net sales.
Gross Profit. Gross profit increased $8.5 million, or 43.3%, from $19.7
million in 1994 to $28.3 million in 1995. Of the increase, $5.9 million, or
68.8%, resulted from the increase in net sales discussed above. The balance of
$2.7 million, or 31.2%, of the increase was a result of improved manufacturing
utilization in Conveyor Components due to an increase in manufacturing volume
from year to year. As a result, the gross profit margin increased from 17.3% in
1994 to 18.5% in 1995.
SG&A Expenses. SG&A Expenses decreased $1.4 million, or 10.7%, from $13.1
million in 1994 to $11.7 million in 1995. The decrease was attributable to $2.3
million in net contract settlement costs in 1994. This decrease was partially
offset by an increase of $0.9 million of costs in support of the increased 1995
net sales. As a percentage of net sales, excluding net contract settlement costs
in 1994, SG&A Expenses as a percentage of net sales decreased from 11.5% in 1994
to 7.6% in 1995, primarily attributable to an increase in net sales and the
fixed nature of a portion of costs.
Operating Income. Operating income increased $9.6 million, or 193.6%, from
$4.9 million in 1994 to $14.5 million in 1995. Of this increase, $8.6 million,
or 88.5%, was attributable to the increased net sales and improved manufacturing
utilization discussed above and $1.4 million was attributable to the reduction
in SG&A Expenses partially offset by a $0.4 million increase in the management
fee.
Adjusted EBITDA. Adjusted EBITDA increased $10.1 million, or 135.2%, from
$7.4 million in 1994 to $17.5 million in 1995 due primarily to the factors
discussed above.
BACKLOG
Backlog at March 31, 1997 increased $15.4 million, or 59.2%, from $26.0
million at March 31, 1996 to $41.4 million at March 31, 1997 primarily due to
the BCE acquisition. During April 1997, the Company's backlog increased to $56.0
million, primarily due to additional customer orders received by BCE.
Approximately 85% of the backlog is expected to be shipped in 1997. Through
April 1997, BCE received approximately $20.0 million in customer orders which
require the expenditure of sales, marketing and other costs during this period
for realization of sales in future periods.
49
<PAGE> 51
BCE
(The discussion below reflects Australian Dollars and Australian GAAP)
The following table sets forth, on a comparative basis, certain income
statement data as a percentage of revenues for the two six-month periods ended
December 31, 1996 and 1995, respectively, and for the fiscal years ended June
30, 1996 and 1995.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED ENDED
JUNE 30, DECEMBER 31,
------------------------ ---------------
1994 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C>
Total revenue................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating profit before abnormal items and
income tax.................................... 0.4 3.2 12.2 14.5 0.5
Abnormal items before income tax................ -- -- (2.2) -- 0.7
Adjusted EBITDA(1).............................. 4.1 5.5 14.3 16.4 3.3
Net cash provided by (used in) operating
activities.................................... (3.0) 6.2 4.5 2.2 4.3
</TABLE>
- ---------------
(1) Adjusted EBITDA, with respect to BCE only, is operating profit before
interest, taxes, depreciation, amortization and abnormal items. Adjusted
EBITDA and net cash provided by (used in) operating activities have been
included because the Company uses them to analyze its ability to service its
debt, the Company's lenders use them for the purpose of analyzing the
Company's performance with respect to the credit agreement and the Indenture
and the Company understands that they are used by certain investors as
measures of a Company's historical ability to service debt. Adjusted EBITDA
(i) should not be considered in isolation, (ii) is not a measure of
performance calculated in accordance with accounting principles generally
accepted in Australia, (iii) should not be construed as an alternative or
substitute for operating profit, operating profit after income tax, or net
cash provided by operating activities in analyzing the Company's operating
performance and (iv) should not be used solely as an indicator of the
Company's operating performance or ability to meet all cash needs.
SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1995
Total Revenue. Total revenue decreased $8.5 million, or 30.2%, from $28.3
million in the 1995 period to $19.7 million in the 1996 period. This decrease
was attributable to a lower level of projects in the 1996 period compared to the
1995 period. Four major projects which were originally scheduled to be
undertaken in the second half of 1996 were awarded to the Company in January
1997. Revenues from such projects, including $2.4 million from additions to a
1996 coal mining project in Australia and $6.1 million from three mining
projects in various other Pacific Rim countries, are expected to be recognized
in 1997.
Operating Profit Before Abnormal Items and Income Tax. Operating profit
before abnormal items and income tax decreased $4.0 million, or 97.7%, from $4.1
million in the 1995 period to $0.1 million in the 1996 period. The operating
profit before abnormal items and income tax margin declined from 14.5% in the
1995 period to 0.5% in the 1996 period. The decrease was due to (i) the lower
sales volume discussed above and (ii) an increase in lower-margin, competitively
bid projects in the 1996 period compared to the 1995 period, which was
characterized by a greater percentage of higher-margin, privately negotiated
projects.
Abnormal Items Before Income Tax. Abnormal items before income tax in the
1996 period reflect a net refund of $0.1 million in consulting fees.
Adjusted EBITDA. Adjusted EBITDA decreased $4.0 million, or 86.0%, from
$4.6 million in the 1995 period to $0.7 million in the 1996 period. This
decrease was attributable to the factors discussed above.
FISCAL YEAR ENDED JUNE 30, 1996 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1995
Total Revenue. Total revenue increased $12.8 million, or 33.7%, from $38.1
million in the 1995 period to $50.9 million in the 1996 period. Approximately
$8.0 million of this increase was attributable to higher levels of installation,
maintenance and repair of conveyor equipment in Australia. The balance of the
revenue
50
<PAGE> 52
increase, or $4.8 million, was principally due to a $1.3 million increase in
sales of conveyor control equipment and a $3.0 million increase in conveyor
products revenue.
Operating Profit Before Abnormal Items and Income Tax. Operating profit
before abnormal items and income tax increased $5.0 million from $1.2 million in
the 1995 period to $6.2 million in the 1996 period. This increase was due to the
$4.7 million increase in gross profit reflecting (i) the higher revenue
discussed above, and (ii) an increase in margin attributable to a more favorable
product mix between privately negotiated and competitively bid projects
partially offset by a $2.3 million increase in expenses related to the increase
in Total Revenue. Depreciation expenses increased by $0.3 million, or 46%, due
principally to higher depreciation expense associated with purchases of new
plant and equipment.
Abnormal Items Before Income Tax. Abnormal items before income tax in the
1996 period reflect one-time superannuation benefit of $0.8 million pursuant to
the terms of the BCE Acquisition and $0.3 million of related legal and
consulting fees.
Adjusted EBITDA. Adjusted EBITDA increased $5.2 million to $7.3 million in
the 1996 period from $2.1 million in the 1995 period. This increase was
attributable to the growth in revenue and operating profit discussed above.
FISCAL YEAR ENDED JUNE 30, 1995 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1994
Total Revenue. Total revenue increased $20.3 million from $17.8 million in
the 1994 period to $38.1 million in the 1995 period. This increase was due to
(i) new mining projects of $15.6 million, (ii) an increase of $3.4 million in
engineered services contracts and (iii) the inclusion of a full year of the
sales of the conveyor controls business acquired in May 1994, which contributed
$1.3 million to the increase in revenues.
Operating Profit Before Abnormal Items and Income Tax. Operating profit
before abnormal items and income tax increased $1.2 million from $0.1 million in
the 1994 period to $1.2 million in the 1995 period. This increase was due to an
increase in operating profitability, partially offset by an increase in selling
expenses associated with the higher level of Total Revenue.
Adjusted EBITDA. Adjusted EBITDA increased $1.4 million from $0.7 million
in the 1994 period to $2.1 million in the 1995 period. This increase was due to
the factors discussed above.
BACKLOG
Backlog at December 31, 1996 was $29.9 million as compared to $16.1 million
and $14.7 million at December 31, 1995 and 1994, respectively.
THE COMPANY
(The discussion below reflects U.S. Dollars and U.S. GAAP)
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by (used in) operating activities for the three months
ending March 31, 1997 and 1996 was $(0.9) million and $3.8 million,
respectively. Net cash used in operating activities in 1997 primarily was due to
an increase in working capital employed to support a higher level of sales. Net
cash provided in 1996 was primarily due to higher operating profits partially
offset by changes in working capital.
Net cash used in investing activities for the three months ending March 31,
1997 and 1996 was $7.7 million and $0.2 million, respectively. The expenditures
in 1997 represented primarily the acquisition of BCE for $7.2 million. The
balance of expenditures in 1997 and for 1996 represented the purchase of
property, plant and equipment.
Net cash provided by (used in) financing activities for the three months
ending March 31, 1997 and 1996 was $8.8 million and $(2.9) million,
respectively. Cash provided by financing activities in 1997 was due to an
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<PAGE> 53
increase in borrowing obligations for the BCE Acquisition, offset by principal
payments on long term obligations. Net cash used for financing in 1996 consisted
principally of the repayment of notes payable and retirement of long term
obligations. Distributions for income taxes of $1.5 million in 1997 and $1.1
million in 1996 were made pursuant to the Tax Sharing Agreement.
Net cash provided by (used in) operating activities for the years ended
December 31, 1996, 1995, and 1994 was $9.9 million, $10.6 million and ($1.8)
million, respectively. Net cash provided in 1996 was primarily due to operating
profit offset by minor changes in working capital. Net cash provided in 1995 was
primarily due to higher operating profits due to increased net sales, partially
offset by an increase in working capital employed to support the higher sales
level.
Net cash used in investing activities for the years ended December 31,
1996, 1995 and 1994 was $0.6 million, $0.8 million and $1.2 million,
respectively. These expenditures represented the acquisition of property, plant
and equipment in each period.
Net cash used in financing activities for the years ended December 31,
1996, 1995 and 1994 was $8.6 million, $11.3 million and $2.6 million,
respectively. The net cash used in financing activities during 1996 consisted
principally of the repayment of notes payable and retirement of long-term
obligations. The net cash used in financing activities during 1995 consisted of
the funding of a $20 million partnership distribution net of a $9.9 million
increase in notes payable and long-term obligations. Partnership distributions
of $4.1 million in 1996, $4.7 million in 1995 and $1.4 million in 1994 were made
to provide funds to the partners for payment of income taxes.
The net proceeds of the Series A Notes Offering were approximately $115.2
million. The Company utilized a portion of the net proceeds of the Series A
Notes Offering (i) to refinance certain indebtedness in the aggregate principal
amount of approximately $36.0 million, including indebtedness in the amount of
$35.3 million under the Existing Credit Facility (which included $11.3 million
incurred for the BCE Acquisition) and certain other indebtedness; (ii) to fund
the Hewitt-Robins Acquisition in the amount of $13.1 million; (which amount was
subsequently reduced to approximately $12.6 million, subject to a negotiated
price adjustment for working capital); (iii) to pay fees and expenses incurred
in connection with the Series A Notes Offering of approximately $4.8 million;
and (iv) to fund a dividend to the sole stockholder of the Company of $40.0
million. The Company expects the remaining net proceeds of the Series A Notes
Offering, in the amount of approximately $26.6 million, to be used for general
corporate purposes, including future acquisitions to the extent permitted by the
Indenture. Concurrently with the closing of the Series A Notes Offering, the
Company retired its existing credit facility, which at the time had $5 million
of availability, and entered into the Revolving Credit Facility. No funds have
been withdrawn from, and $30 million is currently available under, the Revolving
Credit Facility. Net cash provided by the Series A Notes Offering, along with
the availability under the Revolving Credit Facility and the Australian
Revolving Credit Facility, to the extent permitted by the Indenture, is expected
to provide sufficient funds to finance the Company's operational needs and
acquisition strategy. See "Description of Certain Indebtedness" and
"Business -- Acquisitions."
The Company has substantial indebtedness and significant debt service
obligations. As of March 31, 1997, on a pro forma basis after giving effect to
the Series A Notes Offering, the application of the net proceeds therefrom, the
BCE Acquisition and the Hewitt-Robins Acquisition, the Company would have had
total long-term indebtedness, including current maturities, of $125.9 million
and a stockholder's deficit of $37.4 million. Subject to restrictions under the
Revolving Credit Facility, the Australian Revolving Credit Facility and the
Indenture, the Company and its Subsidiaries may incur additional indebtedness
from time to time. See "Capitalization," "Description of Senior Notes--Certain
Covenants" and "Description of Certain Indebtedness." On a pro forma basis,
after giving effect to the Series A Notes Offering, the application of the net
proceeds therefrom, the BCE Acquisition and the Hewitt-Robins Acquisition, the
Company would have had a ratio of earnings to fixed charges of 1.4. The
Company's high degree of leverage could have important consequences to the
holders of the Series B Notes including, without limitation, the following: (i)
a substantial portion of the Company's cash provided from operations will be
committed to the payment of debt service and will not be available to the
Company for other purposes; (ii) the Company's ability to obtain
52
<PAGE> 54
additional financing in the future for working capital, capital expenditures or
acquisitions may be limited; and (iii) the Company's levels of indebtedness may
limit the Company's flexibility in reacting to changes in its business
environment. See "Risk Factors," "Description of Certain Indebtedness" and
"Description of Senior Notes."
In January 1997, the Company acquired BCE for $7.1 million in cash and
notes to sellers in the amount of $4.8 million. The cash portion of the purchase
price was funded under an expansion of the Company's then-existing lines of
credit.
The Company's primary capital requirements (excluding acquisitions) consist
of capital expenditures and debt service. The Company estimates that
approximately $2.0 million is required in each of 1997 and 1998 for the
maintenance and improvement of its facilities. On a pro forma basis, after
giving effect to the Series A Notes Offering, the application of the net
proceeds therefrom, the BCE Acquisition and the Hewitt-Robins Acquisition, the
Company would have had total interest expense in 1996 of approximately $14.1
million.
The Company's principal source of cash to fund debt service and capital
requirements is cash generated from operating activities. Upon consummation of
the Exchange Offer, the Company expects to have approximately $30.0 million of
availability under the Revolving Credit Facility and approximately $27.8 million
in cash balances.
BUSINESS
The Company believes it is a leading international manufacturer and
supplier of Conveyor Equipment for use in the coal mining industry. Based on
1996 pro forma net sales, the Company estimates it has approximately a 40% share
of the United States market for idlers used in aboveground Conveyor Equipment
applications and a significantly higher share of the United States underground
coal mining Conveyor Equipment market. In addition, the Company believes it has
a significant share of the Australian underground coal mining Conveyor Equipment
market. The Company supplies 18 of the top 25 coal producers in the United
States with its products, which include substantially all of the components
required to transport coal by conveyor from the coalface to the surface. The
Company also provides design and engineering assistance and upgrade and
maintenance services with respect to Conveyor Equipment. Approximately 25% of
the Company's pro forma net sales in 1996 were derived from the sale of
replacement components. The Company has also utilized its technical knowledge
and engineering capabilities to expand its customer base to include producers of
rock and aggregate products, metals and minerals mining companies, tunneling
firms and other industrial concerns. Sales to such customers comprised
approximately 22% of the Company's Conveyor Equipment net sales in 1996. In
1996, the Company had pro forma net sales and Adjusted EBITDA of $191.1 million
and $22.5 million, respectively.
The Company benefits from a reputation among its customers for high-quality
and reliable Conveyor Equipment products. The Company believes the quality and
consistent performance of its products is an important determinant of its
customers' selection of Conveyor Equipment because, although conveyors are a
relatively small part of the total cost of a mining project, a conveyor system
failure can have a disproportionately high impact on customer profitability. As
a result of its reputation for quality, among other things, the Company has
developed preferred supplier arrangements with several of the world's largest
coal and mineral mining companies. Under these arrangements, the Company
supplies substantially all of such customers' Conveyor Equipment needs and
customers are assured of enhanced equipment availability. Sales from such
arrangements accounted for approximately $45.0 million, or 24%, of the Company's
1996 pro forma net sales.
The Company believes it is well positioned to continue to benefit from
favorable trends in the coal industry worldwide. During the last ten years, coal
consumption in the United States has generally experienced steady annual growth,
reaching a record level of 941 million tons in 1995, the most recent year for
which data are available. This steady growth in coal consumption is attributable
to similar growth in the demand for electricity over such period and to the fact
that in excess of 85% of domestic coal consumption is by the electric utility
industry. Given coal's status as a relatively inexpensive and abundant resource
for the production of electricity, domestically produced coal is expected to
continue to play a significant role in production of electricity in the future.
Historically, the volume of coal imported into the United States has not
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<PAGE> 55
represented more than approximately 1% of domestic coal production. The Company
believes the costs of transporting coal and the abundance of domestic coal
reserves will continue to limit the level of coal imports in the future. In
addition, the Company believes it will benefit from the increasing use of
longwall mining in the coal mining industry, which accounted for 45% of domestic
underground coal production in 1995 as compared to 27% in 1983. Longwall mining
yields higher production of coal than conventional mining techniques, but also
requires the use of more efficient and reliable high-load Conveyor Equipment of
the type manufactured by the Company. The Company believes it has a significant
share of the United States Conveyor Equipment market for longwall mining due to,
among other things, its technological innovation and the reliability of its
products. See "--Coal Industry."
Industry sources predict that, through 2015, worldwide coal consumption
will grow at a faster rate than coal consumption in the United States. By 2015,
industry sources project worldwide coal consumption will reach 7.5 billion tons,
an increase of approximately 50% from 1993 worldwide consumption levels. This
forecasted increase is due principally to projected increases in demand for
electricity in the newly industrialized countries of the Pacific Rim as a result
of anticipated rapid economic growth in that region. Such sources forecast that
much of the increase in demand for coal will be satisfied by increased
production in Australia. Coal production in Australia is projected to grow at a
compound annual growth rate of 2.8% through 2015, due primarily to its large
coal reserves and its position as the world's largest coal exporter, with
exports principally to Japan. Australia accounted for approximately 33% of world
coal exports in 1993 and its coal exports are projected to grow from 142 million
tons in 1993 to 260 million tons in 2015. The Company's recent acquisition of
BCE significantly expands its presence in Australia and improves its ability to
serve this high-growth region.
COMPETITIVE STRENGTHS
The Company believes its strong competitive position in Conveyor Equipment
is attributable to a number of factors, including:
- - Broad Product Line Permits One-Stop Shopping. The Company's broad array of
products enables it to supply substantially all of the Conveyor Equipment
needs of its customers in the coal mining industry. Furthermore, the Company
can provide integrated system solutions for underground mining utilizing
computerized in-house "dynamic analysis" capabilities, thereby enabling it to
develop customized equipment solutions while eliminating much of the
engineering cost involved in integrating components from different vendors and
enhancing customer productivity, safety and belt maintenance. The Company
believes that its ability to provide such a range of products and services is
a critical determinant in establishing preferred supplier arrangements with
customers.
- - Significant Installed Equipment Base. The Company believes its significant
installed base of Conveyor Equipment is a key factor in obtaining orders for
higher margin replacement components, which represented approximately 25% of
1996 pro forma net sales. This is principally because, once a supplier is
established in an underground mine, it is time-consuming and expensive for a
customer to switch to a competitor's product. In addition, underground mining
customers frequently use a single vendor for all of their Conveyor Equipment
needs.
- - Technology and Quality Enhance Customer Productivity. The Company believes its
Conveyor Equipment product development has contributed to overall productivity
gains being sought by its customers. The Company employs over 70 engineers
dedicated to customer-focused, productivity-enhancing, product and application
development. Through its use of dynamic analysis and technological innovation,
the Company has developed (i) the largest and some of the most technically
demanding Conveyor Equipment applications in the United States, including an
approximately four-mile underground mine conveyor and an approximately
nine-mile tunnel-waste material conveyor and (ii) the HAC(R), which permits
the use of a conveyor in applications where higher-cost transportation
alternatives, such as trucks, would otherwise be required. In an independent
study of Conveyor Equipment products conducted in 1994, the Company's products
had the highest ratings for product reliability and performance. In addition,
the Company believes that the high availability rate, or "uptime," of its
products in its customers' operations promotes customer loyalty and is a
substantial factor in generating business from new and existing customers.
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- - Low Cost Due to Economies of Scale. The Company believes its market share
enables it to achieve enhanced margins due to economies of scale in
manufacturing and better fixed cost absorption.
- - Experienced Management Team. The Company's senior managers, who have an
average of over 20 years of experience in the Conveyor Equipment industry,
have developed strong relationships with the Company's customers and have
introduced significant new products to increase customer productivity.
BUSINESS STRATEGY
The Company's business strategy is to continue to increase its market share
in the international Conveyor Equipment market. To implement this strategy, the
Company will:
- - Increase Market Share Through Extending Preferred Supplier Arrangements. The
Company seeks to enter into additional preferred supplier arrangements with
new and existing customers, emphasizing the benefits of (i) its broad product
range, (ii) the quality and reliability of its products, (iii) its ability to
offer productivity-enhancing engineered solutions and (iv) its ability to
serve such customers' Conveyor Equipment needs in designated geographic
regions.
- - Increase Market Share In Related Conveyor Applications. The Company seeks to
expand its existing market share in Conveyor Equipment products for
applications in specific industries, including aggregates, such as rock,
gravel, glass and cement materials; pulp, paper and forest products;
aboveground hard rock and mineral mining; food and grains; environmental,
sewage and wastewater treatment; and tunneling. The Company believes it can
continue to grow in these sectors by providing customers with products that
lower maintenance and operating costs and improve productivity.
- - Increase Market Share Through Product Line Extensions and Geographic
Expansion. The international Conveyor Equipment market remains highly
fragmented with many specialized manufacturers serving numerous market niches.
The Company believes that many of these companies lack the capital resources,
marketing network and depth of management to fully exploit their competitive
positions. The Company will continue to search for strategic acquisitions that
will allow it to fulfill substantially all of the Conveyor Equipment needs of
new and existing customers or expand its technological capabilities. In
addition, the Company seeks to expand its geographic reach through
acquisitions that allow it to (i) enter into further global preferred supplier
arrangements and (ii) exploit favorable trends in coal production and
consumption outside the United States.
ACQUISITIONS
In January 1997, the Company acquired BCE, which, through its subsidiaries,
is a major manufacturer and supplier of Conveyor Equipment in Australia. The BCE
Acquisition has further broadened the Company's product line with large ball
bearing idler rollers preferred by certain equipment users and not previously
offered by the Company. In addition, the BCE Acquisition has significantly
increased the Company's manufacturing, engineering and service capabilities, as
well as its customer base, in Australia, enabling the Company to serve
Australian and Pacific Rim markets more efficiently and cultivate and/or
strengthen relationships with major mining companies that are headquartered or
have significant operations in Australia. Based on these factors, the Company
believes the BCE Acquisition will strengthen its competitive position in the
high-growth markets of the Pacific Rim and enhance its ability to obtain
worldwide preferred supplier arrangements with multinational mining companies.
The Company believes that the BCE Acquisition has already helped it to secure
approximately $20 million of new business.
On April 1, 1997, the Company acquired from W.S. Tyler Incorporated
("Tyler") substantially all of the assets used by Hewitt-Robins in connection
with the conveyor component manufacturing business currently conducted at
facilities in Pueblo, Colorado, and West Caldwell, New Jersey. The assets
acquired in the Hewitt-Robins Acquisition are used in the manufacture of idlers
in the United States and constitute a significant addition to the Company's
existing Conveyor Components business area. See "--Products and Markets--Mining
Equipment." Hewitt-Robins had net sales in 1996 of $15.1 million.
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The purchase price for the Hewitt-Robins Acquisition was approximately
$12.6 million in cash plus the assumption of approximately $1.1 million of
liabilities, subject to a negotiated price adjustment for working capital. The
Company has entered into a one-year lease with two one-year renewal options
relating to the Pueblo, Colorado facility with Tyler and intends to move the
West Caldwell operations to the Pueblo facility and to other Company facilities.
In addition, the Company has agreed to honor certain severance obligations
relating to the termination of certain employees as a result of the
Hewitt-Robins Acquisition. The Company believes these severance obligations will
not exceed $0.3 million. Included in the assets being acquired is a two-year
license to use certain trade names and trademarks. Tyler has agreed not to
compete in the manufacturing, sale or distribution of idlers anywhere in the
world for a period of five years after the closing of the transaction.
The Company will continue to search for strategic acquisitions that add
complementary product lines, expand its technological capabilities, broaden its
geographic reach or otherwise support its business strategy and presently is in
discussions with other potential acquisition candidates. There can be no
assurance that the Company will be able to identify other desirable acquisition
candidates or that the Company will be successful in consummating any
acquisition on terms favorable to the Company, if at all. See "Risk
Factors--Risks Attendant to Acquisition Strategy."
COAL INDUSTRY
The source of all factual and forecast information regarding coal
production, coal consumption and energy demand contained in this Prospectus is
the United States Department of Energy, Energy Information Administration. All
references in this Prospectus to "tons" mean "short tons."
Although the Company serves customers in various markets, including rock
and aggregate products, metals and minerals mining, construction and tunneling
(which industries accounted for approximately 22% of the Company's Conveyor
Equipment sales in 1996), the Company's largest end-user market is the coal
mining business. See "Risk Factors--Significance of Coal Mining Industry to the
Company."
DOMESTIC
The United States is the largest coal producer and consumer in the world.
Although final figures are not yet available, 1996 domestic coal production is
believed to have reached a record high of approximately 1.06 billion tons. Total
domestic recoverable coal reserves are estimated at 263 billion tons, or 23% of
the world's total recoverable reserves.
During the last ten years, coal consumption in the United States has
generally experienced steady annual growth, reaching a record level of 941
million tons in 1995, the last year for which data are available. This steady
growth is attributable to similar growth in the demand for electricity over such
period and to the fact that in excess of 85% of domestic coal consumption is by
the electric utility industry. Given coal's status as a relatively inexpensive
and abundant resource for the production of electricity, domestically produced
coal is expected to continue to play a significant role in the production of
electricity in the future.
A key development in domestic coal production is the increasing use of
longwall mining, which accounted for 45% of total U.S. underground coal
production in 1995 as compared to 27% in 1983. Longwall mining is one of two
basic methods of underground coal mining. The other method is room-and-pillar
mining, which was historically the method used in the United States. In
room-and-pillar mining, "rooms" are excavated and pillars of coal are left in
place between the rooms to support the mine roof. In contrast, longwall mining
involves the essentially complete extraction of the coal contained in a large
rectangular block or "panel" of coal, following which the roof in the mined area
is allowed to collapse. Working under steel canopies of hydraulic, moveable roof
supports, a coal cutting machine cuts back and forth along the coal face, which
is frequently between 800 to 1,000 feet in length. The cut coal is transported
out of the mine by belt conveyors of the type made by the Company. Longwall
mining yields higher production of coal than conventional mining techniques, but
also requires the use of more efficient and reliable high-load Conveyor
Equipment of the type manufactured by the Company.
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INTERNATIONAL
Total world recoverable reserves of coal are estimated at 1,145 billion
tons, sufficient to last another 230 years at current production rates. Although
coal deposits are widely distributed, 57% of the world's reserves are located in
three regions: the countries of the former Soviet Union (23%), the United States
(23%) and China (11%). Another four countries, Australia, Germany, India and
South Africa, account for an additional 28%. In 1993, these seven regions
accounted for approximately 80% of total world coal production.
Industry sources predict that, through 2015, worldwide coal consumption
will grow at a faster rate than coal consumption in the United States. By 2015,
industry sources project worldwide coal consumption will reach 7.5 billion tons,
a 50% increase from current worldwide consumption. This forecasted increase is
due principally to projected increased demand for electricity in the newly
industrialized economies of the Pacific Rim. Asian coal consumption (excluding
Japan) is projected to more than double to 3,931 million tons in 2015 from 1,777
million tons in 1993, with 1,725 million tons of the increase attributable to
China. India is also poised for a substantial increase in coal usage, with
consumption projected to rise by 320 million tons. These projected increases are
based upon an outlook for strong economic growth and the expectation that much
of the increased demand for energy will be met by coal. By 2015, coal is
projected to meet 66% of the total demand for primary energy in China and 47% of
such demand in India.
Strong growth in coal usage in Japan is also anticipated, with demand
projected to grow from 128 million tons in 1993 to 160 million tons in 2015.
Japan imports more coal than any other country in the world. In 1993, Japanese
coal imports amounted to 122 million tons, or 29% of world imports.
Coal production in Australia is projected to grow at a compound annual
growth rate of 2.8% through 2015, due primarily to Australia's large reserves
and its position as the world's largest coal exporter. Australia accounted for
approximately 33% of world coal exports in 1993 and its coal exports are
projected to grow from 142 million tons in 1993 to 260 million tons in 2015,
primarily as a result of increased coal consumption in the Pacific Rim.
Another market characterized by high growth is Indonesia. Recoverable
reserves have grown from three billion tons in 1989 to an estimated 35 billion
tons currently, making the country the ninth largest in terms of coal reserves.
Production likewise has grown, from less than one million tons in 1980 to 30
million tons in 1993.
PRODUCTS AND MARKETS
The Company's Conveyor Equipment business is divided into four main
business areas: Mining Equipment, Conveyor Components, Engineered Systems and
Bulk Conveyor Equipment, as is more fully described below.
MINING EQUIPMENT (47% OF 1996 PRO FORMA NET SALES)
The Company's Mining Equipment business area is principally engaged in the
design, manufacture and testing (and, outside the United States, installation,
monitoring and maintenance) of complete belt conveyor systems and components for
underground mining applications in the coal and other mining industries.
The Company offers a full array of products and services on a worldwide
basis to customers ranging from small, single-owner mines to very large,
multi-site operations owned by large mining companies. The Company markets its
Mining Equipment products and services using a "total systems" approach that
encourages customers to maintain a close and continuing relationship with the
Company from the earliest stages of a project throughout the full operational
life of the conveyor system. Services provided by the Company as part of the
relationship include (i) consultation regarding the mine plan relative to all
conveying issues, (ii) computerized in-house "dynamic analysis" of system
operation in the context of specific situations and applications in order to
enhance productivity, safety and belt maintenance, (iii) on-site installation
and maintenance and (iv) other full-service support throughout the life of the
system.
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The basic components of a belt conveyor system and the various Mining
Equipment products manufactured and sold by the Company for use in underground
systems are summarized below.
Idlers. A conveyor belt is supported by a series of idlers, each
consisting of free-moving cylindrical or disk-shaped rollers with bearing shafts
mounted on stands or suspended from wire ropes. Idlers can significantly impact
belt life and system efficiency and are usually the second most costly part of a
conveyor system, after the belt. The Company manufactures both tapered roller
bearing idlers and ball bearing idlers. The Company's idlers are highly
engineered for a variety of applications and are available in many different
sizes, configurations and roll types. The Company's H-Plus Idler Rolls are
designed for heavy duty mine applications and its SDX-Plus Idler Rolls feature
patented technology to permit service in super-duty applications with extended
service durability.
Structure. Structure is the framework that supports the working components
of a conveyor system. The Company manufactures and sells both wire rope and
rigid frame structures. The wire rope design, which has been widely used in
underground mining since the mid-1960s, uses two strands of wire rope for side
support members and provides high portability and economy. The rigid frame
design, which has gained in popularity with the growth of longwall mining,
contains structural side channel members and boltless construction to provide
extra support for high production applications.
Terminals. A typical terminal consists of the drive, discharge, take-up
and tail loading sections. The drive, which powers the conveyor system, is the
most critical terminal component. Drives are highly engineered for specific
applications and can have a significant impact on system productivity. The
Company manufactures drives for a variety of applications, including a
"low-coal" drive to deliver large-drive performance in a low-profile
configuration for use in limited space situations. The Company believes its
expertise in large-drive technology and related engineering techniques has
enabled it to gain a significant share of the market for terminals used in the
coal mining industry.
Controllers. A controller regulates the acceleration time of the conveyor
and is an interfacing device used to provide central sequencing and monitoring
of conveyor systems and related mining operations. It may be used to generate
graphic operator interfaces and reports for management to assist in the control
and monitoring process. The Company's controllers are custom-designed and
manufactured to meet the specific needs of each customer and to withstand the
rigorous conditions present in underground mining and construction environments.
Related Products. Other conveyor system elements manufactured by the
Company for the Mining Equipment business area include products of a more
specialized nature, such as belt storage units, constant tension winches,
take-up units, belt winders, slider beds and scissor conveyors. These products
efficiently provide for the storage, release, proper tension protection and
handling of conveyor belts utilized in underground coal mining operations. For
instance, the Company's constant tension winch is preferred for use in longwall
mining applications, as it provides an extendible conveyor that can be advanced
easily along the face of the mine during mining operations. The Company also
manufactures and sells custom-designed impact bar assemblies, which deflect and
absorb the impact energy of heavy loads on a conveyor belt, and a standard line
of belt conveyor trippers, which can be added to a system to create intermediate
discharge points along a conveyor. The Company does not manufacture the actual
belting that is used in conveyor belt systems.
CONVEYOR COMPONENTS (25% OF 1996 PRO FORMA NET SALES)
The Company's Conveyor Components business area is principally engaged in
the manufacture and sale of components (primarily idlers) for aboveground
Conveyor Equipment systems which handle a wide variety of materials, from
lighter materials such as grains to heavy or abrasive materials such as rock,
crushed stone, iron ore and coal.
The Conveyor Components products sold by the Company consist primarily of a
wide variety of belt conveyor idlers in each of the classifications developed by
the Conveyor Equipment Manufacturers Association ("CEMA"). CEMA Series B
products are usually lower cost, light-duty products designed for materials
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handling applications in the sand and gravel industries. More durable CEMA
Series C and D components are used primarily for handling coal and crushed
stone. The CEMA Series E products are heavy duty components designed for heavy
minerals (such as iron ore and copper) and large volume coal applications.
The Company's product line in this business area has traditionally been
strongest in the CEMA E Series. Based on 1996 CEMA estimates, the Company
believes it is the market leader in domestic sales of CEMA E Series idlers, with
a market share in the United States in excess of 45%. The Company's Conveyor
Components products incorporate many proprietary concepts such as a patented
end-pointed shaft and a patented lubrication system. Several new products have
been added to the Company's product line as a result of the BCE Acquisition,
including a premium ball bearing idler which had not been manufactured
previously by the Company. The addition of this product improves the Company's
competitive position in the market for CEMA B and C Series idlers and
replacement components, generally broadens the product line and increases the
range of customers with whom the Company is able to do business.
ENGINEERED SYSTEMS (5% OF 1996 PRO FORMA NET SALES)
The Company's Engineered Systems business area is principally engaged in
the utilization of specialized project management and engineering skills to
combine mining equipment products, purchased equipment, steel fabrication and
other outside services into complete Conveyor Equipment systems that meet
specific customer requirements. The scope of Engineered Systems' involvement in
a project may vary from engineering and supply services to, in appropriate
circumstances, complete projects for specialized conveying systems. The market
for engineered conveying systems spans a wide spectrum of industries worldwide,
including mining and construction (underground and surface), port and in-vessel
facilities, power plants, cement plants, grain distribution facilities,
municipal waste systems, pulp and paper mills, and synfuel and chemical plants.
An important focus of the Engineered Systems business area has been the
development of a patented high angle conveying system known as the HAC(R). The
HAC(R) employs standard conveyor components in a "sandwich belt" arrangement,
which permits more versatile and efficient handling than conventional methods of
elevation such as the higher-cost use of trucks. The HAC(R) is capable of
elevating and lowering materials on a continuous basis at up to a 90-degree
angle, and has proven to be very durable in mining operations.
Sales of the HAC(R) for use in construction, mining and tunneling projects
in the United States accounted for approximately $1.7 million, or 18%, of the
Company's Engineered Systems pro forma net sales in 1996. The Company believes
that power generation, municipal waste handling and minerals and metals mining
projects in the United States and abroad may create the potential for
significant future Engineering Systems business.
BULK CONVEYOR EQUIPMENT (3% OF 1996 PRO FORMA NET SALES)
The Company's Bulk Conveyor Equipment business area is principally engaged
in the design and manufacture of a complete line of Bulk Conveyor Equipment
products, including screw conveyors, multi-flo drag conveyors and bucket
elevators. The Company sells principally to the cement and lime, environmental,
sewage and waste water treatment, pulp, paper and forest products, and grains
and food processing industries. The Company markets its Bulk Conveyor Equipment
products to original equipment manufacturers, through distributors and directly
to end users.
Screw conveyors represent the primary product within the Company's Bulk
Conveyor Equipment business area, accounting for more than 80% of its Bulk
Conveyor Equipment pro forma net sales in 1996. Screw conveyors are used to move
a regulated volume of material from an inlet point to a discharge point and are
commonly used in food processing applications. They are engineered and
manufactured to CEMA standards and offer flexibility for use in a variety of
applications. The Company also manufactures screw conveyors on a "private label"
basis for various original equipment manufacturers.
In addition, the Company manufactures multi-flo drag conveyors and bucket
elevators. Multi-flo drag conveyors are a means of transporting dry bulk
materials, such as grain, in a low friction, low agitation,
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self-cleaning manner, such that material degradation is reduced as compared to
other conveyor systems. Bucket elevators are used to lift material from one
level to another to be discharged into a chute or container through the
utilization of buckets that are attached to and lifted by either a belt or
chain.
OTHER PRODUCTS (20% OF 1996 PRO FORMA NET SALES)
In addition to its core business, the Company engages in two noncore
businesses, the manufacturing of (i) axle components for mobile homes and (ii)
air filtration equipment for use in enclosed environments, principally in the
textile industry. The manufacturing requirements for these products are
generally compatible with conveyor component production and thus maximize
utilization of the Company's manufacturing facilities for its primary products.
Although the Other Products business area accounted for approximately 20% of the
Company's 1996 pro forma net sales, it accounted for a substantially smaller
percentage of the Company's 1996 pro forma gross profit.
The Mobile Home Products business, which accounted for approximately 18.1%
of the Company's pro forma net sales in 1996, provides a variety of components
to the manufactured housing industry. These components are used primarily in
mobile homes and include axles, steel frame parts, rims and tires for the
transportation of the home from the manufacturer to its final destination. New
axles and frame parts are manufactured in the Company's facilities in Winfield,
Alabama. Tires and rims are purchased for resale. Remanufactured axles and used
tires, which are provided to the market from the Company's Eatonton, Georgia
facility, constitute a major part of its Mobile Home Products business.
The Air Systems business, which accounted for approximately 1.5% of the
Company's pro forma net sales in 1996, primarily manufactures and sells air
filtration equipment that is designed to remove fibrous particles and other
matter from enclosed environments primarily for the textile industry and
manufactures specialized baling equipment for the paper and fiberglass
industries.
CUSTOMERS
The Company markets its products worldwide through a variety of marketing
channels with different customer focuses. Sales of Mining Equipment and Bulk
Conveyor Equipment are primarily direct sales to mining companies and other
end-users, original equipment manufacturers and engineering contractors. The
Company sells its Conveyor Components products to original equipment
manufacturers, engineering contractors and replacement part distributors to a
diverse group of customers, primarily in the following industries: aggregates,
such as rock, gravel, glass and cement materials; coal processing and mining;
pulp, paper and forest products; aboveground hard rock and mineral mining; food
and grains; and environmental, sewage and waste water treatment. Engineered
Systems' sales are primarily direct sales to contractors and end users for
applications in coal processing and mining, pulp and paper, composting systems,
grain handling, cement products, open-pit mining and tunneling.
On a pro forma basis, for 1996, the Company's net sales to A.T. Massey
Group constituted approximately 12.4% of the Company's total net sales and net
sales to the Cyprus Amax Group constituted approximately 8.0% of total net
sales. For 1995 and 1994, net sales to A.T. Massey Group constituted
approximately 13.9% and 6.1% of total net sales, respectively, and net sales to
the Cyprus Amax Group constituted approximately 7.6% and 4.7% of total net
sales, respectively. Pro forma net sales to the Company's top five customers
(A.T. Massey, Cyprus Amax, Consolidation Coal Group, Drummond Coal and United
Central Industrial Supplies) represented approximately 26.1% of the Company's
total pro forma net sales for 1996. Although the Company has preferred supplier
arrangements with A.T. Massey, Cyprus Amax and other of its major customers
pursuant to which the Company and such customers effectively operate on a
long-term basis, such arrangements generally are not governed by long-term
contracts and may be terminated at any time. A substantial portion of the
Company's sales is on a project-by-project basis. See "Risk Factors--Reliance on
Significant Customers."
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COMPETITION
The Company faces strong competition throughout the world in all of its
product lines. The various markets in which the Company competes are fragmented
into a large number of competitors, many of which are smaller businesses that
operate in relatively specialized or niche areas. In addition, a number of the
Company's competitors have financial and other resources greater than those of
the Company. Competitive considerations vary for each business area, but
generally include quality, price, reliability, availability and service. See
"Risk Factors--Competition."
SUPPLIERS
The primary raw materials used by the Company to produce its products are
steel and miscellaneous purchased parts such as bearings, electric motors and
gear reducers. All materials are readily available in the marketplace. The
Company is not dependent upon any single supplier for any materials essential to
its business or not otherwise commercially available. The Company has been able
to obtain an adequate supply of raw materials and no shortage of raw materials
is currently anticipated.
FACILITIES
The Company conducts its operations through the following primary
facilities:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FOOTAGE PRINCIPAL FUNCTION OWNED/LEASED
<S> <C> <C> <C>
UNITED STATES:
Winfield, Alabama.......... 220,000 Headquarters; manufacturing Owned
Belton, South Carolina..... 191,000 Manufacturing Owned
Salyersville, Kentucky..... 111,000 Manufacturing Owned
Pueblo, Colorado........... 50,000 Manufacturing Leased(1)
Eatonton, Georgia.......... 22,000 Manufacturing Leased(2)
AUSTRALIA:
Somersby, New South
Wales................... 42,000 Manufacturing; engineering and Owned
testing; administration and
sales
MacKay, Queensland......... 32,000 Service and installation Leased(3)
support
Geelong, Victoria.......... 21,000 Manufacturing; engineering Owned
Wollongong, New South
Wales................... 4,000 Manufacturing; engineering and Leased(4)
testing
</TABLE>
- -----------------------------
(1) Expires in April, 1998. The Company holds an option to renew such lease for
two one-year terms.
(2) Expires in October, 2003. The Company holds an option to buy such property
at the end of the lease term.
(3) Expires in August, 1997. The Company holds an option to renew such lease for
a term of five years.
(4) Expires in April, 1998.
In addition to the foregoing facilities, the Company has a number of leased
warehouses and field sales offices in various locations throughout the United
States and Australia. The Company believes that substantially all of its
property and equipment is in a condition appropriate for its operations and that
it has sufficient capacity to meet its current operational needs. It is
anticipated that additional capacity will be necessary at the Geelong facility
in order to accommodate expected increases in production. Each of the Company's
United States facilities is subject to a mortgage securing payment of
indebtedness under the Revolving Credit Facility. In addition, the Company's
Somersby and Geelong facilities in Australia are subject to mortgages securing
payment of certain indebtedness incurred by the Company in connection with the
BCE Acquisition and under the Australian Revolving Credit Facility. See
"Description of Certain Indebtedness."
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EMPLOYEES
As of April 30, 1997, the Company had approximately 1,070 employees,
approximately 870 of whom were in the United States. In addition, the Company
employs from time to time up to 140 short-term contract or temporary employees.
Approximately 220 of the employees at the Company's Winfield facility are
represented by The Aluminum, Brick and Glass Workers International Union and are
covered by a three-year collective bargaining agreement that expires May 15,
1998. Approximately 100 of the production employees at two of the Company's
Australian facilities are covered by collective bargaining agreements which are
due to expire in 1998 and 1999, respectively. The Company has not experienced
any work stoppages since 1971 and believes its relations with its employees are
good.
ENVIRONMENTAL AND HEALTH AND SAFETY MATTERS
The Company is subject to a variety of environmental standards imposed by
federal, state, local and foreign environmental laws and regulations. The
Company also is subject to the federal Occupational Health and Safety Act and
similar foreign and state laws. The Company periodically reviews its procedures
and policies for compliance with environmental and health and safety laws and
regulations and believes that it is in substantial compliance with all such
material laws and regulations applicable to its operations. Historically, the
costs of compliance with environmental, health and safety requirements have not
been material to the Company's Subsidiaries.
LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceeding which it
believes could have a material adverse effect upon its results of operations or
financial condition, or to any other pending legal proceedings other than
ordinary, routine litigation incidental to its business.
PRINCIPAL STOCKHOLDER
The Company is a wholly owned subsidiary of NES Group, Inc., all of the
capital stock of which is beneficially owned by Robert J. Tomsich.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the directors
and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
<S> <C> <C>
C. Edward Bryant, Jr............... 62 President and Chief Executive Officer
Jimmy L. Dickinson................. 54 Vice President and Chief Financial Officer
Jerry R. McGaha.................... 58 Senior Vice President of Sales and Engineering
Edward F. Crawford................. 57 Director
Donald F. Hastings................. 68 Director
Joseph L. Mandia................... 55 Director
Robert J. Tomsich.................. 66 Director
John R. Tomsich.................... 30 Director
James W. Wert...................... 50 Director
</TABLE>
Set forth below is a brief description of the business experience of each
director and executive officer of the Company.
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MR. BRYANT has served as President and Chief Executive Officer of the
Company since its inception. Mr. Bryant has also served as President and Chief
Executive Officer of Continental since 1982 and as Chairman of the Board of
Directors of CCE Pty. Ltd. since 1996. In addition to the foregoing, Mr.
Bryant's 41 years of experience with the Company and its Subsidiaries has
included, among other things, 11 years as Executive Vice President of
Continental from 1971 to 1982 and three years as Vice President/Sales of
Continental from 1968 to 1971.
MR. DICKINSON has served as Vice President and Chief Financial Officer of
the Company since its inception. Mr. Dickinson has also served as Vice President
of Finance of Continental since 1973, and as a Director of CCE Pty. Ltd. since
1993. In addition to the foregoing, Mr. Dickinson's 29 years of experience with
the Company and its Subsidiaries has included four years as Controller of
Continental from 1969 to 1973 and one year as an in-house attorney for
Continental from 1968 to 1969.
MR. MCGAHA has served as Senior Vice President of Sales and Engineering of
the Company since its inception. Mr. McGaha has also served as Senior Vice
President of Sales and Engineering of Continental since 1996 and as Director of
CCE Pty. Ltd. since 1996. In addition to the foregoing, Mr. McGaha's 31 years of
experience with the Company and its Subsidiaries has included, among other
things, six years as Vice President of Sales and Engineering of Continental from
1990 to 1996, four years as Vice President of Mining and Conveyor Equipment of
Continental from 1986 to 1990 and ten years as Vice President of Sales of
Continental from 1976 to 1986.
MR. CRAWFORD has served as a Director of the Company since its inception.
In addition to his service with the Company, Mr. Crawford has served as Chairman
and Chief Executive Officer of Park-Ohio Industries, Inc. since 1992 and also as
a Director of Park-Ohio Industries, Inc. from 1989 to 1991.
MR. HASTINGS has served as a Director of the Company since its inception.
In addition to his service with the Company, Mr. Hastings has served as Chairman
and Chief Executive Officer of Lincoln Electric Company since 1992.
MR. MANDIA has served as a Director of the Company since its inception. Mr.
Mandia has also served as Group Vice President of NESCO, Inc. since 1988.
MR. ROBERT TOMSICH has served as a Director of the Company since its
inception. In addition, Mr. Robert Tomsich has served as President and Director
of NESCO, Inc. (including predecessors of NESCO, Inc.) since 1956. Mr. Robert
Tomsich is the father of Mr. John Tomsich.
MR. JOHN TOMSICH has served as a Director of the Company since its
inception. In addition, Mr. John Tomsich has served as Vice President of NESCO,
Inc. since 1995 and in various other management positions with NESCO, Inc. since
1990. Mr. John Tomsich is the son of Mr. Robert Tomsich.
MR. WERT has served as a Director of the Company since its inception. Prior
to his service with the Company, Mr. Wert held a variety of executive management
positions with KeyCorp, a financial services company based in Cleveland, Ohio,
and KeyCorp's predecessor, Society Corporation. Mr. Wert served as Senior
Executive Vice President and Chief Investment Officer of KeyCorp from 1995 to
1996. Prior to that time, he served as Senior Executive Vice President and Chief
Financial Officer of KeyCorp for two years and Vice Chairman, Director and Chief
Financial Officer of Society Corporation for four years. Since 1993, Mr. Wert
has served as an outside Director, and currently serves as Chairman of the
Executive and Compensation Committees of the Board of Directors, of Park-Ohio
Industries, Inc.
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<PAGE> 65
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
of the Company's Chief Executive Officer and the other most highly compensated
officers of the Company having total annual salary and bonus in excess of
$100,000.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------------
NAME AND OTHER ANNUAL
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
<S> <C> <C> <C> <C>
C. Edward Bryant, Jr., 1996 $145,008 $ 59,900 $ 6,512
President and Chief 1995 144,797 48,115(2) 12,234
Executive Officer 1994 121,704 40,772 11,193
Jerry R. McGaha, 1996 $107,700 $ 25,027 $ 5,583
Senior Vice President of 1995 103,350 21,187(2) 8,298
Sales and Engineering 1994 99,150 19,043 7,046
Jimmy L. Dickinson, 1996 $109,680 $ 25,514 $ 5,269
Vice President and Chief 1995 105,240 21,577(2) 7,663
Financial Officer 1994 100,800 20,654 6,703
</TABLE>
- ---------------
(1) Amounts shown reflect contributions made by the Company on behalf of the
named executives under the Continental Conveyor & Equipment Company Savings
and Profit Sharing Plan and the Continental Conveyor & Equipment Company
Retirement Plan for Salaried and Hourly (Non-Union) Employees at
Salyersville, Kentucky. No amounts shown were received by any of the named
executives.
(2) Excludes special bonuses paid by Nesco, Inc. of $250,000 to Mr. Bryant,
$100,000 to Mr. McGaha and $100,000 to Mr. Dickinson for services performed
in 1995 for the principal stockholder of the Company.
DIRECTOR COMPENSATION
Each director of the Company not employed by the Company or any entity
affiliated with the Company is entitled to receive $25,000 per year for serving
as a director of the Company. In addition, the Company will reimburse such
directors for their travel and other expenses incurred in connection with
attending meetings of the Board of Directors.
RELATED TRANSACTIONS
COMPANY FORMATION AND PROCEEDS FROM THE SERIES A NOTES OFFERING
The Company is a Delaware corporation formed on February 4, 1997 for the
purpose of serving as a holding company for the operations conducted by
Continental (including the BCE Subsidiaries) and Goodman. All of the capital
stock of the Company has been issued to NES Group, Inc., which in turn,
transferred to the Company all of the outstanding capital stock of Continental
and Goodman. As a result, the Company is a wholly owned subsidiary of NES Group,
Inc. and each of Continental and Goodman is a wholly owned subsidiary of the
Company. See "The Company."
All of the outstanding capital stock of NES Group, Inc. is beneficially
owned by Robert J. Tomsich. Mr. Tomsich also beneficially owns all the
outstanding capital stock of NESCO, Inc., which has entered into a management
agreement with the Company as described below.
As referenced under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
in this Prospectus, the Company used a portion of the proceeds of the Series A
Notes Offering to fund a dividend. As the Company's sole stockholder, NES Group,
Inc. was the recipient of such dividend.
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<PAGE> 66
DIRECTORS AND OFFICERS INDEMNIFICATION
The Company has entered into indemnification agreements with all of its
Directors and executive officers, whereby the Company has agreed, subject to
certain exceptions, to indemnify and hold harmless such person from liabilities
incurred as a result of such person's status as a director or executive officer
of the Company. In addition, the Company has entered into indemnification
agreements with NESCO, Inc. and each director and executive officer of NESCO,
Inc., whereby the Company has agreed, subject to certain exceptions, to
indemnify and hold harmless NESCO, Inc. and each such director and executive
officer in connection with the provision of services to the Company under the
Management Agreement.
TAX PAYMENT AGREEMENT
The Company, Continental and Goodman (each, a "Subsidiary") have entered
into a tax payment agreement with NES Group, Inc. ("Tax Payment Agreement")
providing for monthly payments by each Subsidiary to NES Group, Inc. in an
amount equal to the greater of (i) the total federal, state, local and, under
certain circumstances, foreign income tax liability attributable to such
Subsidiary's operations for the monthly period, determined on an annualized
basis, and (ii) one-twelfth the total federal, state, local and, under certain
circumstances, foreign income tax liability attributable to such Subsidiary's
operations for the year. The tax rates applied to such income are to be based on
the maximum individual federal, state, local and foreign income tax rates
imposed by Section 1 of the Internal Revenue Code of 1986, as amended, and by
the equivalent provisions of state, local and foreign income tax laws. These tax
payments will not recognize any future carry-forward or carry-back tax benefits
to the Company, Continental or Goodman. Future direct and indirect Subsidiaries
of the Company shall also become parties to the Tax Payment Agreement.
MANAGEMENT AGREEMENT
Effective April 1, 1997, the Company and NESCO, Inc. entered into a
management agreement ("Management Agreement"), the material terms of which are
summarized below. Under the Management Agreement, NESCO, Inc. has agreed to
provide general management oversight services on a regular basis for the benefit
of the Company, in regard to business activities involving financial results,
legal issues and long term planning relative to current operations and
acquisitions. Business development services will include assistance in
identifying and acquiring potential acquisition candidates, including
negotiations and contractual preparations in connection therewith. Financial
planning will include assistance in developing banking relationships and
monitoring cash investments through professional money management accounts.
Under the terms of the Management Agreement, the Company has agreed to pay
NESCO, Inc. a management fee for such services equal to 5% of the Company's
earnings before interest and estimated taxes, depreciation, amortization and
other expense (income) (which fee would have been $1.184 million on a pro forma
basis for 1996). The management fee will be payable in monthly installments. The
Management Agreement will remain in effect until terminated by either party upon
not less than 60 days' written notice prior to an anniversary date of the
Management Agreement.
The Company will also separately employ, as required, independent auditors,
outside legal counsel and other consulting services. Such services will be paid
directly by the Company.
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following descriptions summarize the material terms of the Revolving
Credit Facility, the Australian Revolving Credit Facility and the Australian
Seller Notes. The descriptions are only summaries and are qualified in their
entirety by reference to the Revolving Credit Facility, the Australian Revolving
Credit Facility and the Australian Seller Notes.
REVOLVING CREDIT FACILITY
Continental, Goodman and Bank One, Cleveland, NA ("Bank One") are parties
to a credit facility and security agreement dated September 14, 1992, as
amended, restated and consolidated through March 28, 1997
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<PAGE> 67
(as so amended, the "Revolving Credit Facility") pursuant to which Bank One has
provided Continental and Goodman jointly with, among other things, a line of
credit equal to the lesser of (i) $30 million and (ii) 85% of the amount due and
owing on eligible accounts receivable plus the lesser of (A) 55% of eligible
inventory and (B) $12 million. The Revolving Credit Facility is guaranteed by
the Company and secured by a lien on substantially all of the assets of
Continental and Goodman. In addition, the Revolving Credit Facility contains
certain financial and other covenants which, among other things, establish
minimum debt coverage and net working capital requirements. The Revolving Credit
Facility does not contain any restriction on the ability of the Company or any
of its Subsidiaries to pay dividends or to make other distributions; provided,
that such dividends or other distributions are not for the purpose of purchasing
Series B Notes upon a Change of Control. The Revolving Credit Facility will be
fully revolving until final maturity on March 28, 2000 and will bear interest at
a fluctuating rate per annum equal to 125 basis points above Bank One's prime
rate for commercial loans. Interest will be payable monthly.
AUSTRALIAN REVOLVING CREDIT FACILITY
National Australia Bank Limited ("NABL") has provided BCE with a
multi-option credit facility (the "Australian Revolving Credit Facility") in the
maximum aggregate amount of approximately $4.1 million ("Borrowing Cap"). The
Australian Revolving Credit Facility consists of four individual facilities
which may be utilized in any mix at the discretion of BCE, subject to the
overall Borrowing Cap. The individual facilities include: (i) a day-to-day cash
flow facility which bears interest at rate based on NABL's base rate and is
subject to an annual service fee of 0.40%; (ii) a performance guarantee facility
which is subject to an annual fee of 0.8% on the face value of any bank
guarantee and 0.375% on the face value of any documentary letter of credit;
(iii) a payroll processing facility which is subject to a nominal annual fee;
and (iv) a lease/lease purchase facility which is subject to NABL's usual terms
and conditions. The day-to-day cash flow facility expires November 30, 1997 and
all other facilities expire on November 30, 1999. The Australian Revolving
Credit Facility is guaranteed by each of the BCE Subsidiaries and secured by a
lien on substantially all of the assets of the BCE Subsidiaries. In addition,
the Australian Revolving Credit Facility contains certain financial and other
covenants which, among other things, establish a minimum interest coverage
requirement and restrict the transfer of more than a 20% interest in BCE to any
third party. The Australian Revolving Credit Facility contains no restriction on
the ability of BCE or any of its subsidiaries to pay dividends or to make other
distributions.
AUSTRALIAN SELLER NOTES
In addition to the Revolving Credit Facility and the Australian Revolving
Credit Facility, four notes, in an aggregate principal amount of approximately
$4.5 million (the "Australian Seller Notes"), will remain as outstanding
obligations of the Company following the Exchange Offer. The first three notes,
each in the principal amount of $1.37 million, and the remaining note, in the
principal amount of $.46 million, all bear interest at a rate equal to 1% over
the 90 day domestic rate for Australian commercial bank bills and mature in
January, 2002. All of the Australian Seller Notes are guaranteed by Continental
and secured by a second priority lien on substantially all of the assets of BCE
and the BCE Subsidiaries.
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<PAGE> 68
DESCRIPTION OF SENIOR NOTES
GENERAL
The Series A Notes were, and the Series B Notes will be, issued pursuant to
the Indenture. The terms of the Senior Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Senior Notes
are subject to all such terms, and Holders of Senior Notes are referred to the
Indenture and the Trust Indenture Act for a statement thereof. The following
summary of the material provisions of the Indenture does not purport to be
complete and is qualified in its entirety by reference to the Indenture,
including the definitions therein of certain terms used below. The definitions
of certain terms used in the following summary are set forth below under
"--Certain Definitions." For purposes of this summary, the term "Company" refers
only to Continental Global Group, Inc. and not to any of its Subsidiaries.
The Series A Notes are, and the Series B Notes will be, senior unsecured
obligations of the Company ranking pari passu in right of payment with all
current and future unsecured senior Indebtedness of the Company and senior to
all subordinated Indebtedness of the Company. The Company is party to the
Revolving Credit Facility and all borrowings under the Revolving Credit Facility
are secured by a first priority lien on substantially all of the assets of the
Company's direct and indirect Subsidiaries (other than Foreign Subsidiaries).
BCE and its Subsidiaries are party to the Australian Revolving Credit Facility
and the Australian Seller Notes. As of December 31, 1996, on a pro forma basis
after giving effect to the Series A Notes Offering, the application of the
proceeds therefrom, the BCE Acquisition and the Hewitt-Robins Acquisition,
approximately $4.8 million would have been outstanding under the Revolving
Credit Facility, the Australian Revolving Credit Facility and the Australian
Seller Notes. All borrowings under the Australian Revolving Credit Facility are
secured by a first priority lien on substantially all of the assets of BCE and
its Subsidiaries. The Australian Seller Notes are secured by a second priority
lien on substantially all of the assets of BCE and its Subsidiaries. The
Indenture permits additional borrowings under the Revolving Credit Facility and
the Australian Revolving Credit Facility in the future.
The operations of the Company are conducted through its Subsidiaries and,
therefore, the Company is dependent upon the cash flow of its Subsidiaries to
meet its obligations, including its obligations under the Senior Notes. The
Company's obligations under the Series A Notes are, and its obligations under
the Series B Notes will be, jointly and severally guaranteed (the "Subsidiary
Guarantees") by each direct and indirect Subsidiary of the Company (other than
Foreign Subsidiaries) (each such Person, a "Subsidiary Guarantor" and,
collectively, the "Subsidiary Guarantors"). The Subsidiary Guarantees are senior
unsecured obligations of the Subsidiary Guarantors ranking pari passu in right
of payment with all current and future unsecured senior Indebtedness of the
Subsidiary Guarantors and senior to all subordinated Indebtedness of Subsidiary
Guarantors. However, the Series A Notes are, and the Series B Notes will be,
effectively subordinated to all Indebtedness and other liabilities and
commitments (including trade payables and lease obligations) of each Foreign
Subsidiary of the Company. Other than as provided by the terms of the covenant
described under the caption "-- Certain Covenants--Additional Subsidiary
Guarantees," CCE Pty. Ltd. and its Subsidiaries and any other Foreign
Subsidiary, formed or acquired after the date of the Indenture, will not
guarantee the Company's obligations under the Senior Notes. Any right of the
Company to receive assets of any such Foreign Subsidiary upon the latter's
liquidation or reorganization (and the consequent right of the Holders of the
Senior Notes to participate in those assets) will be effectively subordinated to
the claims of that Foreign Subsidiary's creditors. On a pro forma basis, as of
December 31, 1996, after giving effect to the Series A Notes Offering, the
application of the net proceeds therefrom, the BCE Acquisition and the
Hewitt-Robins Acquisition, the aggregate principal amount of secured
indebtedness of the Company, secured indebtedness of the Subsidiary Guarantors
and indebtedness of the Company's Foreign Subsidiaries which would have
effectively ranked senior to the Senior Notes would have been approximately $6.3
million. The Indenture permits the Company and its Subsidiaries to incur
additional indebtedness, including secured indebtedness, subject to certain
limitations. See "Risk Factors--Holding Company Structure; Rank of Series B
Notes."
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<PAGE> 69
PRINCIPAL, MATURITY AND INTEREST
The Senior Notes will be limited in aggregate principal amount to $120.0
million and will mature on April 1, 2007. Interest on the Senior Notes will
accrue at the rate of 11% per annum and will be payable semiannually in arrears
on April 1 and October 1, commencing on October 1, 1997, to Holders of record on
the immediately preceding March 15 and September 15. Interest on the Senior
Notes will accrue from the most recent date to which interest has been paid or,
if no interest has been paid, from the Series A Issue Date. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal, premium, if any, and interest and Liquidated Damages, if any, on the
Senior Notes will be payable at the office or agency of the Company maintained
for such purpose within the City and State of New York or, at the option of the
Company, payment of interest and Liquidated Damages, if any, may be made by
check mailed to the Holders of Senior Notes at their respective addresses set
forth in the register of Holders of Senior Notes; provided that all payments of
principal, premium, interest and Liquidated Damages, if any, with respect to
Senior Notes the Holders of which have given wire transfer instructions to the
Company will be required to be made by wire transfer of immediately available
funds to the accounts specified by the Holders thereof. Until otherwise
designated by the Company, the Company's office or agency in New York will be
the office of the Trustee maintained for such purpose. The Series B Notes will
be issued in denominations of $1,000 and integral multiples thereof.
SUBSIDIARY GUARANTEES
The Company's obligations under the Series A Notes are, and its obligations
under the Series B Notes will be, jointly and severally guaranteed on a senior
basis by each direct and indirect Subsidiary of the Company (other than Foreign
Subsidiaries). The obligations of each Subsidiary Guarantor under its Subsidiary
Guarantee are, and will be, limited so as not to constitute a fraudulent
conveyance under applicable law. See "Risk Factors--Fraudulent Transfer
Considerations."
The Indenture provides that no Subsidiary Guarantor may consolidate with or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person), another corporation, Person or entity whether or not affiliated with
such Subsidiary Guarantor unless, other than with respect to a merger between a
Subsidiary Guarantor and another Subsidiary Guarantor or a merger between a
Subsidiary Guarantor and the Company, (i) subject to the provisions of the
following paragraph, the Person formed by or surviving any such consolidation or
merger (if other than such Subsidiary Guarantor) assumes all the obligations of
such Subsidiary Guarantor pursuant to a supplemental indenture in form and
substance reasonably satisfactory to the Trustee, under the Senior Notes and the
Indenture; (ii) immediately after giving effect to such transaction, no Default
or Event of Default exists; (iii) such Subsidiary Guarantor, or any Person
formed by or surviving any such consolidation or merger, would have Consolidated
Net Worth (immediately after giving effect to such transaction), equal to or
greater than the Consolidated Net Worth of such Subsidiary Guarantor immediately
preceding the transaction; and (iv) the Company would be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant described below
under the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock."
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Subsidiary Guarantor, by way of merger, consolidation
or otherwise, or a sale or other disposition of all of the capital stock of any
Subsidiary Guarantor, then such Subsidiary Guarantor (in the event of a sale or
other disposition, by way of such a merger, consolidation or otherwise, of all
of the capital stock of such Subsidiary Guarantor) or the corporation acquiring
the property (in the event of a sale or other disposition of all of the assets
of such Subsidiary Guarantor) will be released and relieved of any obligations
under its Subsidiary Guarantee; provided that the Net Proceeds of such sale or
other disposition are applied in accordance with the applicable provisions of
the Indenture. See "-- Repurchase at Option of Holders--Asset Sales."
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<PAGE> 70
OPTIONAL REDEMPTION
The Senior Notes will not be redeemable at the Company's option prior to
April 1, 2002. Thereafter, the Senior Notes will be subject to redemption at any
time at the option of the Company, in whole or in part, upon not less than 30
nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on April 1 of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2002........................................................... 105.500%
2003........................................................... 103.667%
2004........................................................... 101.833%
2005 and thereafter............................................ 100.000%
</TABLE>
Notwithstanding the foregoing, prior to April 1, 2000, the Company may on
any one or more occasions redeem up to an aggregate of 33 1/3% of the original
aggregate principal amount of Senior Notes at a redemption price of 110% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the redemption date, with the net cash proceeds of an
offering of common stock of the Company; provided that at least 66 2/3% of the
aggregate principal amount of Senior Notes originally issued remain outstanding
immediately after the occurrence of such redemption; and provided, further, that
such redemption shall occur within 60 days of the date of the closing of such
offering.
SELECTION AND NOTICE
If less than all of the Senior Notes are to be redeemed at any time,
selection of Senior Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Senior Notes are listed, or, if the Senior Notes are not so
listed, on a pro rata basis, by lot or by such method as the Trustee shall deem
fair and appropriate; provided that no Senior Notes of $1,000 or less shall be
redeemed in part. Notices of redemption shall be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each Holder of
Senior Notes to be redeemed at its registered address. Notices of redemption may
not be conditional. If any Senior Note is to be redeemed in part only, the
notice of redemption that relates to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Senior Note in principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Senior Note. Senior Notes called for
redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on Senior Notes or portions of them
called for redemption.
MANDATORY REDEMPTION
Except as set forth below under "Repurchase at the Option of Holders," the
Company will not be required to make mandatory redemption or sinking fund
payments with respect to the Senior Notes. REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Senior Notes
will have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder's Senior Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest and Liquidated Damages, if any, to the date of
purchase (the "Change of Control Payment"). Within ten days following any Change
of Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Senior Notes on the date specified in such notice, which date
shall be no earlier than 30 days and no later than 60 days from the date such
notice is mailed (the "Change of Control Payment Date"), pursuant to the
procedures required by the Indenture and described in such notice. The Company
will comply with the requirements of Rule 14e-1 under the Exchange
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<PAGE> 71
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of the
Senior Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Senior Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Senior
Notes or portions thereof so tendered and (3) deliver or cause to be delivered
to the Trustee the Senior Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Senior Notes or portions
thereof being purchased by the Company. The Paying Agent will promptly mail to
each Holder of Senior Notes so tendered the Change of Control Payment for such
Senior Notes, and the Trustee will promptly authenticate and mail (or cause to
be transferred by book entry) to each Holder a Series B Note equal in principal
amount to any unpurchased portion of the Senior Notes surrendered, if any;
provided that each such Series B Note will be in a principal amount of $1,000 or
an integral multiple thereof. The Company will publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Senior Notes to require that the
Company repurchase or redeem the Senior Notes in the event of a takeover,
recapitalization or similar transaction.
The Company's other senior indebtedness contains prohibitions of certain
events that would constitute a Change of Control. In addition, the exercise by
the Holders of Senior Notes of their right to require the Company to repurchase
the Senior Notes could cause a default under such present or future senior
indebtedness, even if the Change of Control itself does not, due to the
financial effect of such repurchases on the Company. Finally, the Company's
ability to pay cash to the Holders of Senior Notes upon a repurchase may be
limited by the Company's then existing financial resources. See "Risk
Factors--Purchase of Series B Notes Upon a Change of Control."
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Senior Notes validly tendered and not withdrawn under such Change
of Control Offer.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act) other than the Principal or his Related Parties (as defined below), (ii)
the adoption of a plan relating to the liquidation or dissolution of the
Company, (iii) the consummation of the first transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above) becomes the "beneficial owner" (as defined above),
directly or indirectly, of more of the Voting Stock of the Company (measured by
voting power rather than number of shares) than is at the time "beneficially
owned" (as defined above) by the Principal and his Related Parties in the
aggregate or (iv) the first day on which a majority of the members of the Board
of Directors of the Company are not Continuing Directors.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of Senior Notes to require the Company
to repurchase such Senior Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was
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nominated for election or elected to such Board of Directors with the approval
of the Principal or a majority of the Continuing Directors who were members of
such Board at the time of such nomination or election.
"Principal" means Robert J. Tomsich.
"Related Party" with respect to the Principal means (A) any 80% (or more)
owned Subsidiary, or spouse or immediate family member (in the case of an
individual) of the Principal; or (B) any trust, corporation, partnership or
other entity, the beneficiaries, stockholders, partners, owners or Persons
beneficially holding an 80% or more controlling interest of which consist of the
Principal and/or such other Persons referred to in the immediately preceding
clause (A); or (C) the estate of the Principal until such estate is distributed
pursuant to his will or applicable state law.
The Revolving Credit Facility currently prohibits the Company from
repurchasing any Senior Notes, and also provides that certain change of control
events with respect to the Company would constitute a default thereunder. Any
future credit agreements or other agreements relating to Indebtedness to which
the Company becomes a party may contain similar restrictions and provisions. In
the event a Change of Control occurs at a time when the Company is prohibited
from purchasing Senior Notes, the Company could seek the consent of the lenders
under the Revolving Credit Facility or such future agreements relating to
Indebtedness to the purchase of Senior Notes or could attempt to refinance the
borrowings that contain such prohibition. If the Company did not obtain such a
consent or repay such borrowings, the Company would remain prohibited from
purchasing the Senior Notes. In such case, the Company's failure to purchase
tendered Senior Notes would constitute an Event of Default under the Indenture.
ASSET SALES
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the
Subsidiary, as the case may be) receives consideration at the time of such Asset
Sale at least equal to the fair market value (evidenced by a resolution of the
Board of Directors set forth in an Officers' Certificate delivered to the
Trustee) of the assets or Equity Interests issued or sold or otherwise disposed
of and (ii) at least 75% of the consideration therefor received by the Company
or such Subsidiary is in the form of cash; provided that the amount of (x) any
liabilities (as shown on the Company's or such Subsidiary's most recent balance
sheet), of the Company or any Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Senior Notes or such
Subsidiary's Subsidiary Guarantee thereof) that are assumed by the transferee of
any such assets pursuant to a customary novation agreement that releases the
Company or such Subsidiary from further liability and (y) any securities, notes
or other obligations received by the Company or any such Subsidiary from such
transferee that are immediately converted by the Company or such Subsidiary into
cash, shall be deemed to be cash (to the extent of the cash received) for
purposes of this clause (ii).
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to repay
Indebtedness under the Revolving Credit Facility or the Australian Revolving
Credit Facility or (b) to an investment in a Permitted Business through the
making of a capital expenditure or the acquisition of other assets. Pending the
final application of any such Net Proceeds, the Company may invest such Net
Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds
from Asset Sales that are not applied or invested as provided in the first
sentence of this paragraph will be deemed to constitute "Excess Proceeds." When
the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will
be required to make an offer to all Holders of Senior Notes (an "Asset Sale
Offer") to purchase the maximum principal amount of Senior Notes that may be
purchased out of the Excess Proceeds, at an offer price in cash in an amount
equal to 100% of the principal amount thereof plus accrued and unpaid interest
and Liquidated Damages thereon, if any, to the date of purchase, in accordance
with the procedures set forth in the Indenture. To the extent that the aggregate
amount of Senior Notes tendered pursuant to an Asset Sale Offer is less than the
Excess Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of Senior Notes
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Senior
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Notes to be purchased on a pro rata basis. Upon completion of such offer to
purchase, the amount of Excess Proceeds shall be reset at zero.
The Revolving Credit Facility currently prohibits the Company from
repurchasing any Senior Notes. Any future credit agreements or other agreements
relating to Indebtedness to which the Company becomes a party may contain
similar restrictions and provisions. In the event an Asset Sale Offer is
required to be made at a time when the Company is prohibited from purchasing
Senior Notes, the Company could seek the consent of the lenders under the
Revolving Credit Facility or such future agreements relating to Indebtedness to
the purchase of Senior Notes or could attempt to refinance the borrowings that
contain such prohibition. If the Company did not obtain such a consent or repay
such borrowings, the Company would remain prohibited from purchasing the Senior
Notes. In such case, the Company's failure to purchase tendered Senior Notes
would constitute an Event of Default under the Indenture.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend
or make any other payment or distribution on account of the Company's or any of
its Subsidiaries' Equity Interests (including, without limitation, any payment
in connection with any merger or consolidation involving the Company) or to the
direct or indirect holders of the Company's or any of its Subsidiaries' Equity
Interests in their capacity as such (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value (including
without limitation, in connection with any merger or consolidation involving the
Company) any Equity Interests of the Company or any direct or indirect parent of
the Company; (iii) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness that is
subordinated to the Senior Notes or the Subsidiary Guarantees, except a payment
of interest or principal at Stated Maturity; (iv) pay fees pursuant to, or make
any other distribution in respect of, the Management Agreement; or (v) make any
Restricted Investment (all such payments and other actions set forth in clauses
(i) through (v) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under caption "--Incurrence of Indebtedness
and Issuance of Preferred Stock;" and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Subsidiaries on or
after the date of the Indenture (excluding Restricted Payments permitted by
clause (ii), (iii), (v) or (vi) of the next succeeding paragraph and
excluding any Restricted Payment made on the date of the Indenture directly
by the Company with the proceeds of the Series A Notes Offering is less
than the sum of (i) 50% of the Consolidated Net Income of the Company for
the period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the date of the Indenture to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus (ii) 100% of the aggregate net cash proceeds received
by the Company from the issue or sale since the date of the Indenture of
Equity Interests of the Company (other than Disqualified Stock) or of
Disqualified Stock or debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary of
the Company and other than Disqualified Stock or convertible debt
securities that have been converted into Disqualified Stock), plus (iii) to
the extent that any Restricted Investment that was made after the date of
the
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Indenture is sold for cash or otherwise liquidated or repaid for cash, the
lesser of (A) the cash return of capital with respect to such Restricted
Investment (less the cost of disposition, if any) and (B) the initial
amount of such Restricted Investment.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
in exchange for, or out of the net cash proceeds of the substantially concurrent
sale (other than to a Subsidiary of the Company) of, other Equity Interests of
the Company (other than any Disqualified Stock); provided that the amount of any
such net cash proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from clause (c)
(ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase or
other acquisition of subordinated Indebtedness with the net cash proceeds from
an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any
dividend by a Subsidiary of the Company to the holders of its common Equity
Interests on a pro rata basis; and (v) payments by the Company or any Subsidiary
of the Company, directly or indirectly, to NES Group, Inc. to satisfy tax
obligations, in accordance with the Tax Payment Agreement as in effect on the
date of the Indenture; provided that such amounts do not exceed the amounts
that, without recognizing any tax loss carry forwards or carry backs, would
otherwise be due and owing if the Company and its Subsidiaries were an
independent, individual taxpayer; and (vi) so long as no Default or Event of
Default has occurred and is continuing or would occur as a result thereof, the
payment of fees pursuant to the Management Agreement, as in effect on the date
of the Indenture; provided that the amount of fees paid pursuant to the
Management Agreement in any calendar year shall not exceed an amount equal to
five percent of the Company's earnings before interest, taxes, depreciation,
amortization and miscellaneous expense (income).
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Subsidiary, as the
case may be, pursuant to the Restricted Payment. The fair market value of any
non-cash Restricted Payment shall be determined by the Board of Directors whose
resolution with respect thereto shall be delivered to the Trustee, such
determination to be based upon an opinion or appraisal issued by an accounting,
appraisal or investment banking firm of national standing if such fair market
value exceeds $5.0 million. Not later than the date of making any Restricted
Payment, the Company shall deliver to the Trustee an Officers' Certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by the covenant "Restricted Payments" were
computed, together with a copy of any fairness opinion or appraisal required by
the Indenture.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that the Company will not issue any Disqualified Stock and
will not permit any of its Subsidiaries to issue any shares of preferred stock;
provided, however, that the Company or a Subsidiary Guarantor may incur
Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock if
the Fixed Charge Coverage Ratio for the Company's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least 2 to 1, determined
on a pro forma basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period.
The Indenture also provides that the Company and any Subsidiary Guarantor
will not incur any Indebtedness (other than Existing Indebtedness) that is
contractually subordinated to any other Indebtedness of the Company or such
Subsidiary Guarantor, respectively, unless such Indebtedness is also
contractually subordinated to the Senior Notes or the Subsidiary Guarantee of
such Subsidiary Guarantor, respectively, on substantially identical terms;
provided, however, that no Indebtedness of the Company or any Subsidiary
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Guarantor shall be deemed to be contractually subordinated to any other
Indebtedness of the Company or such Subsidiary Guarantor, respectively, solely
by virtue of being unsecured.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company or any Subsidiary Guarantor of
Indebtedness under Credit Facilities; provided that the aggregate principal
amount of all Indebtedness (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of the Company
and its Subsidiaries thereunder) outstanding under all Credit Facilities
after giving effect to such incurrence, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any other
Indebtedness incurred pursuant to this clause (i), does not exceed an
amount equal to the greater of (x) $30.0 million and (y) the Borrowing
Base;
(ii) the incurrence by any Foreign Subsidiary of Indebtedness under
Foreign Credit Facilities; provided that the aggregate principal amount of
all Indebtedness (with letters of credit being deemed to have a principal
amount equal to the maximum potential liability of Foreign Subsidiaries
thereunder) outstanding under all Foreign Credit Facilities after giving
effect to such incurrence, including all Permitted Refinancing Indebtedness
incurred to refund, refinance or replace any other Indebtedness incurred
pursuant to this clause (ii), does not exceed an amount equal to the
greater of (x) $5.0 million and (y) the Foreign Borrowing Base;
(iii) the incurrence by the Company and its Subsidiaries of the
Existing Indebtedness;
(iv) the incurrence by the Company and the Subsidiary Guarantors of
Indebtedness represented by the Senior Notes and the Subsidiary Guarantees,
respectively;
(v) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations, sale and leaseback
transactions, mortgage financings, purchase money obligations, capital
expenditures or similar financing transactions, in each case with respect
to (A) the respective properties, assets and rights of the Company or such
Subsidiary as of the date of the Indenture, in an aggregate principal
amount (or accreted value, as applicable) at any time outstanding,
including all Permitted Refinancing Indebtedness incurred to refund,
refinance or replace any other Indebtedness incurred pursuant to this
clause (v), not to exceed $10.0 million or (B) any properties, assets or
rights of the Company or such Subsidiary acquired after the date of the
Indenture, provided that the aggregate principal amount of such
Indebtedness under this clause (v)(B) does not exceed 100% of the cost of
such properties, assets or rights;
(vi) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace any Indebtedness that was
permitted by the Indenture to be incurred;
(vii) the incurrence by the Company or any of the Subsidiary
Guarantors of intercompany Indebtedness between or among the Company and
any Subsidiaries that are Subsidiary Guarantors; provided, however, that
(i) if the Company or a Subsidiary Guarantor is the obligor on such
Indebtedness, such Indebtedness is expressly subordinated to the prior
payment in full in cash of all Obligations with respect to the Senior Notes
and the Subsidiary Guarantees, respectively, and (ii)(A) any subsequent
issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than the Company or a Subsidiary
Guarantor and (B) any sale or other transfer of any such Indebtedness to a
Person that is not either the Company or a Subsidiary Guarantor shall be
deemed, in each case, to constitute an incurrence of such Indebtedness by
the Company or such Subsidiary, as the case may be, that was not permitted
by this clause (vii);
(viii) the incurrence by the Company or any of its Subsidiaries of
Hedging Obligations in the ordinary course of business of the Company or
any of its Subsidiaries; and
(ix) the incurrence by the Company or any of its Subsidiaries of
additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including all
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Permitted Refinancing Indebtedness incurred to refund, refinance or replace
any other Indebtedness incurred pursuant to this clause (ix), not to exceed
$10.0 million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (ix) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof. Accrual of interest, the accretion of accreted
value and the payment of interest in the form of additional Indebtedness will
not be deemed to be an incurrence of Indebtedness for purposes of this covenant.
SALE AND LEASEBACK TRANSACTIONS
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, enter into any sale and leaseback transaction; provided
that the Company and any Subsidiary Guarantor may enter into a sale and
leaseback transaction if (i) the Company or such Subsidiary Guarantor could have
(a) (1) incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction pursuant to the Fixed Charge
Coverage Ratio test set forth in clause (i) of the covenant described above
under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock," or (2) incurred Indebtedness pursuant to clause (v) of the second
paragraph of the covenant described above under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock;" and (b) incurred a Lien to secure
such Indebtedness pursuant to the covenant described above under the caption
"--Liens," (ii) the gross cash proceeds of such sale and leaseback transaction
are at least equal to the fair market value (as determined in good faith by the
Board of Directors and set forth in an Officers' Certificate delivered to the
Trustee) of the property that is the subject of such sale and leaseback
transaction and (iii) the transfer of assets in such sale and leaseback
transaction is permitted by, and the Company or the applicable Subsidiary
Guarantor applies the proceeds of such transaction in compliance with, the
covenant described above under the caption "--Asset Sales."
LIENS
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer
to exist any Lien on any asset now owned or hereafter acquired, or any income or
profits therefrom or assign or convey any right to receive income therefrom,
except for Permitted Liens, unless the Senior Notes and the Subsidiary
Guarantees are secured on an equal and ratable basis with the obligations so
secured until such time as such obligations are no longer secured by a Lien.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Subsidiary to (i)(a) pay dividends or make any other
distributions to the Company or any of its Subsidiaries (1) on its Capital Stock
or (2) with respect to any other interest or participation in, or measured by,
its profits, or (b) pay any indebtedness owed to the Company or any of its
Subsidiaries, (ii) make loans or advances to the Company or any of its
Subsidiaries or (iii) transfer any of its properties or assets to the Company or
any of its Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (a) Existing Indebtedness as in effect on the date of the
Indenture, (b) the Indenture, the Senior Notes and the Subsidiary Guarantees,
(c) applicable law, (d) any instrument governing Indebtedness or Capital Stock
of a Person acquired by the Company or any of its Subsidiaries as in effect at
the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired; provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Indenture to be incurred, (e) by
reason of customary non-assignment provisions in leases or contracts entered
into in the ordinary course of
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business and consistent with past practices, (f) mortgages or other purchase
money obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired, or (g) Permitted Refinancing Indebtedness; provided that
the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Senior Notes and the Indenture pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee; (iii) immediately
after such transaction no Default or Event of Default exists; (iv) except in the
case of a merger of the Company with or into a Wholly Owned Subsidiary of the
Company, the Company or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (A) will have Consolidated Net Worth immediately after the transaction
equal to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction and (B) will, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant described above under the
caption "--Incurrence of Indebtedness and Issuance of Preferred Stock;" and (v)
each Subsidiary Guarantor, unless it is the other party to the transactions
described above, shall have by supplemental indenture confirmed that its
Subsidiary Guarantee shall apply to the Company's or the surviving Person's
obligations under the Indenture and the Senior Notes.
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Subsidiary than those that would have been obtained
in a comparable transaction by the Company or such Subsidiary with an unrelated
Person and (ii) the Company delivers to the Trustee (a) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $1.0 million, a resolution of the Board of
Directors set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above and that such Affiliate Transaction
has been approved by a majority of the disinterested members of the Board of
Directors and (b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $5.0
million, an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing; provided that (A) any employment
agreement entered into by the Company or any of its Subsidiaries in the ordinary
course of business and consistent with the past practice of the Company or such
Subsidiary, (B) transactions between or among the Company and/or its
Subsidiaries, (C) Restricted Payments that are permitted by the provisions of
the Indenture described above under the caption "-- Restricted Payments" and (D)
the payment by the Company or its Subsidiaries of reasonable and customary fees
to members of their respective Boards of Directors, in each case, shall not be
deemed Affiliate Transactions.
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LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED
SUBSIDIARIES
The Indenture provides that the Company (i) will not, and will not permit
any Wholly Owned Subsidiary of the Company to, transfer, convey, sell, lease or
otherwise dispose of any Capital Stock of any Wholly Owned Subsidiary of the
Company to any Person (other than the Company or a Wholly Owned Subsidiary of
the Company), unless (a) such transfer, conveyance, sale, lease or other
disposition is of all the Capital Stock of such Wholly Owned Subsidiary and (b)
the cash Net Proceeds from such transfer, conveyance, sale, lease or other
disposition are applied in accordance with the covenant described above under
the caption "--Repurchase at Option of Holders--Asset Sales," and (ii) will not
permit any Wholly Owned Subsidiary of the Company to issue any of its Equity
Interests (other than, if necessary, shares of its Capital Stock constituting
directors' qualifying shares) to any Person other than to the Company or a
Wholly Owned Subsidiary of the Company.
ADDITIONAL SUBSIDIARY GUARANTEES
The Indenture provides that if the Company or any of its Subsidiaries shall
after the date of the Indenture, (i) transfer or cause to be transferred in one
or a series of transactions (whether or not related), any assets, businesses,
divisions, real property or equipment having an aggregate fair market value (as
determined in good faith by the Board of Directors) in excess of $1.0 million to
any Subsidiary (other than a Foreign Subsidiary) that is not a Subsidiary
Guarantor; (ii) acquire or create another Subsidiary (other than a Foreign
Subsidiary); or (iii) any Subsidiary of the Company, that is not a Subsidiary
Guarantor, guarantees any Indebtedness of the Company other than the Senior
Notes, or pledges any of its assets to secure any Indebtedness of the Company
other than the Senior Notes, then the Company will cause such Subsidiary to (A)
execute and deliver to the Trustee a supplemental indenture in form and
substance reasonably satisfactory to the Trustee pursuant to which such
Subsidiary shall unconditionally Guarantee all of the Company's obligations
under the Senior Notes on the terms set forth in such supplemental indenture and
(B) deliver to the Trustee an opinion of counsel reasonably satisfactory to the
Trustee that such supplemental indenture has been duly executed and delivered by
such Subsidiary.
BUSINESS ACTIVITIES
The Company will not, and will not permit any Subsidiary to, engage in any
business other than Permitted Businesses, except to such extent as would not be
material to the Company and its Subsidiaries taken as a whole.
PAYMENTS FOR CONSENT
The Indenture provides that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration, whether
by way of interest, fee or otherwise, to any Holder of any Senior Notes for or
as an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Senior Notes unless such consideration is
offered to be paid or is paid to all Holders of the Senior Notes that consent,
waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
REPORTS
The Indenture provides that, from and after the earlier of the effective
date of the Exchange Offer Registration Statement and the effective date of the
Shelf Registration Statement, whether or not required by the rules and
regulations of the Commission, so long as any Senior Notes are outstanding, the
Company will furnish to the Holders of Senior Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if the Company were required to file such reports. In addition, whether or
not
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required by the rules and regulations of the Commission, the Company will file a
copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. In addition, the Company has agreed that, for so long as any Senior
Notes remain outstanding, it will furnish to the Holders, to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Senior Notes; (ii) default in
payment when due of the principal of or premium, if any, on the Senior Notes;
(iii) failure by the Company or any Subsidiary to comply with the provisions
described under the captions "--Repurchase at the Option of Holders--Change of
Control;" "--Repurchase at Option of Holders--Asset Sales;" "--Certain
Covenants--Restricted Payments;" "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock;" or "--Certain Covenants--Merger,
Consolidation, or Sale of Assets;" (iv) failure by the Company or any Subsidiary
for 60 days after notice to comply with any of its other agreements in the
Indenture or the Senior Notes; (v) default under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any of its
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Subsidiaries) whether such Indebtedness or guarantee now exists, or is created
after the date of the Indenture, which default (A)(i) is caused by a failure to
pay when due at final stated maturity (giving effect to any grace period related
thereto) any principal of or premium, if any, or interest on such Indebtedness
(a "Payment Default") or (ii) results in the acceleration of such Indebtedness
prior to its express maturity and (B) in each case, the principal amount of any
such Indebtedness as to which a Payment Default shall have occurred, together
with the principal amount of any other such Indebtedness under which there has
been a Payment Default or the maturity of which has been so accelerated,
aggregates $5.0 million or more; (vi) failure by the Company or any of its
Subsidiaries to pay final judgments aggregating in excess of $5.0 million, which
judgments are not paid, discharged or stayed within 60 days after their entry;
(vii) certain events of bankruptcy or insolvency with respect to the Company,
any of its Significant Subsidiaries or any group of Subsidiaries that, taken
together, would constitute a Significant Subsidiary; and (viii) the termination
of the Subsidiary Guarantee of any Subsidiary Guarantor for any reason not
permitted by the Indenture or the denial of any Person acting on behalf of any
Subsidiary Guarantor of its obligations under any such Subsidiary Guarantee.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Senior Notes
may declare all the Senior Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the Company, any
Significant Subsidiary or any group of Subsidiaries that, taken together, would
constitute a Significant Subsidiary, all outstanding Senior Notes will become
due and payable without further action or notice. Holders of the Senior Notes
may not enforce the Indenture or the Senior Notes except as provided in the
Indenture. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Senior Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Senior Notes notice of any continuing Default or Event of Default (except a
Default or Event of Default relating to the payment of principal or interest) if
it determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Senior Notes pursuant to
the optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Senior Notes. If an Event of Default occurs prior
to April 1, 2002 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Senior Notes prior
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to April 1, 2002, then the premium specified in the Indenture shall also become
immediately due and payable to the extent permitted by law upon the acceleration
of the Senior Notes.
The Holders of a majority in aggregate principal amount of the Senior Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the Senior Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the Senior Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Subsidiary Guarantor, as such, shall have any liability for any
obligations of the Company or any Subsidiary Guarantor under the Senior Notes,
the Indenture, the Subsidiary Guarantees or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each Holder of Senior
Notes by accepting a Senior Note waives and releases all such liability and such
waiver and release are part of the consideration for issuance of the Senior
Notes and the Subsidiary Guarantees. It is the position of the Securities and
Exchange Commission that, notwithstanding such waiver, holders of the Senior
Notes will continue to have all rights and remedies that are otherwise available
under the anti-fraud provisions of the federal securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company and the Subsidiary Guarantors may, at the option of their
respective Boards of Directors and at any time, elect to have all of their
respective obligations discharged with respect to the outstanding Senior Notes
and Subsidiary Guarantees ("Legal Defeasance") except for (i) the rights of
Holders of outstanding Senior Notes to receive payments in respect of the
principal of, premium, if any, and interest and Liquidated Damages on such
Senior Notes when such payments are due from the trust referred to below, (ii)
the Company's obligations with respect to the Senior Notes concerning issuing
temporary Senior Notes, registration of Senior Notes, mutilated, destroyed, lost
or stolen Senior Notes and the maintenance of an office or agency for payment
and money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company and the obligations of the Subsidiary Guarantors
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Senior Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to the Senior Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Senior Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest and
Liquidated Damages on the outstanding Notes on the stated maturity or on the
applicable redemption date, as the case may be, and the Company must specify
whether the Senior Notes are being defeased to maturity or to a particular
redemption date; (ii) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or (B) since
the date of the Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
opinion of counsel shall confirm that, the Holders of the outstanding Senior
Notes will not recognize income, gain or loss for federal income tax purposes as
a result of such Legal Defeasance and will be subject to federal income tax on
the
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same amounts, in the same manner and at the same times as would have been the
case if such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that the Holders of the outstanding Senior Notes will not recognize income, gain
or loss for federal income tax purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in
a breach or violation of, or constitute a default under any material agreement
or instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company must have delivered to the Trustee an opinion of counsel
to the effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vii) the
Company must deliver to the Trustee an Officers' Certificate stating that the
deposit was not made by the Company with the intent of preferring the Holders of
Senior Notes over the other creditors of the Company with the intent of
defeating, hindering, delaying or defrauding creditors of the Company or others;
and (viii) the Company must deliver to the Trustee an Officers' Certificate and
an opinion of counsel, each stating that all conditions precedent provided for
relating to the Legal Defeasance or the Covenant Defeasance have been complied
with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Senior Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Senior Note selected for redemption. Also, the Company is not required to
transfer or exchange any Senior Note for a period of 15 days before a selection
of Senior Notes to be redeemed.
The registered Holder of a Senior Note will be treated as the owner of it
for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture,
the Senior Notes or the Subsidiary Guarantees may be amended or supplemented
with the consent of the Holders of at least a majority in principal amount of
the Senior Notes then outstanding (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer
for, Senior Notes), and any existing default or compliance with any provision of
the Indenture, the Senior Notes or the Subsidiary Guarantees may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Senior Notes (including consents obtained in connection with a
tender offer or exchange offer for Senior Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Senior Notes held by a non-consenting Holder): (i) reduce
the principal amount of Senior Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any Senior Note or alter the provisions with respect to the redemption of the
Senior Notes (other than provisions relating to the covenants described above
under the caption "--Repurchase at the Option of Holders"), (iii) reduce the
rate of or change the time for payment of interest on any Senior Note, (iv)
waive a Default or Event of Default in the payment of principal of or premium or
Liquidated Damages, if any, or interest on the Senior Notes (except a rescission
of acceleration of the Senior Notes by the Holders of at least a majority in
aggregate principal amount of the Senior Notes and a waiver of the payment
default that resulted from such acceleration), (v) make any Senior Note payable
in money other than that stated in the Senior Notes, (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the
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rights of Holders of Senior Notes to receive payments of principal of or premium
or Liquidated Damages, if any, or interest on the Senior Notes, (vii) waive a
redemption payment with respect to any Senior Note (other than a payment
required by one of the covenants described above under the caption "--Repurchase
at the Option of Holders") or (viii) make any change in the foregoing amendment
and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Senior
Notes, the Company and the Trustee may amend or supplement the Indenture, the
Senior Notes or the Subsidiary Guarantees to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Senior Notes in addition to or in
place of certificated Senior Notes, to provide for the assumption of the
Company's obligations to Holders of Senior Notes in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the Holders of Senior Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder, or to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act or to allow any Subsidiary
Guarantor to guarantee the Senior Notes.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company or any Subsidiary Guarantor, to
obtain payment of claims in certain cases, or to realize on certain property
received in respect of any such claim as security or otherwise. The Trustee will
be permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding
Senior Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder of Senior Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
BOOK-ENTRY; DELIVERY AND FORM
The Series A Notes initially have been, and the Series B Notes initially
will be, represented by one or more Senior Notes in registered, global form
without interest coupons (collectively, the "Global Note"). The Global Note will
be deposited upon issuance with the Trustee as custodian for DTC, in New York,
New York, and registered in the name of DTC or its nominee, in each case for
credit to an account of a direct or indirect participant as described below.
Except as set forth below, the Global Note may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Note may not be exchanged for Senior
Notes in certificated form except in the limited circumstances described below.
See "--Exchange of Book-Entry Notes for Certificated Notes."
The Senior Notes may be presented for registration of transfer and exchange
at the offices of the Registrar.
DEPOSITORY PROCEDURES
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of Participants. The Participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. Access to DTC's system is also available to
other entities such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial
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relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may beneficially
own securities held by or on behalf of DTC only through the Participants or
Indirect Participants. The ownership interest and transfer of ownership interest
of each actual purchaser of each security held by or on behalf of DTC are
recorded on the records of the Participants and Indirect Participants.
DTC has also advised the Company that pursuant to procedures established by
it, (i) upon deposit of the Global Note, DTC will credit the accounts of
Participants designated by the Trustee with portions of the principal amount of
the Global Note and (ii) ownership of such interests in the Global Note will be
shown on, and the transfer ownership thereof will be effected only through,
records maintained by DTC (with respect to Participants) or by Participants and
the Indirect Participants (with respect to other owners of beneficial interests
in the Global Note).
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interest in the Global Note to such persons may be limited
to that extent. Because DTC can act only on behalf of Participants, which in
turn act on behalf of Indirect Participants and certain banks, the ability of a
person having a beneficial interest in the Global Note to pledge such interest
to persons or entities that do not participate in the DTC system, or otherwise
take actions in respect of such interests, may be affected by the lack of
physical certificate evidencing such interests. For certain other restrictions
on the transferability of the Senior Notes, see "--Exchange of Book-Entry Notes
for Certificated Notes."
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTE WILL NOT
HAVE SENIOR NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY
OF SENIOR NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED
OWNERS OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal and premium and Liquidated Damages, if
any, and interest on the Global Note registered in the name of DTC or its
nominee will be payable by the Trustee to DTC or its nominee in its capacity as
the registered holder under the Indenture. Under the terms of the Indenture, the
Company and the Trustee have treated, and will continue to treat, the persons in
whose names the Senior Notes, including the Global Note, are registered as the
owners thereof for the purpose of receiving such payments and for any and all
other purposes whatsoever. Consequently, neither the Company, the Trustee nor
any agent of the Company or the Trustee has or will have any responsibility or
liability for (i) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interests in the Global Note, or for maintaining, supervising or
reviewing any of DTC's records or any Participant's or Indirect Participant's
records relating to the beneficial ownership interests in the Global Note or
(ii) any other matter relating to the actions and practices of DTC or any of its
Participants or Indirect Participants.
DTC has advised the Company that its current practices, upon receipt of any
payment in respect of securities such as the Senior Notes (including principal
and interest), is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in principal amount of beneficial interests in the relevant security
such as the Global Note as shown on the records of DTC. Payments by Participants
and the Indirect Participants to the beneficial owners of Senior Notes will be
governed by standing instructions and customary practices and will not be the
responsibility of DTC, the Trustee or the Company. Neither the Company nor the
Trustee will be liable for any delay by DTC or its Participants in identifying
the beneficial owners of the Senior Notes, and the Company and the Trustee may
conclusively rely on and will be protected in relying on instructions from DTC
or its nominee as the registered owner of the Senior Notes for all purposes.
Interests in the Global Note will trade in DTC's Same-Day Funds Settlement
System and secondary market trading activity in such interests will therefore
settle in immediately available funds, subject in all cases to the rules and
procedures of DTC and its participants. Transfers between Participants in DTC
will be effected in accordance with DTC's procedures, and will be settled in
same-day funds.
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DTC has advised the Company that it will take any action permitted to be
taken by a holder of Senior Notes only at the direction of one or more
Participants to whose account DTC interests in the Global Note are credited and
only in respect of such portion of the aggregate principal amount of the Senior
Notes as to which such Participant or Participants has or have given direction.
However, if there is an Event of Default under the Senior Notes, DTC reserves
the right to exchange the Global Note for legended Senior Notes in certificated
form, and to distribute such Senior Notes to its Participants.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Note among participants in DTC, it is under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the Company nor the Trustee
will have any responsibility for the performance by DTC or its participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
The Global Note is exchangeable for definitive Senior Notes in registered
certificated form if (i) DTC (x) notifies the Company that it is unwilling or
unable to continue as depositary for the Global Note and the Company thereupon
fails to appoint a successor depositary or (y) has ceased to be a clearing
agency registered under the Exchange Act, (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of the
Senior Notes in certificated form or (iii) there shall have occurred and be
continuing to occur a Default or an Event of Default with respect to the Senior
Notes. In addition, beneficial interests in a Global Note may be exchanged for
certificated Senior Notes upon request but only upon at least 20 days' prior
written notice given to the Trustee by or on behalf of DTC in accordance with
customary procedures. In all cases, certificated Senior Notes delivered in
exchange for the Global Note or beneficial interest therein will be registered
in the names, and issued in any approved denominations, requested by or on
behalf of the depositary (in accordance with its customary procedures).
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in
the Global Note may, upon request to the Trustee, exchange such beneficial
interest for Senior Notes in the form of Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of, and cause the same to be delivered to, such person or persons (or
the nominee of any thereof). In addition, if (i) the Company notifies the
Trustee in writing that DTC is no longer willing or able to act as a depositary
and the Company is unable to locate a qualified successor within 90 days or (ii)
the Company, at its option, notifies the Trustee in writing that it elects to
cause the issuance of Senior Notes in the form of Certificated Securities under
the Indenture, then, upon surrender by the Global Note Holder of its Global
Note, Senior Notes in such form will be issued to each person that the Global
Note Holder and DTC identify as being the beneficial owner of the related Senior
Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or DTC in identifying the beneficial owners of Senior Notes
and the Company and the Trustee may conclusively rely on, and will be protected
in relying on, instructions from the Global Note Holder or DTC for all purposes.
NEXT DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Senior Notes
represented by the Global Note (including principal, premium, if any, interest
and Liquidated Damages, if any) be made by wire transfer of immediately
available next day funds to the accounts specified by the Global Note Holder.
With respect to Certificated Securities, the Company will make all payments of
principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available next day funds to the accounts specified by
the Holders thereof or, if no such account is specified, by mailing a check to
each such Holder's registered address. The Company expects that secondary
trading in the Certificated Securities will also be settled in immediately
available funds.
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REGISTRATION RIGHTS; LIQUIDATED DAMAGES
In connection with the Series A Notes Offering, the Company, the Subsidiary
Guarantors and the Initial Purchaser entered into the Registration Rights
Agreement. Pursuant to the Registration Rights Agreement, the Company and the
Subsidiary Guarantors agreed to file with the Commission the Registration
Statement of which this Prospectus is a part under the Securities Act with
respect to the Series B Notes. The Registration Rights Agreement provides that
if (i) the Company is not permitted to consummate the Exchange Offer because the
Exchange Offer is not permitted by applicable law or Commission policy or (ii)
any Holder of Transfer Restricted Securities (as defined) notifies the Company
prior to the 20th day following consummation of the Exchange Offer that (A) it
is prohibited by law or Commission policy from participating in the Exchange
Offer or (B) that it may not resell the Series B Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the prospectus
contained in the Registration Statement is not appropriate or available for such
resales or (C) that it is a broker-dealer and owns Series A Notes acquired
directly from the Company or an affiliate of the Company, the Company and the
Subsidiary Guarantors will file with the Commission a shelf registration
statement (the "Shelf Registration Statement") to cover resales of Transfer
Restricted Securities by the Holders thereof who satisfy certain conditions
relating to the provision of information in connection with such Shelf
Registration Statement. The Company and the Subsidiary Guarantors will use their
reasonable best efforts to cause the applicable registration statement to be
declared effective as promptly as possible by the Commission. For purposes of
the foregoing, "Transfer Restricted Securities" means each Senior Note, until
the earliest to occur of (i) the date on which such Senior Note has been
exchanged by a person other than a broker-dealer for a Series B Note in the
Exchange Offer, (ii) following the exchange by a broker-dealer in the Exchange
Offer of a Series A Note for a Series B Note, the date on which such Series B
Note is sold to a purchaser who receives from such broker-dealer on or prior to
the date of such sale a copy of the prospectus contained in the Registration
Statement, (iii) the date on which such Senior Note has been effectively
registered under the Securities Act and disposed of in accordance with the Shelf
Registration Statement or (iv) the date on which such Senior Note is distributed
to the public pursuant to Rule 144 under the Act.
The Registration Rights Agreement provides that (i) the Company and the
Subsidiary Guarantors will file the Registration Statement with the Commission
on or prior to 60 days after the Series A Issue Date, (ii) the Company and the
Subsidiary Guarantors will use their reasonable best efforts to have the
Registration Statement declared effective by the Commission on or prior to 150
days after the Series A Issue Date, (iii) unless the Exchange Offer would not be
permitted by applicable law or Commission policy, the Company will commence the
Exchange Offer and use its reasonable best efforts to issue on or prior to 30
business days after the date on which the Registration Statement is declared
effective by the Commission, Series B Notes in exchange for all Series A Notes
tendered prior thereto in the Exchange Offer and (iv) if obligated to file the
Shelf Registration Statement, the Company and the Subsidiary Guarantors will use
their reasonable best efforts to file the Shelf Registration Statement with the
Commission on or prior to 30 days after such filing obligation arises and to
cause the Shelf Registration to be declared effective by the Commission on or
prior to 150 days after such obligation arises. The Registration Rights
Agreement further provides that if (a) the Company and the Subsidiary Guarantors
fail to file any of the Registration Statements required by the Registration
Rights Agreement on or before the date specified for such filing, (b) any of
such Registration Statements is not declared effective by the Commission on or
prior to the date specified for such effectiveness (the "Effectiveness Target
Date"), or (c) the Company and the Subsidiary Guarantors fail to consummate the
Exchange Offer within 30 business days of the Effectiveness Target Date with
respect to the Registration Statement, or (d) the Shelf Registration Statement
or the Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted Securities
during the periods specified in the Registration Rights Agreement (each such
event referred to in clauses (a) through (d) above a "Registration Default"),
then the Company will pay Liquidated Damages to each Holder of Senior Notes,
with respect to the first 90-day period immediately following the occurrence of
the first Registration Default in an amount equal to $.05 per week per $1,000
principal amount of Senior Notes held by such Holder. The amount of the
Liquidated Damages will increase by an additional $.05 per week per $1,000
principal amount of Senior Notes with respect to each subsequent 90-day period
until all Registration Defaults have been cured, up to a maximum amount of
Liquidated Damages of $.50 per week per $1,000 principal
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amount of Senior Notes. All accrued Liquidated Damages will be paid by the
Company on each Damages Payment Date to the Global Note Holder by wire transfer
of immediately available funds or by federal funds check and to Holders of
Certificated Securities by wire transfer to the accounts specified by them or by
mailing checks to their registered addresses if no such accounts have been
specified. Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.
Holders of Series A Notes will be required to make certain representations
to the Company and the Subsidiary Guarantors (as described in the Registration
Rights Agreement) in order to participate in the Exchange Offer and will be
required to deliver information to be used in connection with the Shelf
Registration Statement and to provide comments on the Shelf Registration
Statement within the time periods set forth in the Registration Rights Agreement
in order to have their Series A Notes included in the Shelf Registration
Statement and benefit from the provisions regarding Liquidated Damages set forth
above.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that,
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control; provided, further, that in the case of a joint venture,
partnership, association or other business arrangement with any Person entered
into in the ordinary course of business, neither such Person nor the joint
venture, partnership, association or business arrangement shall be deemed to be
an Affiliate by reason of the preceding proviso.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory in the ordinary course of business
consistent with past practices (provided that the sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company and
its Subsidiaries taken as a whole will be governed by the provisions of the
Indenture described above under the caption "-- Repurchase at the Option of
Holders--Change of Control" and/or the provisions described above under the
caption "--Certain Covenants--Merger, Consolidation or Sale of Assets" and not
by the provisions of the Asset Sale covenant), and (ii) the issue or sale by the
Company or any of its Subsidiaries of Equity Interests of any of the Company's
Subsidiaries, in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $1.0 million or (b) for net proceeds in excess of $1.0
million. Notwithstanding the foregoing: (i) a transfer of assets by the Company
to a Wholly Owned Subsidiary or by a Wholly Owned Subsidiary to the Company or
to another Wholly Owned Subsidiary, (ii) an issuance of Equity Interests by a
Wholly Owned Subsidiary to the Company or to another Wholly Owned Subsidiary,
(iii) a Restricted Payment that is permitted by the covenant described above
under the caption "--Certain Covenants--Restricted Payments" and (iv)
dispositions of obsolete equipment in the ordinary course of business and
consistent with past practice, in each case, will not be deemed to be Asset
Sales.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease
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included in such sale and leaseback transaction (including any period for which
such lease has been extended or may, at the option of the lessor, be extended).
"Australian Revolving Credit Facility" means that certain Credit Facility,
dated as of February 10, 1997, by and among BCE and its Subsidiaries and the
lenders party thereto, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case, as amended, modified, renewed, refunded, replaced or refinanced from
time to time (together with any amendment, modification, renewal, refunding,
replacement or refinancing to or of any of the foregoing, including, without
limitation, any agreement modifying the maturity or amortization schedule of or
refinancing or refunding all or any portion of Indebtedness thereunder or
increasing the amount that may be borrowed under such agreement or any successor
agreement, whether or not among the same parties.
"Borrowing Base" means, as of any date, an amount equal to the sum of (a)
85% of the face amount of all accounts receivable owned by the Company and its
Subsidiaries (other than Foreign Subsidiaries) as of such date that are not more
than 60 days past due, and (b) 65% of the book value of all inventory owned by
the Company and its Subsidiaries (other than Foreign Subsidiaries) as of such
date, all calculated on a consolidated basis and in accordance with GAAP. To the
extent that information is not available as to the amount of accounts receivable
or inventory as of a specific date, the Company may utilize the most recent
available information for purposes of calculating the Borrowing Base.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case, with any lender party to the Revolving
Credit Facility or with any domestic commercial bank having capital and surplus
in excess of $500 million and a Thompson Bank Watch Rating of "B" or better,
(iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and (iii) above
entered into with any financial institution meeting the qualifications specified
in clause (iii) above and (v) commercial paper having the highest rating
obtainable from Moody's Investors Service, Inc. or Standard & Poor's Corporation
and in each case maturing within six months after the date of acquisition.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was included in computing such Consolidated Net Income,
plus (iii) consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation, amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other
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non-cash expenses (excluding any such non-cash expense to the extent that it
represents an accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income, less (v) non-cash items increasing such
Consolidated Net Income for such period, in each case, on a consolidated basis
and determined in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income (but not loss) of any Person that is not a Subsidiary or
that is accounted for by the equity method of accounting shall be included only
to the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income of any
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Subsidiary of that Net Income is not
at the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded and (iv) the cumulative effect of a change in accounting principles
shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments), and (z)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Credit Facilities" means, with respect to the Company or any of its
Subsidiaries (other than Foreign Subsidiaries), one or more debt facilities
(including, without limitation, the Revolving Credit Facility) or other debt
securities or commercial paper facilities with banks or other institutional
lenders providing for revolving credit loans or letters of credit, in each case,
as amended, restated, modified, renewed, refunded, replaced or refinanced in
whole or in part from time to time.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Senior Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means up to $6.3 million in aggregate principal
amount of Indebtedness of the Company and its Subsidiaries (other than
Indebtedness under the Revolving Credit Facility and the Australian Revolving
Credit Facility) in existence on the date of the Indenture, until such amounts
are repaid.
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"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of debt issuance costs and original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations) and (ii) the consolidated interest expense of such
Person and its Subsidiaries that was capitalized during such period, and (iii)
any interest expense on Indebtedness of another Person that is Guaranteed by
such Person or one of its Subsidiaries or secured by a Lien on assets of such
Person or one of its Subsidiaries (whether or not such Guarantee or Lien is
called upon) and (iv) the product of (a) all dividend payments, whether or not
in cash, on any series of preferred stock of such Person or any of its
Subsidiaries, other than dividend payments on Equity Interests payable solely in
Equity Interests of the Company, times (b) a fraction, the numerator of which is
one and the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of such Person, expressed as a decimal, in
each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by the Company or any of its Subsidiaries, including through mergers
or consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (iii) of
the proviso set forth in the definition of Consolidated Net Income, and (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the referent Person or any of its Subsidiaries following
the Calculation Date.
"Foreign Borrowing Base" means, as of any date, an amount equal to the sum
of (a) 85% of the face amount of all accounts receivable owned by Foreign
Subsidiaries of the Company as of such date that are not more than 60 days past
due, and (b) 65% of the book value of all inventory owned by Foreign
Subsidiaries of the Company as of such date, all calculated on a consolidated
basis and in accordance with generally accepted accounting principles. To the
extent that information is not available as to the amount of accounts receivable
or inventory as of a specific date, the Company may utilize the most recent
available information for purposes of calculating the Foreign Borrowing Base.
"Foreign Credit Facilities" means, with respect to any Foreign Subsidiary
of the Company, one or more debt facilities (including, without limitation, the
Australian Revolving Credit Facility) or other debt securities or commercial
paper facilities with banks or other institutional lenders providing for
revolving credit loans or letters of credit, in each case, as amended, restated,
modified, renewed, refunded, replaced or refinanced in whole or in part from
time to time.
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"Foreign Subsidiary" means any Subsidiary of the Company, more than 80% of
the sales, earnings or assets (determined on a consolidated basis) of which are
located or derived from operations outside the United States.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements, (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates and (iii) agreements entered into for the purpose of fixing or hedging the
risks associated with fluctuations in foreign currency exchange rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any indebtedness of any other Person. The amount of
any Indebtedness outstanding as of any date shall be (i) the accreted value
thereof, in the case of any Indebtedness that does not require current payments
of interest, and (ii) the principal amount thereof, together with any interest
thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Subsidiary of the Company sells or otherwise disposes of
any Equity Interests of any direct or indirect Subsidiary of the Company such
that, after giving effect to any such sale or disposition, such Person is no
longer a Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Equity Interests of such Subsidiary not sold or disposed of in an
amount determined as provided in the final paragraph of the covenant described
above under the caption "--Certain Covenants--Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Management Agreement" means that certain Management Agreement between
NESCO, Inc. and the Company dated as of April 1, 1997.
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"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary or nonrecurring gain (but not loss), together with any
related provision for taxes on such extraordinary or nonrecurring gain (but not
loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale (including, without limitation, legal, accounting and investment
banking fees, and sales commissions) and any relocation expenses incurred as a
result thereof, taxes paid or payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of such Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Businesses" means (i) the materials handling and processing
businesses and other businesses conducted by the Company and its Subsidiaries on
the date of the Indenture, (ii) businesses whose manufacturing, production,
sales or distribution requirements are complementary to such businesses and
(iii) any businesses reasonably related or similar thereto.
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly Owned Subsidiary of the Company that is a Subsidiary Guarantor that is
engaged in a Permitted Business; (b) any Investment in Cash Equivalents; (c) any
Investment by the Company or any Subsidiary of the Company in a Person, if as a
result of such Investment (i) such Person becomes a Wholly Owned Subsidiary of
the Company that is a Subsidiary Guarantor that is engaged in a Permitted
Business or (ii) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Wholly Owned Subsidiary of the Company that is
a Subsidiary Guarantor; (d) any Restricted Investment made as a result of the
receipt of non-cash consideration from an Asset Sale that was made pursuant to
and in compliance with the covenant described above under the caption
"--Repurchase at the Option of Holders--Asset Sales;" (e) any acquisition of
assets solely in exchange for the issuance of Equity Interests (other than
Disqualified Stock) of the Company; (f) any Investment by a Foreign Subsidiary
of the Company in any other Foreign Subsidiary of the Company; (g) any
Investment in any Person principally engaged in the manufacture, sale, provision
or distribution of Conveyor Equipment having an aggregate fair market value
(measured on the date each such Investment was made and without giving effect to
subsequent changes in value), when taken together with all other Investments
made pursuant to this clause (g) that are at the time outstanding, not to exceed
$6.5 million; and (h) other Investments in any Person principally engaged in a
Permitted Business having an aggregate fair market value (measured on the date
each such Investment was made and without giving effect to subsequent changes in
value), when taken together with all other Investments made pursuant to this
clause (h) that are at the time outstanding, not to exceed $7.5 million.
"Permitted Liens" means (i) Liens on assets securing Indebtedness under
Credit Facilities and Foreign Credit Facilities that was permitted by the terms
of the Indenture to be incurred; (ii) Liens securing Indebtedness incurred
pursuant to (A) the Fixed Charge Coverage Ratio test set forth under the first
paragraph of the covenant described under the caption "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock" or (B)
paragraph (ix) of the covenant described under the caption "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock" provided
that, in either case, such Indebtedness ranks, by its terms, pari passu with the
Senior Notes; (iii) Liens in favor of the Company; (iv) Liens on property of a
Person existing at the time such Person is merged into or consolidated
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with the Company or any Subsidiary of the Company; provided that such Liens were
in existence prior to the contemplation of such merger or consolidation and do
not extend to any assets other than those of the Person merged into or
consolidated with the Company; (v) Liens on property existing at the time of
acquisition thereof by the Company or any Subsidiary of the Company, provided
that such Liens were in existence prior to the contemplation of such
acquisition; (vi) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (vii) Liens to secure Indebtedness
(including Capital Lease Obligations) permitted by clause (iv) of the second
paragraph of the covenant entitled "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock" covering only the assets acquired
with such Indebtedness; (viii) Liens existing on the date of the Indenture; (ix)
Liens for taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate proceedings
promptly instituted and diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (x) Liens incurred in the ordinary course of business of the
Company or any Subsidiary of the Company with respect to obligations that do not
exceed $5.0 million at any one time outstanding and that (a) are not incurred in
connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (b) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by the Company or such
Subsidiary; and (xi) Liens arising by reason of (1) any attachment, judgment,
decree or order of any court, so long as such Lien is being contested in good
faith and is either adequately bonded or execution thereon has been stayed
pending appeal or review, and any appropriate legal proceedings which may have
been duly initiated for the review of such attachment, judgment, decree or order
shall not have been fully terminated or the period within which such proceedings
may be initiated shall not have expired; (2) security for payment of workers'
compensation or other insurance; (3) security for the performance of tenders,
bids, leases and contracts (other than contracts for the payment of money); (4)
operation of law in favor of carriers, warehousemen, landlords, mechanics,
materialmen, laborers, employees or suppliers, incurred in the ordinary course
of business for sums which are not yet delinquent or are being contested in good
faith by negotiations or by appropriate proceedings which suspend the collection
thereof; (5) any interest or title of a lessor under any lease; and (6)
easements, rights-of-way, zoning and similar covenants and restrictions and
other similar encumbrances or title defects which, in the aggregate, are not
substantial in amount and which do not in any case materially interfere with the
ordinary course of business of the Company or any of its Subsidiaries.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Subsidiaries; provided that: (i) the
principal amount (or accreted value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount of (or accreted
value, if applicable), plus accrued interest on, the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Senior Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Senior Notes on terms at least
as favorable to the Holders of Senior Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by
the Company or by the Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Restricted Investment" means an Investment other than a Permitted
Investment.
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"Revolving Credit Facility" means that certain Revolving Credit Facility,
dated as of March 28, 1997, by and among the Company, Continental and Goodman
and the lenders party thereto, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case, as amended, modified, renewed, refunded, replaced
or refinanced from time to time (together with any amendment, modification,
renewal, refunding, replacement or refinancing to or of any of the foregoing,
including, without limitation, any agreement modifying the maturity or
amortization schedule of or refinancing or refunding all or any portion of
Indebtedness thereunder or increasing the amount that may be borrowed under such
agreement or any successor agreement, whether or not among the same parties.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date of
the Indenture.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantor" means each of (i) Continental and Goodman and (ii)
any other Subsidiary that executes a Subsidiary Guarantee in accordance with the
provisions of the Indenture, and their respective successors and assigns.
"Tax Payment Agreement" means that certain Tax Payment Agreement among NES
Group, Inc., the Company, Continental and Goodman, dated as of April 1, 1997, as
in effect on the date of the Indenture.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Squire, Sanders & Dempsey L.L.P., counsel to the Company,
the following discussion describes the material federal income tax consequences
expected to result to holders whose Series A Notes are exchanged for Series B
Notes in the Exchange Offer. Such opinion is based on the tax laws of the United
States in effect on the date of this Prospectus, as well as judicial and
administrative interpretations thereof (in final or proposed form) available on
or before such date. There can be no assurance that the Internal Revenue Service
("Service") will not take a contrary view, and no ruling from the Service has
been or will be sought.
92
<PAGE> 94
The laws and interpretations thereof on which such opinion is based are subject
to change and any such change could apply retroactively.
The exchange of Series A Notes for Series B Notes pursuant to the Exchange
Offer will not be a taxable event to either the Company or the holders of the
Series A Notes for federal income tax purposes. A holder's holding period for
Series B Notes will include the holding period for Series A Notes. HOLDERS
SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES OF EXCHANGING SERIES A NOTES FOR SERIES B NOTES.
PLAN OF DISTRIBUTION
A broker-dealer that is the holder of Series A Notes that were acquired for
the account of such broker-dealer as a result of market-making or other trading
activities (other than Series A Notes acquired directly from the Company or any
affiliate of the Company) may exchange such Series A Notes for Series B Notes
pursuant to the Exchange Offer; provided, that each broker-dealer that receives
Series B Notes for its own account in exchange for Series A Notes, where such
Series A Notes were acquired by such broker-dealer as a result of market-making
or other trading activities, must acknowledge that it will deliver a prospectus
in connection with any resale of such Series B Notes. This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Series B Notes received in exchange for Series A
Notes where such Series A Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that for a period
of 120 days after consummation of the Exchange Offer, it will make this
Prospectus, as it may be amended or supplemented from time to time, available to
any broker-dealer for use in connection with any such resale. The Company will
not receive any proceeds from any sale of Series B Notes by broker-dealers or
any other holder of Series B Notes.
Series B Notes received by broker-dealers for their own account pursuant to
the Exchange Offer may be sold from time to time in one or more transactions in
the over-the-counter market, in negotiated transactions, through the writing of
options on the Series B Notes or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Series B Notes. Any
broker-dealer that resells Series B Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Series B Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Series B Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
For a period of 120 days after consummation of the Exchange Offer, the
Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Exchange Offer and to the Company's performance of, or
compliance with, the Registration Rights Agreement (other than commissions or
concessions of any brokers or dealers) and will indemnify the holders of the
Senior Notes (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters relating to the Series B Notes and the Subsidiary
Guarantees offered hereby will be passed upon for the Company by Squire, Sanders
& Dempsey L.L.P., Cleveland, Ohio.
93
<PAGE> 95
EXPERTS
The financial statements of Continental Global Group, Inc. at December 31,
1995 and 1996, and for each of the three years in the period ended December 31,
1996 and the financial statements of Hewitt-Robins as of and for the year ended
December 31, 1996, appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firms as experts in accounting and
auditing.
The consolidated financial statements of BCE Holdings Pty. Limited at June
30, 1995 and 1996 and December 31, 1996, and for each of the three years in the
period ended June 30, 1996 and for the six-month period ended December 31, 1996,
appearing in this Prospectus and Registration Statement have been audited by
Coopers & Lybrand, chartered accountants, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
94
<PAGE> 96
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
CONTINENTAL GLOBAL GROUP, INC.
Report of Independent Auditors........................................................ F-2
Balance Sheets as of December 31, 1995 and, 1996, and as of March 31, 1997
(unaudited)......................................................................... F-3
Statements of Income for each of the three years in the period ended
December 31, 1996, and for the three-month periods ended March 31, 1996 and 1997
(unaudited)......................................................................... F-4
Statements of Owner's Equity for each of the three years in the period ended December
31, 1996, and for the three-month period ended March 31, 1997 (unaudited)........... F-5
Statements of Cash Flows for each of the three years in the period ended December 31,
1996, and for the three-month periods ended March 31, 1996 and 1997 (unaudited)..... F-6
Notes to Financial Statements......................................................... F-7
BCE HOLDINGS PTY. LTD. ("BCE")
Report of Independent Accountant of BCE Holdings Pty. Limited......................... F-13
Consolidated Balance Sheets as of June 30, 1995, June 30, 1996, December 31, 1995
(unaudited) and December 31, 1996................................................... F-14
Consolidated Profit and Loss Statements for each of the three years in the period
ended June 30, 1996 and for the six-month periods ended December 31, 1995
(unaudited) and December 31, 1996................................................... F-15
Consolidated Statements of Changes in Shareholders' Equity for each of three years in
the period ended June 30, 1996 and for the six-month periods ended December 31, 1995
(unaudited) and December 31, 1996................................................... F-16
Consolidated Statements of Cash Flows for each of the three years in the period ended
June 30, 1996 and for the six-month periods ended December 31, 1995 (unaudited) and
December 31, 1996................................................................... F-17
Notes to and Forming Part of the Consolidated Financial Statements.................... F-18
HEWITT-ROBINS CONVEYOR COMPONENTS
Report of Independent Auditors........................................................ F-36
Balance Sheets as of December 31, 1996 and as of March 31, 1997 (unaudited)........... F-37
Statements of Income for the year ended December 31, 1996 and for the three-month
periods ended March 31, 1996 and 1997 (unaudited)................................... F-38
Statements of Division Equity for each of the three years in the period ended December
31, 1996 and for the three-month period ended March 31, 1997 (unaudited)............ F-39
Statements of Cash Flows for the year ended December 31, 1996, and for the three month
periods ended March 31, 1996 and 1997 (unaudited)................................... F-40
Notes to Financial Statements......................................................... F-41
</TABLE>
F-1
<PAGE> 97
REPORT OF INDEPENDENT AUDITORS
To the Stockholder
Continental Global Group, Inc.
We have audited the accompanying balance sheets of Continental Global Group,
Inc. and subsidiaries (see Note A) as of December 31, 1995 and 1996, and the
related statements of income, owner's equity and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Continental Global Group, Inc.
and subsidiaries at December 31, 1995 and 1996 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Ernst & Young LLP
March 7, 1997
Cleveland, Ohio
F-2
<PAGE> 98
CONTINENTAL GLOBAL GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, MARCH 31,
-------------------------- -----------
1995 1996 1997
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 294,697 $ 1,022,033 $ 1,207,498
Accounts receivable, less allowance for doubtful
accounts of $425,000 in 1995, $529,540 in 1996
and $141,718 in 1997............................ 19,037,284 17,789,662 25,456,543
Inventories........................................ 20,250,165 20,536,315 22,687,245
Other current assets............................... 1,007,512 1,097,211 1,293,241
----------- ----------- -----------
Total current assets............................ 40,589,658 40,445,221 50,644,527
Property, plant and equipment:
Land and improvements.............................. 83,624 91,865 250,865
Buildings and improvements......................... 3,101,465 3,132,320 4,272,216
Machinery and equipment............................ 5,578,751 6,262,091 12,480,112
Autos and trucks................................... 364,232 358,232 1,204,682
----------- ----------- -----------
9,128,072 9,844,508 18,207,875
Less accumulated depreciation...................... 4,030,495 4,944,877 7,442,790
----------- ----------- -----------
5,097,577 4,899,631 10,765,085
Goodwill............................................. 202,679 735,548 10,294,648
Other assets......................................... 304,869 418,484 427,370
----------- ----------- -----------
$46,194,783 $46,498,884 $72,131,630
=========== =========== ===========
LIABILITIES AND OWNER'S EQUITY
Current liabilities:
Note payable....................................... $14,302,279 $12,394,541 $18,876,684
Trade accounts payable............................. 11,195,750 10,942,282 18,844,471
Accrued compensation and employee benefits......... 3,476,691 3,927,214 2,630,478
Other accrued liabilities.......................... 4,244,675 3,098,074 5,795,207
Current maturities of long-term obligations........ 2,328,493 2,557,771 3,165,440
----------- ----------- -----------
Total current liabilities....................... 35,547,888 32,919,882 49,312,280
Long-term obligations, less current maturities....... 14,508,980 11,585,314 19,852,678
Owner's equity:
Partners' (deficiency) capital..................... (3,862,085) 1,993,688 --
Stockholder's equity:
Common stock, no par value, authorized 1,500
shares, issued and outstanding 100 shares at
stated value of $5 per share.................. -- -- 500
Paid in capital................................. -- -- 1,993,188
Retained earnings............................... -- -- 972,984
----------- ----------- -----------
(3,862,085) 1,993,688 2,966,672
----------- ----------- -----------
$46,194,783 $46,498,884 $72,131,630
=========== =========== ===========
</TABLE>
See Notes to Financial Statements
F-3
<PAGE> 99
CONTINENTAL GLOBAL GROUP, INC.
INCOME STATEMENTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------------- --------------------------
1994 1995 1996 1996 1997
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................ $114,024,939 $153,230,968 $143,524,007 $40,025,591 $47,075,637
Cost of products sold.... 94,284,684 124,948,185 114,716,416 32,282,433 37,697,172
------------ ------------ ------------ ----------- -----------
Gross profit........ 19,740,255 28,282,783 28,807,591 7,743,158 9,378,465
Operating expenses:
Selling and
engineering......... 7,316,577 8,248,260 9,666,060 2,265,186 2,508,337
General and
administrative...... 3,407,079 3,421,735 3,807,465 1,083,618 2,933,232
Management fee......... 1,736,332 2,102,412 3,186,751 849,311 775,966
Contract dispute
costs............... 2,338,021
------------ ------------ ------------ ----------- -----------
Total operating
expenses.......... 14,798,009 13,772,407 16,660,276 4,198,115 6,217,535
------------ ------------ ------------ ----------- -----------
Operating income.... 4,942,246 14,510,376 12,147,315 3,545,043 3,160,930
Other expenses (income):
Interest expense....... 1,492,709 2,506,060 2,889,398 785,125 1,186,863
Miscellaneous, net..... (166,273) 219,032 318,173 101,126 49,486
------------ ------------ ------------ ----------- -----------
Total other
expenses.......... 1,326,436 2,725,092 3,207,571 886,251 1,236,349
------------ ------------ ------------ ----------- -----------
Income before
extraordinary item and
foreign income taxes... 3,615,810 11,785,284 8,939,744 2,658,792 1,924,581
Foreign income tax
credit.............. (250,000)
------------ ------------ ------------ ----------- -----------
Income before
extraordinary item..... 3,615,810 11,785,284 8,939,744 2,658,792 2,174,581
Extraordinary item-gain
on extinguishment of
debt................... 932,145 932,145
------------ ------------ ------------ ----------- -----------
Net income.......... $ 3,615,810 $ 11,785,284 $ 9,871,889 $ 3,590,937 $ 2,174,581
============ ============ ============ =========== ===========
Tax adjusted pro forma
data:
Income before income
taxes and extraordinary
item................... $ 3,615,810 $ 11,785,284 $ 8,939,744 $ 2,658,792 $ 1,924,581
Income taxes -- Note B... 1,447,403 4,680,460 3,748,702 1,095,660 935,998
------------ ------------ ------------ ----------- -----------
Income before
extraordinary item..... 2,168,407 7,104,824 5,191,042 1,563,132 988,583
Extraordinary
item -- gain on
extinguishment of debt,
net of income taxes.... 559,288 559,288
------------ ------------ ------------ ----------- -----------
Net income.......... $ 2,168,407 $ 7,104,824 $ 5,750,330 $ 2,122,420 $ 988,583
============ ============ ============ =========== ===========
</TABLE>
See Notes to Financial Statements
F-4
<PAGE> 100
CONTINENTAL GLOBAL GROUP, INC.
STATEMENT OF OWNER'S EQUITY
<TABLE>
<CAPTION>
PARTNERS'
CAPITAL COMMON PAID-IN RETAINED
(DEFICIENCY) STOCK CAPITAL EARNINGS TOTAL
------------ ------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994......... $ 6,447,922 $ 6,447,922
Net income......................... 3,615,810 3,615,810
Contributions...................... 261,140 261,140
Distributions...................... (1,447,403) (1,447,403)
------------ ---- ---------- ----------- ------------
Balance at December 31, 1994....... 8,877,469 8,877,469
Net income......................... 11,785,284 11,785,284
Contributions...................... 155,622 155,622
Distributions...................... (24,680,460) (24,680,460)
------------ ---- ---------- ----------- ------------
Balance (deficiency) at December
31, 1995......................... (3,862,085) (3,862,085)
Net income......................... 9,871,889 9,871,889
Distributions...................... (4,121,559) (4,121,559)
Equity adjustment for foreign
currency translation............. 105,443 105,443
------------ ---- ---------- ----------- ------------
Balance at December 31, 1996....... 1,993,688 1,993,688
Transfer of Partners' Capital and
formation of Continental Global
Group, Inc....................... (1,993,688) $500 $1,993,188 $ 0
Net income (unaudited)............. $ 2,174,581 2,174,581
Distributions (unaudited).......... (1,185,998) (1,185,998)
Equity adjustment for foreign
currency translation
(unaudited)...................... (15,599) (15,599)
------------ ---- ---------- ----------- ------------
Balance at March 31, 1997
(unaudited)...................... $ 0 $500 $1,993,188 $ 972,984 $ 2,966,672
============ ==== ========== =========== ============
</TABLE>
See Notes to Financial Statements
F-5
<PAGE> 101
CONTINENTAL GLOBAL GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------- -----------------------
1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income....................... $3,615,810 $11,785,284 $9,871,889 $3,590,937 $2,174,581
Adjustments to reconcile net
income to net cash provided by
(used in) operating
activities:
Deferred foreign income tax
credit...................... (250,000)
Extraordinary gain on
extinguishment of debt...... (932,145) (932,145)
Provision for depreciation and
amortization................ 766,349 893,852 1,012,154 249,490 588,598
Changes in operating assets
and liabilities:
(Increase) decrease in
accounts receivable...... (5,413,981) (4,276,665) 657,816 884,274 31,119
(Increase) decrease in
inventory................ (4,460,752) (2,660,009) (59,156) 1,593,187 (72,930)
(Increase) decrease in other
assets................... (585,771) 5,443 (224,311) 34,615 173,424
Increase (decrease) in trade
accounts payable and
other current
liabilities.............. 4,280,950 4,802,188 (453,670) (1,585,029) (3,500,414)
---------- ----------- ---------- ---------- ----------
Net cash provided by
(used in) operating
activities.......... (1,797,395) 10,550,093 9,872,577 3,835,329 (855,622)
Investing activities:
Purchase of property, plant and
equipment (net)............... (1,181,292) (793,731) (617,981) (189,597) (539,367)
Purchase of BCE, net of notes to
seller........................ (7,189,125)
Purchase of CCE Pty., less cash
acquired...................... 20,153 20,153
---------- ----------- ---------- ---------- ----------
Net cash used in
investing activities... (1,181,292) (793,731) (597,828) (169,444) (7,728,492)
Financing activities:
Net (decrease) increase in
borrowings on note payable.... (372,191) 6,974,533 (1,907,738) (786,533) 6,482,143
Increase in long-term
obligations................... 6,412,507 4,117,703
Principal payments on long-term
obligations................... (1,011,212) (180,097) (2,556,702) (712,780) (628,670)
Partnership contributions........ 261,140 155,622
Distributions for income taxes... (1,447,403) (4,680,460) (4,121,559) (1,468,517) (1,185,998)
Other distributions.............. (20,000,000)
---------- ----------- ---------- ---------- ----------
Net cash (used in)
provided by financing
activities............. (2,569,666) (11,317,895) (8,585,999) (2,967,830) 8,785,178
Effect of exchange rate on cash.... 38,586 1,358 (15,599)
---------- ----------- ---------- ---------- ----------
(Decrease) increase in cash and
cash equivalents................. (5,548,353) (1,561,533) 727,336 699,413 185,465
Cash and cash equivalents at
beginning of year................ 7,404,583 1,856,230 294,697 294,697 1,022,033
---------- ----------- ---------- ---------- ----------
Cash and cash equivalents at end of
year............................. $1,856,230 $ 294,697 $1,022,033 $ 994,110 $1,207,498
========== =========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements
F-6
<PAGE> 102
CONTINENTAL GLOBAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
A. ORGANIZATION AND BUSINESS
Continental Global Group, Inc. (the "Company") was formed on February 4,
1997, for the purpose of owning all of the stock of Continental Conveyor &
Equipment Company ("CCE") and Goodman Conveyor Company ("GCC"). The Company,
which is a holding company with no assets and operations other than its
investments in its subsidiaries, is a Subchapter S Corporation owned 100% by NES
Group, Inc.
Prior to January 1, 1997, CCE and GCC were limited partnerships under
common control by NES Group, Inc., the 99% limited partner. Both entities
manufacture and distribute bulk material handling and replacement equipment,
primarily for use in the mining industry.
Effective January 1, 1997, NES Group, Inc., transferred its interest in the
limited partnerships to CCE and GCC. Effective February 1997, NES Group, Inc.
transferred to Continental Global Group, Inc. all of the outstanding capital
stock of CCE and GCC.
B. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The financial statements include the accounts of CCE and its wholly-owned
subsidiaries and GCC. All significant intercompany accounts and transactions
have been eliminated.
BASIS OF PRESENTATION
The accompanying unaudited financial statements of the Company as of March
31, 1997, and for the three-month periods ended March 31, 1996 and 1997 have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-months ended March 31, 1997 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1997.
REVENUE RECOGNITION
The Company generally recognizes revenue from sales at the time of shipment
rather than at the time a contract is awarded.
CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents.
INVENTORIES
Inventories, which consist of raw materials, manufactured and purchased
parts, and work in process are stated at the lower of cost or market. Since
inventory records are maintained on a job order basis, it is not practical to
segregate inventories into their major classes. The cost for approximately 88%
of inventories is determined using the last-in, first-out ("LIFO") method with
the remainder determined using the first-in, first-out ("FIFO") method. Had the
FIFO method of inventory (which approximates replacement cost) been used to cost
all inventories, inventories would have increased by approximately $2,220,000 at
both December 31, 1995 and December 31, 1996.
F-7
<PAGE> 103
CONTINENTAL GLOBAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is computed
using the straight-line method based on the expected useful lives of the assets,
which are as follows:
<TABLE>
<S> <C>
Buildings and improvements................ 31.5 years
Machinery and equipment................... 7 years
Autos and trucks.......................... 5 years
</TABLE>
GOODWILL
Goodwill is being amortized on a straight-line basis, primarily over 40
years. The ongoing value and remaining useful life of goodwill are subject to
periodic evaluation and the Company currently expects the carrying amounts to be
fully recoverable. If events and circumstances indicate that goodwill might be
impaired, an undiscounted cash flow methodology would be used to determine
whether an impairment loss should be recognized.
INCOME TAXES
The Company's United States operations are not subject to income tax as
separate entities. The Company's United States income is included in the income
tax returns of the stockholder. A charge in lieu of income taxes has been
included for pro forma purposes only. The pro forma income taxes approximate an
amount based on applicable rates adjusted for permanent differences which are
not taxable or deductible for income tax purposes, except that no recognition is
given for a net operating loss.
The Company's Australian subsidiary (BCE--See Note H) is subject to
Australian income taxes. During the first quarter of 1997 a foreign income tax
credit was recorded of $250,000 due to a net operating loss by BCE of $729,000.
BCE has historically been a profitable company and the Company anticipates that
BCE will be profitable for the year ending December 31, 1997.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1995 and 1996, and as of March 31, 1997, the carrying value
of cash equivalents, accounts receivable and long-term debt approximated fair
value.
F-8
<PAGE> 104
CONTINENTAL GLOBAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
C. FINANCING ARRANGEMENTS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, MARCH 31,
-------------------------- -----------
1995 1996 1997
<S> <C> <C> <C>
Term loan to bank amended in 1996 and refinanced
during 1995, payable in monthly installments of
$185,714 plus interest at 10.00%.................... $14,857,144 $12,628,576 $16,459,711
Australian Seller Notes, interest at 7%, payable
monthly, due February 2002.......................... 4,542,000
Subordinated secured promissory note, renegotiated in
1996, interest at 7.00%............................. 1,027,511 300,000 300,000
Subordinated note payable to an affiliate, interest at
prime rate plus 1.00%, payable annually in
arrears............................................. 350,000 350,000 350,000
Note payable by CCE Pty Ltd........................... 267,398 67,000
Obligations under capital leases...................... 602,818 597,111 1,299,407
----------- ----------- -----------
16,837,473 14,143,085 23,018,118
Less current maturities............................... 2,328,493 2,557,771 3,165,440
----------- ----------- -----------
$14,508,980 $11,585,314 $19,852,678
=========== =========== ===========
</TABLE>
Maturities of long-term obligations are as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------
1995 1996
<S> <C> <C>
1997................... $ 3,714,749 $ 2,557,771
1998................... 2,346,757 2,917,291
1999................... 2,309,428 2,529,997
2000................... 2,281,361 2,281,361
2001 and thereafter.... 6,185,178 3,856,665
----------- -----------
$16,837,473 $14,143,085
=========== ===========
</TABLE>
Effective December 13, 1996, the Company amended the Credit Facility and
Security Agreement to increase and extend the payment terms on the Term Loan, to
change the rate of interest on the Revolving Credit Agreement and the Term Loan
and modify and replace certain financial covenants and definitions contained in
the Loan Agreement. All borrowings under the Revolving Credit Agreement and Term
Loan were repaid on April 1, 1997 with the proceeds of the Series A Notes -- See
Note H.
Under the terms of the revolving credit agreement, the Company has a
maximum credit limit of $25,000,000 with approximately $10,698,000 and
$12,605,000 available for use at December 31, 1995 and 1996, respectively, with
interest at prime (8.50% plus 75% and 8.25% plus 1.00% at December 31, 1995 and
1996, respectively). This note is secured by the assets of the Company and
limits certain transactions with affiliates.
During 1996, GCC negotiated an early extinguishment of the subordinated
secured promissory note that resulted in an extraordinary gain of $932,145. A
new, $500,000 subordinated secured promissory note was issued in full settlement
of previous obligations. The amount outstanding on this note at December 31,
1996 is $300,000. This note is secured by a letter of credit.
During 1995 and 1996 the Company paid interest of $2,384,514 and
$2,844,422, respectively.
F-9
<PAGE> 105
CONTINENTAL GLOBAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
D. CAPITAL LEASES
A subsidiary of CCE has a capital lease for land and building with a lease
term of ten years which contains a purchase option exercisable at any time. The
land and building are recorded on the books at $400,000 and the building is
depreciated using the straight-line method over 31.5 years. Monthly payments of
$5,000 (includes principal and interest at 9.00%) will be made over the life of
the lease or until CCE exercises the purchase option.
CCE has a capital lease for computer equipment with a lease term of 5 years
at a monthly payment of $3,934. The computer equipment, originally capitalized
at $199,308, is being amortized over 5 years.
GCC has several capital lease agreements for certain manufacturing
equipment with aggregate capitalized cost of $161,875, which is being amortized
over 5 years.
E. EMPLOYEE BENEFIT PLANS
CCE maintains a defined benefit plan covering all union hourly-paid
employees at the Winfield plant. The contributions of CCE are made in amounts
sufficient to fund the plan's service cost on a current basis and meet the
minimum funding requirements of the Employee Retirement Income Security Act of
1974, as amended. Actuarial gains and losses are amortized over a 15 year
period, and funding of the initial past service costs plus interest therein is
over a 30 year period. The actuarial computations use the "projected unit credit
cost method," which assumed a discount rate on benefit obligations of 8.50% in
1995 and 8.00% in 1996 and an expected long-term rate of return on plan assets
of 8.00% in both 1995 and 1996.
The net pension cost is comprised of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1995 1996
<S> <C> <C>
Service cost benefits earned during the period...................... $ 70,898 $ 87,021
Interest cost on projected benefit obligation....................... 197,599 221,332
Actual return on plan assets........................................ (419,008) (401,594)
Net amortization and deferral....................................... 544,352 267,702
---------- ----------
Total net periodic pension cost..................................... $ 393,841 $ 174,461
========== ==========
</TABLE>
The actuarial computed benefit obligations and trusteed net assets are
presented below as of December 31, 1995 and 1996. Plan assets are stated at fair
value and are composed primarily of common stocks and money market funds.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------
1995 1996
<S> <C> <C>
Plan assets at fair value........................................... $2,706,729 $3,470,702
Actuarial present value of accumulated and projected benefit
obligations, including vested benefits of $2,685,943 and
$2,956,576 in 1995 and 1996, respectively......................... 2,758,990 3,037,552
---------- ----------
Excess (deficiency) of plan assets over projected benefit
obligations....................................................... (52,261) 433,150
Unrecognized prior service costs.................................... 293,160 175,896
Unrecognized net (gain)............................................. (417,116) (565,010)
Unrecognized net asset.............................................. (16,236) (13,530)
---------- ----------
Pension (liability) assets.......................................... $ (192,453) $ 30,506
========== ==========
</TABLE>
CCE also maintains a defined contribution plan covering substantially all
salaried and non-union hourly employees. CCE makes annual contributions
($443,346 and $400,000 in 1995 and 1996, respectively) which fully fund
retirement benefits. No participant contributions to the plan are permitted. CCE
also maintains a
F-10
<PAGE> 106
CONTINENTAL GLOBAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
defined contribution savings and profit sharing plan which covers substantially
all salaried and non-union hourly employees. Employees may elect to contribute
up to 16.00% of their compensation. CCE will match ($227,421 and $266,437 in
1995 and 1996, respectively) a percentage of employee contributions up to 6.00%
of each employee's compensation.
GCC has a retirement savings plan covering all employees meeting certain
eligibility requirements. Under the terms of the plan, GCC voluntarily makes
annual cash contributions based on eligible employees' compensation. Expense for
the years ended December 31, 1995 and 1996 were $144,244 and $158,407,
respectively, which was equal to 3.00% of eligible employees compensation.
F. RELATED PARTY TRANSACTIONS
Management fees are charged by Nesco, Inc. to provide general management
oversight services, including legal, financial, strategic planning and business
development evaluation for the benefit of the Company.
G. CONCENTRATION OF RISK
Accounts receivable from customers in the coal mining industry were
approximately 56% at both December 31, 1995 and 1996, and sales to the coal
mining industry during 1995 and 1996 totaled approximately 47% and 45% of net
sales. The Partnerships perform periodic credit evaluations of their customers'
financial condition and generally do not require collateral. Credit losses
relating to customers in the coal mining industry have consistently been within
management's expectations and are comparable to losses for the portfolio as a
whole.
In April 1995, a compromise settlement was reached between CCE and a
customer for outstanding issues related to a 1994 project. Accordingly, the
contract settlement costs of $2,338,021 were recorded as of December 31, 1994.
H. ACQUISITION AND DEBT ISSUANCE
In February 1996, CCE purchased the remaining 50% interest in CCE Pty.
Ltd., a joint venture in Australia at a cost of approximately $670,000, and
currently owns 100%. The acquisition was accounted for as a purchase. As of
December 31, 1996, CCE Pty. Ltd. had total assets of $1,854,000, total
liabilities of $1,632,000, and net assets of $222,000.
On January 7, 1997, the Company purchased the assets of BCE Holding Company
Pty Ltd. in Australia (BCE), a major manufacturer and supplier of conveyor
equipment with net sales in 1996 of $32.6 million (U.S. Dollars). The purchase
price was $11,946,000 (U.S. dollars). In addition, the Company contributed
$3,512,000 in capital to BCE after the acquisition. Financing consisted of an
advance on the revolving credit line of approximately $6,800,000, an addition to
the existing term loan of approximately $4,500,000, and approximately $4,800,000
in seller financing. The transaction was accounted for as a purchase. The final
F-11
<PAGE> 107
CONTINENTAL GLOBAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
purchase price allocation will be based upon a final determination of the fair
values of the net assets acquired. The table below reflects the current value of
the net assets acquired of BCE:
<TABLE>
<S> <C>
Accounts receivable............................... $ 7,698,000
Inventory......................................... 2,078,000
Property, plant and equipment..................... 5,832,000
Goodwill.......................................... 9,635,000
Other assets...................................... 385,000
Accounts payable.................................. (5,954,000)
Other liabilities................................. (7,099,000)
Notes payable..................................... (629,000)
-----------
Acquisition cost.................................. $ 11,946,000
===========
</TABLE>
Summarized results of operations for BCE for the three months ended March
31, 1997 are as follows:
<TABLE>
<S> <C>
Net sales.............................................. $6,834
Cost of products sold.................................. 5,212
------
Gross profit........................................... 1,622
Operating costs........................................ 2,218
------
Operating (loss)....................................... (596)
Interest expense....................................... 164
Miscellaneous, net..................................... (31)
------
Loss before income taxes............................... (729)
Income tax credit...................................... 250
------
Net loss............................................. $ 479
======
</TABLE>
On April 1, 1997, the Company acquired substantially all of the assets of
the Hewitt-Robins Conveyor Components Division of W. S. Tyler, Incorporated, a
manufacturer of idlers with net sales in 1996 of $15.1 million (the
"Hewitt-Robins Acquisition"). The purchase price for the Hewitt-Robins
Acquisition was approximately $12.6 million in cash plus assumption of
approximately $1.1 million of liabilities, subject to a negotiated price
adjustment for working capital.
On April 1, 1997, the Company issued $120 million in Series A Notes due
2007. Interest on the notes is payable semi-annually in cash in arrears. The
Senior Notes are redeemable at the option of the Company, in whole or in part,
any time on or after 2002. The proceeds of the Notes were utilized as follows:
<TABLE>
<S> <C>
Gross proceeds of Series A Notes.................. $120,000,000
Dividend to stockholder........................... (40,000,000)
Repayment of note payable......................... (18,876,684)
Repayment of term loan............................ (16,459,711)
Repayment of subordinated notes................... (650,000)
Acquisition of Hewitt-Robins...................... (12,641,000)
Fees.............................................. (4,800,000)
-----------
Excess cash from proceeds......................... $ 26,572,605
===========
</TABLE>
CCE and GCC, both wholly owned subsidiaries of the Company, are the only
guarantors with respect to the Series A Notes. The guarantees are full,
unconditional and joint and several. As of December 31, 1996, separate financial
statements of these guarantor subsidiaries are not presented as management has
determined that they would not be material to investors and the assets,
liabilities and operations of CCE Pty. Ltd. were not material to the Company.
F-12
<PAGE> 108
REPORT OF INDEPENDENT ACCOUNTANT OF BCE HOLDINGS PTY. LIMITED
SCOPE
We have audited the consolidated special purpose balance sheets of BCE
Holdings Pty Limited as of 31 December 1996, 30 June 1996 and 30 June 1995 and
the related consolidated statements of profit and loss, changes in shareholders'
equity and cash flows for the six months period ended 31 December 1996 and for
each of the three years in the period ended 30 June 1996. The company's
directors are responsible for the financial statements and the information they
contain. We have conducted an independent audit of these financial statements in
order to express an opinion on them.
Our audit has been conducted in accordance with Australian Auditing
Standards which are generally accepted in Australia and are substantially the
same as auditing standards generally accepted in the United States. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. Our procedures included examination, on a test basis, of evidence
supporting the amounts and other disclosures in the financial statements and the
evaluation of significant accounting estimates.
AUDIT OPINION
In our opinion, the consolidated financial statements of BCE Holdings Pty
Limited present fairly in all material respects the financial position of BCE
Holdings Pty Limited as of 31 December 1996, 30 June 1996 and 1995 and the
results of its operations and cash flows for the six month period ended 31
December 1996 and for each of the years ended 30 June 1996, 1995 and 1994 in
conformity with accounting principles generally accepted in Australia.
Accounting principles generally accepted in Australia differ in certain
respects from those followed in the United States. Application of United States
generally accepted accounting principles would have affected shareholders'
equity and net profit to the extent summarised in Note 29 to the consolidated
financial statements.
COOPERS & LYBRAND
Chartered Accountants
J A Gordon
Partner
Newcastle
March 11, 1997
F-13
<PAGE> 109
BCE HOLDINGS PTY LIMITED AND
CONTROLLED ENTITIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
------------------- ----------------------
NOTES 1995 1996 1995 1996
(UNAUDITED)
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash..................................... 6 $ 776 $ 208 $ 616 $ 11
Receivables.............................. 7 7,388 9,271 9,672 9,725
Inventories.............................. 8 3,522 3,801 4,330 2,626
Other.................................... 9 7 59 104 102
------- ------- ------- -------
Total current assets.................. 11,693 13,339 14,722 12,464
------- ------- ------- -------
Non current assets:
Property, plant and equipment............ 10 5,339 5,882 5,646 5,713
Other.................................... 11 286 362 286 382
Intangibles.............................. 12 2 2 2 2
------- ------- ------- -------
Total non current assets.............. 5,627 6,246 5,934 6,097
------- ------- ------- -------
Total assets.......................... $17,320 $19,585 $20,656 $18,561
======= ======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Creditors and borrowings................. 13 $10,801 $10,039 $11,447 $12,510
Provisions............................... 14 881 2,687 2,249 2,832
------- ------- ------- -------
Total current liabilities............. 11,682 12,726 13,696 15,342
------- ------- ------- -------
Non current liabilities:
Creditors and borrowings................. 15 1,727 347 374 281
Provisions............................... 16 103 193 157 232
------- ------- ------- -------
Total non current liabilities......... 1,830 540 531 513
------- ------- ------- -------
Total liabilities..................... 13,512 13,266 14,227 15,855
------- ------- ------- -------
Net assets............................ 3,808 6,319 6,429 2,706
======= ======= ======= =======
Shareholders' equity:
Share capital............................ 17 3 3 3 3
Reserves................................. 18 1,336 1,336 1,336 1,336
Retained profits......................... 2,378 4,493 4,661 1,361
------- ------- ------- -------
Total interest of parent's
shareholding.......................... 3,717 5,832 6,000 2,700
Outside equity interests in controlled
entities:
Share capital............................ 2 3 3 3
Reserves................................. -- -- -- --
Retained profits......................... 89 484 426 3
------- ------- ------- -------
Total outside equity interests in
controlled entities................... 91 487 429 6
------- ------- ------- -------
Total shareholders' equity............ $ 3,808 $ 6,319 $ 6,429 $ 2,706
======= ======= ======= =======
Contingent liabilities..................... 20
Commitments for expenditure................ 26
</TABLE>
The above consolidated balance sheets should be read in
conjunction with the accompanying notes.
F-14
<PAGE> 110
BCE HOLDINGS PTY LIMITED AND
CONTROLLED ENTITIES
CONSOLIDATED PROFIT AND LOSS STATEMENTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
------------------------------- ----------------------
NOTES 1994 1995 1996 1995 1996
(UNAUDITED)
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C> <C> <C> <C>
Trading revenue.................. $17,475 $37,773 $50,459 $28,220 $19,479
Non-trading revenue.............. 302 323 481 49 255
------- ------- ------- ------- -------
Total revenue............... 17,777 38,096 50,940 28,269 19,734
------- ------- ------- ------- -------
Operating profit before abnormal
items and income tax........... 2(a) 68 1,232 6,203 4,094 93
Abnormal items before income
tax............................ 2(c) -- -- (1,105) -- 137
------- ------- ------- ------- -------
Operating profit before income
tax............................ 68 1,232 5,098 4,094 230
------- ------- ------- ------- -------
Income tax attributable to
operating profit............... 4 114 26 1,840 1,474 91
------- ------- ------- ------- -------
Operating profit (loss) after
income tax..................... (46) 1,206 3,258 2,620 139
------- ------- ------- ------- -------
Outside equity interest in
operating profit after income
tax............................ -- (57) (413) (337) 20
Retained profits at the beginning
of the financial period........ 1,325 1,279 2,378 2,378 4,493
Adjustment to retained profits... 3 -- (50) -- -- --
------- ------- ------- ------- -------
Total available for
appropriation............. 1,279 2,378 5,223 4,661 4,652
Dividends provided for or paid... 5 -- -- 730 -- 3,291
------- ------- ------- ------- -------
Retained profits at the end
of the financial period... $ 1,279 $ 2,378 $ 4,493 $ 4,661 $ 1,361
======= ======= ======= ======= =======
</TABLE>
The above consolidated profit and loss statements should be
read in conjunction with the accompanying notes.
F-15
<PAGE> 111
BCE HOLDINGS PTY LIMITED AND
CONTROLLED ENTITIES
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
------------------------------- ----------------------
NOTES 1994 1995 1996 1995 1996
(UNAUDITED)
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C> <C> <C> <C>
Authorised capital
Ordinary shares of $1 each..... 17 $ 100 $ 100 $ 100 $ 100 $ 100
======= ======= ======= ======= =======
Issued and paid-up capital
Balance at the beginning of the
financial period............ 3 3 3 3 3
Movement for the period........ -- -- -- -- --
------- ------- ------- ------- -------
Balance at the end of the
financial period............ 17 3 3 3 3 3
======= ======= ======= ======= =======
Retained profits
Balance at the beginning of the
financial period............ 1,325 1,279 2,378 2,378 4,493
Operating profit/(loss) after
income tax attributable to
members of BCE.............. (46) 1,149 2,845 2,283 159
------- ------- ------- ------- -------
Total available for
appropriation............... 1,279 2,428 5,223 4,661 4,652
Adjustment to retained
profits..................... 3 -- (50) -- -- --
Dividends provided for or
paid........................ 5 -- -- 730 -- 3,291
------- ------- ------- ------- -------
Balance at the end of the
financial period............ 1,279 2,378 4,493 4,661 1,361
======= ======= ======= ======= =======
Earnings per share............. 1(r) $(15.33) $383.00 $948.33 $761.00 $ 53.00
Asset revaluation reserve
Balance at the beginning of the
financial period............ 1,336 1,336 1,336 1,336 1,336
Movement for the period........ -- -- -- -- --
------- ------- ------- ------- -------
Balance at the end of the
financial period............ 18 $ 1,336 $ 1,336 $ 1,336 $ 1,336 $ 1,336
======= ======= ======= ======= =======
</TABLE>
The above consolidated statements of changes in shareholders'
equity should be read in conjunction with the accompanying notes.
F-16
<PAGE> 112
BCE HOLDINGS PTY LIMITED AND
CONTROLLED ENTITIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
------------------------------- ----------------------
NOTES 1994 1995 1996 1995 1996
(UNAUDITED)
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Receipts from customers........ $16,213 $34,405 $49,064 $25,740 $18,445
Payments to suppliers and
employees................... (16,787) (32,067) (47,589) (24,978) (17,614)
Government subsidies and other
receipts.................... 231 235 258 11 67
Dividends received............. -- -- 727 -- --
Interest received.............. 11 11 41 -- 15
Interest paid.................. (207) (235) (220) (164) (72)
------- ------- ------- ------- -------
Net cash provided by/(used
in) operating
activities................ 24 (539) 2,349 2,281 609 841
------- ------- ------- ------- -------
Cash flows from investing
activities:
Payment for property, plant &
equipment................... -- (1,189) (1,449) (698) (324)
Proceeds from sale of
equipment................... 82 178 182 8 8
------- ------- ------- ------- -------
Net cash provided by/(used
in) investing
activities................ 82 (1,011) (1,267) (690) (316)
------- ------- ------- ------- -------
Cash flows from financing
activities:
Repayment of borrowings........ -- -- (1,050) (1,050) (450)
Proceeds from borrowings....... 550 -- -- -- --
Dividends paid................. -- -- (747) -- --
Repayment of hire purchases.... (238) (277) (219) (122) (46)
------- ------- ------- ------- -------
Net cash provided by/(used
in) financing
activities................ 312 (277) (2,016) (1,172) (496)
------- ------- ------- ------- -------
Net increase/(decrease) in cash
held........................... (145) 1,061 (1,002) (1,253) 29
Cash at the beginning of the
financial period............ (489) (634) 427 427 (575)
------- ------- ------- ------- -------
Cash at the end of the financial
period......................... 6 $ (634) $ 427 $ (575) $ (826) $ (546)
======= ======= ======= ======= =======
</TABLE>
The above consolidated statements of cash flows should be read
in conjunction with the accompanying notes.
F-17
<PAGE> 113
BCE HOLDINGS PTY LIMITED AND
CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared in accordance
with Australian Accounting Standards and other mandatory professional reporting
requirements (Urgent Issues Group Consensus Views). They are prepared in
accordance with the historical cost convention, except for certain assets which,
as noted, are at valuation. The accounting policies adopted are consistent with
those of the prior years. Comparative information is reclassified where
appropriate to enhance comparability.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(a) Financial Statements Period
The financial statements have been prepared for the six month period ended
31 December 1996. Comparative financial information is for the twelve months
ended 30 June 1996, 1995 and 1994 respectively.
The six month period ended 31 December 1995 is unaudited and have been
included as comparatives for the balance sheet, profit & loss, statement of
changes in shareholders equity, statement of cash flow, notes 2(a) and 2(b), and
note 29 only.
(b) Nature of Operations
BCE Holdings Pty Limited and controlled entities is a manufacturer of
conveyor belts and components servicing the domestic and international market.
The principal activities of the group are in respect of the design, manufacture
and installation of conveyor systems and components.
(c) Principles of Consolidation
The consolidated financial statements incorporate the assets and
liabilities of all entities controlled by BCE Holdings Pty Limited ("parent
entity") and the results of all controlled entities. BCE Holdings Pty Limited
and its controlled entities together are referred to in this financial report as
the economic entity. The effects of all transactions between entities in the
economic entity are eliminated in full. Outside equity interests in the results
and equity of controlled entities are shown separately in the consolidated
profit and loss account and balance sheet respectively.
(d) Income Tax
Tax effect accounting procedures are followed whereby the income tax
expense in the profit and loss statement is matched with the accounting profit
after allowing for permanent differences. The future tax benefit relating to tax
losses is not carried forward as an asset unless the benefit is virtually
certain of realisation. Income tax on cumulative timing differences is set aside
to the deferred income tax or the future income tax benefit accounts at the
rates which are expected to apply when those timing differences reverse.
(e) Foreign Currency Translation
Foreign currency transactions are initially translated into Australian
currency at the rate of exchange at the date of the transaction. Amounts payable
and receivable in foreign currencies are translated into Australian dollars at
rates of exchange current at the end of each period. Resulting exchange
differences are brought to account in determining the profit or loss for the
year.
F-18
<PAGE> 114
BCE HOLDINGS PTY LIMITED AND
CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(f) Acquisitions of Assets
The cost method of accounting is used for all acquisitions of assets
regardless of whether shares or other assets are acquired. Cost is determined as
the fair value of the assets given up at the date of acquisition plus costs
incidental to the acquisition. Where shares are issued in an acquisition, the
value of the shares is determined by reference to the fair value of the assets
acquired.
(g) Inventories
(i) Raw Materials and Stores, Work in Progress and Finished Goods
Raw materials and stores, work in progress and finished goods are
stated at the lower of cost and recoverable amount (that is, net realisable
value). Cost comprises direct materials, direct labour and an appropriate
proportion of variable and fixed overhead expenditure, the latter being
allocated on the basis of normal operating capacity.
(ii) Construction Work in Progress & Revenue Recognition
Construction work in progress is stated at cost plus attributable
profit to date less progress billings. Profit is determined on the basis of
percentage of completion of the contract. Cost includes all costs directly
related to specific contracts and an allocation of overhead expenses
incurred in connection with the economic entity's contract operations.
Indicative contract terms vary between three and thirty months depending on
the nature and extent of work involved. There are no standard terms or
conditions in respect of contracts.
Where a loss is indicated on completion, the work in progress is
reduced to the level of recoverability less progress billings. Where
billings are in excess of the cost of the job, the credit balance is
disclosed in trade creditors.
(h) Recoverable Amount of Non-current Assets
The recoverable amount of an asset is the net amount expected to be
recovered through the net cash inflows arising from its continued use and
subsequent disposal.
Where the carrying amount of a non-current asset is greater than its
recoverable amount the asset is revalued to its recoverable amount. Where net
cash inflows are derived from a group of assets working together, recoverable
amount is determined on the basis of the relevant group of assets. To the extent
that a revaluation decrement reverses a revaluation increment previously
credited to, and still included in the balance of, the asset revaluation
reserve, the decrement is debited directly to that reserve. Otherwise the
decrement is recognised as an expense in the profit and loss account.
The expected net cash flows included in determining recoverable amounts of
non-current assets are discounted to their present values using a nominal value.
(i) Revaluations of Non-current Assets
Revaluations of non-current assets reflect directors' valuations based on
independent assessments of the fair market value of the assets based on existing
use. Revaluation increments are credited directly to the asset revaluation
reserve.
Potential capital gains tax is not taken into account in determining
revaluation amounts unless there is an intention to sell the assets concerned.
Revaluations do not result in the carrying value of plant & equipment, land
or buildings exceeding recoverable amount.
F-19
<PAGE> 115
BCE HOLDINGS PTY LIMITED AND
CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(j) Depreciation of Property, Plant and Equipment
Depreciation is calculated on a straight line basis to write off the net
cost or revalued amount of each item of property, plant and equipment (excluding
land) over its expected useful life. Estimates of remaining useful lives are
made on a regular basis for all assets.
Major spares purchased specifically for particular plant are included in
the cost of plant and depreciated.
The average useful lives in respect of property, plant and equipment are as
follows:
<TABLE>
<S> <C>
Buildings.......................................................... 40 years
Plant and Equipment................................................ 5 years
Motor Vehicles..................................................... 6 years
Office Equipment................................................... 3 years
Furniture and Fittings............................................. 5 years
</TABLE>
(k) Accounting Pronouncements
In March 1995, SFAS No. 121 "Accounting For the Impairment of Long-Lived
Assets and For Long-Lived Assets To Be Disposed Of" was issued. SFAS No. 121
requires that long-lived assets and identifiable intangibles to be held and used
by an entity shall be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable. Measurement of the impairment loss is based on the fair value of
the asset. The Statement requires long-lived assets and certain intangible
assets to be disposed of to be reported at the lower of carrying value or fair
value (less costs to sell). The entity has implemented SFAS No. 121 effective 1
January 1996. The effect on the financial statements as a result of the adoption
was not significant.
(l) Maintenance and Repairs
Maintenance, repair costs and minor renewals are charged as expenses as
incurred.
(m) Employee Entitlements
(i) Wages and Salaries, Annual Leave and Sick Leave
Liabilities for wages and salaries, annual leave and sick leave are
recognised, and are measured as the amount unpaid at the reporting date at
current pay rates in respect of employees' services up to that date.
(ii) Long Service Leave
A liability for long service leave is recognised, and is measured as
the present value of expected future payments to be made in respect of
services provided by employees up to the reporting date. Consideration is
given to expected future wage and salary levels, experience of employee
departures and periods of service.
(n) Hire Purchase Non-Current Assets
Hire purchase assets are capitalised. The asset and liability are
established at the present value of minimum payments. Payments are allocated
between the principal component and the interest expense. The asset is
depreciated on a straight line basis over the life of the asset.
F-20
<PAGE> 116
BCE HOLDINGS PTY LIMITED AND
CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(o) Service Warranties
A general warranty period of twelve months in respect of faulty products,
design, labour and materials is provided. However, by negotiation, extended
terms may be offered on individual contracts. Provisions for rectification are
based on specific assessment at balance date.
(p) Cash
For purposes of the statement of cash flows, cash includes deposits at call
which are readily convertible to cash on hand and which are used in the cash
management function on a day-to-day basis, net of outstanding bank overdrafts.
Unpresented cheques are included in trade creditors.
(q) Treatment of Period Expenses
(i) Research and Development
Costs incurred on research and development projects are expensed in
the year in which the expenditure is incurred.
(ii) Advertising
All advertising costs are treated as a period expense and expended in
the year in which they are incurred.
(r) Earnings per share
Earnings per share are determined by dividing the operating profit after
income tax attributable to members of BCE Holdings Pty Limited by the shares
outstanding during the financial year. There have been no movements in the
shares.
F-21
<PAGE> 117
BCE HOLDINGS PTY LIMITED AND
CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. OPERATING PROFIT
(a) Operating profit before abnormal items and income tax is arrived at as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
----------------------------------- -----------------------
1994 1995 1996 1995 1996
(UNAUDITED)
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C> <C> <C>
Trading revenue............ $17,475 $37,773 $50,459 $28,220 $19,479
Other revenue.............. 291 312 440 49 240
Interest income............ 11 11 41 -- 15
------- ------- ------- ------- -------
Total revenue.............. 17,777 38,096 50,940 28,269 19,734
Operating costs............ 17,056 36,027 43,829 23,636 19,081
Depreciation............... 461 615 897 387 486
------- ------- ------- ------- -------
Trading profit............. 260 1,454 6,214 4,246 167
Profit on sale of
non-current assets....... 15 9 103 2 1
------- ------- ------- ------- -------
Operating profit before net
interest foreign exchange
and income tax........... 275 1,463 6,317 4,248 168
------- ------- ------- ------- -------
Interest expense........... (207) (235) (179) (164) (72)
Net foreign exchange
gain/(loss).............. -- 4 65 10 (3)
------- ------- ------- ------- -------
Operating profit before
abnormal items and income
tax...................... $ 68 $ 1,232 $ 6,203 $ 4,094 $ 93
======= ======= ======= ======= =======
</TABLE>
F-22
<PAGE> 118
BCE HOLDINGS PTY LIMITED AND
CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(b) Operating profit before abnormal items and income tax is also arrived
at after crediting and charging the following specific items:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
------------------------------- --------------------
1994 1995 1996 1995 1996
(UNAUDITED)
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C> <C> <C>
Credits:
Interest income.......................... $ 11 $ 11 $ 41 $ -- $ 15
Foreign exchange gain.................... -- 4 67 11 --
Other income............................. 231 231 191 47 67
Charges:
Repairs and maintenance.................. 109 268 706 357 349
Contributions to employee
superannuation funds..................... 236 301 591 276 271
Research and development................. 287 79 109 40 72
Depreciation of property plant and
equipment................................ 461 615 897 387 486
Transfers to/(from) provisions for:
Doubtful trade debts..................... -- -- 5 -- --
Employee entitlements.................... 140 190 356 156 324
Fringe benefits tax...................... 23 44 65 24 31
Warranty................................. 12 13 (137) (137) 18
Interest paid/payable on short term debt... 115 125 116 110 46
Hire purchase contracts.................... 92 110 63 54 26
---- ---- ----- ---- ----
Interest paid to other persons............. 207 235 179 164 72
---- ---- ----- ---- ----
Amortization of capitalized leases......... 7 -- -- -- --
Bad debts.................................. -- -- 5 -- --
Provision for warranty..................... 12 13 (137) (137) 18
Foreign exchange losses.................... -- -- 2 1 3
</TABLE>
F-23
<PAGE> 119
BCE HOLDINGS PTY LIMITED AND
CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(c) Operating profit after income tax is also arrived at after crediting
and charging the following abnormal items:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED JUNE 30, ENDED
------------------------- DECEMBER 31,
1994 1995 1996 1996
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C> <C>
Credit
Refund of consulting fees................ $ -- $ -- $ -- $162
Payment of consulting fees............... -- -- -- (25)
Charge
Payment of consulting fees............... -- -- (300) --
Payments to superfund for directors under
S82AAC(2D) of the Income Tax
Assessment Act........................ -- -- (805) --
--- --- ---- ---
Abnormal items before income tax........... -- -- (1,105) 137
Applicable income tax on abnormal items.... -- -- 398 (49)
--- --- ---- ---
Abnormal items after income tax............ $ -- $ -- $ (707) $ 88
=== === ==== ===
</TABLE>
3. ADJUSTMENT TO RETAINED PROFITS
The Australian Accounting Standard 1028 "Accounting for Employee
Entitlements" was adopted for the first time during the year ended 30 June 1995.
This accounting standard prescribes a change in the accounting method applied in
the economic entity in respect of the recognition of the liability for employee
entitlements.
The financial effect of the increased liability through application of the
standard at the commencement of the 1995 financial year of $50,000 has been
adjusted against retained profits at the beginning of the year to recognise this
change in accounting policy.
4. INCOME TAX
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED JUNE 30, ENDED
---------------------- DECEMBER 31,
1994 1995 1996 1996
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C> <C>
The aggregate amount of income tax attributable to the
financial year differs from the amount calculated on
the operating profit. The differences are reconciled as
follows:
Prima facie income tax on the operating profit......... $ 22 $407 $1,836 $ 83
Tax effect of permanent differences:
Investment allowance................................... -- (17) -- --
Fringe benefits tax.................................... 11 -- -- --
Non-allowance expenses................................. 187 (142) 28 8
Research and development allowance..................... (67) (190) (24) --
--- --- ----- ---
Income tax adjusted for permanent differences............ 153 58 1,840 91
Effect of increase in tax rates.......................... -- (27) -- --
Over provision of income tax in previous year............ (39) (5) -- --
--- --- ----- ---
Income tax expense....................................... $114 $ 26 $1,840 $ 91
=== === ===== ===
</TABLE>
There exists within the future income tax benefit at Note 11 an amount of
$36,619 attributable to tax losses to be carried forward by the economic entity.
F-24
<PAGE> 120
BCE HOLDINGS PTY LIMITED AND
CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. DIVIDENDS PAID AND PROPOSED
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED JUNE 30, ENDED
------------------------ DECEMBER 31,
1994 1995 1996 1996
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C> <C>
Dividends paid by the Directors of the subsidiary and
holding entities...................................... $ -- $ -- $730 $3,291
==== ====== ==== ======
Retained profits and reserves that could be distributed
as franked dividends using franking credits already in
existence or which will arise from income tax payments
in the following period, and after deducting Class C
franking credits to be used in payment of the above
dividend.............................................. $764 $1,712 $718 $ 451
==== ====== ==== ======
</TABLE>
6. CURRENT ASSETS -- CASH
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF
----------------- DECEMBER 31,
1995 1996 1996
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C>
Cash on hand.......................................... $ 3 $ 5 $ 11
Cash at bank.......................................... 773 203 --
Cash on deposit....................................... -- -- --
------ ------ ------
$ 776 $ 208 $ 11
====== ====== ======
The above figures are reconciled to cash at the end of
the financial year as shown in the statement of cash
flows as follows:
Balances as above................................... $ 776 $ 208 $ 11
Less: bank overdrafts............................... (349) (783) (557)
------ ------ ------
Balances per statement of cash flows................ $ 427 $ (575) $ (546)
====== ====== ======
</TABLE>
7. CURRENT ASSETS -- RECEIVABLES
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF
----------------- DECEMBER 31,
1995 1996 1996
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C>
Trade debtors......................................... $7,280 $8,681 $ 8,418
Less provision for doubtful debts..................... (22) (22) (22)
------ ------ ------
7,258 8,659 8,396
Other debtors......................................... 38 32 1,329
Unsecured loans....................................... 92 580 --
------ ------ ------
$7,388 $9,271 $ 9,725
====== ====== ======
</TABLE>
F-25
<PAGE> 121
BCE HOLDINGS PTY LIMITED AND
CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CURRENT ASSETS -- INVENTORIES
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF
----------------- DECEMBER 31,
1995 1996 1996
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C>
Stock on hand and in transit.......................... $1,058 $1,065 $ 634
Less provision for obsolescence....................... (5) (5) (5)
------ ------ ------
1,053 1,060 629
Construction work in progress
Gross amount.......................................... 4,759 11,004 6,133
Less progress billings................................ (2,290) (8,263) (4,086)
Less write down to recoverable amount................. -- -- (50)
------ ------ ------
$3,522 $3,801 $ 2,626
====== ====== ======
</TABLE>
9. CURRENT ASSETS -- OTHER
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF
----------------- DECEMBER 31,
1995 1996 1996
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C>
Other................................................. $ 7 $ 59 $ --
Future income tax benefit............................. -- -- 102
------ ------ ------
$ 7 $ 59 $ 102
====== ====== ======
</TABLE>
F-26
<PAGE> 122
BCE HOLDINGS PTY LIMITED AND
CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. NON-CURRENT ASSETS -- PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF
----------------- DECEMBER 31,
1995 1996 1996
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C>
Land at Directors valuation 1991.............................. $ 550 $ 550 $ 550
------ ------ -------
Buildings at Directors valuation 1991......................... 1,099 1,099 1,099
Less accumulated depreciation................................. (96) (123) (138)
------ ------ -------
1,003 976 961
------ ------ -------
Land and buildings at cost.................................... 609 594 585
Less accumulated depreciation................................. (36) (60) (72)
------ ------ -------
573 534 513
------ ------ -------
Plant and equipment at Directors valuation 1991............... 1,713 1,536 1,172
Less accumulated depreciation................................. (855) (845) (649)
------ ------ -------
858 691 523
------ ------ -------
Plant and equipment at cost................................... 1,924 3,214 3,318
Less accumulated depreciation................................. (302) (827) (1,016)
------ ------ -------
1,622 2,387 2,302
------ ------ -------
Motor vehicles at Directors valuation 1991.................... 112 112 112
Less accumulated depreciation................................. (93) (76) (81)
------ ------ -------
19 36 31
------ ------ -------
Motor vehicles at cost........................................ 769 899 960
Less accumulated depreciation................................. (156) (284) (335)
------ ------ -------
613 615 625
------ ------ -------
Office equipment at Directors valuation 1991.................. 88 88 441
Less: accumulated depreciation................................ (83) (84) (378)
------ ------ -------
5 4 63
------ ------ -------
Office equipment at cost...................................... 176 230 332
Less: accumulated depreciation................................ (86) (149) (217)
------ ------ -------
90 81 115
------ ------ -------
Furniture and fittings at Directors valuation................. -- -- --
Less: accumulated depreciation................................ -- -- --
------ ------ -------
-- -- --
------ ------ -------
Furniture and fittings at cost................................ 7 11 50
Less: accumulated depreciation................................ (1) (3) (20)
------ ------ -------
6 8 30
------ ------ -------
$5,339 $5,882 $ 5,713
====== ====== =======
</TABLE>
The directors revalued property, plant and equipment at 31st December, 1991
on the basis of an independent valuation of land and buildings by Robertson &
Robertson, Consulting Valuers, and the market value of plant and equipment and
office equipment.
F-27
<PAGE> 123
BCE HOLDINGS PTY LIMITED AND
CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. NON-CURRENT ASSETS -- OTHER
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF
-------------------- DECEMBER 31,
1995 1996 1996
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C>
Future income tax benefit......................... $ 286 $ 362 $ 382
==== ==== ====
</TABLE>
12. NON-CURRENT ASSETS -- INTANGIBLE ASSETS
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF
-------------------- DECEMBER 31,
1995 1996 1996
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C>
Formation expenses................................ $ 2 $ 2 $ 2
==== ==== ====
</TABLE>
13. CURRENT LIABILITIES -- CREDITORS & BORROWINGS
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF
-------------------- DECEMBER 31,
1995 1996 1996
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C>
Bank overdraft secured............................ $ 349 $ 783 $ 557
Trade creditors................................... 8,093 7,461 6,459
WIP billed in advance............................. 1,297 871 506
Accrued expenses.................................. 248 218 345
Hire purchase commitments......................... 365 301 319
Less unexpired hiring charges..................... (51) (45) (43)
Bill facility secured............................. 500 450 --
Other............................................. -- -- 112
Unsecured loans................................... -- -- 502
Amounts due to related entities................... -- -- 3,753
------ ------ ------
$10,801 $10,039 $ 12,510
====== ====== ======
</TABLE>
Security over the entity's bank facilities comprises registered equitable
mortgages over the entity's real property around Australia, the entity's assets
and guarantees from the entity's directors.
14. CURRENT LIABILITIES -- PROVISIONS
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF
-------------------- DECEMBER 31,
1995 1996 1996
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C>
Income tax........................................ $ 225 $ 1,902 $ 2,031
Employee entitlements............................. 452 718 710
Warranty.......................................... 204 67 91
------- ------- -------
$ 881 $ 2,687 $ 2,832
======= ======= =======
</TABLE>
F-28
<PAGE> 124
BCE HOLDINGS PTY LIMITED AND
CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. NON-CURRENT LIABILITIES -- CREDITORS AND BORROWINGS
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF
-------------------- DECEMBER 31,
1995 1996 1996
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C>
Bill facility..................................... $ 1,000 $ -- $ --
Secured loan...................................... 289 -- --
Hire purchase commitments......................... 483 372 316
Less: unexpired hiring charges.................... (45) (25) (35)
------- ------- -------
$ 1,727 $ 347 $ 281
======= ======= =======
</TABLE>
16. NON-CURRENT LIABILITIES -- PROVISIONS
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF
-------------------- DECEMBER 31,
1995 1996 1996
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C>
Employee entitlements............................. $ 103 $ 193 $ 232
======= ======= =======
</TABLE>
17. SHARE CAPITAL
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF
-------------------- DECEMBER 31,
1995 1996 1996
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C>
Authorized share capital
100,000 ordinary shares of $1 each................ $ 100 $ 100 $ 100
======= ======= =======
Issued share capital
3,000 ordinary shares of $1 each fully paid....... $ 3 $ 3 $ 3
======= ======= =======
</TABLE>
18. RESERVES
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF
-------------------- DECEMBER 31,
1995 1996 1996
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C>
Asset revaluation reserve......................... $ 1,336 $ 1,336 $ 1,336
======= ======= =======
</TABLE>
19. PARTICULARS OF CONTROLLED ENTITIES
<TABLE>
<CAPTION>
CONTRIBUTION TO ENTITY
PROFIT
AFTER TAX
-------------------------
INTEREST HELD AS OF JUNE 30,
CLASS OF -------------------- -------------------------
SHARE 1994 1995 1996 1994 1995 1996
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C> <C> <C> <C> <C>
A. Crane Pty Limited........... Ord 100% 100% 100% $ (10) $ (10) $ (10)
Australian Conveyor Engineering
Pty Limited.................. Ord 100% 100% 100% (240) 825 1,600
ACE Conveyor Components Pty
Limited...................... Ord 100% 100% 100% 203 172 38
ACE Conveyor Services Pty
Limited...................... Ord -- 75% 75% -- 168 1,594
Ringway Pty Limited............ Ord 70% 70% 60% 1 51 36
----- ----- -----
$ (46) $1,206 $3,258
===== ===== =====
</TABLE>
F-29
<PAGE> 125
BCE HOLDINGS PTY LIMITED AND
CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. CONTINGENT LIABILITIES
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF
---------------------------- DECEMBER 31,
1994 1995 1996 1996
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C> <C>
In respect of subsidiary companies:
Guarantees and letters of credit to third
parties arising in the normal course of
business in relation to contracts
(unsecured)................................ $1,941 $2,180 $2,354 $2,810
====== ====== ====== ==========
</TABLE>
21. SEGMENTAL REPORTING
The group entities operate predominantly in the engineering industry in
Australia and South East Asia.
22. AUDITORS REMUNERATION
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED JUNE 30, ENDED
-------------------------- DECEMBER 31,
1994 1995 1996 1996
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C> <C>
Auditors remuneration
Auditing the accounts...................... $ 15 $ 35 $ 41 $ --
Other services............................. 37 12 35 --
-- -- -- --
$ 52 $ 47 $ 76 $
== == == ==
</TABLE>
The auditors received no other benefits
No audit fees have been accrued for the six months ended 31 December 1996
as costs associated with the Senior Notes will be paid from the proceeds of the
Senior Notes offering.
23. DIRECTORS REMUNERATION
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF
-------------------------- DECEMBER 31,
1994 1995 1996 1996
<S> <C> <C> <C> <C>
DIRECTORS REMUNERATION
The number of Directors of the entity whose
income from the entity and related bodies
corporate falls within the following
bands.
$60,000 - $69,000.......................... 3 3 -- --
$90,000 - $99,000.......................... -- -- 3 --
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED JUNE 30, ENDED
-------------------------- DECEMBER 31,
1994 1995 1996 1996
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C> <C>
Total income received or due and receivable
by all directors of the entity or related
bodies corporate......................... $204 $204 $270 $ --
==== ==== ==== ==========
</TABLE>
The directors have received no remuneration, other than salaries in the
usual course of business, during the 6 months ended 31 December 1996.
F-30
<PAGE> 126
BCE HOLDINGS PTY LIMITED AND
CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
24. RECONCILIATION OF OPERATING PROFIT/(LOSS) AFTER INCOME TAX TO NET CASH
INFLOW FROM OPERATING ACTIVITIES
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED JUNE 30, ENDED
------------------------------- DECEMBER 31,
1994 1995 1996 1996
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C> <C>
Operating profit/(loss) after income
tax.................................... $ (46) $ 1,206 $ 3,258 $ 139
Provision for doubtful debts............. (126) -- -- --
Provision for obsolescence............... -- (15) -- --
Depreciation............................. 461 615 897 486
Net (profit)/loss on sale of non-current
assets................................. (15) (31) (103) 3
Changes in operating assets and
liabilities
(Increase)/decrease in receivables..... (782) (3,851) (1,401) 263
(Increase)/decrease in other debtors... (480) 483 6 (1,297)
(Increase)/decrease in inventories..... (1,027) (473) (279) 1,172
(Increase)/decrease in other assets.... 120 (1) (52) 59
(Increase)/decrease in FITB............ 147 (213) (76) (122)
(Increase)/decrease in loan asset...... (63) 145 (488) 580
Increase/(decrease) in trade
creditors........................... 664 4,252 (1,058) (1,367)
Increase/(decrease) in provisions...... (9) 245 219 55
Increase/(decrease) in provision for
tax................................. (119) 209 1,677 129
Increase/(decrease) in other
creditors........................... -- -- -- 112
Increase/(decrease) in accrued
expenses............................ 358 (133) (30) 127
Increase/(decrease) in loan
liability........................... 378 (89) (289) 502
------- ------- ------- -------
Net cash provided by/(used in) operating
activities............................. $ (539) $ 2,349 $ 2,281 $ 841
======= ======= ======= =======
</TABLE>
25. NON-CASH FINANCING AND INVESTING ACTIVITIES
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED JUNE 30, ENDED
------------------------------- DECEMBER 31,
1994 1995 1996 1996
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C> <C>
Acquisition of plant and equipment by hire
purchase................................ $ 468 $ 361 $ 70 $ 69
======= ======= ======= =======
</TABLE>
F-31
<PAGE> 127
BCE HOLDINGS PTY LIMITED AND
CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
26. COMMITMENTS FOR EXPENDITURE
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED JUNE 30, ENDED
-------------------------- DECEMBER 31,
1994 1995 1996 1996
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C> <C>
HIRE PURCHASE COMMITMENTS
Total hire purchase expenditure contracted
for at balance date payable:
Not later than one year.................. $352 $314 $256 $276
Later than one year but not later
than 2 years..................... 64 113 278 159
Later than two years but not later
than 5 years..................... 252 325 68 43
---- ---- ---- ----
$668 $752 $602 $478
==== ==== ==== ====
</TABLE>
27. RELATED PARTIES
DIRECTORS
The name of persons who were directors of BCE Holdings Pty Limited at any
time during the financial period are as follows: P. Baird; J. Clack; and M.
Elliott.
REMUNERATION
Information on remuneration of directors is disclosed in note 23.
TRANSACTIONS WITH DIRECTORS AND DIRECTOR RELATED ENTITIES
Amounts payable to directors and their director-related entities at balance
date:
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF
------------------------------ DECEMBER 31,
1994 1995 1996 1996
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C> <C>
Current receivables..................... $ -- $ -- $170 $1,329
Current liabilities..................... -- -- -- 4,255
</TABLE>
GROUP
The group consists of BCE Holdings Pty Limited and the entities it
controlled during the financial period. Ownership interest in these entities are
set out in note 19.
Transactions between BCE Holdings Pty Limited and related parties in the
group consisted of:
(a) payment of dividends to BCE Holdings
(b) sale of materials and labour between group companies at prevailing
market rates.
Aggregate amount of transactions with entities within the group are as
follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED JUNE 30, ENDED
-------------------------------- DECEMBER 31,
1994 1995 1996 1996
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C> <C>
Purchase/Sales of materials and
labour............................... $2,637 $1,418 $6,065 $833
</TABLE>
F-32
<PAGE> 128
BCE HOLDINGS PTY LIMITED AND
CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
28. POST BALANCE DATE EVENTS
Since the 31 December 1996, BCE Holdings Pty Limited acquired the remaining
shares in ACE Conveyor Services Pty Limited. In addition, the group was sold in
January 1997 to Continental Conveyor & Equipment Pty Limited a company
incorporated in Australia and whose ultimate parent entity is NES Group, Inc.
The directors have entered into service agreements for a period of six years
from the date of the sale. The financial effects of these transactions have not
been brought to account.
29. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(US GAAP) INFORMATION
Financial statements in the United States are prepared in accordance with
accounting principles generally accepted in the United States (US GAAP). In
Australia, financial statements are prepared in accordance with applicable
accounting standards issued by the Australian Accounting Standards Board and
codified in the Australian Corporations Law, and other mandatory reporting
requirements (Urgent Issues Consensus Views).
Provided below is a summary of the differences between net profit and
shareholders' equity disclosed in these financial statements and which would be
reported if the financial statements were prepared in accordance with US GAAP.
This summary is not intended to be a comprehensive US GAAP report.
(i) Revaluation of Non-Current Assets
In accordance with Australian GAAP, the company revalued freehold property,
plant and equipment with the revaluation increases being recorded to the asset
revaluation reserve included in shareholders' equity. US GAAP does not permit
the revaluation of assets in excess of cost.
The following US GAAP adjustments are required to be made in respect of the
revaluations:
(a) revaluation increases credited to the asset revaluation reserve
and debited to the relevant non-current asset accounts would be reversed;
(b) depreciation on the net revaluation increases of property would be
reversed; and
(c) reported gains and losses on disposal of non-current assets would
be adjusted where material to reflect US GAAP adjustments to carrying
values.
(ii) Accounting Changes
Effective 1 July 1994, the economic entity amended its measurement of
employee entitlement liabilities to comply with Australian Accounting Standard
AASB 1028 "Accounting for Employee Entitlements". The financial effect of the
above changes in accounting policy was adjusted against retained profits at the
beginning of the financial year in accordance with Australian GAAP. For US GAAP
purposes this adjustment was effected through the reconciliation of Australian
GAAP net income to US GAAP net income through a change of $7,000 to income for
the year ended 30 June 1994, and the balance of $43,000 being adjusted to
opening retained earnings at 1 July 1993.
(iii) Changes in Income Tax Rates
Australian GAAP requires the translation of deferred tax assets and
liabilities arising from timing differences to be recorded in the balance sheet
using the income tax rates that are expected to be applicable at the time those
timing differences reverse. For US GAAP the deferred tax assets and liabilities
are only restated in the period that the tax rate becomes applicable.
F-33
<PAGE> 129
BCE HOLDINGS PTY LIMITED AND
CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(iv) Statement of Cashflows
In accordance with Australian GAAP, bank overdrafts are considered to be
part of the net cash equivalents. For US GAAP purposes the overdraft facilities
are not included in cash but disclosed in trade creditors. For US GAAP purposes
unpresented cheques are required to be included in the bank balance, the current
group policy in Australia is to include unpresented cheques in trade creditors.
RECONCILIATION OF NET INCOME
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
-------------------------- --------------------
1994 1995 1996 1995 1996
(UNAUDITED)
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C> <C> <C>
Consolidated net income after tax as
reported for Australian statutory
purposes................................ $(46) $1,149 $2,845 $ 2,283 $ 159
Depreciation reversal on revalued assets
(Note i)
- pre tax............................... 61 61 61 30 30
Depreciation reversal on revalued assets
(Note i)
- tax applicable........................ (20) (20) (22) (11) (11)
Change in income tax rate (Note iii)...... -- (27) 27 27 --
Adoption of Australian Accounting Standard
AASB1028 "Accounting for Employee
Entitlements" (Note ii)................. (7) -- -- -- --
---- ------ ------ ---- ----
Net income after income tax under US
GAAP.................................... $(12) $1,163 $2,911 $ 2,329 $ 178
==== ====== ====== ==== ====
</TABLE>
RECONCILIATION OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
------------------- -----------------------
1995 1996 1995 1996
(UNAUDITED)
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C> <C>
Consolidated shareholders' equity
attributable to members of the parent
entity as reported for Australian
statutory purposes........................ $ 3,717 $ 5,832 $ 6,000 $ 2,700
Revaluation of non-current assets........... (1,336) (1,336) (1,336) (1,336)
Depreciation adjustment for revalued
non-current assets pre tax
-- Current year........................... 61 61 30 30
-- Prior years............................ 186 247 247 308
Depreciation adjustment for revalued
non-current assets tax applicable
-- Current year........................... (20) (22) (11) (11)
-- Prior years............................ (69) (89) (89) (111)
Change in income tax rate................... (27) -- -- --
------ ------ ------ ------
Adjusted shareholders' equity under US
GAAP...................................... $ 2,512 $ 4,693 $ 4,841 $ 1,580
====== ====== ====== ======
</TABLE>
F-34
<PAGE> 130
BCE HOLDINGS PTY LIMITED AND
CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
US GAAP BALANCE SHEET
The following is a summary of certain balance sheet items and the amounts
reported in the consolidated balance sheets with the related amounts after
adjustments to conform to US GAAP.
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
------------------ -----------------------
1995 1996 1995 1996
(UNAUDITED)
(AUSTRALIAN DOLLARS IN THOUSANDS)
(AUSTRALIAN GAAP)
<S> <C> <C> <C> <C>
Property, plant and equipment.............. $4,250 $4,854 $ 4,587 $4,715
Provision for tax.......................... 314 2,013 2,002 2,153
Reserves................................... -- -- -- --
Retained profits........................... 2,509 4,690 4,838 1,577
</TABLE>
F-35
<PAGE> 131
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Hewitt-Robins Conveyor Components
We have audited the accompanying balance sheet of Hewitt-Robins Conveyor
Components (an operating division of W.S. Tyler, Inc., a wholly owned subsidiary
of Process Technology Holdings, Inc.) as of December 31, 1996, and the related
statements of income, division equity and cash flows for the year then ended.
These financial statements are the responsibility of Division management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hewitt-Robins Conveyor
Components at December 31, 1996, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
February 20, 1997
Cleveland, Ohio
F-36
<PAGE> 132
HEWITT-ROBINS CONVEYOR COMPONENTS
BALANCE SHEET
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, MARCH 31,
1996 1997
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 43,081 $ 104,293
Accounts receivable (net of allowance for doubtful accounts of
$43,280 in 1996 and $37,280 in 1997).......................... 2,084,211 2,223,103
Inventories...................................................... 2,801,440 2,490,208
Other............................................................ 29,902 63,847
---------- ----------
Total current assets..................................... 4,958,634 4,881,451
Property, plant and equipment:
Land and buildings............................................... 1,460,175 1,460,175
Machinery and equipment.......................................... 1,376,034 1,377,757
---------- ----------
2,836,209 2,837,932
Less accumulated depreciation.................................... 1,174,759 1,237,457
---------- ----------
1,661,450 1,600,475
---------- ----------
$6,620,084 $6,481,926
========== ==========
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable................................................. $ 801,858 $ 787,936
Salaries, wages and related liabilities.......................... 238,438 342,431
Other accrued expenses........................................... 281,432 274,326
---------- ----------
Total current liabilities................................ 1,321,728 1,404,693
Division equity.................................................... 5,298,356 5,077,233
---------- ----------
$6,620,084 $6,481,926
========== ==========
</TABLE>
See Notes to Financial Statements
F-37
<PAGE> 133
HEWITT-ROBINS CONVEYOR COMPONENTS
STATEMENT OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -------------------------
1996 1996 1997
(UNAUDITED)
<S> <C> <C> <C>
Net sales............................................. $ 15,060,030 $3,092,311 $3,733,871
Cost of products sold................................. 10,692,848 2,782,592 2,628,451
----------- ---------- ----------
4,367,182 1,119,719 1,105,420
Selling expenses...................................... 940,013 228,225 244,736
General and administrative expenses................... 1,068,981 271,109 258,632
----------- ---------- ----------
Income before income taxes....................... 2,358,188 620,385 602,052
Income taxes.......................................... 966,857 254,358 246,841
----------- ---------- ----------
Net income....................................... $ 1,391,331 $ 366,027 $ 355,211
=========== ========== ==========
</TABLE>
See Notes to Financial Statements
F-38
<PAGE> 134
HEWITT-ROBINS CONVEYOR COMPONENTS
STATEMENT OF DIVISION EQUITY
<TABLE>
<S> <C>
Division equity at January 1, 1996.............................................. $4,602,049
Net income...................................................................... 1,391,331
Transfer to parent.............................................................. (695,024)
----------
Division equity at December 31, 1996............................................ $5,298,356
Net income (unaudited).......................................................... 355,211
Transfer to parent (unaudited).................................................. (576,334)
----------
Division equity at March 31, 1997 (unaudited)................................... $5,077,233
==========
</TABLE>
See Notes to Financial Statements
F-39
<PAGE> 135
HEWITT-ROBINS CONVEYOR COMPONENTS
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31
DECEMBER 31, -------------------------
1996 1996 1997
<S> <C> <C> <C>
Operating activities:
Net income........................................... $ 1,391,331 $ 366,027 $ 355,211
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 245,067 75,852 75,948
Changes in operating assets and liabilities
Increase in accounts receivable.................... (453,296) (1,027,800) (138,892)
(Increase) decrease in inventory................... (540,036) (217,121) 311,232
Increase in other assets........................... (768) (15,723) (33,945)
Increase (decrease) in accounts payable............ 235,773 552,843 (13,922)
Increase (decrease) in other liabilities........... (61,862) 41,774 96,887
----------- ----------- ---------
Net cash provided by (used in) operating
activities............................... 816,209 (224,148) 652,519
Investing activities:
Purchase of property, plant and equipment............ (97,400) (3,067) (14,973)
----------- ----------- ---------
Net cash used in investing activities...... (97,400) (3,067) (14,973)
Financing activities:
Transfer (to) from parent............................ (695,024) 233,953 (576,334)
----------- ----------- ---------
Net cash provided by (used in) financing
activities............................... (695,024) 233,953 (576,334)
----------- ----------- ---------
Increase in cash and cash equivalents................ 23,785 6,738 61,212
Cash and cash equivalents at beginning of year....... 19,296 19,296 43,081
----------- ----------- ---------
Cash and cash equivalents at end of year... $ 43,081 $ 26,034 $ 104,293
=========== =========== =========
</TABLE>
See Notes to Financial Statements
F-40
<PAGE> 136
HEWITT-ROBINS CONVEYOR COMPONENTS
NOTES TO FINANCIAL STATEMENTS
A. ORGANIZATION AND BUSINESS
Hewitt-Robins Conveyor Components (the "Company") manufactures and sells
conveyor components, primarily idlers, for usage in the aggregate, mining,
utility and industrial sectors. The Company is an operating division of W.S.
Tyler, Inc. a wholly owned subsidiary of Process Technologies Holding, Inc. (the
"Parent Company").
B. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited financial statements of the Company as of March
31, 1997, and for the three-month periods ended March 31, 1996 and 1997 have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-months ended March 31, 1997 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1997.
REVENUE RECOGNITION
The Company recognizes revenue from sales at the time of shipment.
INVENTORIES
Inventories are stated at lower of cost or market. Cost is determined
principally by the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation, is provided
by the straight-line method over the estimated useful life of the assets. Useful
lives are as follows: building and land improvements, 29.5 years; and machinery
and equipment, 3 to 10 years.
If events and circumstances indicate that long-lived assets might be
impaired, an undiscounted cash flow methodology would be used to determine
whether an impairment loss should be recognized.
INCOME TAXES
Income is included in the Federal and state income tax returns of the
Parent Company. For financial reporting purposes, income tax expense is
allocated to the Company by the Parent Company on a separate return basis giving
effect to permanent differences which are not taxable or deductible for Federal
income tax purposes. All deferred income taxes are recorded by the Parent
Company, as it is the Parent Company's policy not to allocate deferred income
taxes to operating divisions.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-41
<PAGE> 137
HEWITT-ROBINS CONVEYOR COMPONENTS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
C. INVENTORIES
Inventories are classified as follows:
<TABLE>
<S> <C>
Raw materials.......................................................... $1,361,756
Work in process........................................................ 44,603
Finished goods......................................................... 1,529,459
Allowance for obsolescence............................................. (134,378)
----------
$2,801,440
==========
</TABLE>
D. INCOME TAXES
Provision for income taxes has been made as follows:
<TABLE>
<S> <C>
Federal.......................................... $825,366
State............................................ 141,491
--------
$966,857
</TABLE>
The Company's effective income tax rate of 41% differs from the statutory
federal income tax rate of 35% due to state income taxes.
E. OPERATING LEASES
The Company has certain operating leases related to its West Caldwell
facility. The building lease agreement has a monthly rent expense of $11,125 and
the computer lease agreement has a monthly rent expense of $5,619.
Future minimum lease payments required under operating leases that have
remaining noncancellable lease terms in excess of one year at December 31, 1996
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31
<S> <C>
1997........................................... $200,928
1998........................................... 200,928
1999........................................... 200,928
2000........................................... 167,556
--------
Total minimum lease payments.............. $770,340
========
</TABLE>
F. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan covering all non-union
employees who have completed three months or more of service. Under the terms of
the plan, employees may elect to contribute up to 3% of their compensation which
is matched 100% by the Company. In addition, the Company may contribute up to an
additional 3% as a profit sharing contribution. Expense for the year ended
December 31, 1996 was $222,152.
G. CONCENTRATION OF RISK
As of and for the year ended December 31, 1996, approximately 20% of
accounts receivable and approximately 17% of net sales were related to three
customers in the aggregate industry. Generally no collateral for accounts
receivable is required. The Company performs periodic credit evaluations of
their customers' financial condition and generally does not require collateral.
Credit losses relating to customers in
F-42
<PAGE> 138
HEWITT-ROBINS CONVEYOR COMPONENTS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
the aggregate industry have consistently been within management's expectations
and are comparable to losses for the portfolio as a whole.
H. SUBSEQUENT EVENT
On April 1, 1997, the Parent Company sold certain assets and liabilities of
the Company to Continental Global Group, Inc. for a purchase price of
approximately $12.6 million in cash plus assumption of approximately $1.1
million of liabilities, subject to a negotiated price adjustment for working
capital.
F-43
<PAGE> 139
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON
IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information..................... 3
Exchange Rate Data........................ 4
Prospectus Summary........................ 5
Risk Factors.............................. 16
The Company............................... 22
The Exchange Offer........................ 23
Capitalization............................ 30
Selected Historical and Pro Forma
Financial Data.......................... 31
Unaudited Pro Forma Consolidated Financial
Statements.............................. 36
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 46
Business.................................. 53
Principal Stockholder..................... 62
Management................................ 62
Related Transactions...................... 64
Description of Certain Indebtedness....... 65
Description of Senior Notes............... 67
Certain Federal Income Tax
Considerations........................ 92
Plan of Distribution...................... 93
Legal Matters............................. 93
Experts................................... 94
Index to Financial Statements............. F-1
</TABLE>
======================================================
======================================================
$120,000,000
CONTINENTAL GLOBAL
GROUP, INC.
OFFER TO EXCHANGE
11% SERIES B SENIOR NOTES DUE 2007
FOR ANY AND ALL OUTSTANDING
11% SERIES A SENIOR NOTES DUE 2007
------------------------
PROSPECTUS
------------------------
, 1997
======================================================
<PAGE> 140
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VII, Section 7 of the Bylaws of the Company provides: "The
corporation shall indemnify its officers, directors, employees and agents to the
extent permitted by the General Corporation Law of Delaware."
Section 145 of the Delaware General Corporation Law ("DGCL") provides that
a corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that he
is or was a director, officer, employee, or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit, or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon
plea of nolo contendere or its equivalent, shall not, in and of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 145 of the DGCL also provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery of Delaware or the court in which such action or suit was
brought shall determine upon adjudication that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery of Delaware or such other court shall deem proper.
To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to above, or in defense of any claim, issue,
or matter therein, such person shall be indemnified against expenses (including
attorney's fees) actually and reasonably incurred by such person in connection
therewith.
Any such indemnification (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in
circumstances because such person has met the applicable standard of conduct set
forth above. Such determination shall be made (i) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding; or (ii) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion; or (iii) by the stockholders.
Section 145 of the DGCL permits a Delaware business corporation to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, or other enterprise against any
liability asserted against such person and incurred by such person in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify such person against such liability.
II-1
<PAGE> 141
The above discussion of Section 145 of the DGCL is not intended to be
exhaustive and is qualified in its entirety by the DGCL.
DIRECTORS AND OFFICERS INDEMNIFICATION
The Company has entered into indemnification agreements with all of its
Directors and executive officers, whereby the Company has agreed, subject to
certain exceptions, to indemnify and hold harmless such person from liabilities
incurred as a result of such person's status as a director or executive officer
of the Company. In addition, the Company has entered into indemnification
agreements with NESCO, Inc. and each director and executive officer of NESCO,
Inc., whereby the Company has agreed, subject to certain exceptions, to
indemnify and hold harmless NESCO, Inc. and each such director and executive
officer in connection with the provision of services to the Company under the
Management Agreement.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- --------------- ---------------------------------------------------------------------------
<S> <C>
3.1 Certificate of Incorporation of Continental Global Group, Inc., as
currently in effect.
3.2 By-Laws of Continental Global Group, Inc., as currently in effect.
3.3 Certificate of Incorporation of Continental Conveyor & Equipment Company,
as currently in effect.
3.4 By-Laws of Continental Conveyor & Equipment Company, as currently in
effect.
3.5 Certificate of Incorporation of Goodman Conveyor Company, as currently in
effect.
3.6 By-Laws of Goodman Conveyor Company, as currently in effect.
4.1 Indenture, dated as of April 1, 1997, among Continental Global Group, Inc.,
Continental Conveyor & Equipment Company, Goodman Conveyor Company and the
Trustee (containing, as exhibits, specimens of the Series A Notes and the
Series B Notes).
4.2 Purchase Agreement, dated as of March 26, 1997, among Continental Global
Group, Inc., Continental Conveyor & Equipment Company, Goodman Conveyor
Company and Donaldson, Lufkin & Jenrette Securities Corporation, as Initial
Purchaser, relating to the Series A Notes.
4.3 Registration Rights Agreement, dated as of April 1, 1997, among Continental
Global Group, Inc., Continental Conveyor & Equipment Company, Goodman
Conveyor Company and Donaldson, Lufkin & Jenrette Securities Corporation,
as Initial Purchaser.
4.4 Revolving Credit Facility, dated as of September 14, 1992, as amended by
Amendments I, II & III, among Continental Conveyor & Equipment Company,
Goodman Conveyor Company and Bank One, Cleveland, NA.
5 Opinion of Squire, Sanders & Dempsey L.L.P.
*8 Opinion of Squire, Sanders & Dempsey L.L.P.
10.1 Share Sale Agreement, dated as of November 8, 1996, as amended by First and
Second Supplementary Deeds, among Continental Pty. Ltd. and various
Australian sellers, relating to the BCE Acquisition.
10.2 Asset Purchase Agreement, dated as of March 3, 1997, among Continental
Conveyor & Equipment Company, Process Technology Holdings, Inc. and W.S.
Tyler Incorporated, relating to the Hewitt-Robins Acquisition.
10.3 Management Agreement, dated as of April 1, 1997, between Continental Global
Group, Inc. and NESCO, Inc.
10.4 Tax Payment Agreement, dated as of April 1, 1997, among Continental Global
Group, Inc., Continental Conveyor & Equipment Company, Goodman Conveyor
Company and NES Group, Inc.
12 Statement regarding computation of ratio of earnings to fixed charges.
21 List of subsidiaries of the Company.
*23.1 Consent of Squire, Sanders & Dempsey L.L.P. (included in opinion filed as
Exhibit 8).
*23.2 Consent of Ernst & Young LLP.
</TABLE>
II-2
<PAGE> 142
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- --------------- ---------------------------------------------------------------------------
<C> <S>
*23.3 Consent of Coopers & Lybrand, independent chartered accountants.
25 Statement of Eligibility and Qualification on Form T-1 of Trustee.
27 Financial Data Schedule.
27.2 Financial Data Schedule.
99 Form of Letter of Transmittal and related documents.
</TABLE>
- ---------------
* Filed herewith. All exhibits not preceded by an asterisk (*) have been filed
previously.
(b) Financial Statement Schedules
No Financial Statement Schedules are required.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first-class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE> 143
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Winfield,
State of Alabama, on the 15th day of July, 1997.
CONTINENTAL GLOBAL GROUP, INC.
By /s/ C. EDWARD BRYANT, JR.
------------------------------------
Name: C. Edward Bryant, Jr.
Title: President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------- ----------------------------------- --------------
<S> <C> <C>
/s/ C. EDWARD BRYANT, JR. President and Chief Executive July 15, 1997
- ------------------------------------------- Officer (Principal Executive
C. Edward Bryant, Jr. Officer)
/s/ JIMMY L. DICKINSON Vice President and Chief Financial July 15, 1997
- ------------------------------------------- (Principal Financial Officer and
Jimmy L. Dickinson Principal Accounting Officer)
/s/ EDWARD F. CRAWFORD Director July 15, 1997
- -------------------------------------------
Edward F. Crawford
/s/ DONALD F. HASTINGS Director July 15, 1997
- -------------------------------------------
Donald F. Hastings
/s/ JOSEPH L. MANDIA Director July 15, 1997
- -------------------------------------------
Joseph L. Mandia
/s/ ROBERT J. TOMSICH Director July 15, 1997
- -------------------------------------------
Robert J. Tomsich
/s/ JOHN R. TOMSICH Director July 15, 1997
- -------------------------------------------
John R. Tomsich
/s/ JAMES W. WERT Director July 15, 1997
- -------------------------------------------
James W. Wert
</TABLE>
II-4
<PAGE> 144
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Winfield,
State of Alabama, on the 15th day of July, 1997.
CONTINENTAL CONVEYOR & EQUIPMENT
COMPANY
By /s/ C. EDWARD BRYANT, JR.
------------------------------------
Name: C. Edward Bryant, Jr.
Title: President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------- ----------------------------------- --------------
<S> <C> <C>
/s/ C. EDWARD BRYANT, JR. President and Chief Executive July 15, 1997
- ------------------------------------------- Officer (Principal Executive
C. Edward Bryant, Jr. Officer)
/s/ JIMMY L. DICKINSON Vice President of Finance July 15, 1997
- ------------------------------------------- (Principal Financial Officer and
Jimmy L. Dickinson Principal Accounting Officer)
/s/ ROBERT J. TOMSICH Director July 15, 1997
- -------------------------------------------
Robert J. Tomsich
/s/ JOHN R. TOMSICH Director July 15, 1997
- -------------------------------------------
John R. Tomsich
</TABLE>
II-5
<PAGE> 145
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Belton,
State of South Carolina, on the 15th day of July, 1997.
GOODMAN CONVEYOR COMPANY
By /s/ RICHARD M. SICKINGER
------------------------------------
Name: Richard M. Sickinger
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------------- --------------
<S> <C> <C>
/s/ RICHARD M. SICKINGER President July 15, 1997
- ------------------------------------------ (Principal Executive Officer)
Richard M. Sickinger
/s/ LAWRENCE KUKULSKI Vice President - Finance and July 15, 1997
- ------------------------------------------ Administration (Principal Financial
Lawrence Kukulski Officer and Principal Accounting
Officer)
/s/ ROBERT J. TOMSICH Director July 15, 1997
- ------------------------------------------
Robert J. Tomsich
/s/ JOHN R. TOMSICH Director July 15, 1997
- ------------------------------------------
John R. Tomsich
</TABLE>
II-6
<PAGE> 146
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit Number Description Page
- -------------- ----------- ----
8 Opinion of Squire, Sanders & Dempsey L.L.P.
23.1 Consent of Squire, Sanders & Dempsey L.L.P. (included in
opinion filed as Exhibit 8).
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Coopers & Lybrand, independent
chartered accountants.
</TABLE>
II - 10
<PAGE> 1
EXHIBIT 8
Squire, Sanders & Dempsey L.L.P.
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114-1304
July 16, 1997
Continental Global Group, Inc.
438 Industrial Drive
Winfield, Alabama 35594
Continental Conveyor & Equipment Company
c/o Continental Global Group, Inc.
438 Industrial Drive
Winfield, Alabama 35594
Goodman Conveyor Company
c/o Continental Global Group, Inc.
438 Industrial Drive
Winfield, Alabama 35594
Gentlemen:
Reference is made to the Registration Statement on Form S-4 filed on
May 22, 1997, as amended by Amendment No. 1 to Form S-4 filed on July 16, 1997
(as amended, the "Registration Statement"), by Continental Global Group, Inc.
(the "Company"), Continental Conveyor & Equipment Company ("Continental") and
Goodman Conveyor Company ("Goodman") under the Securities Act of 1933, as
amended (the "Securities Act"), in connection with the Company's offer to
exchange (the "Exchange Offer") up to $120,000,000 aggregate principal amount
of the Company's 11% Series B Senior Notes due 2007 ("Series B Notes") for an
equal principal amount of its outstanding 11% Series A Senior Notes due 2007
("Series A Notes") and the guarantee by Continental and Goodman of the Series B
Notes (which guarantee is substantially the same as the guarantee by
Continental and Goodman of the Series A Notes). The Series A Notes were
issued, and the Series B Notes are issuable, pursuant to an Indenture, dated as
of April 1, 1997, among the Company, Continental, Goodman and Norwest Bank
Minnesota, National Association, as Trustee (the "Indenture"). We have
examined the Indenture, the Series A Notes, the form of the Series B Notes and
such other documents and matters of law as we have deemed necessary for
purposes of this opinion.
<PAGE> 2
Continental Global Group, Inc.
Continental Conveyor & Equipment Company
Goodman Conveyor Company
July 16, 1997
Page 2
Based upon the foregoing, we are of the opinion that:
1. The discussion set forth in the Registration Statement under
the caption "Certain Federal Income Tax Considerations" describes the material
federal income tax consequences expected to result to the holders whose Series
A Notes are exchanged for Series B Notes in the Exchange Offer.
2. Under existing law, the exchange of the Series A Notes for the
Series B Notes pursuant to the Exchange Offer will not be a taxable event to
either the Company or the holders of the Series A Notes for federal income tax
purposes. A holder's holding period for Series B Notes will include the holding
period for Series A Notes.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm in the Registration
Statement (and the prospectus contained therein) under the captions "Certain
Federal Income Tax Considerations" and "Legal Matters."
Respectfully submitted,
<PAGE> 1
EXHIBIT 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 20, 1997 with respect to the financial
statements of Hewitt-Robins Conveyor Components, and March 7, 1997, with
respect to the financial statements of Continental Global Group, Inc., in the
Amendment No. 1 to the Registration Statement (Form S-4 No. 333-27665) and
related Prospectus of Continental Global Group, Inc. for the registration of
$120,000,000 of 11% Series B Senior Notes.
ERNST & YOUNG LLP
Cleveland, Ohio
July 15, 1997
<PAGE> 1
Exhibit 23.3
Consent of Independant Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 11, 1997, with respect to the consolidated
financial statements of BCE Holdings Pty. Limited included in the Amendment
No. 1 to the Registration Statement (Form S-4 No. 333-27665) and related
Prospectus of Continental Global Group, Inc. for the registration of
$120,000,000 of 11% Series B Senior Notes.
Coopers & Lybrand
Chartered Accountants
Coopers & Lybrand
Newcastle, Australia
July 15, 1997
