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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
September 2, 1997
(Date of Report)
BUCYRUS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 1-871 39-0188050
(State or other jurisdiction (Commission File Number) (IRS Employer ID Number)
of incorporation)
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P.O. Box 500
1100 Milwaukee Avenue
South Milwaukee, Wisconsin 53172
(Address of principal executive offices)
(414) 768-4000
(Registrant's telephone number, including area code)
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ITEM 2. ACQUISITION OF ASSETS
(a) The Acquisition.
On August 26, 1997, the Registrant, Bucyrus International, Inc. (the
"Company") consummated the acquisition (the "Marion Acquisition") of certain
assets and liabilities of The Marion Power Shovel Company (a subsidiary of
Global Industrial Technologies, Inc. ("Global")), and of certain subsidiaries
and divisions of Global that represent Global's surface mining equipment
business in Australia, Canada, and South Africa (in this report, all of said
assets and the related businesses will be referred to as "Marion").
The purchase price for Marion was $40.1 million, subject to post-closing
adjustments which would have reduced the purchase price by approximately $3.7
million had the Marion Acquisition taken place on June 30, 1997. A balance sheet
will be prepared with respect to Marion as of the date of closing, on which the
actual post-closing purchase price adjustment will be based.
A copy of the Asset Purchase Agreement dated July 21, 1997, between the
Company (and certain subsidiaries) and Global (and certain subsidiaries)
relating to the Marion Acquisition is filed as Exhibit 2.1 to this Report.
Source of Funds. The Company financed the Marion Acquisition and related
expenses utilizing an unsecured bridge loan (the "Bridge Loan") provided by PPM
America Special Investments Fund, L.P. (the "PPM Fund"), an affiliate of Jackson
National Life Insurance Company, the Company's largest shareholder ("JNL"), in
the amount of $45 million.
The Company obtained a commitment dated April 14, 1997 from the PPM Fund to
provide the Bridge Loan ("Bridge Loan Commitment"). Upon execution of the Bridge
Loan Commitment, the Company paid a $550,000 Proposal and Commitment Fee to the
PPM Fund. The Bridge Loan Commitment provides for a fee of $450,000 (the
"Facility Fee") to be paid upon execution of the definitive purchase agreement
for the Marion Acquisition. The Bridge Loan Commitment provided for a closing
date of the Marion Acquisition of not later than July 15, 1997. On June 30,
1997, the Company and the PPM Fund agreed to extend the deadline for the closing
date until August 30, 1997 (the "Extension Agreement"). As a condition to the
Extension Agreement, however, the PPM Fund required the Company to pay a
$337,500 Extension Fee and to pay the $450,000 Facility Fee at the time the
Extension Agreement was signed.
The Bridge Loan matures on February 23, 1998 (180 days from funding) and
bears interest at 5% over the Adjusted Eurodollar Rate, as defined in the Bridge
Loan Agreement.
The Bridge Loan Commitment was amended as of August 20, 1997 (the "Amended
Commitment") to provide that upon consummation of the Marion Acquisition and the
funding of the Bridge Loan, the Company would pay an $800,000 Financing Fee to
the PPM Fund and a Bridge Loan Funding Fee of $1,125,000. These fees were paid
on August 26, 1997. The Amended Commitment and Bridge Loan Agreement provide for
additional fees as follows: (i) if the Bridge Loan is outstanding 30 days after
funding (on September 25, 1997), the Company will pay $800,000; (ii) if the
Bridge Loan is outstanding 90 days after funding (on November 24, 1997), the
Company will pay $3,200,000; and (iii) if the Bridge Loan is outstanding at
Maturity (February 23, 1998), the Company will pay $3,200,000.
Copies of the Bridge Loan Agreement and related documentation are
incorporated by reference as Exhibit 10.22 through Exhibit 10.29 to this Report.
As noted below under "Item 5. Other Events," the Company expects to
commence on or about August 29, 1997 a private placement offering of its
$150,000,000 Senior Notes due 2007 (the "Senior Notes Offering"). A portion of
the proceeds of the Senior Notes Offering are intended to be used to refinance
the Bridge Loan. The Company presently anticipates that the Senior Notes
Offering will be completed on or prior to September 24, 1997, and, accordingly,
that none of the additional fees relating to the Bridge Loan will be paid.
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(b) Assets and Businesses Acquired.
Prior to August 26, 1997, Marion had been in the business of manufacturing
large surface mining excavation equipment, primarily draglines and electric
mining shovels, and replacement parts therefor, and also had a significant
aftermarket parts and services business. The assets acquired by the Company from
Marion consist primarily of personal property (finished goods, work-in-process
and parts inventory, machinery, equipment, and machine tools) and intellectual
property (patents, trademarks, drawings, etc.). No real property was acquired.
The assets acquired by the Company in the Marion Acquisition consisted of
substantially all the assets owned by Global directly or indirectly through one
or more subsidiaries (including substantially all of the assets of The Marion
Power Shovel Company) that were used to operate Global's surface mining
equipment manufacturing, replacement parts, and services business throughout the
world. The Company is engaged in a similar business and intends to continue to
operate the Marion business by consolidating it into the Company's operations.
ITEM 5. OTHER EVENTS
(a) Acquisition of the Company by American Industrial Partners.
On August 21, 1997, Bucyrus entered into an Agreement and Plan of Merger
(the "AIP Agreement") with American Industrial Partners Acquisition Company, LLC
("AIPAC"), which is wholly owned by American Industrial Partners Capital Fund
II, L.P. ("AIP"), and Bucyrus Acquisition Corp. ("BAC"), which is wholly owned
by AIPAC. Pursuant to the AIP Agreement, on August 26, 1997, BAC commenced an
offer to purchase for cash 100% of the common stock of Bucyrus (the "Common
Stock") at a price of $18.00 per share (the "AIP Tender Offer"). Consummation of
the AIP Tender Offer is conditioned upon receipt by BAC of not less than 51% of
the Common Stock in the AIP Tender Offer. The consummation of the AIP Tender
Offer is a condition to the Senior Notes Offering.
Simultaneously with the execution of the AIP Agreement, JNL, which owns
approximately 40% of the outstanding Common Stock, entered into an agreement
(the "Stockholder Agreement") with AIPAC and BAC, pursuant to which JNL agreed
to tender all of its shares of Common Stock in the AIP Tender Offer.
Following consummation of the AIP Tender Offer, subject to satisfaction of
certain conditions set forth in the AIP Agreement, BAC will merge with and into
Bucyrus, and each shareholder of Bucyrus will receive $18.00 in cash for each
share of Common Stock (the "AIP Merger"). The AIP Merger is not a condition to
the Senior Notes Offering.
AIP has advised the Company as follows. AIP is a private investment fund
headquartered in San Francisco and New York with committed capital of
approximately $574 million. AIP seeks to invest in companies with either a
protected competitive position or proprietary capability, ideally combined with
a leading market share. The firm does not seek to play a role in daily
management; rather, AIP seeks to provide its portfolio companies with access to
the management expertise of its operating partners, all of whom are former Chief
Executive Officers of Fortune 500 corporations, through active board-level
participation as well as on-call advice when desired.
Following consummation of the AIP Merger, AIP will have contributed $143
million in equity to the Company and Robert L. Purdum, an operating partner of
AIP and former Chairman, President and Chief Executive Officer of Armco Inc., is
expected to become the Company's Non-Executive Chairman of the Board. Although
no specific arrangements are in place, following the AIP Merger, AIP intends to
offer the Company's executive officers the opportunity to own up to 10% of the
Company through a combination of direct investments and option programs.
On August 26, 1997, AIPAC and BAC filed with the Securities and Exchange
Commission (the "Commission") a Tender Offer Statement on Schedule 14D-1 (the
"Tender Offer Statement") relating to the AIP Tender Offer, and the Company
filed a Tender Offer Solicitation/Recommendation Statement on Schedule 14D-9
including a Schedule containing information required by Rule 14f-1 (the
"Recommendation Statement") setting forth, among other things, the Board of
Directors' recommendation to shareholders that they tender their stock in the
AIP Tender Offer. Reference is hereby made to the Tender Offer Statement and the
Recommendation Statement for additional information concerning AIP and its
related entities, the AIP
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Merger, the AIP Tender Offer, and to the schedule filed pursuant to Rule 14f-1
attached to the Recommendation Statement for additional information about the
Company and its management.
(b) Senior Notes Offering.
On or about August 29, 1997, the Company expects to commence a private
placement transaction (the "Senior Notes Offering") of its $150,000,000 Senior
Notes due 2007 (the "Senior Notes"). The Senior Notes Offering is being made and
the Senior Notes will be sold exclusively (a) to "Qualified Institutional
Buyers" (as defined in Rule 144A under the Securities Act of 1933) in compliance
with Rule 144A, and (b) pursuant to offers and sales that occur outside the
United States within the meaning of Regulation S under the Securities Act of
1933.
The Company expects that the Senior Notes Offering will be completed on or
about September 24, 1997.
THE SENIOR NOTES WILL NOT BE REGISTERED UNDER THE SECURITIES ACT, OR ANY
STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED, MAY NOT BE OFFERED OR SOLD IN
THE UNITED STATES EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS. THIS CURRENT REPORT ON FORM 8-K, AND ANY
REFERENCE TO THE SENIOR NOTES HEREIN, SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THE SENIOR
NOTES IN ANY STATE OR JURISDICTION WHERE SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE OR JURISDICTION.
The Company has prepared a Preliminary Confidential Offering Memorandum
(the "Preliminary Offering Memorandum") dated August 27, 1997 for use in
connection with the Senior Notes Offering. Exhibit 99.3 to this Report is a copy
of selected excerpts from the Preliminary Offering Memorandum under the captions
"Summary of Offering Memorandum -- Sources and Uses," "Risk Factors" (except for
certain sections pertinent only to potential purchasers of Senior Notes),
"Business," and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." Reference is hereby made to Exhibit 99.3 for additional
information about the Company and the anticipated sources and uses of funds to
be derived from the Senior Notes Offering and the AIP Merger.
There can be no assurance that the Senior Notes Offering will be
consummated.
(c) Joint Prosecution Agreement
Contemporaneously with the execution of the Stockholder Agreement referred
to in (a) above, the Company and JNL entered into a joint prosecution agreement
(the "Joint Prosecution Agreement") relating to various claims the Company and
JNL have or may have resulting from the Company's reorganization in 1994 under
Chapter 11 of the United States Bankruptcy Code (the "Chapter 11
Reorganization") against the law firm of Milbank, Tweed, Hadley & McCloy
("Milbank") for disgorgement of fees (the "Disgorgement Claim") and other claims
(collectively, the "Milbank Claims"). All proceeds of the Milbank Claims will be
allocated as follows: (i) first, to pay, or to reimburse the prior payment of,
all bona fide third-party costs, expenses and liabilities incurred on or after
September 1, 1997 in connection with prosecuting the Milbank Claims (the "Joint
Prosecution") including, without limitation, the reasonable fees and
disbursements of counsel and other professional advisors, which are to be
advanced by JNL; (ii) the next $8.675 million of proceeds from the Milbank
Claims, if any, will be paid to JNL, provided that the Company will retain ten
percent of the proceeds of the Disgorgement Claim, if any, and will direct
payment to JNL of the balance of such proceeds; and (iii) all additional
proceeds of the Milbank Claims will be divided equally between JNL and the
Company. Notwithstanding the foregoing, the Company shall also receive the
benefit of any reduction of any obligation it may have to pay Milbank's
outstanding fees, if any. JNL will indemnify the Company in respect of any
liability resulting from the Joint Prosecution other than in respect of legal
fees and expenses incurred prior to September 1, 1997. The Joint Prosecution
Agreement will continue in force irrespective of whether the Merger is
consummated. The Joint Prosecution may involve lengthy and complex litigation
and there can be no assurance whether or when any recovery may be obtained or,
if obtained, whether it will be in
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an amount sufficient to result in the Company receiving any portion thereof
under the formula described above.
(d) Settlement Agreement
During the pendency of the Chapter 11 Reorganization, JNL filed a claim
(the "503(b) Claim") against the Company with the United States Bankruptcy
Court, Eastern District of Wisconsin ("Bankruptcy Court") for reimbursement of
approximately $3.3 million of professional fees and disbursements incurred in
connection with the Chapter 11 Reorganization pursuant to Section 503(b) of the
Bankruptcy Code. By order dated June 3, 1996, the Bankruptcy Court awarded JNL
the sum of $500. JNL appealed the decision to the United States District Court
for the Eastern District of Wisconsin. On June 26, 1997, the District Court
denied the appeal as moot but returned the matter to the Bankruptcy Court for
further proceedings with leave to appeal again after further determination of
the Bankruptcy Court. On July 11, 1997, JNL moved the Bankruptcy Court for
relief from the final judgment entered on the 503(b) Claim. Pursuant to a
Settlement Agreement between the Company and JNL dated as of August 21, 1997,
subject to Bankruptcy Court approval, JNL will settle and release the Company
from the 503(b) Claim in consideration of a payment to JNL by the Company of
$200,000.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of the Business Acquired.
The following audited and unaudited combined financial statements of the
Surface Mining and Equipment Business of Global Industrial Technologies, Inc.
are set forth as Exhibit 99.1 to this report:
Audited Financial Statements:
Report of Independent Public Accountants
Combined Balance Sheet at October 31, 1996
Combined Statement of Operations for the Year Ended October 31, 1996
Combined Statement of Equity for the Year Ended October 31, 1996
Combined Statement of Cash Flows for the Year Ended October 31, 1996
Notes to Combined Financial Statements
Unaudited Financial Statements:
Combined Balance Sheets at June 30, 1997 and October 31, 1996
Combined Statements of Operations for the Eight Months Ended June 30,
1997 and 1996
Combined Statements of Cash Flows for the Eight Months Ended June 30,
1997 and 1996
Notes to Combined Financial Statements
(b) Pro Forma Financial Information
The Unaudited Pro Forma Combined Condensed Statements of Operations of the
Company for the year ended December 31, 1996, and the six months ended June 30,
1997 (the "Pro Forma Statements of Operations"), and the Unaudited Pro Forma
Combined Condensed Balance Sheet of the Company at June 30, 1997 (the "Pro Forma
Balance Sheet" and, together with the Pro Forma Statements of Operations, the
"Pro Forma Financial Statements") are presented as Exhibit 99.2 to this report.
The Pro Forma Financial Statements give effect to the Marion Acquisition and the
Bridge Loan (both defined in Item 2(a) of this Report) but do not give effect to
the Senior Notes Offering or the acquisition of the Company by American
Industrial Partners (identified in Item 5 of this Report).
Basis of Presentation. The Pro Forma Financial Statements have been
prepared to illustrate the estimated effect of the Marion Acquisition and the
financing (the Bridge Loan) incurred to finance the
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Marion Acquisition. The Pro Forma Financial Statements are based on certain
estimates and assumptions made by the management of the Company as to the
combined operations of the Company and Marion which the Company believes to be
reasonable. The Pro Forma Financial Statements do not purport to be indicative
of the results of operations or financial position of the Company and Marion
that actually would have been obtained had the Marion Acquisition been completed
as of the assumed dates, or to project the results of operations or financial
position of the Company for any future date or period.
The Pro Forma Balance Sheet gives pro forma effect to the Marion
Acquisition as if it had occurred on June 30, 1997. The Pro Forma Statements of
Operations give pro forma effect to the Marion Acquisition as if it had occurred
on January 1, 1996. In each case, effect is given to the consummation of the
Bridge Loan as if the Bridge Loan had been consummated immediately prior to
consummation of the Marion Acquisition.
For purposes of the Pro Forma Statements of Operations for the year ended
December 31, 1996, Marion's historical Statement of Operations for the fiscal
year ended October 31, 1996, was combined with the Company's historical
Statement of Operations for the year ended December 31, 1996. For purposes of
the Pro Forma Statement of Operations for the six months ended June 30, 1997,
Marion's historical Statement of Operations for the six months ended June 30,
1997, was combined with the Company's historical Statement of Operations for the
six months ended June 30, 1997. Marion's results for the months of November and
December 1996 are not included in these Pro Forma Statements of Operations.
Marion's net sales and net loss for these two months were $9.5 million and $1.6
million, respectively. The Pro Forma Statements of Operations have been prepared
assuming retention of all of the Company's and Marion's net sales.
The Marion Acquisition will be accounted for by the purchase method of
accounting. Under purchase accounting, the total purchase price will be
allocated to the tangible and intangible assets and liabilities assumed based
upon their respective fair values as of the closing of the Marion Acquisition
based on valuations and studies which are not yet available. A preliminary
allocation of the purchase price has been made to major categories of assets and
liabilities in the accompanying Pro Forma Financial Statements based on
available information. The actual allocation of purchase price and resulting
effect on income from operations may differ significantly from the pro forma
amounts included herein. These pro forma adjustments represent management's
preliminary determination of purchase accounting adjustments and are based upon
available information and certain assumptions that management believes to be
reasonable. A balance sheet will be prepared with respect to Marion's balance
sheet as of the date of such closing, on which the post-closing purchase price
adjustment will be based. Management does not expect that differences between
the preliminary and final purchase price allocation will have a material impact
on the Company's financial position and/or results of operations.
(c) Exhibits.
See Exhibit Index.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BUCYRUS INTERNATIONAL, INC.
(Registrant)
By: /s/ C. R. Mackus
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Name: C. R. Mackus
Title: Secretary and Controller
Date: September 2, 1997
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BUCYRUS INTERNATIONAL, INC.
EXHIBIT INDEX
TO
CURRENT REPORT ON FORM 8-K
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EXHIBIT FILED
NUMBER DESCRIPTION INCORPORATED HEREIN BY REFERENCE FROM HEREWITH
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2.1 Asset Purchase Agreement dated July X
21, 1997, by and among The Marion
Power Shovel Company, Marion Power
Shovel Pty Ltd, Intool International
B.V., Global-GIX Canada Inc., and
Global Industrial Technologies, Inc.
(Sellers) and Bucyrus International,
Inc., Bucyrus (Australia) Proprietary
Ltd., Bucyrus (Africa) (Proprietary)
Limited, and Bucyrus Canada Limited
(Buyers)
[REDACTED PORTIONS ARE SUBJECT TO A
REQUEST FOR CONFIDENTIAL TREATMENT ON
FILE WITH THE SECURITIES AND EXCHANGE
COMMISSION]
2.2 Agreement and Plan of Merger dated Exhibit 1 to Registrant's Tender
August 21, 1997, between Registrant, Offer Solicitation/Recommendation
American Industrial Partners Statement on Schedule 14D-9 filed
Acquisition Company, LLC and Bucyrus with the Commission on August 26,
Acquisition Corp. 1997
10.15 Letter Agreement dated July 30, 1997 Exhibit 10.15 to Registrant's
between Jefferies & Company, Inc. and Quarterly Report on Form 10-Q for the
Registrant quarter ended June 30, 1997
10.22 Bridge Loan Agreement dated as of Exhibit 5.4 to Registrant's Tender
August 26, 1997 by and among PPM Offer Solicitation/Recommendation
America Special Investments Fund, Statement on Schedule 14D-9 filed
L.P. as Agent and Lender and the with the Commission on August 26,
other lenders party thereto, the 1997
Company, Bucyrus (Australia)
Proprietary Ltd., and Bucyrus Canada
Limited
10.23 Letter of Intent dated July 30, 1997 Exhibit 99.4 to Registrant's Current
between Registrant and American Report on Form 8-K dated August 4,
Industrial Partners, providing for 1997
the acquisition of Registrant by
American Industrial Partners or one
of its affiliates
10.24 Bridge Loan Commitment issued by PPM Exhibit 5.1 to Registrant's Tender
America Special Investments Fund, Offer Solicitation/Recommendation
L.P. as of April 14, 1997 Statement on Schedule 14D-1 filed
with the Commission on August 26,
1997
10.25 Extension Agreement dated June 30, Exhibit 5.2 to Registrant's Tender
1997 by and between PPM America Offer Solicitation/Recommendation
Special Investments Fund L.P. and Statement on Schedule 14D-1 filed
Bucyrus International, Inc. with the Commission on August 26,
1997
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EXHIBIT FILED
NUMBER DESCRIPTION INCORPORATED HEREIN BY REFERENCE FROM HEREWITH
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10.26 Amendment to Bridge Loan Commitment Exhibit 5.3 to Registrant's Tender
dated as of August 20, 1997 by and Offer Solicitation/Recommendation
between PPM America Special Statement on Schedule 14D-1 filed
Investments Fund, L.P. and Bucyrus with the Commission on August 26,
International, Inc. 1997
10.27 Bridge Loan Agreement dated as of Exhibit 5.4 to Registrant's Tender
August 26, 1997 by and between PPM Offer Solicitation/Recommendation
America Special Investments Fund, Statement on Schedule 14D-1 filed
L.P., Bank of Montreal, Bucyrus with the Commission on August 26,
(Australia) Proprietary Ltd., Bucyrus 1997
Canada Limited and Bucyrus
International, Inc.
10.28 Joint Prosecution Agreement dated as Exhibit 9 to Registrant's Tender
of August 21, 1997 by and between Offer Solicitation/Recommendation
Jackson National Life Insurance Statement on Schedule 14D-1 filed
Company and Bucyrus International, with the Commission on August 26,
Inc. 1997
10.29 Settlement Agreement dated as of Exhibit 10 to Registrant's Tender
August 21, 1997 by and between Offer Solicitation/Recommendation
Jackson National Life Insurance Statement on Schedule 14D-1 filed
Company and Bucyrus International, with the Commission on August 26,
Inc. 1997
99.1 Audited and unaudited combined X
financial statements of the Surface
Mining and Equipment Business of
Global Industrial Technologies, Inc.
99.2 Unaudited Pro Forma Combined X
Condensed Financial Statements of the
Company for the year ended December
31, 1996, and the six months ended
June 30, 1997
99.3 Excerpts from Registrant's X
Preliminary Confidential Offering
Memorandum dated August 27, 1997 for
use in connection with the Senior
Notes Offering under the captions
"Summary of Offering Memorandum --
Sources and Uses of Funds," "Risk
Factors" (except for certain Sections
pertinent only to potential purchasers
of Senior Notes), "Management's Discussion
and Analysis of Financial Condition
and Results of Operations," and "Business."
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EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
Dated as of July 21, 1997
By and Among
The Marion Power Shovel Company,
Marion Power Shovel Pty. Ltd,
INTOOL International B.V., and
Global-GIX Canada Inc.,
(collectively, as Sellers)
and
Global Industrial Technologies, Inc., as Parent
and
Bucyrus International, Inc.,
Bucyrus (Australia) Proprietary Ltd.,
Bucyrus (Africa) (Proprietary) Limited, and
Bucyrus Canada Limited
(collectively, as Buyers)
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of July 21, 1997, by
and among (i) The Marion Power Shovel Company, a Delaware corporation
("Marion USA"), (ii) Marion Power Shovel Pty. Ltd., an Australian corporation
("Marion Australia"), (iii) INTOOL International B.V., a Netherlands corporation
having a South African branch ("Marion South Africa"), (iv) Global-GIX Canada
Inc., a Canadian corporation ("Marion Canada")(Marion USA, Marion Australia,
Marion South Africa and Marion Canada being heretofore referred to,
individually, as "Seller" and, collectively, as the "Sellers"), and (v) Global
Industrial Technologies, Inc., a Delaware corporation ("Parent"), and (vi)
Bucyrus International, Inc., a Delaware corporation ("Bucyrus USA"), (vii)
Bucyrus (Australia) Proprietary Ltd., an Australian corporation ("Bucyrus
Australia"), (viii) Bucyrus (Africa) (Proprietary) Limited, a South African
corporation ("Bucyrus South Africa"), and (ix) Bucyrus Canada Limited, a
Canadian corporation ("Bucyrus Canada") (Bucyrus USA, Bucyrus Australia,
Bucyrus South Africa and Bucyrus Canada being heretofore referred to,
individually, as "Buyer" and, collectively, as the "Buyers").
INTRODUCTORY STATEMENTS
A. Sellers are engaged in the business of designing, manufacturing and
selling draglines and power shovels for surface mining along with components and
spare parts therefor, as well as spare parts for previously manufactured drills
(such business being herein referred to as the "Business").
B. Sellers are desirous of selling to Buyers, and Buyers are desirous
of purchasing, substantially all of Sellers' assets used in the Business, upon
the terms and conditions hereafter set forth.
ACCORDINGLY, in consideration of the premises and the mutual agreements,
covenants, representations and warranties hereafter set forth, the parties
hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 DEFINITIONS. For purposes of this Agreement, the terms
defined in this Article I shall have the meanings herein specified, unless the
context otherwise requires. Accounting terms used in this Agreement, including
those defined in this Article I, shall, except as otherwise provided for herein,
be construed in accordance with generally accepted accounting principles used in
the United States and as consistently applied by Sellers on a consolidated
basis.
"Addendum" shall have the meaning assigned to it in Section 3.08 of the
Agreement.
"Affiliate," as to any individual or entity ("Person"), shall mean any
other Person (i) who directly or indirectly controls such Person; (ii) who
beneficially owns ten (10%) percent or more
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of the voting stock of such other Person; (iii) ten (10%) or more of whose
voting stock is owned by such other Person; or (iv) that is an officer or
director of such other Person. A Person shall be deemed to control another
Person if such Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of such other Person,
whether through the ownership of voting securities, by contract or otherwise.
"Assumed Liabilities" shall have the meaning assigned to it in Section 2.05
of this Agreement.
"Basis" shall have the meaning assigned to it in Section 3.07 of this
Agreement.
"Benefit Plans" shall mean any bonus, deferred compensation, incentive
compensation, stock purchase, stock option, profit sharing, pension, retirement,
severance, vacation, sickness, unemployment, disability, hospitalization,
medical, dental or life insurance plan, benefit, program or agreement, or any
other arrangement or understanding similar to the foregoing, whether or not
insured.
"Bill of Sale" shall have the meaning assigned to it in Section 3.02 of
this Agreement.
"Books and Records" shall mean all books and records of each Seller used in
connection with the Business of such Seller, including all computerized storage
media and the software. Books and Records shall not include the corporate seal,
minute books, bylaws, memoranda of association, articles of incorporation, stock
transfer records, federal income tax returns of Global Industrial Technologies,
Inc. and such other books and records as pertain to the organization, existence
or share capitalization of Sellers or as are necessary to enable Sellers to file
their respective tax returns and reports and perform their respective
obligations hereunder after the Closing Date or which Sellers are required to
keep confidential under terms of a written agreement with a third party.
"Bucyrus Australia" shall have the meaning assigned to it in the Preamble
to this Agreement.
"Bucyrus Canada" shall have the meaning assigned to it in the Preamble to
this Agreement.
"Bucyrus South Africa" shall have the meaning assigned to it in the
Preamble to this Agreement.
"Bucyrus USA" shall have the meaning assigned to it in the Preamble to this
Agreement.
"Business" shall have the meaning assigned to it in the Preamble to this
Agreement.
"Buyers" shall have the meaning assigned to it in the Preamble to this
Agreement.
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"Buyer Group" shall mean Buyers, their respective officers, directors,
employees, subsidiaries and Affiliates.
"Buyer Indemnity Claim" shall have the meaning assigned to it in
Section 11.01 of this Agreement.
"Closing" shall have the meaning assigned to it in Section 3.04 of
this Agreement.
"Closing Balance Sheet" shall have the meaning assigned to it in
Section 3.01(b) of this Agreement.
"Closing Date" shall have the meaning assigned to it in Section 3.04
of this Agreement.
"Code" shall mean the Internal Revenue Code.
"Damages" shall mean all demands, claims, actions or causes of
action, assessments, losses, damages, liabilities, costs and expenses,
including, without limitation, interest, penalties, punitive and exemplary
damages, and reasonable attorneys' fees and expenses.
"Documents" shall mean all ancillary documents to be delivered to
Buyers by Sellers in connection with this Agreement.
"Encumbrances" shall mean any title defects or objections, mortgages,
liens, claims, restrictive covenants, use restrictions, charges, pledges,
security interests or other encumbrances of any nature whatsoever including,
without limitation, leases, chattel mortgages, conditional sales contracts,
collateral security arrangements and other title or interest retention
arrangements.
"Excluded Liabilities" shall have the meaning assigned to it in
Section 2.06 of this Agreement.
"Final Determination" shall be deemed to occur with respect to a
proposed or other adjustment forming the basis for a tax claim when (i) there is
a decision, judgment, decree or other order by any court of competent
jurisdiction, which decision, judgment, decree or other order has become final
with respect to the indemnitee (i.e., all allowable appeals have been exhausted
by either party to the action or the time period within which such appeal may be
filed has expired), (ii) there is a closing agreement made under Section 7121 of
the Code (or any analogous provision under the laws of any other jurisdiction)
binding in respect of the indemnitee or other administrative settlement with the
Internal Revenue Service or other governmental authority, (iii) the time for
instituting a claim for refund in respect of the indemnified claim has expired,
or, if a claim was filed, the time for instituting suit with respect thereto has
expired or (iv) the taxes which are the subject of a proposed or other
adjustment are paid, and, pursuant to written agreements between Sellers and the
Buyers, no claim for refund is filed, and no other contest of such proposed or
other adjustment is made.
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<PAGE> 5
"Government Body" shall mean any federal, state, local, foreign or
other governmental agency, department, commission, board, bureau,
instrumentality or body.
"Historical Financial Statements" shall have the meaning assigned to
it in Section 4.01(e)(i) of this Agreement.
"Indemnitee" shall have the meaning assigned to it in Section 11.03(a)
of this Agreement.
"Indemnitee's Certificate" shall have the meaning assigned to it in
Section 11.03(a) of this Agreement.
"Indemnitor" shall have the meaning assigned to it in Section
11.03(a) of this Agreement.
"Instruments of Assignment" shall have the meaning assigned to it in
Section 3.02 of this Agreement.
"Intangible Assets" shall mean all patents, trademarks, trademark
licenses, trade names, copyrights, licenses, authorizations, inventions,
processes, know-how, formulas, trade secrets and other intangible assets,
including any and all associated goodwill (together with all pending
applications, parents, continuations, divisionals, continuations-in-part,
foreign counterpart patents, foreign counterpart patent applications, reissues
and extensions for any of the above) owned by any Seller or dedicated to the
Business. For the purpose of this definition, the phrase dedicated to the
Business (or any similar phrase) includes, without limitation, reliance upon
and/or acceptance of the rights, interests and privileges conferred on the
Business or any Seller by any of the Intangible Assets, regardless of whether
or not such Intangible Assets generate revenue or are presently exploited.
"Intercompany Payables" shall mean amounts owed by a Seller to
Parent.
"Intercompany Receivables" shall mean amounts owed to a Seller by
Parent.
"Interim Balance Sheet" shall have the meaning assigned to it in
Section 4.01(e)(ii) of this Agreement.
"Intracompany Payables" shall mean amounts owed by one Seller to
another Seller.
"Intracompany Receivables" shall mean amounts owed to one Seller by
another Seller.
"Interim Financial Statements" shall have the meaning assigned to it
in Section 4.01 (e)(ii) of this Agreement.
"Knowledge" shall mean with respect to matters relating to Sellers'
Knowledge or Buyers' Knowledge (i) those facts and matters actually known by any
one or more officers or directors of Sellers, Parent or Buyers, as the case may
be; and (ii) any fact or matter which
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<PAGE> 6
reasonably should be known by any one or more of such officers or directors
after "due inquiry" by such person, taking into account any and all roles or
positions which such person may hold and any and all duties and
responsibilities he or she may have vis-a-vis the Business of such Seller,
Parent or Buyer, as the case may be. The phrase "to Sellers' Knowledge" shall
include the Knowledge of both Sellers and Parent.
"Laws" shall mean all applicable laws (statutory and otherwise),
rules, regulations, orders, ordinances, judgments, decrees, orders, writs and
injunctions of all governmental authorities (federal, state, local, foreign or
otherwise).
"Leases" shall mean all leases (including all amendments thereof and
modifications thereto) pursuant to which each Seller leases real or personal
property.
"Lease Assignments" shall have the meaning assigned to it in Section
3.02 of this Agreement.
"Leased Property" shall have the meaning assigned to it in Section
4.01(f)(ii) of this Agreement.
"Licenses" shall have the meaning assigned to it in Section 4.01(l)
of this Agreement.
"Limitation Period" shall have the meaning assigned to it in Section
11.04 of this Agreement.
"Manufacturing Burden" shall mean all manufacturing costs (i.e., all
costs that are included in inventory valuation under generally accepted
accounting principles), determined as of the time incurred, including all
indirect manufacturing costs, but excluding all costs for direct labor, direct
materials and selling, general, administrative and engineering expenses.
"Marion Australia" shall have the meaning assigned to it in the
Preamble to this Agreement.
"Marion Canada" shall have the meaning assigned to it in the Preamble
to this Agreement.
"Marion South Africa" shall have the meaning assigned to it in the
Preamble to this Agreement.
"Marion USA" shall have the meaning assigned to it in the Preamble to
this Agreement.
"Marion USA Facilities" shall have the meaning assigned to it in
Section 3.05(m) of this Agreement.
"Net Book Value" shall have the meaning set forth in Exhibit A hereto.
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<PAGE> 7
"Other Instruments" shall have the meaning assigned to it in Section
3.02 of this Agreement.
"Parent" shall have the meaning assigned to it in the Preamble to this
Agreement.
"Permitted Encumbrances" shall mean Encumbrances which secure the
following obligations of Sellers arising in the ordinary course of the Business
of Sellers as historically conducted (other than obligations relating to
indebtedness for borrowed money) with respect to which Sellers are not in
default: (i) liens (including leases, title retention agreements under
installment sales and conditional sales contracts) securing liabilities or
obligations to the extent reflected in the Closing Balance Sheet, (ii)
liens for current taxes not yet due, (iii) mechanics' and materialmens' liens
arising under applicable laws securing obligations to the extent reflected in
the Closing Balance Sheet, and (iv) restrictions on use and transfer of
assets imposed by applicable laws such as those relating to protection of the
environment and zoning.
"Permits" shall mean all licenses, permits and authorizations issued
by any federal, state, local or foreign Government Body.
[THIS PROVISION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION AND IS SUBJECT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO 17 CFR SECTION 240.24b2]
"Retained Assets" shall have the meaning assigned to it in Section
2.03 of this Agreement.
"Selected Employees" shall mean those employees of Marion USA who
attain age 60 with 15 years of service, as determined for pension plan and
retiree medical purposes, during the period of June 23, 1997, through June 21,
1998.
"Sellers" shall have the meaning assigned to it in the Preamble to
this Agreement.
"Sellers' Employees" shall have the meaning assigned to it in Section
3.08(a) of this Agreement.
"Seller Group" shall mean Sellers, their respective officers,
directors, employees, subsidiaries and Affiliates.
"Seller Indemnity Claims" shall have the meaning assigned to it in
Section 11.02 of this Agreement.
"Settled Claims" shall have the meaning assigned to it in Section
11.05 of this Agreement.
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<PAGE> 8
"Taxes" shall mean all federal, state, local, or foreign taxes,
excises, withholdings, assessments or levies on or measured by actual or deemed
income, revenue, gross receipts, payroll, the value or cost of real or personal
property, tangible or intangible, including, but not limited to, income, social
security, welfare, sales, use, occupancy, business, occupation, real estate,
capital stock and franchise taxes (including interest and penalties thereon and
including estimated taxes).
"Transferred Assets" shall have the meaning assigned to it in Section
2.02 of this Agreement.
[THIS PROVISION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION AND IS SUBJECT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO 17 CFR SECTION 240.24b2]
ARTICLE II
PURCHASE AND SALE OF ASSETS
SECTION 2.01 ASSETS TO BE SOLD. At the Closing, subject to the terms
and conditions of this Agreement and in reliance upon the representations and
warranties of Sellers, Parent, and Buyers contained herein, Sellers shall sell,
assign, convey and transfer to Buyers the Transferred Assets. Sellers shall
retain the Retained Assets.
(a) ASSETS TO BE PURCHASED BY BUCYRUS USA. Bucyrus USA
shall purchase (i) all of the Transferred Assets of Marion USA, (ii)
the Intangible Assets of Marion Australia, and (iii) the Intangible
Assets of Marion South Africa dedicated to the Business of such
Seller.
(b) ASSETS TO BE PURCHASED BY BUCYRUS AUSTRALIA. Bucyrus
Australia shall purchase all of the Transferred Assets of Marion
Australia, except the Intangible Assets which shall be purchased by
Bucyrus USA (as described in Section 2.01(a), above).
(c) ASSETS TO BE PURCHASED BY BUCYRUS SOUTH AFRICA.
Bucyrus South Africa shall purchase all of the Transferred Assets of
Marion South Africa, except the Intangible Assets which shall be
purchased by Bucyrus USA (as described in Section 2.01(a), above).
(d) ASSETS TO BE PURCHASED BY BUCYRUS CANADA. Bucyrus
Canada shall purchase all of the Transferred Assets of Marion Canada.
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<PAGE> 9
(e) GOING CONCERN. Buyers and Sellers hereby acknowledge
that Buyers are purchasing the assets of a going concern with respect to the
Transferred Assets of Marion USA, Marion Australia and Marion South Africa.
SECTION 2.02 TRANSFERRED ASSETS. With respect to Marion USA and
Marion Australia, the term "Transferred Assets" shall mean (i) all assets and
properties owned by each such Seller as of the Closing Date; and (ii) all of
each such Seller s rights and interests in and to assets and properties not
owned by such Seller, but dedicated to the Business of such Seller as of the
Closing Date. With respect to Marion South Africa and Marion Canada, the term
"Transferred Assets" shall mean (i) all assets and properties owned by each such
Seller as of the Closing Date and dedicated to the Business of such Seller; and
(ii) all of each such Seller's rights and interests in and to assets and
properties not owned by such Seller, but dedicated to the Business of such
Seller. With respect to Marion USA and Marion Australia, the Transferred
Assets include, but are not limited to, the assets, properties, rights, and
interests described in paragraphs (a) through (r), below, or listed as assets
of such Sellers in the Schedules and Exhibits to this Agreement, except the
Retained Assets and only to the extent that such assets do not constitute
Retained Assets. With respect to Marion South Africa and Marion Canada, the
Transferred Assets include, but are not limited to, the assets, properties,
rights, and interests described in paragraphs (a) through (r), below, dedicated
to the Business of such Sellers or listed as assets of such Sellers in the
Schedules and Exhibits to this Agreement, except the Retained Assets and only
to the extent that such assets do not constitute Retained Assets.
(a) all leasehold interests (the "Leased Property");
(b) all Intangible Assets;
(c) all accounts receivable and notes receivable;
(d) all Intracompany Receivables;
(e) the account receivable in connection with the Settlement
Agreement between Marion USA, Dresser Industries, Construction Mining Services,
Inc., Ronald J. Ortyl, Sr. and Ronald J. Ortyl, Jr. (the "Receivable From
BMSI");
(f) all furniture and fixtures;
(g) all machinery, equipment, tools, dies, molds,
patterns, and all related spare, replacement and maintenance parts therefor;
(h) all automobiles, trucks and other vehicles;
(i) all inventory, including, without limitation, all raw
materials, work-in-process, finished products, goods in transit, office,
manufacturing and advertising supplies, containers
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<PAGE> 10
and packaging and shipping materials, and all inventory in the hands of
suppliers for which each Seller is contractually committed as of the Closing
Date;
(j) all leasehold improvements;
(k) to the extent transferrable or assignable, all rights and
interests in, to, and under all leases, contracts, agreements, arrangements,
commitments and understandings (whether written or oral) to which any Seller is
a party, excluding those items set forth on Schedule 2.02(k) and excluding
insurance policies relating to the Transferred Assets;
(l) all rights, interests and claims under insurance policies for
damage to Transferred Assets to the extent that any damaged Transferred Assets
have not been repaired or replaced prior to Closing;
(m) to the extent transferrable or assignable, all Permits
relating to the Transferred Assets;
(n) all prepaid expenses related to tooling, patterns and
supplies;
(o) all Books and Records;
(p) all technical documentation owned by each Seller including,
without limitation, material and tooling specifications, purchasing
specifications, invention records, research records, inspection processes and
equipment lists;
(q) all claims and causes of action of each Seller relating to or
arising out of the Business of each Seller, except (i) those listed on Schedule
2.02(q) attached hereto, and (ii) any claim or cause of action against third
parties that can be used as a defense, counterclaim or offset against any suit
brought by third parties against each Seller, particularly with respect to any
Excluded Liabilities; and
(r) all right, title, and interest in and to the goodwill, going
concern value and proprietary know-how of the Business of each Seller.
SECTION 2.03 RETAINED ASSETS. The term "Retained Assets" shall mean
the specified assets of Sellers that are listed on Schedule 2.03.
SECTION 2.04 ALL ASSETS. The Transferred Assets shall constitute
substantially all of the assets dedicated to the Business of each Seller as of
the Closing Date.
SECTION 2.05 LIABILITIES ASSUMED. At the Closing, subject to the
terms and conditions herein set forth, Sellers shall assign to Buyers, and
Buyers shall assume from Sellers, certain liabilities of Sellers set forth on
Schedules 2.05(a) through (d) below (the "Assumed
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<PAGE> 11
Liabilities"), but with respect to such liabilities, only to the extent (and
only in such amounts) that such liabilities are actually reflected on the
Closing Balance Sheet.
(a) LIABILITIES ASSUMED BY BUCYRUS USA. Marion USA shall
assign to Bucyrus USA, and Bucyrus USA shall assume from Marion USA,
the Assumed Liabilities of Marion USA specified on Schedule 2.05(a).
(b) LIABILITIES ASSUMED BY BUCYRUS AUSTRALIA. Marion
Australia shall assign to Bucyrus Australia, and Bucyrus Australia
shall assume from Marion Australia, the Assumed Liabilities of Marion
Australia specified on Schedule 2.05(b).
(c) LIABILITIES ASSUMED BY BUCYRUS SOUTH AFRICA. Marion
South Africa shall assign to Bucyrus South Africa, and Bucyrus South
Africa shall assume from Marion South Africa, the Assumed Liabilities
of Marion South Africa specified on Schedule 2.05(c).
(d) LIABILITIES ASSUMED BY BUCYRUS CANADA. Marion Canada
shall assign to Bucyrus Canada, and Bucyrus Canada shall assume from
Marion Canada, the Assumed Liabilities of Marion Canada specified on
Schedule 2.05(d).
(e) ASSIGNMENT AND ASSUMPTION AGREEMENTS. Buyers'
assumption of the Assumed Liabilities shall be evidenced by the
documents of assignment and assumption specified on Schedule 2.05(e),
which shall be reasonably satisfactory to Buyers and Sellers in form
and substance. Buyers shall (a) timely pay and discharge and (b),
upon demand by Sellers, indemnify and defend Sellers and hold them
harmless from and against any Damages relating to or arising out of
any liability or obligation expressly assumed by Buyers hereunder.
SECTION 2.06 LIABILITIES NOT ASSUMED. Except for the Assumed
Liabilities, Buyers assume no past, present or future obligations or
liabilities (known, unknown, accrued, or contingent) of Sellers, and shall have
no liability or obligation with respect to any such liability or obligation of
Sellers other than the Assumed Liabilities (all such liabilities of Sellers
other than the Assumed Liabilities are herein referred to as the "Excluded
Liabilities"). The Excluded Liabilities include, without limitation, the
following: (i) any liabilities or obligations of Sellers arising from or
relating to any violation of Laws by Sellers including, but not limited to,
Laws relating to environmental conditions at any properties owned or used by
Sellers prior to the Closing Date and any liabilities or obligations of Sellers
under or pursuant to environmental laws arising from or relating to Sellers'
operations prior to the Closing Date; (ii) any liabilities or obligations of
Sellers related to any Benefit Plans maintained by Sellers prior to the Closing
Date, except, and only to the extent that, any such liabilities and obligations
have been expressly assumed by Buyers pursuant to the Addendum as provided in
Section 3.08; and (iii) [THIS PROVISION HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS SUBJECT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO 17 CFR SECTION 240.24b2] Sellers shall
(a) pay and discharge, and (b) Sellers and Parent, jointly and severally, shall
indemnify and defend Buyers and hold them harmless from and against any
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<PAGE> 12
Damages relating to or arising out of the Excluded Liabilities. [THIS PROVISION
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION AND IS SUBJECT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO
17 CFR SECTION 240.24b2]
ARTICLE III
PRICE AND TERMS
SECTION 3.01 CONSIDERATION.
(a) PURCHASE PRICE. Subject to the terms and conditions of this
Agreement, in consideration of the sale, conveyance, assignment, transfer and
delivery of the Transferred Assets and the Documents, and in addition to the
liabilities assumed and covenants made by Buyers hereunder, Buyers shall
deliver or cause to be delivered at the Closing in full payment for the
Transferred Assets the sum of Forty Million, One Hundred Twenty Thousand United
States Dollars (US $40,120,000) (the "Purchase Price"); provided however, to
the extent Sellers are not required to provide enhanced benefits to the
Selected Employees, the Purchase Price shall be Forty Million United States
Dollars (U.S.$40,000,000). The Purchase Price shall be paid as set forth below
by wire transfer of federal or other immediately available funds to one or more
accounts designated in writing by Sellers. Subject to final adjustments
pursuant to Section 3.01(b) below, (i) Bucyrus USA shall pay to Marion USA at
the Closing Twenty Million Three Hundred Eighty Six Thousand United States
Dollars (U.S.$20,386,000) for the Transferred Assets of Marion USA, the
Intangible Assets of Marion Australia and the Intangible Assets of Marion South
Africa dedicated to the Business of such Seller, as described in Section
2.01(a), (ii) Bucyrus Australia shall pay to Marion Australia at the Closing
Twelve Million Two Hundred Seventy Four Thousand United States Dollars
(U.S.$12,274,000) for the Transferred Assets as described in Section 2.01(b),
(iii) Bucyrus South Africa shall pay to Marion South Africa at the Closing One
Million Eight Hundred Thirty Eight Thousand United States Dollars
(U.S.$1,838,000) for the Transferred Assets as described in Section 2.01(c),
and (iv) Bucyrus Canada shall pay to Marion Canada at the Closing Five Million
Six Hundred Twenty Two Thousand United States Dollars (U.S.$5,622,000) for the
Transferred Assets as described in Section 2.01(d).
(b) PURCHASE PRICE ADJUSTMENT. Sellers and Buyers shall jointly,
within sixty (60) calendar days after the Closing Date, prepare (i) a
consolidated balance sheet of Sellers as of the Closing Date, (ii) a
consolidating balance sheet of Sellers as of the Closing Date, and (iii) a
balance sheet of each Seller as of the Closing Date (the "Closing Balance
Sheets"). For Purchase Price adjustment considerations, the Closing Balance
Sheets shall be prepared on a consistent basis with the accounting practices
and procedures applied by Sellers in the preparation of the Interim Balance
Sheet and, for purposes of this Section 3.01(b), in the absence of manifest
error (which shall not include any matters relating to practices and procedures
applied by Sellers in preparing the Interim Balance Sheet), the only
adjustments to accounting reserves and accruals reflected therein shall be
those made to reflect changes in such reserves and accruals between the date of
the Interim Balance Sheet and the date of the Closing Balance Sheet. In the
event of a dispute between the parties regarding the preparation of the Closing
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<PAGE> 13
Balance Sheets, which dispute cannot be reconciled by the mutual agreement of
the parties within fifteen (15) business days after one of the parties has
notified the other party thereof, the parties shall together select a mutually
acceptable Big Six public accounting firm (which shall be unrelated to, and not
in any manner affiliated with, either Buyers or Sellers or Parent or their
respective shareholders, officers, or Affiliates, and not currently or within
the two-year period employed or engaged by either Buyers or Sellers or Parent
or their respective shareholders, officers, or Affiliates), which firm shall
make an independent determination of the disputed item or items consistent with
the criteria set forth in this Section 3.01(b). Such independent determination
shall (in the absence of fraud, bad faith, undue influence, or the like, or
manifest error) be final and binding on all of the parties hereto. All fees,
costs and expenses incurred in retaining such independent accounting firm shall
be paid in equal shares by Buyers and Sellers. Within ten (10) calendar days
after (i) the completion of mutually agreed upon Closing Balance Sheets or (ii)
the resolution of any dispute relating thereto submitted to an independent Big
Six public accounting firm, whichever the case may be, the following Purchase
Price Adjustment shall be paid by the parties:
A. ADJUSTMENT PAID TO SELLERS. If the Net Book Value of
the Transferred Assets minus the Assumed Liabilities
of a Seller as shown on the Closing Balance Sheet of
such Seller is greater by more than U.S.$10,000 than
the Net Book Value of the Transferred Assets minus
the Assumed Liabilities of such Seller as shown on
the Interim Balance Sheet, then the difference
between such Net Book Value amounts shall be paid to
such Seller by the Buyer who is purchasing the
Transferred Assets of such Seller.
B. ADJUSTMENT PAID TO BUYERS. If the Net Book Value of
the Transferred Assets minus the Assumed Liabilities
of a Seller as shown on the Closing Balance Sheet of
such Seller is less by more than U.S.$10,000 than the
Net Book Value of the Transferred Assets minus the
Assumed Liabilities of such Seller as shown on the
Interim Balance Sheet, then the difference between
such Net Book Value amounts shall be paid by such
Seller to the Buyer of such Seller's Transferred
Assets.
C. METHOD OF PAYMENT AND ALLOCATION. The payment by
either Sellers or Buyers under paragraphs A or B of
this Section 3.01(b) (the "Adjustment") shall be
made by wire transfer of immediately available funds
to a bank account designated in writing by the payee.
The Adjustment paid to or by any Buyer shall be
allocated to the Transferred Assets purchased by such
Buyer in the manner set forth in Section 3.07 hereof.
SECTION 3.02 DOCUMENTS OF SALE AND CONVEYANCE. The sale, conveyance,
assignment, transfer and delivery of the Transferred Assets shall be effected
by delivery by each Seller to each Buyer of (i) a duly executed bill of sale in
substantially the form as Exhibit B attached hereto (the "Bills of Sale"), (ii)
assignments with respect to any real or personal property leases
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<PAGE> 14
included in the Transferred Assets in substantially the form as Exhibit C
attached hereto (the "Lease Assignments"), and assignments with respect to all
patents, trademarks, service marks, copyrights and all applications therefor
relating to the Business of Sellers in substantially the form as Exhibit D
attached hereto (the "Instruments of Assignment"), and (iii) such other good
and sufficient instruments of conveyance and transfer as shall be necessary to
vest in Buyers good and valid title to the Transferred Assets (the "Other
Instruments").
SECTION 3.03 BULK SALE; SALES AND TRANSFER TAXES. Bucyrus USA and
Marion USA have agreed not to comply with the bulk transfer provisions of the
Uniform Commercial Code Bulk Transfer laws as adopted in the State of Ohio and
with any similar article under the Uniform Commercial Code enacted in any other
jurisdiction in which any of the Transferred Assets are located. Except for
the Assumed Liabilities, there shall be no liability or obligation of Buyers to
Sellers' creditors arising from the sale by Sellers of the Transferred Assets
to Buyers under the provisions of this Agreement. Any sales, use or similar
transfer taxes, and any transfer, recording or similar fees and charges arising
in connection with the transfer of the Transferred Assets from Sellers to
Buyers (except those value added taxes for which Buyers would receive a full
refund through input credits or similar credits; and except as otherwise set
forth in Section 6.14) shall be borne by Sellers.
SECTION 3.04 CLOSING DATE. Within fifteen (15) business days after
the earlier of (i) expiration of the waiting period for completion of the
transactions contemplated by this Agreement imposed by Title II of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), or (ii)
termination of such waiting period prior to its expiration (each of clause (i)
and (ii) being hereinafter referred to as the "HSR Date"), and unless this
Agreement shall have been terminated and the transactions herein contemplated
shall have been abandoned pursuant to the provisions of Article X, a closing
with respect to the transactions contemplated by this Agreement (the "Closing")
shall take place at the offices of Global Industrial Technologies, Inc., 2121
San Jacinto Street, Suite 2500, Dallas, Texas 75201 (the "Closing Date"). If
the Closing occurs later than five (5) calendar days after the HSR Date, Buyers
shall pay to Sellers at Closing interest on the Purchase Price from the sixth
(6th) calendar day after the HSR Date through either (A) the fifteenth (15th)
business day after the HSR Date or (B) the Closing Date, whichever first
occurs, at the rate set forth in Bucyrus USA's Commitment Letter from PPM
America Special Investments Fund, L.P. dated April 14, 1997.
SECTION 3.05 DELIVERIES BY SELLERS. At the Closing, Sellers shall
deliver to Buyers (unless delivered previously), the following:
(a) copies of the resolutions of the board of directors
of Parent and each Seller, and the resolution of the
shareholders of each Seller authorizing the
execution, delivery and performance by such party of
this Agreement and the consummation by such party of
the transactions contemplated hereby, and authorizing
such party's officers, employees and agents to carry
out and perform the terms and provisions hereof and
thereof, certified by the corporate secretary of such
party;
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<PAGE> 15
(b) a copy of the Certificate of Incorporation (or
comparable document) of Parent and each Seller, as
amended to date, certified by the applicable
government authority, and dated as of a date not more
than ten (10) calendar days prior to the Closing
Date, if such applicable government authority will
issue such a certificate;
(c) a certificate of good standing of Parent and each
Seller issued by the applicable governmental
authority for the jurisdiction in which such party is
incorporated or, as to each Seller, is required to
be qualified to transact business as a foreign
corporation, dated not more than ten (10) calendar
days prior to the Closing Date, if such applicable
governmental authority will issue such a certificate;
(d) duly executed Bills of Sale;
(e) duly executed Lease Assignments;
(f) duly executed Instruments of Assignment;
(g) duly executed Other Instruments;
(h) duly executed documents evidencing transfers
of Permits, if transferable;
(i) duly executed documents evidencing transfers of motor
vehicles and registrations thereof;
(j) the officers' certificates referred to in Sections
8.01(a), (b) and (c) hereof;
(k) the opinion of the General Counsel of Parent
substantially in the form of Exhibit E attached
hereto;
(l) the Books and Records of each Seller;
(m) a duly executed lease agreement, substantially in the
form of Exhibit G attached hereto, regarding the
facilities located at 617 W. Center Street and 747
Perry Street, Marion, Ohio (collectively, the "Marion
USA Facilities"); and
(n) all other duly executed instruments and documents
required by this Agreement to be delivered by Sellers
or Parent to Buyers, and such other instruments and
documents which Buyers or its counsel may reasonably
request not inconsistent with the provisions hereof,
so as to effectively transfer to Buyers all of
Sellers' right, title and interest in and to the
Transferred Assets as provided by this Agreement.
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<PAGE> 16
SECTION 3.06 DELIVERIES BY BUYER. At the Closing, Buyers shall
deliver to Sellers (unless delivered previously) the following:
(a) copies of the resolutions of each Buyer's board of
directors authorizing the execution, delivery and
performance by each Buyer of this Agreement and the
consummation by each Buyer of the transactions
contemplated hereby, and authorizing each Buyer's
officers, employees and agents to carry out and
perform the terms and provisions hereof and thereof,
certified by the corporate secretary of each Buyer;
(b) a copy of the Certificate of Incorporation (or
comparable document) of each Buyer, as amended to
date, certified by the applicable government
authority, and dated as of a date not more than ten
(10) calendar days prior to the Closing Date, if such
applicable government authority will issue such a
certificate;
(c) a certificate of good standing of each Buyer issued
by the applicable governmental authority for each
jurisdiction in which each Buyer is incorporated or,
as to each Buyer other than Bucyrus USA, is required
to be qualified to transact business as a foreign
corporation, dated not more than ten (10) calendar
days prior to the Closing Date, if such applicable
governmental authority will issue such a certificate;
(d) the wire transfer or transfers referred to in Section
3.01 hereof;
(e) the officer's certificates referred to in Sections
9.01(a), (b) and (c) hereof;
(f) the opinion of Buyers' counsel, substantially in the
form of Exhibit F attached hereto;
(g) a duly executed lease agreement, substantially in the
form of Exhibit G attached hereto, regarding the
Marion USA Facilities; and
(h) all other duly executed instruments and documents
required by this Agreement to be delivered by Buyers
to Sellers, and such other instruments and documents
which Sellers or its counsel may reasonably request
not inconsistent with the provisions hereof.
SECTION 3.07 ALLOCATION OF PURCHASE PRICE. The sum of (i) the
Purchase Price, (ii) the Purchase Price Adjustments (described in Section
3.01(b) hereof), and (iii) the amount of the Assumed Liabilities reflected in
the Closing Balance Sheet (collectively, the "Basis") shall be allocated among
the Transferred Assets as set forth in Schedule 3.07 attached hereto. Such
allocation and Basis shall be conclusive and binding on both Buyers and Sellers
for purposes of
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their federal and, where applicable, foreign, state and local income tax
returns, and the parties hereto agree not to take positions on any tax return
inconsistent with such allocation and Basis. Bucyrus USA and Marion USA shall
prepare and timely file all such reports and returns as may be required by
Section 1060 of the Code to report such allocation and Basis.
SECTION 3.08 EMPLOYEE MATTERS.
(a) EMPLOYEES. On or prior to the Closing Date, each Seller shall
terminate or cause to be terminated as of the Closing Date the employment of
its respective employees (the "Sellers' Employees") or transfer them to other
employment with Parent or an Affiliate of Parent. Sellers agree to cooperate
with Buyers by permitting Buyers throughout the period prior to the Closing
Date (i) to meet with Sellers' Employees at such times as shall be approved by
a representative of Sellers; (ii) to have access to the personnel files of
Sellers' Employees; and (iii) to distribute to Sellers' Employees such forms
and other documents setting forth the terms and conditions upon which
employment, if any, by Buyers is offered and any other forms and documents
relating to employment after the Closing Date by Buyers as Buyers may request.
(b) SEVERANCE PAY. Sellers shall be responsible for all severance
pay, severance benefits, and similar obligations arising under Sellers' plans,
programs or contracts relating to the termination of such employees employment
with Sellers on or prior to the Closing Date including, but not limited to, any
and all severance pay and benefits provided for under any collective bargaining
agreements or addendums thereto and which are Sellers' obligations under the
addendum. Buyers agree not to permanently hire any of Sellers' Employees for a
four (4) month period from the date such employee is terminated by Buyers from
Buyers' temporary employment, unless Buyers reimburse Sellers for severance
payments made to such employees. Subject to the Addendum (as defined below),
determination as to the amount of severance pay and the eligibility
requirements of severance shall be at the sole discretion of Sellers.
(c) UNION EMPLOYEE COLLECTIVE BARGAINING AGREEMENTS. Bucyrus USA
agrees to assume as of the Closing Date the collective bargaining agreements
applicable to Marion USA union employees if such collective bargaining
agreements include substantially the same terms as provided in Exhibit H
attached hereto (the "Addendum"); provided, however, Bucyrus USA's assumption
shall be only with respect to those obligations to be undertaken by Bucyrus USA
(and not Sellers) under the terms of the Addendum. Bucyrus USA agrees to
defend, indemnify, and hold Sellers harmless from any and all Damages arising
out of the failure of Bucyrus USA to fulfill the express obligations of Bucyrus
USA under the Addendum. Prior to the date hereof, Sellers shall provide
Bucyrus USA with a list of all Sellers' union employees and their wage rates as
of June 22, 1997. Sellers shall defend, indemnify and hold Buyers harmless
from any and all Damages relating to or arising out of the collective
bargaining agreements and Addendum, except for the specific obligations
undertaken by Bucyrus USA above, or as Bucyrus USA may otherwise undertake in
writing.
(d) TEMPORARY EMPLOYEES. Prior to the Closing Date and subject to
the Addendum, Buyers shall identify those Sellers' Employees to whom Buyers
will offer temporary
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employment following the Closing Date. On or prior to the Closing Date, but
contingent upon consummation of the Closing, Buyers shall offer to temporarily
employ such employees as are identified by Buyers pursuant to the immediate
preceding sentence on such terms and conditions as Buyers shall in Buyers' sole
discretion determine (except that Bucyrus USA shall pay to Sellers or Sellers'
insurer for each such employee temporarily employed who elects COBRA coverage
under Sellers' medical plans, the COBRA premium for the periods such employee
is temporarily employed with Bucyrus USA) provided, however, that each such
employee shall be for all purposes, unless otherwise specified in this
Agreement, a new employee of Buyers (collectively, "Temporary Employees") and
each Temporary Employee's employment may be discontinued at the will of Buyers,
at any time and for any reason with or without cause. Sellers understand and
agree that Buyers will not assume, or accept any transfer of, any pension,
bonus, profit sharing, stock option, or employee benefit plans, policies,
programs or arrangements maintained by Sellers (or to which the Sellers
contribute or are required to contribute) or which, prior to the Closing Date,
cover any of Sellers' Employees. Further, Sellers shall retain sole
responsibility for all such plans, policies, programs or arrangements and their
related trusts, if any, and compliance with the provisions of ERISA, and all
other applicable laws, rules and regulations. Buyers shall be solely
responsible for the selection or non-selection of Sellers' Employees for offers
of temporary employment with Buyers. Buyers shall indemnify, defend and hold
harmless Sellers for any and all Damages relating to (i) selection or
non-selection by Buyers of any Seller's Employee for an offer of temporary
employment, or (ii) , without limiting any obligation of Sellers under this
Section 3.08, violation by Buyers of any laws applicable to the employment or
termination by Buyers of those Sellers' Employees who accept offers of
temporary employment by Buyers.
(e) PERMANENT EMPLOYEES. To the extent Buyers hire on a permanent
basis any of Sellers' Employees, Buyers shall be responsible for all future
obligations relating to such of Sellers' Employees, including, without
limitation, worker's compensation and future severance benefits. Buyers shall
be solely responsible for the selection or non-selection of Sellers' Employees
for offers of permanent employment with Buyers. Buyers shall indemnify, defend
and hold harmless Sellers for any and all Damages relating to (i) selection or
non-selection by Buyers of any Sellers' Employee for an offer of permanent
employment, or (ii), without limiting any obligations of Sellers under this
Section 3.08, violation by Buyers of any laws applicable to the employment or
termination by Buyers of those Sellers' Employees who accept offers of
permanent employment by Buyers.
(f) SELLERS' LIABILITY FOR SELLERS' EMPLOYEES. Sellers agree to
defend, indemnify and hold Buyers harmless from and against any and all Damages
which relate solely to periods of employment with Sellers, including
suspension, layoff, termination or other cessation of employment of, Sellers'
Employees with Sellers, including, without limitation, damages for wages,
overtime or premium pay, back pay, front pay, reinstatement, medical and dental
insurance, life insurance, worker's compensation or disability insurance,
unemployment compensation benefits, pension benefits, retirement benefits,
vacation or sick pay, severance pay or benefits, compensatory or punitive
damages, or any other type or form of compensation, benefit or damage of any
kind; provided, however, nothing herein is intended to relieve Buyers
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<PAGE> 19
of their obligations under any law, including, without limitation, statutory,
common or other with respect to offering employment to Sellers' Employees, the
terms of such offer, the retention of such employees, or any promise or
commitment Buyers make to Sellers' Employees, including, without limitation,
crediting periods of employment with Sellers for purposes of eligibility and
amount of benefits under any employee benefit plans of Buyers. Buyers agree to
defend, indemnify and hold Sellers harmless from and against any and all
Damages which otherwise arise out of Buyers' obligations in the preceding
sentence.
(g) WARN NOTICES. Sellers shall, on behalf of Sellers and Buyers,
at least sixty (60) calendar days before closing the Marion USA Facilities,
provide notices under the Worker Adjustment and Retraining Notification Act
("WARN") to all of Sellers' Employees (and appropriate government agencies and
labor organizations) of a plant closing and loss of employment on the Closing
Date. Sellers shall defend, indemnify and hold Buyers harmless from any and
all Damages under WARN resulting from Sellers' termination of the employment of
Sellers' Employees not employed by Buyers to the extent Sellers fail to provide
the requisite sixty (60) day notice prior to the Closing Date or otherwise fail
to properly notify other aforementioned parties entitled to notice.
SECTION 3.09 MAIL RECEIVED AFTER CLOSING. On or after the Closing,
Buyers may receive and open all mail addressed to Sellers and deal with the
contents thereof in their discretion to the extent that such mail and the
contents thereof relate to the Business or any of the Assumed Liabilities.
Buyers agree to deliver or to cause to be delivered within seven (7) business
days of receipt to Sellers all other mail received which is addressed to
Sellers or Sellers' employees and which relates to Excluded Liabilities or
which does not relate to the Transferred Assets, the Business of Sellers or the
Assumed Liabilities.
SECTION 3.10 PRORATION OF LEASE PAYMENTS, UTILITY CHARGES AND OTHER
PAYMENTS. In any case where the Closing Date shall fall on a date other than
the date on which payments are due with respect to (i) any leases or (ii)
utility or similar regular periodic charges with respect to the Transferred
Assets for which a final billing has not been requested by Sellers, any
installment of rental payments and any such utility or similar charge payable
with respect to the current period in which the Closing Date occurs shall be
prorated between Sellers and Buyers on the basis of the actual number of days
elapsed from the first day of such period to the Closing Date.
SECTION 3.11 PRORATION OF TAXES. All property taxes and special
assessments payable, but not yet due, with respect to any of the Transferred
Assets shall be prorated between Sellers and Buyers on the basis of the actual
number of days elapsed between the commencement of the current fiscal tax year
and the Closing Date, based on a 365-day year and so reflected in the Closing
Balance Sheet; provided, however, that all such assessments which Sellers have
agreed to pay on an installment basis shall be paid in full at or prior to the
Closing Date to the extent such installments are then due. In connection with
such proration of taxes, in the event that actual tax figures for the year of
Closing are not available at the Closing Date, an estimated, provisional
proration of taxes shall be made using tax figures from the preceding year.
When actual tax figures for the year of the Closing become available, a
corrected and definitive
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<PAGE> 20
proration of taxes shall be promptly made. In the event that taxes for the
year of the Closing exceed the amount estimated in such provisional proration,
Sellers shall pay Buyers their pro rata share of the amount by which the actual
taxes exceed the estimated taxes. Similarly, in the event that taxes from the
year of the Closing are less than the amount estimated in such provisional
proration, Buyers shall pay Sellers their pro rata share of the amount by which
the estimated taxes exceed the actual taxes.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLERS AND PARENT
SECTION 4.01 REPRESENTATIONS AND WARRANTIES OF SELLERS AND PARENT.
For purposes of this Article IV, no specific representation or warranty shall
limit the applicability of a more general representation or warranty. Exhibit
I sets forth a complete and correct list of all officers and directors of
Sellers and Parent.
Sellers and Parent hereby represent and warrant (each Seller
represents and warrants individually only as to those matters pertaining to the
Business of such Seller, while Parent represents and warrants to all matters of
each such Seller) to Buyers the following:
(a) ORGANIZATION AND GOOD STANDING. Each Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction under which it was incorporated, and has all requisite corporate
power and authority to conduct the Business of such Seller as is now being
conducted and to own and lease the properties and assets it now owns and
leases. Each Seller is in good standing and is duly qualified or licensed as a
foreign corporation in each jurisdiction in which the properties owned or
leased by such Seller or the nature of the business of such Seller makes such
qualification or licensing necessary, except those jurisdictions wherein the
failure to so qualify would not have a material adverse effect on such Seller,
the Business of such Seller or any of the Transferred Assets.
(b) AUTHORITY. Each Seller and Parent have all requisite
corporate power and corporate authority to execute, deliver and perform this
Agreement and any other instruments, documents or agreements to be executed or
delivered by them hereunder or in connection with the transactions contemplated
hereby, and to carry out the transactions contemplated hereby and their
obligations hereunder. Each Seller's Board of Directors and its sole
shareholder and Parent's Board of Directors have duly authorized the execution
and delivery of this Agreement by each Seller and Parent, respectively, and the
consummation by each Seller and Parent, respectively, of the transactions
contemplated hereby, and no other corporate action by any Seller or Parent is
required by law, their Certificate of Incorporation (or comparable document),
By-Laws or otherwise to authorize the execution and delivery by each Seller or
Parent of this Agreement or the consummation by each Seller or Parent of the
transactions contemplated hereby. This Agreement and any other agreement to be
executed or delivered hereunder by any Seller and/or Parent is, or will be, a
legal, valid and binding obligation of such Seller or Parent, enforceable
against it/them in accordance with its terms (subject to applicable bankruptcy,
insolvency, and similar laws affecting creditors' rights generally and subject
as to enforceability
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to general principles of equity (regardless whether enforcement is sought in a
proceeding in equity or at law)).
(c) NO VIOLATION. Neither the execution and delivery by Sellers
or Parent of this Agreement nor the consummation by Sellers or Parent of the
transactions contemplated hereby (i) will result in any violation of, or be in
conflict with, the Certificate of Incorporation (or comparable document) or
Bylaws of any Seller or Parent; (ii) will, to Sellers' Knowledge, result in any
breach of or default under any provision of, or give any third party the right
to cancel, any contract or agreement of any kind to which any Seller or Parent
is a party or which is applicable to any Seller, Parent, the Business of any
Seller, or the Transferred Assets; (iii) is prohibited by or requires any
Seller to obtain any consent, authorization or approval of, or make any filing
or registration with, any governmental or regulatory agency or authority which
has not been obtained, except for the approvals contemplated by Section 6.03
herein; (iv) will require the consent of any third party, except as set forth
on Schedule 4.01(c); or (v) will violate any judgment, decree, order, writ,
injunction, statute, regulation or rule of any court or governmental authority
having jurisdiction over any Seller or Parent, in each case ((ii) - (v)), if
such would have a material adverse effect on the Business of Sellers, taken as
a whole, or each Seller's ability to perform the terms of this Agreement.
(d) BROKERS. Neither Sellers nor Parent have employed any broker,
agent or finder in connection with any transaction contemplated by this
Agreement other than The Beacon Group.
(e) FINANCIAL STATEMENTS.
(i) Sellers have previously delivered to Buyers copies of
Sellers' unaudited consolidated balance sheets as of October 31, 1992, 1993,
1994, 1995 and 1996, and the related statements of income for the fiscal years
then ended. The aforesaid financial statements are hereinafter referred to
collectively as the "Historical Financial Statements." The Historical
Financial Statements have been extracted from the audited financial statements
of Parent, and, subject to the statements contained in the draft management
representation letter to Arthur Andersen attached hereto as Exhibit J, fairly
present the financial position of Sellers as of the effective dates of, and for
the periods covered by, such Historical Financial Statements.
(ii) Attached hereto as Schedule 4.01(e)(ii) is the
unaudited consolidated balance sheet of Sellers as of January 31, 1997 (the
"Interim Balance Sheet"), and the related statements of income, stockholders'
equity and changes in financial position of Sellers for the year to date and
month then ended (collectively, the "Interim Financial Statements").
(iii) The Historical Financial Statements: (A) have been
prepared from, and are consistent with, the books and records of Sellers and
have been prepared in accordance with U.S. generally accepted accounting
principles ("GAAP") as consistently applied by Sellers
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during the periods covered thereby; and (B) fairly present the financial
condition, results of operations and cash flows of Sellers, as a whole, as of
the dates and for the periods stated therein.
(f) TITLE TO PROPERTY AND RELATED MATTERS.
(i) Except as set forth in Schedule 4.01(f)(i), each
Seller will have, as of the Closing Date, good and marketable title to all of
such Seller's Transferred Assets which it owns or purports to own, including,
without limitation, the properties and assets reflected on the Closing Balance
Sheet, free and clear of any Encumbrances except Permitted Encumbrances.
(ii) Schedule 4.01(f)(ii) sets forth a complete and
correct list of all real property leases to which any Seller is a party (either
as lessee or lessor) and which are to be assigned to and assumed by Buyers)
(the "Leased Property"), together with a brief description of the property
leased and identifying the date and term of the lease, the amount and timing of
lease payments and any renewal or purchase options. Each Seller has previously
made available to Buyers complete and correct copies of each lease (and any
amendments thereto) listed in Schedule 4.01(f)(ii). Each such lease is in full
force and effect; all lease payments due to date on any such lease have been
paid, and neither Sellers nor, to Sellers' Knowledge, any other party is in
default in any material respect under any such lease, and no event has occurred
which constitutes, or with the lapse of time or the giving of notice or both
would constitute, a material default by any Seller or, to Sellers' Knowledge,
any other party under such lease; there are no disputes or disagreements
between any Seller and, to Sellers' Knowledge, any other party with respect to
any such lease. The structures, plants, improvements, systems (including,
without limitation, electrical, plumbing, fire prevention, lighting, air
conditioning, heating, ventilation, and elevator) and fixtures located on each
such parcel of Leased Property conform in all material respects with all
federal, state and local statutes and laws and all ordinances, rules,
regulations and similar governmental and regulatory requirements where the
failure to so conform has had, or could have, a material adverse effect, and
are in good operating condition and repair, ordinary wear and tear excepted.
Each such parcel of Leased Property, in view of the purposes for which it is
currently used, conforms with all material covenants or restrictions of record,
and current, valid certificates of occupancy (or equivalent governmental
approvals) have been issued for each item of Leased Property to the extent
required by law, and Sellers have no Knowledge of any proposed change in any
such governmental or regulatory requirements or in any such zoning
requirements. Each Seller has all material easements, rights-of-way and
similar rights necessary to conduct its business as presently conducted, and
(A) all such easements and rights are valid, binding and in full force and
effect, and neither Sellers nor, to Sellers' Knowledge, any other party thereto
is in default thereunder; and (B) there exists no event or condition affecting
Sellers or, to Sellers' Knowledge, any other party thereto, which, with the
passage of time or notice or both, would constitute a material default
thereunder. No such easement or right will be breached by, nor, to Sellers'
Knowledge, will any party thereto be given a right of termination as a result
of, the transactions contemplated by this Agreement.
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<PAGE> 23
(iii) Except as set forth in Schedule 4.01(f)(iii), all
material items of equipment, machinery, vehicles, furniture, fixtures and other
tangible personal property owned or used by each Seller and to be transferred
to Buyers are adequate for the operations of the Business of such Seller as
presently conducted and are (A) in good operating condition and repair,
ordinary wear and tear excepted, and (B) owned outright by each Seller, or
validly leased by each Seller under one of the leases set forth in Schedule
4.01(f)(ii). Except as set forth in Schedule 4.01(f)(iii), no item of tangible
personal property owned or used by any Seller and to be transferred to Buyers
is subject to any conditional sale agreement, installment sale agreement or
title retention or security agreement or arrangement of any kind.
(iv) Schedule 4.01(f)(iv) sets forth a complete and
correct list and summary description of all tangible personal property leases
to which any Seller is a party (either as landlord or tenant) and which are to
be assigned to and assumed by Buyers. Each Seller has previously made
available to Buyers complete and correct copies of each lease (and any
amendments thereto) listed in Schedule 4.01(f)(iv). Except as set forth in
Schedule 4.01(f)(iv): (A) each such lease is in full force and effect; (B)
neither Sellers nor, to Sellers' Knowledge, any other party is in default in
any material respect under any such lease, and no event has occurred which
constitutes, or with the lapse of time or the giving of notice or both would
constitute, a material default by such Seller or, to Sellers' Knowledge, any
other party under such lease; and (C) there are no material disputes or
disagreements between such Seller and, to Sellers' Knowledge, any other party
with respect to any such lease.
(v) The Transferred Assets constitute all of the assets
required (other than the Retained Assets) for the Business of each Seller as
presently conducted.
(g) COMPLIANCE WITH APPLICABLE LAW. To Sellers' Knowledge, each
Seller has complied in all material respects with all laws (other than
environmental laws), rules, regulations, ordinances, codes, orders, judgments,
injunctions, writs or decrees of any court or governmental body which are
applicable to the Business of such Seller, the noncompliance with which would
have a material adverse effect on the Business of such Seller, taken as a
whole, or the Transferred Assets, or on such Seller's ability to perform the
terms of this Agreement. Neither Sellers nor Parent have received any notice
alleging any such violation, nor does any Seller or Parent have any Knowledge
of any inquiry, investigation or proceeding relating thereto.
(h) TAXES. Each Seller has (i) timely filed all returns and
reports required to be filed by it on or before the Closing Date with respect
of Taxes, (ii) paid or contested all Taxes shown to have become due pursuant to
such returns and (iii) paid or contested all other Taxes for which a notice of
assessment or demand for payment has been received, except to the extent that
the failure by such Seller to have done so could not have a material adverse
effect on the Business of Sellers, taken as a whole, or each Seller's ability
to perform the terms of this Agreement. Except as set forth in Schedule
4.01(h): (A) there are no actions or proceedings currently pending or, to
Sellers' Knowledge, threatened against such Seller by any governmental authority
for the assessment or collection of Taxes; (B) no claim for the assessment or
collection of Taxes has been asserted or, to Sellers' Knowledge, threatened,
against such Seller; and (C) there are no
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matters under discussion by such Seller with any governmental authority
regarding claims for the assessment or collection of Taxes against such Seller.
There are no agreements, waivers, or applications by such Seller for an
extension of time for the assessment or payment of any Taxes.
(i) CONTRACTS AND COMMITMENTS.
(i) Except as set forth in Schedule 4.01(i) (or in any
other Disclosure Schedule) no Seller is a party to,
or subject to:
(A) any contract, arrangement or understanding,
or series of related contracts, arrangements
or understandings, other than Sales Orders
and Purchase Orders (as hereinafter defined),
which involves annual expenditures or
receipts by any Seller of more than $10,000;
(B) any contract, arrangement or understanding
not made in the ordinary course of business
and consistent with past practice;
(C) any license agreement (other than those
listed on Schedule 4.01(j));
(D) any note, bond, indenture, credit facility,
mortgage, security agreement or other
instrument or document relating to or
evidencing indebtedness for money borrowed or
a security interest or mortgage in the assets
of any Seller;
(E) any warranty, indemnity or guaranty issued by
any Seller, except with regard to obligations
imposed as a matter of law;
(F) any contract, arrangement or understanding
granting to any person the right to use any
material item of property or property right
of any Seller;
(G) any outstanding offer or commitment to enter
into any contract or arrangement of the
nature described in subsections (A) through
(F) of this Section 4.01(i).
For purposes of this Agreement, the term "Sales Orders" shall mean
those purchase orders of each Seller's customers (including distributors) and
other contracts for the sale of each Seller's products and services received or
entered into by each Seller from or with its customers in the ordinary course
of business; and the term "Purchase Orders" shall mean those purchase orders of
each Seller and other contracts and commitments issued or entered into by such
Seller to or with its suppliers and vendors for the purchase of goods, products
and supplies in the ordinary course of business.
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(ii) Sellers have previously delivered to Buyers complete
and correct copies of each written contract or agreement (and any amendments
thereto) listed on Schedule 4.01(i) or identified in any other Disclosure
Schedule, and a complete and correct description of each oral contract to which
any Seller is a party or bound and which is listed on Schedule 4.01(i) or in
any other Disclosure Schedule. Except as set forth in Schedule 4.01(i): (A)
each such contract and all Sales Orders and Purchase Orders (the "Contracts")
are in full force and effect, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the enforcement of
creditors rights generally; (B) neither Sellers nor, to Sellers' Knowledge,
any other party is in default under any such Contract in which such default is
likely to result in Damages to the non-defaulting party in excess of
U.S.$25,000, and no event has occurred which constitutes, or with the lapse of
time or the giving of notice or both would constitute, a material default by
any Seller or by any other party; and (C) there are no material disputes or
disagreements between any Seller and any other party with respect to any such
Contract.
(j) INTANGIBLE ASSETS. Schedule 4.01(j) sets forth a complete and
correct list of all Intangible Assets and all licenses and other agreements
allowing Sellers to use the intangible rights of third parties (the "Licensed
Intangible Rights") in the United States or foreign countries. Except as set
forth on Schedule 4.01(j) and except for those Intangible Assets that have
irretrievably lapsed, expired or been canceled as of the date of this
Agreement, including, without limitation, those Intangible Assets that have
irretrievably lapsed, expired or been canceled due to expiration of a time
limit for recordation of a transfer of ownership required in the respective
jurisdiction or county: (i) Sellers are the owner of, and have good and
marketable title to, all of the Intangible Assets free and clear of all
Encumbrances, and (ii) no governmental registration of any of the Intangible
Assets or Licensed Intangible Rights has lapsed, expired or been canceled,
opposed or become the subject of a re-examination request. Except as set forth
in Schedule 4.01(j): (A) there are no licenses, agreements or commitments
outstanding or effective granting any other person any right to use, operate
under, license or sublicense the Intangible Assets, and (B) to Sellers'
Knowledge, neither the use of the Intangible Assets, nor the use of the
Licensed Intangible Rights, infringes upon or conflicts with the intellectual
property rights of any person. Except as disclosed in Schedule 4.01(j): (X)
there are no unresolved claims, and, to Sellers' Knowledge, there is no basis
for any claim challenging the ownership, scope, validity or enforceability of
any of the Intangible Assets or Licensed Intangible Rights; and (Y) there are
no instances where it has been held, claimed, or alleged, whether directly or
indirectly, and there is no basis which in the good faith opinion of Sellers
are likely to prevail upon which a claim may be made, that any of the
Intangible Assets or Licensed Intangible Rights infringes upon or conflicts
with the rights of any third party, or that any activity of any third party
infringes upon or conflicts with any of the Intangible Assets or Licensed
Intangible Assets.
(k) LITIGATION. Except as set forth on Schedule 4.01(k), there
are no suits, proceedings (including, without limitation, arbitral and
administrative proceedings), claims, or actions pending or any governmental
inquiries, investigations or audits pending, and, to Sellers' Knowledge, none of
the foregoing are threatened against or affecting any Seller, the Transferred
Assets or the transactions contemplated hereby in any court or before any
arbitration panel of any kind or before or by any Governmental Body. Except as
set forth on Schedule 4.01(k), there
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is no judgment, order, writ, injunction, decree or award (whether issued by a
court, an arbitrator, a governmental body or agency thereof or otherwise) to
which any Seller is a party and involving the Transferred Assets, which is
unsatisfied or which requires continuing compliance therewith by any Seller.
(l) PERMITS, LICENSES, ETC. Schedule 4.01(l) sets forth all
material approvals, authorizations, consents, licenses, filings, orders and
permits of all governmental and regulatory authorities (collectively,
"Licenses") held by or granted to any Seller. Except as disclosed in Schedule
4.01(l), each of the Licenses is in full force and effect. Schedule 4.01(l)
indicates those Licenses which are assignable to Buyers without the consent of
the issuers thereof. Except as disclosed in Schedule 4.01(l), no Seller has
received a notice of any action to terminate or change any provision of any
License. The Licenses set forth in Schedule 4.01(l) include all such
approvals, authorizations, consents, licenses, filings, orders and permits
which are required for the ownership of the Transferred Assets and the conduct
of the Business of each Seller as it is presently conducted, the absence of any
of which, if not obtained, would have a material adverse effect on such Seller,
the Business or the Transferred Assets taken as a whole.
(m) BOOKS AND RECORDS. Each Seller maintains its books, accounts,
and records (including, but not limited to, those kept for financial reporting
purposes and for tax purposes) in accordance with good business practices and
in sufficient detail to reflect accurately and fairly the transactions and
dispositions of its assets, liabilities and equities.
(n) NO MATERIAL ADVERSE CHANGE.
(A) Since the date of the Interim Balance Sheet, each
Seller has carried on its business in the ordinary course and consistent with
past practice. Except as set forth in Schedule 4.01(n), and except to the
extent such would not have a material adverse effect of such Seller, the
Business of such Seller or the Transferred Assets taken as a whole, since the
date of the Interim Balance Sheet, no Seller has:
(i) incurred any obligation or liability (whether
absolute, accrued, contingent or otherwise), except
in the ordinary course of business and consistent
with past practice;
(ii) suffered any damage, destruction or loss, whether or
not covered by insurance, affecting its properties,
assets or business, exceeding $10,000 individually or
in the aggregate;
(iii) mortgaged, pledged or subjected to any lien, charge
or other encumbrance any of its assets, tangible or
intangible, except in the ordinary course of business
and consistent with past practice;
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<PAGE> 27
(iv) sold or transferred any of its assets, except in the
ordinary course of business and consistent with past
practice, or canceled or compromised any material
debts or waived any claims or rights of a material
nature;
(v) leased, licensed or granted to any person or entity
any rights in any of its assets or properties outside
the ordinary course of business and inconsistent with
past practice;
(vi) made any change in any accounting principle or
practice or in its method of applying any such
principle or practice; or
(vii) entered into any agreement or commitment to do any of
the foregoing.
(B) Except as set forth in Schedule 4.01(n), and except
to the extent such would not have a material adverse effect on Sellers, the
Business of Sellers taken as a whole, or the Transferred Assets taken as a
whole, since the date of the Interim Balance Sheet, Sellers have not, taken as
a whole, experienced any material adverse change in their financial condition,
results of operations, cash flows, assets, liabilities, Business or operations.
(o) PRODUCT WARRANTIES AND PRODUCT LIABILITIES. Schedule 4.01(o)
contains a true, correct and complete copy of Sellers' standard warranty or
warranties for sales of the products of the Business of such Sellers. To
Sellers' Knowledge, Schedule 4.01(o) sets forth a complete and correct list of
each Seller's outstanding warranty obligations and claims on all of such
Seller's material machine contracts. Schedule 4.01(o) lists and describes in
summary form all claims made or, to Sellers' Knowledge, threatened during the
five (5) year period preceding the date of this Agreement alleging personal
injury or property damage relating to the products of the Business.
(p) ACCOUNTS RECEIVABLE. Except as set forth in Schedule 4.01(p),
all accounts receivable reflected in the Interim Balance Sheet or to be
reflected in the Closing Balance Sheet, represent valid claims for bona-fide,
arms-length sales of goods or services actually made by each Seller in the
ordinary course of such Seller's Business, and none of the accounts receivable
is subject to any set-off or counterclaim or is in dispute. Except as set
forth in Schedule 4.01(p), to Sellers' Knowledge, no accounts receivable to be
reflected in the Closing Balance Sheet will be past due according to their
terms and all accounts receivable will be collectible in the ordinary course of
business using normal collection practices at the aggregate recorded amounts
thereof (net of the allowance for uncollectible accounts).
(q) INVENTORY. The items comprising the inventory, whether
reflected in the Interim Balance Sheet or to be reflected in the Closing
Balance Sheet, are, or will be, accounted for on a lower of cost first-in,
first-out or market basis consistently applied. Except as set forth in
Schedule 4.01(q), the inventory of Sellers reflected in the Interim Balance
Sheet or to be reflected in the Closing Balance Sheet does not, and will not,
include any items which are obsolete or not usable or salable in the ordinary
course of such Seller's Business, except those
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<PAGE> 28
items the values of which have been written down in the above-described balance
sheets to net realizable value or with respect to which adequate reserves have
been provided in the above-described balance sheets, in either case in
accordance with generally accepted accounting principles as consistently
applied by Sellers.
(r) TRANSACTIONS WITH AFFILIATES. Except for compensation to
officers and routine travel advances to officers and employees, Schedule
4.01(r) contains an accurate and complete list and description of all
agreements, arrangements and understandings (including outstanding
indebtedness) which are currently in effect between any Seller and any
Affiliate.
(s) RELIANCE. The representations and warranties of Sellers and
Parent made in this Agreement are made by Sellers and Parent with the knowledge
and expectation that Buyers are placing reliance thereon in entering into, and
performing their obligations under this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES BY BUYERS
SECTION 5.01 REPRESENTATIONS AND WARRANTIES BY BUYERS. Buyers hereby
represent and warrant the following:
(a) ORGANIZATION AND GOOD STANDING. Each Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction in which it was incorporated. Each Buyer is duly qualified or
licensed as a foreign corporation in each jurisdiction in which the property
owned or leased by such Buyer or the nature of the business of such Buyer makes
such qualification or licensing necessary, except those jurisdictions wherein
the failure to so qualify could not have a material adverse effect on such
Buyer.
(b) AUTHORITY. Each Buyer has all requisite corporate power and
corporate authority to execute, deliver and perform this Agreement and any
other instruments, documents or agreements to be executed or delivered by it
hereunder or in connection with the transactions contemplated hereby, and to
carry out the transactions contemplated hereby and its obligations hereunder.
Each Buyer's board of directors has duly authorized the execution and delivery
of this Agreement by such Buyer and the consummation by such Buyer of the
transactions contemplated hereby, and no other corporate action by such Buyer
is required by law, its Certificate of Incorporation (or comparable document),
By-Laws or otherwise to authorize the execution and delivery by such Buyer of
this Agreement or the consummation by such Buyer of the transactions
contemplated hereby.
(c) NO VIOLATION. Neither the execution and delivery by any Buyer
of this Agreement nor the consummation by any Buyer of the transactions
contemplated hereby (i) will violate the Certificate of Incorporation (or
comparable document) or Bylaws of any Buyer, (ii) will result in any breach of
or default under any provision of any contract or agreement of any kind to
which any Buyer is a party or by which any Buyer is bound, (iii) is prohibited
by or requires any Buyer to obtain any consent, authorization or approval of,
or make any filing with,
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<PAGE> 29
any governmental agency or authority which has not been obtained, except for
the approval contemplated by Section 7.01 herein, or (iv) will violate any
judgment, decree, order, writ, injunction, regulation or rule of any court or
governmental authority having jurisdiction over any Buyer, in each case in such
a way as would have a material adverse effect on any such Buyer's ability to
perform the terms of this Agreement. This Agreement and any other agreement to
be executed or delivered hereunder by any Buyer is, or will be, a legal, valid
and binding obligation of such Buyer, enforceable against it in accordance with
its terms (subject to applicable bankruptcy, insolvency, and similar laws
affecting creditors' rights generally and subject as to enforceability to
general principles of equity (regardless whether enforcement is sought in a
proceeding in equity or at law)).
(d) BROKERS. No Buyer has employed any broker, agent or finder in
connection with any transaction contemplated by this Agreement.
(e) FINANCIAL CAPABILITY. Each Buyer has, and will have as of the
Closing Date, the financial resources to perform its obligations under this
Agreement, including all necessary financial resources to pay the Purchase
Price and perform or meet any other obligations of each Buyer hereunder.
ARTICLE VI
AGREEMENTS BY SELLERS
SECTION 6.01 CONDUCT OF THE BUSINESS OF SELLERS PRIOR TO CLOSING.
Sellers covenant and agree with Buyers that, between the date hereof and the
Closing Date (except as otherwise agreed in writing by the Buyers):
(a) The Business of Sellers shall be conducted in the
ordinary course and consistent with past practice;
(b) Sellers shall use their best efforts to preserve the
assets, business and goodwill of Sellers, and shall
endeavor to keep available the services of the
present employees of Sellers, provided that Sellers
shall not be authorized (without the prior written
consent of Buyers) to make any commitment on behalf
of Buyers;
(c) Sellers shall not enter into any contract or
commitment, or series of related contracts or
commitments (except for Purchase Orders and Sales
Orders) unless each such contract or commitment, or
series of related contracts or commitments, (i)
arises in the ordinary course of business, or (ii)
involves expenditures or revenues of less than
$25,000 in the aggregate;
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<PAGE> 30
(d) Sellers shall promptly, after obtaining Knowledge of
the following, advise Buyers in writing of (i) the
commencement or threat of any suit, proceeding or
investigation against, relating to, or involving
Sellers or which could otherwise affect the
Transferred Assets or the Business of Sellers,
whether or not covered by insurance; (ii) any
material adverse change in the assets, liabilities,
financial condition, business or operations of
Sellers; and (iii) any event, condition or state of
facts which will, or may, result in the failure to
satisfy any of the conditions in Article VIII
hereof;
(e) Sellers shall not create, or permit to become
effective, any Encumbrance on the assets, tangible or
intangible, of Sellers, except in the ordinary course
of business consistent with past practice;
(f) Sellers shall maintain their current liability,
casualty, property and other insurance coverages in
full force and effect without reduction in coverage;
(g) Sellers shall not make any change in the accounting
principles or practices reflected in the Interim
Balance Sheet or in their methods of applying such
principles or practices; and
(h) Sellers shall not enter into any agreement or
commitment to do any of the foregoing.
SECTION 6.02 SUPPLYING OF INFORMATION. Sellers shall promptly furnish
to, or provide access to, Buyers or their representatives, from time to time as
reasonably requested by Buyers, complete and accurate information in
cooperation with any audit, review, investigation or examination of the Books
and Records, assets and operations of Sellers. In connection therewith,
Sellers shall direct and authorize their accountants to make available to
Buyers and their accountants all working papers reasonably requested by Buyers.
Sellers shall also allow Buyers or their representatives to have full and
complete access to the assets and properties of Sellers, provided that Buyers'
investigation shall occur at such times and in such a manner as Sellers
reasonably determine to be appropriate to protect the confidentiality of the
transactions contemplated by this Agreement and to avoid unreasonable
disruption of the Business.
SECTION 6.03 ANTITRUST NOTIFICATION.
(a) HART-SCOTT-RODINO. Sellers shall cooperate with
Buyers in filing, as promptly as practicable after the execution of this
Agreement, all reports, notifications and other information in connection with
this transaction pursuant to the HSR Act or any other applicable federal, state
or foreign notification requirement, and shall use their best efforts to
respond as promptly as practicable to all inquiries from Government Bodies
relating to the transactions contemplated by this Agreement and to cause an
early termination of the waiting period established by the HSR Act.
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<PAGE> 31
(b) FOREIGN. Buyers and Sellers shall use their best
efforts to obtain, as soon as practicable after the date of this Agreement, all
approvals, authorizations or no-action letters in Australia and South Africa
in connection with the transactions contemplated herein with Marion Australia
and Marion South Africa, respectively.
SECTION 6.04 OTHER TRANSACTIONS. Prior to the Closing Date, neither
Sellers nor any of Sellers' officers, directors, stockholders or other
representatives, shall, directly or indirectly, solicit or initiate discussions
or negotiations with, or provide any information or assistance to, any
corporation, partnership, person, or other entity or group (other than Buyers
and their representatives) concerning any merger, sale of securities, sale of
substantial assets, investment proposals or similar transaction involving
Sellers.
SECTION 6.05 DISCHARGE OF LIENS. Sellers shall cause all Encumbrances
on any real or personal property owned by or leased to Sellers which is
included in the Transferred Assets (other than Permitted Encumbrances and
Encumbrances otherwise permitted by this Agreement such as related to the
Assumed Liabilities) to be terminated or otherwise discharged at or prior to
the Closing.
SECTION 6.06 NAME CHANGE. On the Closing Date, Marion USA, Marion
Australia and Marion South America, S.A., a Chilean corporation, shall each
change its corporate name so that it is not similar to its current corporate
name and shall terminate all of its assumed name filings. After the Closing
Date, Parent and Sellers shall cease using the name "Marion" and any names
similar thereto.
SECTION 6.07 TAXES. Sellers shall be responsible for, and shall
promptly cause to be paid when due, all Taxes (including, but not limited to,
any reserve for Taxes accrued on Sellers' books) attributable to income or
other gain accrued, earned or otherwise generated by Sellers for all time
periods up to and including the Closing Date. Sellers shall be responsible
for, and shall pay when and if due, except as provided in Section 3.03 herein,
all applicable sales, transfer, excise, use, documentary stamps or any other
similar taxes or stamp duties which may be imposed in any jurisdiction, or by
any authority, in connection with, or arising from the sale of the Transferred
Assets. Except as provided in Section 3.03 herein, Sellers shall prepare and
file all appropriate sales, transfer, excise, use, documentary stamps and other
tax returns and other documents and shall make timely payment of any sales,
transfer, excise, use and other taxes due in any jurisdiction in connection
with the transactions contemplated hereunder.
SECTION 6.08 BEST EFFORTS. Sellers agree that, prior to the Closing,
they shall use their best efforts to take, or cause to be taken, all actions,
and to do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement.
SECTION 6.09 CONSENTS. At or prior to the Closing, Sellers shall
endeavor to obtain all written consents and releases from parties whose consent
is necessary to the assignment by Sellers to Buyers of the contracts,
agreements, and arrangements agreed to be assigned to and
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<PAGE> 32
assumed by Buyers prior to Closing. In the case of contract rights which, at
the Closing Date, have not been effectively transferred due to the lack of
consent of third parties, Sellers shall, if such consents are unobtainable, use
their best efforts to make available to Buyers the benefits thereof in some
other manner.
SECTION 6.10 REPURCHASE OF ACCOUNTS RECEIVABLE. After the Closing,
Buyers agree to use their normal and customary collection procedures (excluding
institution of litigation) as in effect on the Closing Date, to collect the
accounts receivable of Sellers existing on the Closing Date and reflected on
the Closing Balance Sheet (the "Transferred Receivables"). In the event any
Transferred Receivables remain uncollected in whole or in part, above the
amount reserved for on the Closing Balance Sheet, on the later of one hundred
fifty calendar (150) days after (i) the Closing; or (ii) after the time which
such Transferred Receivable was due and payable according to its terms, Sellers
shall repurchase from Buyers such uncollected Transferred Receivables at a
purchase price equal to ninety percent (90%) of the difference between (x) the
aggregate uncollected face amount of the Transferred Receivables, minus (y) the
reserve for uncollectible receivables on the Closing Balance Sheet.
SECTION 6.11 BOOKS AND RECORDS. Parent and Sellers agree to permit
Buyers, upon the request of Buyers at any time within seven (7) years after the
Closing Date, to inspect and copy at Buyers' expense, all books and records not
included as part of the Books and Records during regular business hours in
order to permit Buyers to (i) prepare for, dispute or respond to any claim,
lawsuit or proceeding relating to Sellers' Business for which Buyers are
responsible under this Agreement, including, without limitation, audits in
connection with tax returns or proceedings under the Internal Revenue Code, and
(ii) comply with governmental requirements applicable to Buyers or any of their
Affiliates; provided, however, that any such inspection pursuant to this
Section 6.11 shall be conducted in such a manner so as not to unreasonably
disrupt Sellers' or Parent's business. Parent and Sellers also agree that they
shall not destroy any such books and records for a period of seven (7) years
after Closing without first notifying Buyers.
SECTION 6.12 NON-COMPETITION. Parent and Sellers agree that for a
period of three (3) years following the Closing Date, none of them will
directly or indirectly engage anywhere throughout the world in any business
which competes with the Business. The preceding prohibition shall not prohibit
Parent or Sellers from (i) acquiring a competing business as part of a larger
acquisition, provided that the sales of the competing business constitute less
than twenty-five (25%) percent of the overall sales of the acquired business,
or (ii) selling parts or components of the type previously sold by Sellers, but
which were not manufactured by Sellers.
SECTION 6.13 ENVIRONMENTAL LIABILITIES. Sellers and Parent, jointly
and severally, agree to hold harmless, defend, and indemnify Buyers from and
against any and all Third Party Claims (as hereinafter defined) against Buyers,
and all Damages related thereto, against Buyers regarding environmental
liabilities and obligations arising from or directly or indirectly relating to
(i) Sellers' operation of the Business prior to the Closing Date; and (ii)
Buyers' temporary operation of the Marion USA Facilities and the facilities
leased by Marion Australia and Marion
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<PAGE> 33
South Africa after the Closing, except (and only to the extent) such liabilities
or obligations (described in this clause (ii)) result from the failure of Buyers
to comply with any environmental laws applicable to activities of Buyers on the
premises of the Marion USA Facilities or the leased facilities of Marion
Australia and Marion South Africa. [THIS PROVISION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS SUBJECT TO A
REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO 17 CFR SECTION 240.24b2
SECTION 6.14 INTANGIBLE ASSETS. Sellers shall promptly provide, or
cause to be provided, to Buyers all pertinent facts and documents relating to
the Intangible Assets and legal equivalents as may be known or accessible to
Sellers, and Sellers shall testify, at Buyers' expense, as to the same in any
interference, opposition, litigation or other proceeding related thereto and
shall promptly execute and deliver to Buyers or their legal representatives any
and all lawful recordable assignments (provided by Buyers to Sellers) required
to record all transfers of title and any owner name changes for the Intangible
Assets, including, but not limited to, any and all such assignments and name
changes required to record all transfers of title from the last recorded owner
to the Buyers with the appropriate governmental agencies, such as patent and
trademark offices worldwide. Sellers and Parent, jointly and severally, shall
indemnify Buyers for all costs including, but not limited to, attorney's fees,
foreign associate fees and government fees required for recording in the
respective governmental agencies all transfers of title and owner name changes
from the last recorded owner to the Sellers with respect to the Intangible
Assets being transferred to the Buyers (except for those Intangible Assets
which have irretrievably lapsed, expired or been canceled as of the date of
this Agreement, including, without limitation, those Intangible Assets that
have irretrievably lapsed, expired or been canceled due to expiration of a time
limit for recordation of a transfer of ownership required in the respective
jurisdiction or country).
ARTICLE VII
AGREEMENTS BY BUYERS
SECTION 7.01 HART-SCOTT-RODINO ANTITRUST NOTIFICATION. Buyers shall
cooperate with Sellers in filing, as promptly as practicable after the
execution of this Agreement, all reports, notifications and other information
required to be filed in connection with this transaction pursuant to the HSR
Act or any other applicable federal, state or foreign notification requirement
and shall use their best efforts to respond as promptly as practicable to all
inquiries from Government Bodies relating to the transactions contemplated by
this Agreement and to cause an early termination of the waiting period
established by the HSR Act.
SECTION 7.02 ACCESS TO PERSONNEL. After the Closing, Buyers and their
Affiliates shall allow Sellers and Sellers' accountants, counsel and other
representatives reasonable access from time to time during normal business
hours, at Sellers' sole cost and expense, to employees of Buyers, including
those employees of the Business of Sellers on the Closing Date who become
employees of Buyer after the Closing Date, for such reasonable purposes as
Sellers may request, including, without limitation, access to such personnel
for information, testimony, statements and other similar matters pertaining to
litigation, claims (including workers' compensation claims), proceedings, tax
contests, audits and other matters involving Sellers' operation of the
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<PAGE> 34
Business of Sellers on or prior to Closing; provided, however, that such access
does not unreasonably disrupt Buyers' business.
SECTION 7.03 MAINTENANCE OF RECORDS. Buyers and their affiliates
shall keep and maintain, for a period of seven (7) years after the Closing
Date, all Books and Records relating to the Business acquired pursuant to the
transactions contemplated in this Agreement. Upon request, Buyers shall make
the Books and Records available to Sellers or their designated representatives
for inspection and copying, at Sellers' expense, during regular business hours
in order to permit Sellers to (i) prepare for, dispute or respond to any claim,
lawsuit or proceeding, including, without limitation, audits in connection with
tax returns or proceedings under the Internal Revenue Code and (ii) comply with
governmental requirements applicable to Sellers or any of their affiliates;
provided, however, that any such inspection pursuant to this Section 7.03 shall
be conducted in such a manner so as not to unreasonably disrupt Buyers'
business.
SECTION 7.04 BEST EFFORTS. Buyers agree that, prior to the Closing,
they shall use their best efforts to take, or cause to be taken, all actions
and to do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement.
SECTION 7.05 [THIS PROVISION HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS
SUBJECT TO A REQUEST FOR CONFIDENTIAL TREATMENT
PURSUANT TO 17 CFR SECTION 240.24b2]
SECTION 7.06 [THIS PROVISION HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS
SUBJECT TO A REQUEST FOR CONFIDENTIAL TREATMENT
PURSUANT TO 17 CFR SECTION 240.24b2]
SECTION 7.07 PERFORMANCE GUARANTEES, ETC. Parent has issued in
connection with the Business of Sellers, the performance guarantees, surety
bonds and bank stand-by-letters of credit (collectively, "Parent's Instruments")
as set forth on Schedule 7.07. Buyers agree to (i) use their best efforts to
replace Parent s Instruments with performance guarantees, surety bonds and bank
stand-by-letters of credit of Buyers on the Closing Date and, (ii) subject to
the provisions of Sections 7.05 and 7.06, indemnify, defend and hold harmless
Parent from any and all claims made against Parent's Instruments after Closing.
SECTION 7.08 PRODUCT LIABILITY RESPONSIBILITIES. Buyers assume all
liabilities for property damage and personal injuries which are alleged to be
caused by or result from defects (including, but not limited to, design and
manufacturing defects) in products of the Business sold by Sellers prior to the
Closing Date for which the date of loss occurs after the Closing Date and shall
defend, indemnify and hold harmless Sellers with respect thereto (an "Assumed
Product Liability Claim"). Sellers and Parent assume all liabilities for
property damage and personal injuries which are alleged to be caused by or
result from defects (including, but not limited to, design and manufacturing
defects) in products of the Business sold by Sellers prior to the Closing Date
for which the date of loss occurred prior to the Closing Date and shall defend,
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<PAGE> 35
indemnify and hold harmless the Buyers with respect thereto (a "Retained
Product Liability Claim"). Parent and/or Sellers shall notify Buyers in
writing and tender defense of each Assumed Product Liability Claim to Buyers by
the earlier of (a) fifteen (15) business days after obtaining Knowledge of the
Assumed Product Liability Claim or (b) within five (5) business days after
being served with a summons and complaint or similar documentation initiating
litigation with respect to the Assumed Product Liability Claim and shall
cooperate in the defense thereof. Buyers shall notify Parent and/or Sellers in
writing and tender defense of each Retained Product Liability Claim to Sellers
and/or Parent by the earlier of (a) fifteen (15) business days after obtaining
Knowledge of the Retained Product Liability Claim or (b) within five (5)
business days after being served with a summons and complaint or similar
documentation initiating litigation with respect to the Retained Product
Liability Claim and shall cooperate in the defense thereof. In the event any
party fails to timely comply with the preceding requirements, such party shall
indemnify and hold harmless the other party from any and all Damages incurred
as a result of such failure. Parent and Bucyrus USA shall cause the issuers of
their respective insurance policies to waive their rights of subrogation with
respect to losses for which each has assumed liability under this Section 7.08,
and each of them shall cause the other to be named as an additional insured
under their respective insurance policies to the extent of the liabilities so
assumed and the defense and indemnity obligations undertaken in this Section
7.08.
SECTION 7.09 SUPPLEMENTS TO DISCLOSURE SCHEDULES. Buyers agree that
from time to time after the execution of this Agreement and up to three (3)
business days prior to the Closing Date, Sellers shall supplement and/or amend
the Disclosure Schedules with respect to any matter hereafter arising which, if
existing on the date of this Agreement, would have been required to be set
forth or described in the Disclosure Schedules (such supplements and/or
amendments are hereinafter referred to as the "Disclosure Supplements"). In
the event any matter set forth in such Disclosure Supplements (i) would have a
material adverse effect on the Transferred Assets or the Assumed Liabilities,
or (ii) was known to Sellers and Parent on the date of this Agreement and
intentionally omitted by them from the Disclosure Schedules, Buyers shall have
the option not to proceed with the Closing and shall be entitled to
unilaterally terminate this Agreement in accordance with Article X herein;
provided however, Buyers provide to Sellers and Parent written notice of such
election to terminate this Agreement on the earlier of three (3) business days
after receipt of the Disclosure Supplement or the Closing Date.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATION OF BUYERS TO CLOSE
SECTION 8.01 CONDITIONS PRECEDENT TO THE OBLIGATION OF BUYERS TO
CLOSE. The obligation of Buyers to consummate the transactions contemplated by
this Agreement shall be subject to the following conditions precedent:
(a) FULFILLMENT OF COVENANTS. Sellers and Parent shall have
performed and complied in all material respects with all covenants and
obligations set forth in this Agreement to be so performed or complied with by
them at or prior to the Closing, and Parent and each Seller shall
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deliver to Buyers a certificate so stating, dated as of the Closing Date and
executed by the President or any Vice President of such Seller or Parent.
(b) CORPORATE APPROVAL. Buyers shall have received a certified
copy of the resolutions of the shareholders and board of directors of each
Seller, certified by such Seller's Secretary or an Assistant Secretary, and a
resolution of the board of directors of Parent certified by its Secretary or an
Assistant Secretary, authorizing the execution of this Agreement and the
consummation of the transactions contemplated hereby.
(c) REPRESENTATIONS AND WARRANTIES. Each and every representation
and warranty of Parent and/or Sellers contained in this Agreement and the
Disclosure Schedules and Exhibits thereto, subject to the qualifications set
forth in the next sentence, shall be complete and accurate on the date when
made and as of and as though made on the Closing Date. Each Seller and Parent
shall deliver to Buyers a certificate, dated as of the Closing Date and
executed by the President or any Vice President of such Seller or Parent
stating that such representations and warranties are complete and accurate as
of and as though made on the Closing Date except (i) for any changes expressly
permitted by the terms of this Agreement (including the Disclosure Supplements),
or (ii) where the inaccuracy of the representation and warranty would not
have a material adverse effect on the Business of Sellers, taken as a whole.
The preceding qualifications of the representations and warranties of Parent
and Sellers relate solely to Buyers' obligation to close and shall in no way
limit or diminish the rights of Buyers pursuant to the terms of this Agreement
to recover Damages for the breach or inaccuracy of any representation or
warranty of Sellers or Parent (but in no event shall Buyers seek indirect,
special or consequential damages due to the effects of any matter set forth in
any Disclosure Supplement).
(d) NO PROCEEDING OR LITIGATION. No statute, rule or regulation
shall have been enacted or promulgated which would make any of the transactions
contemplated by this agreement illegal or would otherwise prevent the
consummation thereof. There shall not be instituted or pending any suit,
action, investigation, inquiry, order, judgment, decree, writ, injunction or
other proceeding by or before any court or governmental or other regulatory or
administrative agency or commission requesting an order, judgment, decree, writ
or injunction which (a) restrains or prohibits the consummation of the
transactions contemplated hereby, (b) if adversely determined, would have a
material adverse effect on Buyers' ability to exercise control over or manage
the Business of Sellers after the Closing, or (c) if adversely determined,
would have a material adverse effect on the Transferred Assets or on the
operations, condition (financial or otherwise), liabilities, assets, earnings
or prospects of the Business of Sellers taken as a whole.
(e) DELIVERY OF CLOSING DOCUMENTS. Sellers shall have delivered
to Buyers the documents referred to in Section 3.05 hereof, in form and
substance reasonably satisfactory to Buyers and their counsel.
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(f) HART-SCOTT-RODINO ACT. The waiting period shall have expired
or early termination shall have been granted pursuant to the HSR Act, as more
particularly described in Section 6.03 hereof.
(g) APPROVALS, PERMITS, ETC. All material consents,
authorizations, approvals, exemptions, licenses or permits of, or
registrations, qualifications, declarations or filings with, any governmental
body or agency thereof that are required in connection with the sale and
transfer of the Transferred Assets to Buyers pursuant to this Agreement and the
consummation of the transactions contemplated hereby, other than any required
under the antitrust laws of jurisdictions other than the United States, shall
have been duly obtained or made in form and substance reasonably satisfactory
to Buyers and their counsel and shall be effective at, and as of, the Closing
Date. Adequate arrangements satisfactory to Buyers shall have been made to
obtain any third party or other governmental consents, approvals or permits
after the Closing, except to the extent that the failure to obtain the same
would not have material adverse effect on Sellers, the Business or the
Transferred Assets taken as a whole.
(h) NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change in the financial condition, results of operations, cash flows,
assets, liabilities, business or operations (collectively, "Financial
Condition") of Sellers, as a whole, during the period between May 31, 1997 and
the Closing Date, provided, that if the Financial Condition of Sellers, as a
whole, between the date of the Interim Balance Sheet and May 31, 1997 was not
substantially as set forth in the financial reports and presentations furnished
to Bucyrus USA on June 24, 1997, (or did not favorably differ therefrom), the
period for determining whether a material adverse change in the Financial
Condition of Sellers, as a whole, shall be the period between the date of the
Interim Balance Sheet and the Closing Date.
ARTICLE IX
CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLERS TO CLOSE
SECTION 9.01 CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLERS TO
CLOSE. The obligation of Sellers to consummate the transactions contemplated
by this Agreement shall be subject to the following conditions precedent:
(a) FULFILLMENT OF COVENANTS. Each Buyer shall have performed and
complied in all material respects with all covenants and obligations set forth
in this Agreement to be so performed or complied with by it at or prior to the
Closing, and each Buyer shall deliver to Sellers a certificate so stating,
dated as of the Closing Date and executed by the President or any Vice
President of such Buyer.
(b) CORPORATE APPROVAL. Sellers shall have received a certified
copy of the resolutions of the board of directors of each Buyer, certified by
such Buyer's Secretary or an Assistant Secretary, authorizing the execution of
this Agreement and the consummation of the transactions contemplated hereby.
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(c) REPRESENTATIONS AND WARRANTIES. Each and every representation
and warranty of each Buyer contained in this Agreement shall be complete and
accurate in all material respects on the Closing Date to the same extent as if
made on such date, except for any changes expressly permitted by the terms of
this Agreement. Each Buyer shall deliver to Sellers a certificate to such
effect, dated as of the Closing Date and executed by the President or any Vice
President of such Buyer.
(d) NO INJUNCTION. There shall be no injunction, writ,
preliminary restraining order or any order of any nature issued by a court of
competent jurisdiction which is in effect on the Closing Date and which directs
that the transactions provided for herein or any of them may not be consummated
as so provided.
(e) DELIVERY OF CLOSING DOCUMENTS. Sellers shall have received
the documents referred to in Section 3.06 hereof in form and substance
reasonably satisfactory to Sellers and their counsel.
(f) HART-SCOTT-RODINO ACT. The waiting period shall have expired
or early termination shall have been granted pursuant to the HSR Act, as more
particularly described in Section 7.01 hereof.
ARTICLE X
TERMINATION OF AGREEMENT
SECTION 10.01 TERMINATION OF AGREEMENT. This Agreement may be
terminated at any time prior to the Closing:
(a) by mutual written agreement of Parent, Sellers and
Buyers; or
(b) by Buyers, pursuant to Section 7.09 herein; or
(c) by either Buyers or Parent and Sellers if the Closing
shall not have occurred by September 15, 1997.
SECTION 10.02 PROCEDURE UPON TERMINATION. In the event of termination
of this Agreement by Sellers and Buyers pursuant to Section 10.01 above written
notice thereof shall forthwith be given to the other party or parties, and the
agreement and the transactions contemplated thereby this Agreement shall become
null and void, without further action by either party or parties. If the
transactions contemplated by this Agreement are terminated as provided in this
Section 10.01:
(a) each of Parent, Sellers and Buyers shall return all documents,
work papers and other material of any other party relating to the transactions
contemplated hereby, whether so obtained before or after the execution hereof,
to the party furnishing the same; and
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(b) there shall be no liability on the part of any party hereto or
their affiliates, except that such termination shall not in any way limit or
restrict the rights and remedies of any party hereto against any other party
which has breached any of the agreements or other provisions of this Agreement
prior to termination hereof.
ARTICLE XI
INDEMNIFICATION
SECTION 11.01 PARENT AND SELLERS' AGREEMENT TO INDEMNIFY. Subject to
the terms and conditions of this Article XI, Sellers and Parent, jointly and
severally, agree to indemnify, defend and hold harmless the Buyer Group from and
against all Damages, asserted against, relating to, imposed upon or incurred by
the Buyer Group or any member thereof, directly or indirectly, arising out of,
based upon, or resulting from (i) any inaccuracy in or any breach of any
representation and warranty of Sellers or Parent contained in this Agreement,
the Disclosure Schedules, or any of the Documents, or any certificate or other
written instrument or document delivered by Sellers or Parent pursuant hereto or
thereto, (ii) any breach or nonfulfillment of, or any failure to perform, any of
the covenants, agreements or undertakings of Sellers or Parent contained in, or
made pursuant to, this Agreement (including, without limitation, the failure of
Sellers to pay or discharge the Excluded Liabilities) and any of the Documents,
or any certificate or other written instrument or document delivered by Sellers
or Parent pursuant hereto, (iii) any liabilities or obligations arising out of
any and all actions, claims, suits, proceedings, demands, assessments,
judgments, recoveries, damages, costs and expenses or deficiencies incident to
any matter which is the subject of indemnification under this Article XI ("Buyer
Indemnity Claim"), (iv) all interest, penalties, costs and expenses (including,
without limitation, all out-of-pocket expenses, reasonable investigation
expenses and reasonable fees and disbursements of accountants and counsel)
arising out of, or related to, any such Buyer Indemnity Claims, and (v) any
claim or liability for brokerage commissions or finders fees incurred by reason
of any action taken by Sellers or Parent.
SECTION 11.02 BUYERS' AGREEMENT TO INDEMNIFY. Subject to the terms
and conditions of this Article XI, Buyers, jointly and severally, agree to
indemnify, defend and hold harmless the Seller Group from and against all
Damages asserted against, relating to, imposed upon or incurred by the Seller
Group or any member thereof, directly or indirectly, arising out of, based
upon, or resulting from (i) any inaccuracy in, or any breach of, any
representation and warranty of Buyers contained in this Agreement or any of the
Documents, or any certificate or other written instrument or document delivered
by Buyers pursuant hereto or thereto; (ii) any breach or nonfulfillment of, or
failure to perform, any of the covenants, agreements or undertakings of Buyers
contained in, or made pursuant to this Agreement (including, without
limitation, the failure of Buyers to pay or discharge the Assumed Liabilities)
or any other of the Documents, or any certificate or other written instrument
or document delivered by Buyers pursuant hereto or thereto; (iii) any
obligations or liabilities arising out of any and all actions, claims, suits,
proceedings, demands, assessments, judgments, recoveries, damages, costs and
expenses or deficiencies incident to any matter which is the subject of
indemnification under this Article XI ("Seller Indemnity Claims"); (iv) all
interest, penalties, costs and expenses (including, without
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limitation, all out-of-pocket expenses, reasonable investigation expenses and
reasonable fees and disbursements of counsel and accountants) arising out of,
or related to, any Seller Indemnity Claims asserted under this Section 11.02;
and (v) any claim or liability for brokerage commissions or finder's fees
incurred by reason of any action taken by Buyers.
SECTION 11.03 PROCEDURES FOR RESOLUTION AND PAYMENT OF CLAIMS FOR
INDEMNIFICATION.
(a) If, prior to the expiration of any applicable limitation
period described in Section 11.04 hereof (the "Limitation Period"), a person or
entity entitled to be indemnified under this Article XI (the "Indemnitee")
shall incur any Damages or determine that it is likely to incur any Damages,
including without limitation, Third Party Claims as described in Section
11.03(d) hereof, and believes that it is entitled to be indemnified against
such Damages by a party hereunder (the "Indemnitor"), such Indemnitee shall
deliver (as promptly as reasonably practical) to the Indemnitor a certificate
(an "Indemnitee's Certificate") signed by the Indemnitee, which shall:
(i) state that the Indemnitee has paid or properly
accrued Damages, or anticipates that it will incur Damages for which
such Indemnitee is entitled to indemnification pursuant to this
Agreement; and
(ii) specify in reasonable detail each individual item of
Damages included in the amount so stated, the date such item was paid
or properly accrued, the basis for any anticipated liability, the
basis upon which the claim for indemnification is being made, and a
computation of the amount to which such Indemnitee claims to be
entitled hereunder (including, without limitation, the Indemnitee's
good faith estimate of the costs and expenses, including reasonable
attorney's fees, expected to be incurred in connection therewith).
(b) In case the Indemnitor shall object to the indemnification of
an Indemnitee in respect of any claim or claims specified in any Indemnitee's
Certificate, the Indemnitor shall, within thirty (30) calendar days after
receipt by the Indemnitor of such Indemnitee's Certificate, deliver to the
Indemnitee a written notice to such effect and the Indemnitor and the
Indemnitee shall, within the thirty (30) day period beginning on the date of
receipt by the Indemnitee of such written objection, attempt in good faith to
agree upon the rights of the respective parties with respect to each of such
claims to which the Indemnitor shall have so objected. If the Indemnitee and
the Indemnitor shall succeed in reaching agreement on their respective rights
with respect to any of such claims, the Indemnitee and the Indemnitor shall
promptly prepare and sign a memorandum setting forth such agreement. Should
the Indemnitee and the Indemnitor be unable to agree as to any particular item
or items or amount or amounts, then the Indemnitee and the Indemnitor shall
employ the arbitration procedure set forth in Section 12.06 to resolve such
dispute.
(c) Claims for Damages specified in any Indemnitee's Certificate
to which an Indemnitor shall not object in writing, claims for Damages covered
by a memorandum of
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<PAGE> 41
agreement of the nature described in Section 11.03(b) above, claims for Damages
the validity and amount of which have been the subject of arbitration as
described in Section 11.03(b) above, and claims for Damages the validity and
amount of which shall have been the subject of a final judicial determination
are hereinafter referred to, collectively, as "Agreed Claims".
(d) Promptly after the assertion by any third party of any claim
(a "Third Party Claim") against any Indemnitee that, in the judgment of such
Indemnitee, may result in such Indemnitee incurring Damages for which such
Indemnitee would be entitled to indemnification pursuant to this Agreement,
such Indemnitee shall deliver to the Indemnitor a written notice describing in
reasonable detail such claim, and such Indemnitor may, at its option, assume
the defense of the Indemnitee against such claim (including the employment of
counsel, who shall be reasonably satisfactory to such Indemnitee, and the
payment of expenses thereto). Failure to receive notice from the Indemnitee of
a Third Party Claim shall not relieve the Indemnitor of any liability which it
might otherwise have to the Indemnitee under Sections 11.01 or 11.02 or 11.03
hereof, unless (and only to the extent that) such failure or delay actually
prejudices the ability of the Indemnitor to defend such Third Party Claim. The
burden of proving the actual prejudice described in the preceding sentence
shall lie with the Indemnitor. The Indemnitee shall cooperate with and make
available to the Indemnitor such assistance and materials as may be reasonably
requested of the Indemnitee. Any Indemnitee shall have the right to employ
separate counsel in any such action or claim and to participate in the defense
thereof, however, the Indemnitor shall not be responsible for the fees and
expenses of such counsel unless (i) the Indemnitor shall have failed, within a
reasonable time after having been notified by the Indemnitee of the existence
of such claim as provided in the preceding sentence, to assume the defense of
such claim, (ii) the employment of such counsel has been specifically
authorized by the Indemnitor, (iii) the named parties to any such action
(including any impleaded parties) include both such Indemnitee and Indemnitor,
and such Indemnitee shall have furnished the Indemnitor an opinion of counsel
to the effect that there may be one or more legal defenses available to the
Indemnitee which are different from or additional to those available to
Indemnitor, in which event the Indemnitor shall only be responsible for the
fees and expenses of one separate firm of attorneys for all Indemnitees, or
(iv) the proceeding involves a matter solely of concern to the Indemnitee in
addition to the claim(s) for which indemnification under this Article XI is
being sought.
(e) The Indemnitor shall have the right to settle and compromise
any Third Party Claim with respect to which it controls the defense only with
the consent of the Indemnitee, which consent shall not be unreasonably withheld
or delayed. If the proceeding involves a matter solely of concern to the
Indemnitee in addition to the claim for which indemnification under this
Article XI is being sought, the Indemnitee shall have the right to control the
defense and settlement of such additional claim in its own discretion and with
its own counsel. If the Indemnitor, within a reasonable time after notice of
any Third Party Claim, fails to defend the Indemnitee against such claim, or
notifies the Indemnitee of its refusal to conduct a defense against a Third
Party Claim, or does not have the right to assume such defense, the Indemnitee
shall (upon further notice to the Indemnitor) have the right to conduct a
defense against such claim and shall have the right to settle and compromise
such claim without the consent of the
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Indemnitor (except as provided in Section 11.04(f)). Except as otherwise
herein provided, no Indemnitor shall be liable to indemnify any Indemnitee for
any settlement of any such action or claim effected without the consent of the
Indemnitor; but if settled with the written consent of the Indemnitor, or if
there be a final judgment for the plaintiff or claimant in any such action, the
Indemnitor shall indemnify and hold harmless each Indemnitee from and against
any loss or liability by reason of such settlement or judgment.
(f) Notwithstanding anything to the contrary in the foregoing,
Buyers shall have the right to control the defense of any Third Party Claim,
provided, that Buyers shall keep Sellers reasonably informed as to the nature
and conduct of such claim and Sellers shall be afforded an opportunity to
monitor developments in connection therewith. Buyers shall have the right to
settle any such matter with the consent of Sellers, such consent not to be
unreasonably withheld or delayed.
(g) Notwithstanding anything in this Section 11.03 to the
contrary, (i) if there is a reasonable probability that a Third Party Claim may
materially and adversely affect the Indemnitee other than as a result of money
damages or other money payments, the Indemnitee shall have the right, at its
own cost and expense, to defend, compromise or settle such claim; provided,
however, that if such claim is settled without the Indemnitor's prior written
consent (which consent shall not be unreasonably withheld or delayed), the
Indemnitee shall be deemed to have waived all rights hereunder against the
Indemnitor for money damages arising out of such claim, and (ii) the Indemnitor
shall not, without the prior written consent of the Indemnitee (which consent
shall not be unreasonably withheld or delayed), settle or compromise any claim
or consent to the entry of any judgment which does not include as an
unconditional term thereof the giving by the claimant or the plaintiff to the
Indemnitee of a release from all liability in respect to such claim.
SECTION 11.04 DURATION.
(a) REPRESENTATIONS AND WARRANTIES. Except as otherwise provided
in this Agreement, all representations and warranties of the parties contained
in, or made pursuant to, this Agreement shall be true, complete and correct as
of the Closing Date as though such representations and warranties were made at
and as of the Closing Date, and the rights of the parties to seek
indemnification with respect thereto shall survive the Closing; provided
however, that, except in respect of any claims for indemnification as to which
an Indemnitee's Certificate shall have been duly given prior to the relevant
expiration date set forth below, if any (which notice shall preserve such claim
pending resolution thereof pursuant to the terms hereof), the following
representations and warranties, and the right to make any indemnification
claims relating thereto, shall expire on the following dates:
(i) in the case of any claims relating to any breach of
the representations and warranties set forth in Section 4.01(h) (Taxes), the
date of expiration of the relevant statute of limitations, including any
extensions thereof (whether by wavier or otherwise); provided that,
notwithstanding anything to the contrary in the foregoing, the indemnity
obligations of Sellers
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and Parent hereunder shall survive with respect to any and all costs, expenses
and liabilities (including, without limitation, reasonable attorney's fees and
investigation expenses) incurred by any member of the Buyer Group as
applicable, in establishing or in seeking to establish, whether in a judicial
proceeding or otherwise, that the underlying matter giving rise to such claim
for indemnification is time-barred under the applicable statute of
limitations, whether or not such efforts are successful;
(ii) in the case of any claims of Buyers relating to
breaches of representations or warranties, other than claims relating to any
breach of the representations and warranties set forth in Section 4.01(h)
(Taxes) or Sections 4.01(a), (b), (c), (e), (f), (i), (j), and (k) (such
representations and warranties (other than those relating to Section 4.01(h))
being collectively referred to as "Sellers' Special Representations"), on the
second anniversary of the Closing Date; and
(iii) in the case of any claims of Sellers, relating to
breaches of representations or warranties, other than claims relating to any
breach of the representations and warranties set forth in Sections 5.01(a),
(b), and (c) (such representations and warranties being collectively referred
to as "Buyers' Special Representations"), on the second anniversary of the
Closing Date.
The parties acknowledge and agree that the Sellers' Special
Representations and the Buyers' Special Representations shall survive
indefinitely, and that any claims in respect thereof may be made at any time
following the Closing.
(b) COVENANTS, AGREEMENTS AND UNDERTAKINGS. Except as otherwise
provided in this Agreement, the rights of the parties to seek indemnification
pursuant to this Agreement for any breach or nonfulfillment of, or any failure
to perform, any of the covenants, agreements or undertakings of the parties
contained in, or made pursuant to, this Agreement and any of the Documents, or
any certificate or other written instrument or documents delivered by the
parties pursuant hereto shall survive indefinitely and any claims thereof may
be made at any time following the Closing.
SECTION 11.05 LIMITATIONS.
(a) Any claim by an Indemnitee against an Indemnitor with
respect to the breach or inaccuracy of any representation or warranty under
this Agreement shall be payable by the Indemnitor only in the event that the
accumulated amount of all claims with respect to the breach or inaccuracy of
all representations or warranties that have been Definitively Resolved (as
hereinafter defined) (for purposes hereof, "Settled Claims") against all such
Indemnitors in the Seller Group, if the claim is against a Seller, or all such
claims against Indemnitors in the Buyer Group, if the claim is against a Buyer,
shall exceed the amount of Two Hundred Fifty Thousand Dollars ($250,000) in the
aggregate (the "Indemnification Threshold"). At such time as the aggregate
amount of Settled Claims (involving breaches and/or inaccuracies of
representations or warranties under this Agreement) against Indemnitors that
constitute the
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Seller Group or the Buyer Group, as the case may be, shall exceed the
Indemnification Threshold, such party shall then be liable on a dollar-
for-dollar basis for the amount of all claims which exceed the Indemnification
Threshold. The Indemnification Threshold shall not apply to any claims other
than those involving a breach or inaccuracy of a representation or warranty
under this Agreement.
(b) For purposes hereof, a claim shall be deemed to have
been "Definitively Resolved" when any of the following events has occurred:
(i) a claim is settled by mutual agreement of
Buyers and Sellers;
(ii) a final judgment, order or award of a court
of competent jurisdiction deciding such claim has been rendered, as evidenced
by a certified copy of such judgment, provided that such judgment is not
appealable or the time for taking an appeal has expired; or
(iii) a claim is the subject of a "Final
Determination."
SECTION 11.06 REMEDIES EXCLUSIVE. Except as expressly provided to the
contrary in this Agreement, the indemnification rights described in this
Article XI shall constitute the exclusive remedies of the parties against each
other with respect to disputes arising out of or related in any way to this
Agreement and the Documents and the transactions contemplated by this Agreement
and the Documents.
SECTION 11.07 [THIS PROVISION HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS
SUBJECT TO A REQUEST FOR CONFIDENTIAL TREATMENT
PURSUANT TO 17 CFR SECTION 240.24b2]
SECTION 11.08 LOSSES, NET OF INSURANCE AND TAXES. In determining the
amount of any claim by an Indemnitee, for all purposes hereunder, there shall
be taken into account any federal, state or local income or other tax benefit
or insurance proceeds which the Indemnitee may actually have received or be
entitled to receive (if in the future, at its present value) as a result of the
Damages forming the basis of such claim, and there shall also be taken into
account any income or other tax cost which the Indemnitee would incur as a
result of its receipt of any indemnification payment from the Indemnitor
(including any such indemnification payment which the Indemnitee would be
entitled to receive but for the provisions of Section 11.05). In addition,
Buyers and Sellers each agree to provide the other with the benefit of its
insurance, if any, with respect to claims for which one of the parties is
indemnified, and each agrees to name the other as an additional insured (where
insurance policies are in place and where it is possible to name the other
party as an additional insured) for this specific purpose.
ARTICLE XII
MISCELLANEOUS
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SECTION 12.01 REFORMATION AND SEVERABILITY. If any provision of
this Agreement is held to be illegal, invalid or unenforceable under present or
future laws effective during the term hereof
(a) in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as a part of this
Agreement a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible which is legal, valid and
enforceable; and
(b) the legality, validity and enforceability of the
remaining provisions hereof shall not in any way be affected or
impaired thereby.
SECTION 12.02 FURTHER ASSURANCES. Each party hereto shall, from time
to time after the Closing, at the request of any other party hereto and without
further consideration, execute and deliver such other instruments of
conveyance, assignment, transfer and assumption, and take such other actions,
as such other party may reasonably request to more effectively consummate the
transactions contemplated by this Agreement.
SECTION 12.03 NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be sent by
certified mail, return receipt requested (or by the most nearly comparable
method if mailed from or to a location outside of the United States), or by
cable, telex, telegram or facsimile transmission, or delivered by hand or by
overnight or similar delivery service, fees prepaid, to the party to whom it is
to be given at the address of such party set forth below or to such other
address for notice as such party shall provide in accordance with the terms of
this section. Except as otherwise specifically provided in this Agreement,
notice so given shall, in the case of notice given by certified mail (or by
such comparable method) be deemed to be given and received three (3) business
days after the time of certification thereof (or comparable act), in the case
of notice so given by overnight delivery service, on the date of actual
delivery, and, in the case of notice so given by cable, telegram, facsimile
transmission, telex or personal delivery, on the date of actual transmission
or, as the case may be, personal delivery.
If to any Buyer: Bucyrus International, Inc.
Attn: Chief Financial Officer
P.O. Box 500
1100 Milwaukee Avenue
South Milwaukee, Wisconsin 53172-0500
Telecopy No. (414) 768-5060
With a copy to: Whyte Hirschboeck Dudek S.C.
Attn: James A. Feddersen
Suite 2100
111 East Wisconsin Avenue
Milwaukee, WI 53202
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Telecopy No: (414) 223-5000
If to any Seller: The Marion Power Shovel Company
Attention: President
c/o Global Industrial Technologies, Inc.
2121 San Jacinto, Suite 2500
Dallas, Texas 75201
Telecopy No: (214) 953-4596
With a copy to: Global Industrial Technologies, Inc.
Attention: General Counsel
2121 San Jacinto, Suite 2500
Dallas, Texas 75201
Telecopy No: (214) 953-4597
SECTION 12.04 HEADINGS. The headings of sections contained in this
Agreement are for convenience only and shall not be deemed to control or affect
the meaning or construction of any provision of this Agreement.
SECTION 12.05 WAIVER. The failure of any party to insist, in any one
or more instances, upon performance of any of the terms, covenants or
conditions of this Agreement shall not be construed as a waiver or a
relinquishment of any right or claim granted or arising hereunder or of the
future performance of any such term, covenant, or condition, and such failure
shall in no way affect the validity of this Agreement or the rights and
obligations of the parties hereto. Any failure by any of the parties hereto to
comply with any obligation, covenant or agreement or to fulfill any condition
herein may be waived only by a written notice from the party entitled to the
benefits thereof.
SECTION 12.06 ARBITRATION; CHOICE OF LAW.
(a) Any dispute, controversy, difference or claim arising
out of or in connection with this Agreement, or the breach,
termination or validity thereof, which cannot be amicably resolved by
the parties within thirty (30) calendar days after receipt by a party
of written notice from any other party that such a dispute,
controversy, difference or claim exists shall be settled by final and
binding arbitration conducted in Atlanta, Georgia in accordance with
the International Arbitration Rules of the American Arbitration
Association (the "AAA Rules"). The disputes shall be settled by three
arbitrators; the Buyer Group and the Seller Group each shall select an
arbitrator, which two arbitrators shall then select the third
arbitrator and appoint the presiding arbitrator. Should the third
arbitrator fail to be appointed within thirty (30) calendar days after
the date of the appointment of the last arbitrator selected by the
Buyer Group and the Seller Group, the American Arbitration Association
domiciled in Atlanta, Georgia, may choose any person whom it deems
suitable. In the event that either the Buyer Group or the Seller
Group fails to nominate its respective arbitrator within thirty (30)
calendar days of receipt
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of notice for arbitration issued by the other, such arbitrator shall be
nominated by the American Arbitration Association upon request.
(b) The parties agree that the award of the arbitral tribunal
(the "Arbitration Award"): (i) shall be conclusive, final and binding upon
the parties; (ii) shall be the sole and exclusive remedy between the
parties regarding any and all claims and counterclaims presented to the
arbitral tribunal; and (iii) if containing elements of injunctive relief as
provided in Section 12.08, may be made in such interim manner (pending
final resolution of the controversy presented) as the arbitral tribunal may
deem appropriate to protect the interests of any aggrieved or potentially
aggrieved party.
(c) The Arbitration Award shall be based on the provisions of
this Agreement and the Documents; provided, however, that to the extent
that the subject matter for the Arbitration Award is not set forth within
this Agreement or the Documents, it shall be based on the laws of the State
of Delaware. In addition, in the case of any conflict between the
provisions of the AAA Rules and the provisions of this Agreement or the
Documents, the provisions of this Agreement or the Documents shall govern.
(d) The parties further agree: (i) that their mutual decision to
resolve their disputes by arbitration as provided in this Agreement is an
explicit waiver of immunity against enforcement and execution of the
arbitration award and any judgment thereon; and (ii) that the Arbitration
Award and any judgment thereon, if unsatisfied, may be entered in and shall
be enforceable by the courts of any state having jurisdiction over the
person or property of the party against whom the Arbitration Award has been
rendered; and (iii) that any right they may have under applicable law to
have the Arbitration Award reviewed is hereby waived, whether such review
would relate to matters of substantive law, procedural law, conduct of the
proceedings, of fundamental fairness or otherwise.
(e) All notices to be given in connection with the arbitration
shall be as provided in Section 12.03 of this Agreement.
(f) In the event any party to this Agreement commences legal
proceedings to enforce the Arbitration Award, the expense of such
litigation (including reasonable attorneys' fees and costs of court) shall
be borne by the party or parties not prevailing therein.
(g) Notwithstanding the foregoing, the parties shall obtain the
agreement of arbitrators to the following: (i) the arbitrators shall
provide a written ruling, stating in separate sections the findings of fact
and conclusions of law on which their ruling is based, and (ii) their
ruling shall be due no later than ninety (90) calendar days after their
final hearing and within twelve (12) months after commencement of the
arbitration.
SECTION 12.07 ATTORNEY'S FEES AND COSTS. All costs of arbitration and
enforcement thereof, including reasonable attorney's fees and court costs, costs
of expert witnesses,
- 46 -
<PAGE> 48
transportation, lodging and meal costs of the parties and witnesses, costs of
transcript preparation and other reasonable and necessary direct and incidental
costs shall be apportioned by a majority of the arbitrators selected pursuant
to Section 12.06 hereof.
SECTION 12.08 SPECIFIC PERFORMANCE. In the event of any breach by a
party of the terms of this Agreement or the Documents which would cause any
nonbreaching party to be irreparably harmed or for which such nonbreaching
party could not be made whole by monetary damages, then in such circumstances
such nonbreaching party, in addition to any other remedy to which it may be
entitled at law or in equity, shall be entitled to compel specific performance
of this Agreement or the Documents and in any action instituted in any court of
applicable jurisdiction to enforce any interim or final Arbitration Award
rendered pursuant to Section 12.06.
SECTION 12.09 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, and
all of which together shall constitute one and the same instrument,
notwithstanding that all parties are not signatories to each counterpart.
SECTION 12.10 ASSIGNABILITY AND BINDING EFFECT. This Agreement shall
inure to the benefit of, and be binding upon, the parties hereto and their
respective successors and permitted assigns. Neither this Agreement nor any
rights, duties or obligations shall be assigned by any party hereto (other than
to an Affiliate or in connection with the transfer of substantially all of the
assets of such party) without the prior written consent of the other parties,
and any attempted assignment or transfer without such prior written consent
shall be null and void. No transfer or assignment shall relieve a party of its
liabilities or obligations under this Agreement.
SECTION 12.11 AMENDMENTS. This Agreement may not be modified, amended
or supplemented nor may performance of any provision hereof be waived, except
by an agreement in writing signed by all of the parties hereto.
SECTION 12.12 EXPENSES. Except as otherwise provided herein, each of
the parties hereto shall pay all fees and expenses incurred by it or any of its
affiliates or subsidiaries in connection with this Agreement.
SECTION 12.13 THIRD PARTIES. Nothing herein expressed or implied is
intended or shall be construed to confer upon or give to any person other than
the parties hereto and their successors or permitted assigns, any rights or
remedies under or by reason of this Agreement.
SECTION 12.14 NUMBER AND GENDER OF WORDS. When the context so
requires in this Agreement, words of gender shall include either or both
genders and the singular number shall include the plural.
SECTION 12.15 ENTIRE AGREEMENT. This Agreement and the executed
Documents, the forms of which are attached hereto as Exhibits or referred to
herein, together with the Schedules
- 47 -
<PAGE> 49
hereto and thereto, shall constitute the entire agreement between the parties
hereto with respect to the transactions contemplated hereby and shall supersede
all prior negotiations, understandings and agreements.
SECTION 12.16. MONIES OWED. Unless otherwise provided for in this
Agreement, to the extent one party owes any monies to another party pursuant to
this Agreement, the party owing such money shall pay, within thirty (30)
calendar days after receipt of an invoice from the other party, such monies
owed. The parties agree that any amounts ultimately determined to be owed
which were not paid within such initial thirty (30) day period shall, from the
end of such thirty (30) day period until the date of actual payment, bear
interest at the rate or rates which would be paid by such party had it borrowed
a like amount under a credit facility of under which borrowings the owing party
constitute senior indebtedness.
[The remainder of this page intentionally blank]
- 48 -
<PAGE> 50
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
SELLERS:
THE MARION POWER SHOVEL COMPANY (Marion USA)
By: /s/ Graham L. Adelman
------------------------------------------
Graham L. Adelman
Vice President
MARION POWER SHOVEL PTY LTD (Marion Australia)
By: /s/ Graham L. Adelman
------------------------------------------
Graham L. Adelman
Director
INTOOL INTERNATIONAL B.V. (Marion South Africa)
By: /s/ Graham L. Adelman
------------------------------------------
Graham L. Adelman
Managing Director
GLOBAL-GIX CANADA INC. (Marion Canada)
By: /s/ Graham L. Adelman
------------------------------------------
Graham L. Adelman
Vice President
PARENT:
GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
By: /s/ Graham L. Adelman
------------------------------------------
Graham L. Adelman
Senior Vice President
- 49 -
<PAGE> 51
BUYERS:
BUCYRUS INTERNATIONAL, INC. (Bucyrus USA)
By: /s/ Daniel J. Smoke
------------------------------------------
Daniel J. Smoke
Vice President and Chief Financial Officer
BUCYRUS (AUSTRALIA) PROPRIETARY LTD.
(Bucyrus Australia)
By: /s/ Daniel J. Smoke
------------------------------------------
Daniel J. Smoke
Assistant Secretary
BUCYRUS (AFRICA) (PROPRIETARY) LIMITED
(Bucyrus South Africa)
By: /s/ Daniel J. Smoke
------------------------------------------
Daniel J. Smoke
Secretary
BUCYRUS CANADA LIMITED (Bucyrus Canada)
By: /s/ Daniel J. Smoke
------------------------------------------
Daniel J. Smoke
Secretary
- 50 -
<PAGE> 52
EXHIBIT LIST
Exhibit A- Net Book Values on Adjusted Interim Balance Sheet
Exhibit B- Form of Bill of Sale
Exhibit C- Form of Lease Assignment
Exhibit D- Form of Patent and Trademark Assignment
Exhibit E- Form of Legal Opinion - Legal Opinion of General Counsel
Exhibit F- Form of Legal Opinion - Whyte Hirschboeck Dudek S.C.
Exhibit G- Form of Lease Agreement
Exhibit H- Collective Bargaining Agreement Addendum
Exhibit I- List of Officers and Directors of Sellers and Parent
Exhibit J- Draft of Management Representation Letter to Arthur Andersen
<PAGE> 53
BUCYRUS INTERNATIONAL, INC. - THE MARION POWER SHOVEL COMPANY
ASSET PURCHASE AGREEMENT
DISCLOSURE SCHEDULES TO THE ASSET PURCHASE AGREEMENT
1. Schedule 2.02(k) - Excluded Contracts
2. Schedule 2.02(q) - Claims Not Transferred to Buyers
3. Schedule 2.03 - Retained Assets
4. Schedule 2.05(a) - Liabilities Assumed by Bucyrus USA
5. Schedule 2.05(b) - Liabilities Assumed by Bucyrus Australia
6. Schedule 2.05(c) - Liabilities Assumed by Bucyrus South Africa
7. Schedule 2.05(d) - Liabilities Assumed by Bucyrus Canada
8. Schedule 2.05(e) - Assignment and Assumption Agreements
9. Schedule 3.07 - Allocation of Purchase Price
10. Schedule 4.01(c) - No Violation
11. Schedule 4.01(e)(ii) - Financial Statements Interim Balance Sheet
12. Schedule 4.01(f)(i) - Title to Property and Related Matters
13. Schedule 4.01(f)(ii) - Real Property Leases
14. Schedule 4.01(f)(iii) - Material Obsolete Tangible Personal Property
15. Schedule 4.01(f)(iv) - Personal Property Leases
16. Schedule 4.01(h) - Taxes
17. Schedule 4.01(i) - Contracts and Commitments
18. Schedule 4.01(j) - Intangible Assets
19. Schedule 4.01(k) - Litigation
<PAGE> 54
20. Schedule 4.01(l) - Permits and Licenses
21. Schedule 4.01(n) - No Material Adverse Change
22. Schedule 4.01(o) - Product Warranty and Product Liability
23. Schedule 4.01(p) - Accounts Receivable
24. Schedule 4.01(q) - Inventory
25. Schedule 4.01(r) - Transactions with Related Parties
26. Schedule 7.07 - Parent's Instruments
EXHIBITS TO THE ASSET PURCHASE AGREEMENT
1. Exhibit A - Net Book Values on Adjusted Interim Balance Sheet
2. Exhibit B - Form of Bill of Sale
3. Exhibit C - Form of Lease Assignment
4. Exhibit D - Form of Patent and Trademark Assignment
5. Exhibit E - Form of Legal Opinion - Sellers' Counsel
6. Exhibit F - Form of Legal Opinion - Buyers' Counsel
7. Exhibit G - Form of Lease Agreement
8. Exhibit H - Collective Bargaining Agreement Addendum
9. Exhibit I - List of Officers and Directors of Sellers and Parent
10. Exhibit J - Draft of Management Representation Letter to Arthur Andersen
Registrant hereby undertakes to furnish to the Commission copies of any of
the above-listed Schedules and Exhibits upon request.
<PAGE> 1
EXHIBIT 99.1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Global Industrial Technologies, Inc.:
We have audited the accompanying combined balance sheet of the Surface
Mining and Equipment Business of Global Industrial Technologies, Inc. (the
"Company") as of October 31, 1996, and the related combined statements of
operations, equity and cash flows for the year then ended. 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 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 reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Surface Mining and
Equipment Business of Global Industrial Technologies, Inc., as of October 31,
1996 and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
June 27, 1997
1
<PAGE> 2
SURFACE MINING AND EQUIPMENT BUSINESS OF GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
COMBINED BALANCE SHEET
OCTOBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash.............................. $ 910
Trade receivables................. 17,032
Receivable from affiliated
entity.......................... 41
Inventories....................... 37,438
Prepaid expenses and other current
assets.......................... 228
-------
Total Current Assets......... 55,649
OTHER ASSETS:
Intangible assets................. 1,372
Other assets...................... 940
-------
2,312
PROPERTY, PLANT AND EQUIPMENT:
Land.............................. 625
Buildings and improvements........ 12,040
Machinery and equipment........... 45,021
Less accumulated depreciation..... (49,098)
-------
8,588
-------
$66,549
=======
LIABILITIES AND COMBINED EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses........................ $12,132
Payable to affiliated entity...... 684
Liabilities to customers on
uncompleted contracts and
warranties...................... 4,310
-------
Total Current Liabilities.... 17,126
LONG-TERM LIABILITIES:
Postretirement benefits........... 6,725
Deferred expenses and other....... 4,343
-------
11,068
COMBINED EQUITY................... 38,355
-------
$66,549
=======
</TABLE>
See notes to combined financial statements.
2
<PAGE> 3
SURFACE MINING AND EQUIPMENT BUSINESS OF GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
COMBINED STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
REVENUES:
Net sales................................................. $ 109,625
Other income.............................................. 555
---------
110,180
---------
COSTS AND EXPENSES:
Cost of products sold..................................... 93,026
Product development, selling, administrative and
miscellaneous expenses................................. 16,514
Allocated administrative expenses......................... 2,200
Allocated interest expense................................ 228
---------
111,968
---------
LOSS BEFORE INCOME TAXES.................................... (1,788)
ALLOCATED INCOME TAX BENEFIT................................ (662)
---------
NET LOSS.................................................... $ (1,126)
=========
</TABLE>
See notes to combined financial statements.
3
<PAGE> 4
SURFACE MINING AND EQUIPMENT BUSINESS OF GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
COMBINED STATEMENT OF EQUITY
YEAR ENDED OCTOBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
INVESTMENT CUMULATIVE PENSION TOTAL
BY TRANSLATION LIABILITY COMBINED
GLOBAL ADJUSTMENT ADJUSTMENT EQUITY
---------- ----------- ---------- --------
<S> <C> <C> <C> <C>
Balance at November 1, 1995...................... $25,850 $(3,889) $(2,413) $19,548
Net loss....................................... (1,126) -- -- (1,126)
Capital contribution from Global............... 19,601 -- -- 19,601
Translation adjustments........................ -- (287) -- (287)
Additional minimum liability................... -- -- 619 619
------- ------- ------- -------
Balance at October 31, 1996...................... $44,325 $(4,176) $(1,794) $38,355
======= ======= ======= =======
</TABLE>
See notes to combined financial statements.
4
<PAGE> 5
SURFACE MINING AND EQUIPMENT BUSINESS OF GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED OCTOBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................. $ (1,126)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 2,028
Gain on sale of property, plant and equipment............. (34)
Changes in assets and liabilities:
Trade receivables...................................... (2,316)
Receivable from affiliated entity...................... (41)
Inventories............................................ (4,149)
Other current assets................................... 5,327
Other assets........................................... 131
Current liabilities.................................... (18,002)
Payable to affiliated entity........................... 684
--------
Net cash used in operating activities............. (17,498)
--------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment................ (1,761)
Proceeds from sale of property, plant and equipment....... 69
--------
Net cash used in investing activities............. (1,692)
--------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions from Global......................... 19,601
--------
Effect of exchange rate changes on cash................... (287)
--------
Net increase in cash........................................ 124
Cash at beginning of year................................... 786
--------
Cash at end of year......................................... $ 910
========
</TABLE>
See notes to combined financial statements.
5
<PAGE> 6
SURFACE MINING AND EQUIPMENT BUSINESS OF GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF ACCOUNTING POLICIES
NATURE OF OPERATIONS
The accompanying combined financial statements include all of the
operations, assets and liabilities of the surface mining and equipment business
(the "Marion Business") of Global Industrial Technologies, Inc. ("Global"). The
Marion Business consists principally of walking draglines and electric mining
shovels and related replacement parts. Major markets for the surface mining
industry are coal mining, copper and iron ore mining and phosphate production.
USE OF ESTIMATES
The preparation of the combined 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,
disclosure of contingent assets and liabilities and the reported amounts of
revenues and expenses. Actual results could differ from those estimates.
PRINCIPLES OF COMBINATION AND PRESENTATION
These financial statements combine subsidiaries, branches or divisions of
Global that operate in the surface mining and equipment business as if they were
organized under one business unit. Such statements include the following:
- The Marion Power Shovel Company
- Marion Power Shovel Pty. Ltd.
- The South Africa Branch of INTOOL International B.V.
- The Canadian mining division of Global-GIX Canada, Inc.
The historical equity of these operations as well as permanent advances
from Global have been reported as "Combined Equity" in the Combined Balance
Sheet. Within Combined Equity, the Investment by Global account represents the
net assets invested in the Marion Business by Global including the advances that
will not be repaid.
INVENTORIES
Inventories are stated at lower of cost (last-in, first-out method) or
market (market or estimated net realizable value). The excess of replacement
cost over the carrying value of inventories determined on a last-in, first-out
basis was $10,939,000. Advances from customers are netted against inventories to
the extent of related accumulated costs.
PROPERTY, PLANT AND EQUIPMENT
Fixed assets are recorded at cost. Depreciation is provided over the
estimated useful lives of respective assets using the straight-line method for
financial reporting and accelerated methods for income tax purposes. Estimated
useful lives used for financial reporting purposes range from ten to forty years
for buildings and improvements and five to fifteen years for machinery and
equipment.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of foreign operations are translated into U.S.
dollars using year-end exchange rates. Revenues and expenses are translated at
the average rates during the year. Adjustments resulting from this translation
are deferred and reflected as a separate component of Combined Equity.
6
<PAGE> 7
SURFACE MINING AND EQUIPMENT BUSINESS OF GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION
Revenue from dragline contracts is recognized using the
percentage-of-completion method. Revenue from shovel contracts and all other
sales is recognized at time of shipment. At the time a loss on a contract
becomes known, the amount of the estimated loss is recognized in the combined
financial statements. Included in current liabilities as liabilities to
customers on uncompleted contracts are advances collected under shovel contracts
of $1,041,000.
IMPAIRMENT OF LONG-LIVED ASSETS
In 1995, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121").
SFAS 121 requires that long-lived assets and certain identifiable intangibles to
be held and used by an entity be reviewed for impairment when certain events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. This pronouncement is required to be adopted by the Marion
Business for the fiscal year beginning November 1, 1996. As of November 1, 1996,
adoption did not have a significant effect on the financial position or results
of operations of the Marion Business. See Note L.
NOTE B -- TRADE RECEIVABLES
Trade receivables include the excess of revenues over advances of $426,000
related to a dragline contract. Billings on long-term contracts are made in
accordance with the payment terms as defined in the individual contracts.
Trade receivables are reduced by an allowance for losses of $213,000.
NOTE C -- INVENTORIES
Inventories at cost include material, labor and overhead and consist of the
following:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Raw materials and parts.................................. $ 5,254
Work in process.......................................... 8,799
Finished products (primarily replacement parts).......... 34,324
--------
48,377
LIFO and other reserves.................................. (10,939)
--------
$ 37,438
========
</TABLE>
NOTE D -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Trade accounts payable................................... $ 6,492
Wages and salaries....................................... 2,411
Insurance reserves....................................... 1,410
Other.................................................... 1,819
-------
$12,132
=======
</TABLE>
7
<PAGE> 8
SURFACE MINING AND EQUIPMENT BUSINESS OF GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- INCOME TAXES
The income and expenses of the Marion Business are included in the
consolidated local tax returns of various Global entities.The tax benefit or
liability incurred by Global for such inclusion in its consolidated tax returns
is to be reimbursed to or paid by the Marion Business.For purposes of the
combined financial statements, current taxes payable or receivable as well as
net deferred tax assets are recorded as part of the Investment by Global account
in Combined Equity.
Loss before income taxes consists of the following:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
United States............................................ $(4,406)
Foreign.................................................. 2,618
-------
Total.................................................... $(1,788)
=======
</TABLE>
The allocated income tax benefit consists of the following:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Foreign income taxes:
Current................................................ $ 921
Deferred............................................... 72
-------
Total.................................................. 993
-------
U.S. and state income taxes:
Current................................................ (1,307)
Deferred............................................... (348)
-------
Total.................................................. (1,655)
-------
Total allocated income tax benefit....................... $ (662)
=======
</TABLE>
The total allocated income tax benefit differs from amounts expected by
applying the Federal statutory income tax rate to loss before income taxes as
set forth in the following table:
<TABLE>
<CAPTION>
TAX
EXPENSE
(BENEFIT) PERCENT
--------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Tax benefit at Federal statutory rate.................... $(626) (35.0)%
State income taxes net of Federal income tax benefit..... (48) (2.7)
Other items.............................................. 12 0.7
----- ------
Total income tax benefit................................. $(662) (37.0)%
===== ======
</TABLE>
8
<PAGE> 9
SURFACE MINING AND EQUIPMENT BUSINESS OF GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of net deferred tax assets which are included in the
Investment by Global account in Combined Equity are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Deferred tax assets:
Accrued and other liabilities............................. $3,524
Postretirement benefits................................... 2,435
Inventory valuation provisions............................ 2,319
Other items............................................... 63
--------
Total deferred tax assets................................... 8,341
Deferred tax liabilities -- Excess of book basis over tax
basis of property, plant and equipment.................... (503)
--------
Net deferred tax asset recognized in the Combined Balance
Sheet as a reduction of the Investment by Global account
in Combined Equity........................................ $7,838
========
</TABLE>
Cumulative undistributed earnings of foreign operations that are considered
to be permanently reinvested, and on which U.S. income taxes have not been
provided by the Marion Business, amounted to approximately $23,700,000 at
October 31, 1996. It is not practicable to estimate the amount of additional tax
which would be payable upon repatriation of such earnings; however, due to
foreign tax credit limitations, higher effective U.S. income tax rates and
foreign withholding taxes, additional taxes could be incurred.
NOTE F -- PENSION AND RETIREMENT PLANS
The Marion Business has two defined benefit pension plans which cover
substantially all hourly bargaining and nonbargaining unit employees in the
United States. Plan benefits are based primarily on years of service. In
addition, the Marion Business' salaried employees participate in the Global
Industrial Technologies, Inc. RIP Plan, which benefits are based primarily on
years of service and employees' qualifying compensation during the final years
of employment. All plans are funded in accordance with applicable laws and
regulations. Substantially all plan assets are invested in cash, short-term
investments, equity securities and fixed-income instruments. The remaining plan
assets are primarily invested in real estate.
9
<PAGE> 10
SURFACE MINING AND EQUIPMENT BUSINESS OF GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the domestic plans' funded status as of the
August 1, 1996 measurement date:
<TABLE>
<CAPTION>
GLOBAL MARION BUSINESS
SALARIED PLAN HOURLY PLANS
------------- ---------------
ASSETS
EXCEED ACCUMULATED
ACCUMULATED BENEFITS EXCEED
BENEFITS(1) ASSETS(2)
----------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation:
Vested........................................... $(36,474) $(23,673)
Non-vested....................................... (1,547) (573)
-------- --------
Total accumulated benefit obligation............. $(38,021) $(24,246)
======== ========
Projected benefit obligation for services rendered
to date.......................................... $(54,300) $(24,246)
Plan assets at fair value.......................... 39,556 19,903
-------- --------
Projected benefit obligation in excess of plan
assets........................................... (14,744) (4,343)
Unrecognized prior service cost.................... (76) 1,371
Unrecognized net loss.............................. 16,020 3,121
Unrecognized transition asset...................... (402) (310)
Adjustment for minimum liability................... -- (4,182)
-------- --------
Prepaid (accrued) pension cost..................... $ 798 $ (4,343)
======== ========
</TABLE>
- -------------------------
(1) Consists of the Global Industrial Technologies, Inc. RIP Plan. The Marion
Business' portion of the accumulated benefit obligation of this plan is
estimated to be $7,839,000. The Marion Business' year end accrual is
included in the Investment by Global account in Combined Equity.
(2) Consists of the two defined benefit plans for hourly employees. Included in
the Combined Balance Sheet is an intangible asset and a reduction of
Combined Equity of $1,372,000 (net of tax) and $1,794,000 (net of tax),
respectively, to reflect the additional minimum liability.
The weighted average discount rate, rate of increase in future compensation
levels, and expected long-term rate of return on assets used to develop the
projected benefit obligation were 8%, 4.5% and 9%, respectively.
Net domestic periodic pension cost for the two hourly defined benefit plans
includes the following components:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Service cost............................................... $ 218
Interest cost.............................................. 1,864
Actual return on plan assets............................... (1,879)
Net amortization and deferral.............................. 35
-------
Net periodic pension cost.................................. $ 238
=======
</TABLE>
The Marion Business' portion of the net periodic pension cost for the
Global Industrial Technologies, Inc. RIP Plan was $532,000 for 1996.
The Marion Business participates in Global's 401(k) savings plan. The
Marion Business' expense for 1996 was $227,000 for its portion of the matching
contribution.
10
<PAGE> 11
SURFACE MINING AND EQUIPMENT BUSINESS OF GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Marion Business provides certain health care and life insurance
benefits for substantially all retired United States bargaining and
nonbargaining unit employees meeting eligibility requirements. The Marion
Business' policy is to fund these benefits as claims and premiums are paid.
The following table sets forth the Plan's status and amounts recognized in
the combined financial statements:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Accumulated postretirement benefit obligation:
Retirees................................................. $(4,612)
Fully eligible active plan participants.................. (1,450)
Other active plan participants........................... (994)
-------
(7,056)
Unrecognized prior service cost............................ (1,036)
Unrecognized net loss...................................... 875
-------
Accrued postretirement benefit cost recognized in the
Combined Balance Sheet................................... $(7,217)
=======
</TABLE>
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Service cost............................................... $ 107
Interest cost.............................................. 503
Amortization of prior service cost......................... (120)
--------
Net periodic postretirement benefit cost................... $ 490
========
</TABLE>
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5%. The assumed health care cost trend
rate used in measuring the accumulated postretirement benefit obligation was 11%
at October 31, 1996, declining .5% each year thereafter, to 5% in the year 2008
and beyond. A 1% increase in the assumed health care cost trend rate for each
year would increase the accumulated postretirement benefit obligation by
$270,000 and would increase the net periodic postretirement benefit cost for
1996 by $13,000.
NOTE H -- RESEARCH AND DEVELOPMENT
Expenditures for design and development of new products and improvements of
existing mining machinery products, including overhead, are charged to product
development expense as incurred and aggregated $5,713,000 in 1996.
NOTE I -- FOREIGN OPERATIONS, EXPORT SALES AND SIGNIFICANT CUSTOMERS
The Marion Business designs, manufactures and sells products in a single
industry segment, surface mining and equipment. Operations are conducted
primarily in the United States, Australia, Canada and South Africa.
Financial information by geographical area is summarized in the following
table. Each geographic area represents the origin of the financial information
presented. Transfers between geographic areas represent intercompany export
sales of goods produced in the United States and are accounted for based on
established sales prices between the related entities. Eliminations for
operating earnings (loss) include elimination of intercompany profit in
inventory and general
11
<PAGE> 12
SURFACE MINING AND EQUIPMENT BUSINESS OF GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
corporate expenses. Identifiable assets of each entity are those related to the
operations of those entities. United States assets consist of all other
operating assets.
<TABLE>
<CAPTION>
TRANSFERS
SALES TO BETWEEN OPERATING
UNAFFILIATED GEOGRAPHIC TOTAL EARNINGS IDENTIFIABLE
CUSTOMERS AREAS NET SALES (LOSS) ASSETS
------------ ---------- --------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
United States.......................... $ 66,081 $ 27,984 $ 94,065 $(4,076) $42,983
Australia.............................. 27,191 -- 27,191 1,682 19,922
South Africa........................... 14,448 -- 14,448 887 5,218
Other Foreign.......................... 1,905 651 2,556 157 6,238
Eliminations........................... -- (28,635) (28,635) (210) (7,812)
-------- -------- -------- ------- -------
$109,625 $ -- $109,625 $(1,560) $66,549
======== ======== ======== ======= =======
</TABLE>
Export sales from United States operations, excluding sales to affiliates,
amounted to $44,164,000 in 1996.
Two customers accounted for approximately 42% of the Marion Business' net
sales in 1996. The Marion Business is not dependent upon any one customer.
NOTE J -- TRANSACTIONS WITH GLOBAL
The Marion Business has historically depended on Global for substantial
support, particularly financial. Global also performs certain services such as
insurance claim processing, data processing, and legal and tax support. Total
costs allocated to the Marion Business and included in the combined financial
statements are the following:
(a) Administrative costs of $2,200,000 allocated based on the Marion
Business' percentage of Global's total working capital, gross property,
plant and equipment and goodwill.
(b) Interest expense of $228,000 allocated on the same basis as (a) above.
(c) Pension expense for salaried employees as discussed in Note F.
(d) Income taxes as discussed in Note E.
Global provides financing to the Marion Business through a non-interest
bearing intercompany account. This intercompany account has been classified with
the Investment by Global account in Combined Equity.
NOTE K -- COMMITMENTS, CONTINGENCIES AND CREDIT RISKS
The Marion Business is involved in various litigation arising in the normal
course of business. It is the view of management that the Marion Business'
recovery or liability, if any, under pending litigation is not expected to have
a material effect on the Marion Business' financial position or results of
operations, although no assurance to that effect can be given.
The Marion Business has product liability insurance subject to a deductible
of $1,000,000 per occurrence and has various limits of liability depending on
the insurance policy year in question. It is the view of management that the
final resolution of said claims and other similar claims which are likely to
arise in the future will not individually or in the aggregate have a material
effect on the Marion Business' financial position or results of operations,
although no assurance to that effect can be given.
12
<PAGE> 13
SURFACE MINING AND EQUIPMENT BUSINESS OF GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Marion Business has obligations under various operating leases and
rental and service agreements. The expense relating to these agreements was
$639,000 in 1996. Future minimum annual payments under noncancellable agreements
are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
1997......................................... $405
1998......................................... 273
1999......................................... 159
2000......................................... 24
2001......................................... --
After 2001................................... --
------
$861
======
</TABLE>
A significant portion of the Marion Business' combined net sales are to
customers whose activities are related to the coal, copper and iron ore mining
industries, including some who are located in foreign countries. The Marion
Business generally extends credit to these customers and, therefore, collection
of receivables may be affected by the mining industry economy and the economic
conditions in the countries where the customers are located. However, the Marion
Business closely monitors extension of credit and has not experienced
significant credit losses. Also, most foreign sales are made to large,
well-established companies. The Marion Business generally requires collateral or
guarantees on foreign sales to smaller companies.
NOTE L -- DIVESTITURE
In January, 1997, Global announced its strategic decision to divest itself
of the surface mining equipment business (i.e. the Marion Business).
13
<PAGE> 14
SURFACE MINING AND EQUIPMENT BUSINESS OF GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
COMBINED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, OCTOBER 31,
1997 1996
-------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash..................... $ 240 $ 910
Receivables.............. 9,679 17,032
Receivable from
affiliated entity...... -- 41
Inventories.............. 37,427 37,438
Prepaid expenses and
other current assets... 91 228
-------- --------
Total Current
Assets............. 47,437 55,649
OTHER ASSETS:
Intangible assets........ 1,372 1,372
Other assets............. 361 940
-------- --------
1,733 2,312
PROPERTY, PLANT AND
EQUIPMENT:
Land..................... 625 625
Buildings and
improvements........... 12,040 12,040
Machinery and
equipment.............. 46,103 45,021
Less accumulated
depreciation........... (49,622) (49,098)
-------- --------
9,146 8,588
-------- --------
$ 58,316 $ 66,549
======== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, OCTOBER 31,
1997 1996
-------- -----------
<S> <C> <C>
LIABILITIES AND COMBINED EQUITY
CURRENT LIABILITIES:
Accounts payable and
accrued expenses........ $ 9,401 $12,132
Payable to affiliated
entity.................. 839 684
Liabilities to customers
on uncompleted contracts
and warranties.......... 4,011 4,310
------- -------
Total Current
Liabilities......... 14,251 17,126
LONG-TERM LIABILITIES:
Postretirement benefits... 6,725 6,725
Deferred expenses and
other................... 4,344 4,343
------- -------
11,069 11,068
COMBINED EQUITY........... 32,996 38,355
------- -------
$58,316 $66,549
======= =======
</TABLE>
See notes to combined financial statements.
14
<PAGE> 15
SURFACE MINING AND EQUIPMENT BUSINESS OF GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED JUNE 30,
---------------------------
1997 1996
---- ----
<S> <C> <C>
REVENUES:
Net sales................................................. $41,032 $65,019
Other income.............................................. 37 131
------- -------
41,069 65,150
------- -------
COSTS AND EXPENSES:
Cost of products sold..................................... 37,082 55,177
Product development, selling, administrative
and miscellaneous expenses................................ 10,122 10,886
Allocated administrative expenses......................... 1,622 1,406
Allocated interest expense................................ 1,040 152
------- -------
49,866 67,621
------- -------
LOSS BEFORE INCOME TAXES.................................... (8,797) (2,471)
ALLOCATED INCOME TAX BENEFIT................................ (3,373) (966)
------- -------
NET LOSS.................................................... $(5,424) $(1,505)
======= =======
</TABLE>
See notes to combined financial statements.
15
<PAGE> 16
SURFACE MINING AND EQUIPMENT BUSINESS OF GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED
JUNE 30,
------------------
1997 1996
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................... $(5,424) $(1,505)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization............................... 1,024 1,255
Changes in assets and liabilities:
Trade receivables......................................... 7,353 663
Receivable from affiliated entity......................... 41 --
Inventories............................................... 11 (11,264)
Other current assets...................................... 137 4,780
Other assets.............................................. 80 51
Current liabilities....................................... (3,030) (14,067)
Payable to affiliated entity.............................. 155 463
------- -------
Net cash provided by (used in) operating activities......... 347 (19,624)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment.................. (1,082) (846)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions from Global........................... 448 19,264
------- -------
Effect of exchange rate changes on cash..................... (383) 420
------- -------
Net decrease in cash........................................ (670) (786)
Cash at beginning of period................................. 910 786
------- -------
Cash at end of period....................................... $ 240 $ --
======= =======
</TABLE>
See notes to combined financial statements.
16
<PAGE> 17
SURFACE MINING AND EQUIPMENT BUSINESS OF GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited combined financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included. Adjustments consisted of only normal recurring accruals.
Operating results for the eight months ended June 30, 1997 are not necessarily
indicative of the results that may be expected for the year ending October 31,
1997.
NOTE B -- DIVESTITURE
In January, 1997, Global Industrial Technologies, Inc. announced its
strategic decision to divest itself of the surface mining equipment business.
NOTE C -- INVENTORIES
Inventories at cost include material, labor and overhead and consist of the
following:
<TABLE>
<CAPTION>
JUNE 30, OCTOBER 31,
1997 1996
-------- -----------
<S> <C> <C>
Raw materials and parts................................. $ 5,919 $ 5,254
Work-in-process......................................... 10,183 8,799
Finished products (primarily replacement parts)......... 32,264 34,324
-------- --------
48,366 48,377
LIFO and other reserves................................. (10,939) (10,939)
======== ========
$ 37,427 $ 37,438
======== ========
</TABLE>
17
<PAGE> 1
EXHIBIT 99.2
BUCYRUS INTERNATIONAL, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------------------------------
HISTORICAL
-------------------
PRO FORMA COMBINED
BUCYRUS MARION ADJUSTMENTS(1)(2) PRO FORMA
-------- ------- ----------------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............. $ 11,350 $ 240 $ 452 (3) $ 12,042
Receivables............................ 54,271 9,679 63,950
Inventories............................ 74,587 37,427 112,014
Prepaid expenses and other current
assets............................... 5,091 91 (1,892)(4) 3,290
-------- ------- -------- --------
Total Current Assets................... 145,299 47,437 (1,440) 191,296
OTHER ASSETS:
Restricted funds on deposit............ 1,079 -- 1,079
Goodwill............................... -- --
Intangible assets -- net............... 8,101 1,372 662 (5) 10,135
Other assets........................... 6,395 361 3,200 (6) 9,956
-------- ------- -------- --------
15,575 1,733 3,862 21,170
PROPERTY, PLANT AND EQUIPMENT -- NET:.... 37,639 9,146 (7,925)(5) 38,860
-------- ------- -------- --------
$198,513 $58,316 $ (5,503) $251,326
======== ======= ======== ========
LIABILITIES AND COMMON SHAREHOLDERS'
INVESTMENT
CURRENT LIABILITIES:
Accounts payable and accrued
expenses............................. $ 41,712 $ 9,401 $ (5,599)(7) $ 45,514
Payable to affiliated entity........... -- 839 (839)(7) --
Liabilities to customers on uncompleted
contracts and warranties............. 7,170 4,011 11,181
Income taxes........................... 2,042 -- 2,042
Short-term obligations................. 11,438 -- 45,000 56,438
Current maturities of long-term debt... 416 -- 416
-------- ------- -------- --------
Total Current Liabilities.............. 62,778 14,251 38,562 115,591
LONG-TERM LIABILITIES:
Deferred income taxes.................. 138 -- 138
Liabilities to customers on uncompleted
contracts and warranties............. 3,239 -- 3,239
Postretirement benefits................ 10,800 6,725 (6,725)(7) 10,800
Deferred expenses and other............ 12,152 4,344 (4,344)(7) 12,152
-------- ------- -------- --------
26,329 11,069 (11,069) 26,329
LONG-TERM DEBT, less current maturities.. 68,339 -- 68,339
COMMON SHAREHOLDERS' INVESTMENT:
Common stock........................... 105 -- 105
Additional paid-in capital............. 57,739 -- 57,739
Unearned stock compensation............ (2,395) -- (2,395)
Accumulated deficit.................... (13,023) -- (13,023)
Cumulative translation adjustment...... (1,359) -- (1,359)
Combined equity........................ -- 32,996 (32,996) --
-------- ------- -------- --------
41,067 32,996 (32,996) 41,067
-------- ------- -------- --------
$198,513 $58,316 $ (5,503) $251,326
======== ======= ======== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Balance Sheet.
1
<PAGE> 2
BUCYRUS INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(1) A summary of sources and uses of proceeds for the Marion Acquisition was as
follows:
<TABLE>
<S> <C>
SOURCES OF FUNDS:
Gross proceeds from the Bridge Loan....................... $45,000
-------
Total Sources of Funds...................................... $45,000
=======
USES OF FUNDS:
Estimated purchase price for Marion*...................... $36,451
Bridge Loan borrowing costs of $3,463 less $1,338 paid by
the Company as of June 30, 1997........................ 2,125
Transaction costs of $6,195 (primarily relocation costs),
less $463 paid by the Company as of June 30, 1997...... 5,732
Increase to on-hand cash balances......................... 692
-------
Total Uses of Funds......................................... $45,000
=======
</TABLE>
- -------------------------
* The purchase price of Marion was approximately $40,120 plus or minus the
change in Marion's net assets from January 31, 1997, to the closing date. At
June 30, 1997, the change in the net assets is a decrease of $3,669 which
would reduce the estimated purchase price to $36,451.
(2) The Marion Acquisition included trade receivables, inventory, selected
current assets, selected other long-term assets, machinery and equipment,
trade payables and selected current liabilities. The estimated allocation of
the purchase price of Marion was as follows:
<TABLE>
<S> <C>
PURCHASE PRICE:
Cash...................................................... $36,451
Liabilities assumed....................................... 7,813
Transaction costs (primarily relocation costs)............ 6,195
-------
$50,459
=======
ALLOCATION OF PURCHASE PRICE:
Receivables............................................... $ 9,679
Inventories............................................... 37,427
Intangible assets (primarily engineering drawings)........ 2,034
Other assets.............................................. 98
Machinery and equipment................................... 1,221
-------
$50,459
=======
</TABLE>
(3) Reflects the net increase in cash related to the purchase of Marion:
<TABLE>
<S> <C>
Gross proceeds from the Bridge Loan......................... $ 45,000
Purchase of Marion.......................................... (36,451)
Payment of transaction costs................................ (5,732)
Payment of borrowing costs incurred in connection with the
Bridge Loan............................................... (2,125)
Elimination of Marion cash not acquired by the Company...... (240)
--------
$ 452
========
</TABLE>
2
<PAGE> 3
BUCYRUS INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(DOLLARS IN THOUSANDS) -- (CONTINUED)
(4) The reduction in prepaid expenses reflects the following:
<TABLE>
<S> <C>
Reclassification of Bridge Loan borrowing costs and
transaction costs that have been paid by the Company as of
June 30, 1997............................................. $(1,801)
Elimination of Marion assets not acquired by the Company.... (91)
-------
$(1,892)
=======
</TABLE>
(5) The adjustments reflect the write-up to fair market value.
- Inventory has been adjusted to its fair value as required by Accounting
Principles Board Opinion No. 16. This adjustment primarily relates to
finished parts which are being valued at their selling price, less cost to
sell, less a selling profit.
- Intangible assets consist of engineering drawings and are expected to be
amortized over 20 years.
- Plant and equipment will be amortized over the estimated useful lives of the
respective assets using the straight-line method for financial reporting
purposes. Estimated useful lives are expected to be 20 years for buildings
and improvements and 10 years for machinery and equipment.
- The Company intends to review its property, plant and equipment and
intangible assets and obtain appraisals of these assets in order to
determine what revisions, if any, should be made to individual accounts.
The Company does not expect the appraised values to be materially
different than the values assigned in these pro forma financial statements.
(6) Reflects the following:
<TABLE>
<S> <C>
Capitalization of borrowing costs incurred by the Company in
connection with the Bridge Loan........................... $3,463
Elimination of Marion assets not acquired by the Company.... (263)
------
$3,200
======
</TABLE>
(7) These adjustments represent the elimination of liabilities not assumed by
the Company.
3
<PAGE> 4
BUCYRUS INTERNATIONAL, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------
BUCYRUS MARION
YEAR ENDED YEAR ENDED
DECEMBER 31, OCTOBER 31, PRO FORMA COMBINED
1996 1996 ADJUSTMENTS PRO FORMA
------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales.......................... $263,786 $109,625 $373,411
Cost of products sold.............. 215,126 93,026 $(7,404)(2)(4) 300,748
-------- -------- ------- --------
Gross profit....................... 48,660 16,599 7,404 72,663
Product development, selling,
administrative, and miscellaneous
expenses......................... 36,470 16,514 (3,076)(3)(4) 49,908
Allocation of parent corporation
administrative and overhead
expenses......................... 2,200 (2,200)(3) --
-------- -------- ------- --------
Operating earnings................. 12,190 (2,115) 12,680 22,755
Other income....................... 1,003 555 1,558
-------- -------- ------- --------
Earnings before interest expense
and income taxes................. 13,193 (1,560) 12,680 24,313
Interest expense................... 8,557 228 4,553 (5) 13,338
-------- -------- ------- --------
Earnings (loss) before income
taxes............................ 4,636 (1,788) 8,127 10,975
Income taxes....................... 1,758 (662) 2,746 (6) 3,842
-------- -------- ------- --------
Net earnings (loss)................ $ 2,878 $ (1,126) $ 5,381 $ 7,133
======== ======== ======= ========
Primary Earnings Per Share:
Weighted average number
of common and common
equivalent shares
outstanding (in thousands)......... 10,259 10,259
======== ========
Net earnings per share
of common stock.................... $ 0.28 $ 0.70
======== ========
Fully Diluted Earnings Per Share:
Weighted average number
of common and common
equivalent shares
outstanding (in thousands)......... 10,281 10,281
======== ========
Net earnings per share
of common stock.................... $ 0.28 $ 0.69
======== ========
OTHER DATA:
EBITDA (as defined
herein) (7) $ 19,247 $ 434 $14,339 $ 34,020
Capital expenditures $ 4,996 $ 1,761 $ 6,757
Ratio of earnings to
fixed charges (8) 1.6x
========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Statements
of Operations.
4
<PAGE> 5
BUCYRUS INTERNATIONAL, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL FOR THE
SIX MONTHS ENDED
JUNE 30, 1997
------------------- PRO FORMA COMBINED
BUCYRUS MARION ADJUSTMENTS PRO FORMA
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales.......................... $143,762 $31,549 $(1,410)(1) $173,901
Cost of products sold.............. 116,261 27,824 (3,943)(2)(4) 140,142
-------- ------- ------- --------
Gross profit....................... 27,501 3,725 2,533 33,759
Product development, selling,
administrative, and miscellaneous
expenses......................... 18,345 7,254 (2,731)(3)(4) 22,868
Allocation of parent corporation
administrative and overhead
expenses......................... -- 1,246 (1,246)(3) --
-------- ------- ------- --------
Operating earnings................. 9,156 (4,775) 6,510 10,891
Other income....................... 615 50 665
-------- ------- ------- --------
Earnings before interest expense
and income taxes................. 9,771 (4,725) 6,510 11,556
Interest expense................... 3,956 780 1,611 (5) 6,347
-------- ------- ------- --------
Earnings (loss) before income
taxes............................ 5,815 (5,505) 4,899 5,209
Income taxes....................... 2,392 (2,125) 1,557 (6) 1,824
-------- ------- ------- --------
Net earnings (loss)................ $ 3,423 $(3,380) $ 3,342 $ 3,385
======== ======= ======= ========
Primary Earnings Per Share:
Weighted average number
of common and common
equivalent shares
outstanding (in thousands)......... 10,345 10,345
======== ========
Net earnings per share
of common stock.................... $ 0.33 $ 0.33
======== ========
Fully Diluted Earnings Per Share:
Weighted average number
of common and common
equivalent shares
outstanding (in thousands).......... 10,503 10,503
======== ========
Net earnings per share
of common stock..................... $ 0.33 $ 0.32
======== ========
OTHER DATA:
EBITDA (as defined
herein) (7) $ 12,900 $(3,718) $ 5,647 $ 14,829
Capital expenditures $ 2,433 $ 683 $ 3,116
Ratio of earnings to
fixed charges (8) 1.8x
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Statements
of Operations.
5
<PAGE> 6
BUCYRUS INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(1) Represents the adjustment to net sales to conform Marion's revenue
recognition policy for shovels (shipment method) to the Company's percentage
of completion method. The adjustment for 1996 is immaterial and is not
included in the 1996 Pro Forma Combined Condensed Statement of Operations.
(2) Reflects the following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------------
<S> <C> <C>
Elimination of depreciation on buildings which are not
being purchased by the Company.......................... $ (91) $ (46)
Elimination of the LIFO provision......................... (484) --
Reversal of provision for warranties on planetary gearing
on certain draglines not assumed by the Company pursuant
to the purchase contract................................ (1,400) --
Adjustment to cost of sales to conform Marion's revenue
recognition policy for shovels (shipment method) to the
Company's percentage of completion method............... -- (1,182)
Adjustment to depreciation expense based on the assigned
fair value of machinery and equipment................... (443) (222)
Elimination of manufacturing costs related to non-acquired
assets and non-assumed employees (see below)............ (4,986) (2,493)
------- -------
$(7,404) $(3,943)
======= =======
</TABLE>
As part of the purchase contract, the Company did not acquire the
manufacturing facility of Marion. The elimination of direct costs related to
this facility, including maintenance, security, taxes, insurance, etc.
results in reductions of approximately $2,239 and $1,120 for the year ended
December 31, 1996 and the six months ended June 30, 1997, respectively. This
does not include depreciation savings reflected in the table above.
Also as part of the purchase contract, the Company hired only specifically
identified Marion employees which reflected a department-by-department
evaluation of personnel required to handle the workload. Various
subsidiaries of Global have retained all liabilities related to employees
not permanently hired by the Company. The elimination of salaries and
benefits from administrative personnel in the fixed manufacturing
departments (plant management, purchasing, industrial relations, quality
assurance, etc.) who have not been hired results in savings of $1,773 and
$886 for the year ended December 31, 1996 and the six months ended June 30,
1997, respectively. An additional $974 and $487 for the year ended December
31, 1996 and the six months ended June 30, 1997, respectively, of
duplicative nonpayroll costs related to manufacturing (corporate
allocations, travel costs, outside consultants, and other manufacturing
items) have been identified.
6
<PAGE> 7
BUCYRUS INTERNATONAL, INC
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(3) As part of the purchase contract, the Company hired only specifically
identified Marion employees. In addition, the Company has identified
redundant functions and costs at Marion. These include:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------------
<S> <C> <C>
Salaries and benefits from the elimination of specific
administrative departments (executive, treasury, human
resources, and finance)................................. $(2,982) $(1,492)
Additional non-payroll related costs related to the
administrative functions of Marion...................... (1,287) (644)
Corporate overhead charges allocated from the parent of
Marion.................................................. (2,200) (1,246)
Salaries and related costs from Marion's permanent
elimination of various engineering positions in December
1996.................................................... (1,000) --
------- -------
$(7,469) $(3,382)
======= =======
</TABLE>
In addition, the adjustments to reflect the impact of purchase accounting
and the amortization of the Bridge Loan fees are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------------
<S> <C> <C>
Adjustment to amortization of intangible assets based on
the assigned fair value of such assets.................. $ (728) $(324)
Adjustment to depreciation expense based on the assigned
fair value of machinery and equipment................... (542) (271)
Amortization of Bridge Loan fees over one year............ 3,463 -
------- -----
$ 2,193 $(595)
======= =====
</TABLE>
(4) In addition to the above pro forma adjustments, the Company expects to
realize significant additional annual cost savings related to headcount
reductions and related expenses at Marion which have not been included in
the Pro Forma Combined Condensed Statements of Operations. The primary cost
savings are related to reduced direct labor costs, engineering and marketing
headcount reductions, and future closing of parts and service locations as
summarized below:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------------
<S> <C> <C>
Direct labor reductions................................... $(1,319) $ (660)
Engineering and marketing salary and benefit reductions... (1,292) (646)
Elimination of duplicative parts and service locations.... (389) (194)
------- -------
$(3,000) $(1,500)
======= =======
</TABLE>
7
<PAGE> 8
BUCYRUS INTERNATIONAL, INC
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(5) Reflects the following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------------
<S> <C> <C>
Interest on the Bridge Loan at an assumed interest rate of
10.625%.................................................. $ 4,781 $ 2,391
Reversal of Marion's historical interest expense........... (228) (780)
------- -------
$ 4,553 $ 1,611
======= =======
</TABLE>
The effect of a 1/8 of 1% change in the interest rate on the Bridge Loan
is $56 per annum.
(6) Pro forma income taxes have been provided at local statutory rates by tax
jurisdiction. Income taxes provided on U.S. operations are offset by
pre-bankruptcy net operating loss carryforwards. The benefit of such net
operating loss carryforwards would be reflected as a reduction of
intangibles rather than the tax provision.
(7) "EBITDA" is defined as earnings (loss) before (i) income taxes; (ii)
interest expense; (iii) depreciation; (iv) amortization; (v) non-cash stock
compensation; (vi) loss (gain) on sale of fixed assets; and (vii)
inventory fair-value adjustment charged to cost of products sold. Since
cash flow from operations is very important to the Company's future, the
EBITDA calculation provides a summary review of cash flow performance.
EBITDA (as defined herein) should not be considered an alternative to
operating income determined in accordance with GAAP as an indicator of
operating performance or to cash flows from operating activities determined
in accordance with GAAP as a measure of liquidity.
(8) For purposes of computing the ratio of earnings to fixed charges,
earnings consist of earnings before income taxes and fixed charges.
Fixed charges consist of interest expense and amortization of debt fees.
<PAGE> 1
EXHIBIT 99.3
Excerpts from the Preliminary Offering Memorandum dated August 27, 1997,
relating to the Company's $150,000,000 Senior Notes due 2007.
SOURCES AND USES OF FUNDS
The Offering, the Marion Acquisition, the Bridge Loan and the repayment
thereof, the repayment of the Company's 10.5% Secured Notes due December 14,
1999 (the "Secured Notes"), the AIP Merger, the initial borrowings under the
Revolving Credit Facility, and the payment of fees and expenses in connection
with the foregoing are collectively referred to in this Offering Memorandum as
the "Transactions." The following table illustrates the sources and uses of
funds relating to the Transactions assuming the Transactions were all
consummated on June 30, 1997.
<TABLE>
<CAPTION>
SOURCES USES
------- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Revolving Credit Facility(1).......... $ 23.3 Pay consideration in AIP Tender Offer
Notes................................. 150.0 and AIP Merger(2)................... $196.6
AIP Equity Contribution(3)............ 143.0 Repay Secured Notes(4)................ 65.8
Cash on hand(5)....................... 5.0 Repay Bridge Loan(6).................. 45.0
------ Repay existing credit facility(5)..... 0.4
Fees and expenses..................... 13.5
------
Total Sources.................... $321.3 Total Uses....................... $321.3
====== ======
</TABLE>
- -------------------------
(1) Bucyrus has a commitment from Bank One, Wisconsin, to enter into a new
credit agreement which will provide for a $75 million senior secured
revolving credit facility, with a $25 million sublimit for standby letters
of credit (the "Revolving Credit Facility"). The Revolving Credit Facility
is expected to be used to finance working capital and capital expenditures.
Availability under the Revolving Credit Facility is limited to a borrowing
base formula, which at June 30, 1997, would have permitted borrowings and
letters of credit totaling $68.7 million. See "Revolving Credit Facility."
Effectiveness of the Revolving Credit Facility is a condition to
consummation of the Offering.
(2) Assumes that the Short-Form Merger (as defined) is effected. If the
Short-Form Merger is not effected, BAC will use proceeds from the AIP Equity
Contribution and an equity contribution from, or arranged
1
<PAGE> 2
by, AIP (the "AIP Bridge Equity") to effect the AIP Tender Offer. In
such case, upon consummation of the AIP Merger, the AIP Bridge Equity will
be repurchased and the consideration in the AIP Merger will be paid with a
portion of the proceeds from the Offering, which the Company intends to
invest in short-term investment-grade securities pending such use.
(3) Upon consummation of the AIP Tender Offer, AIP will contribute $143.0
million in cash as common equity to BAC (the "AIP Equity Contribution").
(4) Does not include interest accrued on the Secured Notes at the rate of 10.5%
per annum from June 30, 1997, which interest will be funded with additional
cash on hand.
(5) The actual balance of the existing credit facility may be different on the
date the Transactions are actually consummated; therefore, the amount of the
existing credit facility to be repaid and the amount of either cash on hand
or borrowings under the Revolving Credit Facility actually used to
consummate the Transactions may be different at the time of such
consummation.
(6) Does not include interest accrued on the Bridge Loan at the Adjusted
Eurodollar Rate, as defined in the Bridge Loan Agreement, plus 5% per annum
from August 26, 1997, which interest will be funded with additional cash on
hand. The initial rate was 10.625%. The Bridge Loan was incurred to finance
the Marion Acquisition and related fees and expenses.
2
<PAGE> 3
RISK FACTORS
Prospective purchasers of the Notes should consider carefully the risk
factors set forth below, as well as the other information set forth in this
Offering Memorandum.
This Offering Memorandum contains statements which constitute forward
looking statements within the meaning of Section 27A of the Securities Act.
Discussions containing such forward looking statements may be found under the
captions "Offering Memorandum Summary," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and "Business," as well as
elsewhere within the Offering Memorandum. Forward looking statements 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. When used in this Offering Memorandum, terms such
as "anticipate," "believe," "estimate," "expect," "indicate," "may be,"
"objective," "plan," "predict," and "will be" are intended to identify such
statements. Prospective purchasers of the 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. Forward looking statements are based upon
management's expectations at the time they are made. Actual results could differ
materially from those projected in the forward looking statements as a result of
the risk factors set forth below and the matters set forth in the Offering
Memorandum generally. The Company cautions the reader, however, that this list
of factors may not be exhaustive.
SUBSTANTIAL LEVERAGE; RESTRICTIVE LOAN COVENANTS
Upon completion of the Offering, the Company will have substantial
indebtedness and significant debt service obligations. As of June 30, 1997, on a
pro forma basis after giving effect to the Transactions, the Company would have
had total long-term indebtedness, including current maturities, of $176.2
million, as well as undrawn borrowings under the Revolving Credit Facility of
$47.0 million. The Indenture will permit the Company to incur additional
indebtedness, including secured indebtedness, subject to certain limitations.
See "Offering Memorandum Summary -- Sources and Uses of Funds,"
"Capitalization," and "Description of the Notes -- Certain Covenants."
The Company's high degree of leverage could have important consequences to
the Noteholders, including, without limitation: (i) a substantial portion of the
Company's cash 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
expenditures or acquisitions may be limited; (iii) a substantial decrease in net
operating cash flows or an increase in expenses could make it difficult for the
Company to meet its debt service requirements and force it to modify its
operations; (iv) the Company may be more highly leveraged than its competitors,
which may place it at a competitive disadvantage; (v) certain indebtedness under
the Revolving Credit Facility will be at variable rates of interest, which will
cause the Company to be vulnerable to increases in interest rates; and (vi) all
of the indebtedness outstanding under the Revolving Credit Facility will be
secured by substantially all the assets of the Company and will become due prior
to the time the principal on the Notes will become due. Any inability of the
Company to service its indebtedness or obtain additional financing as needed
would have a material adverse effect on the Company. See "Revolving Credit
Facility" and "Description of the Notes."
The Company believes that based upon anticipated levels of operations after
the Marion Acquisition (assuming the timely integration of Marion's business
into that of the Company) it will be able to meet its debt service obligations,
including interest payments in respect of the Notes. If, however, the Company
cannot generate sufficient cash flow from operations to meet its obligations,
the Company may be required to refinance its debt or to dispose of assets to
obtain funds for such purpose. There is no assurance that refinancings or asset
dispositions could be effected on
11
<PAGE> 4
satisfactory terms or would be permitted by the terms of the Revolving Credit
Facility or the Indenture. See "-- Realization of Benefits of the Marion
Acquisition; Integration of Marion."
The Revolving Credit Facility and the Indenture will contain numerous
covenants that will limit the discretion of management with respect to certain
business matters and place significant restrictions on, among other things, the
ability of the Company to incur additional indebtedness, to create liens or
other encumbrances, to make certain payments or investments, loans and
guarantees and to sell or otherwise dispose of assets and merge or consolidate
with another entity. See "Revolving Credit Facility" and "Description of the
Notes -- Certain Covenants." The Revolving Credit Facility will also contain a
number of financial covenants that will require the Company to maintain certain
financial ratios (including a consolidated fixed charge coverage ratio, a
consolidated interest coverage ratio, and a consolidated leverage ratio) and
tests (including maintenance of the Company's net worth at a specified level). A
failure to comply with the obligations contained in the Revolving Credit
Facility or the Indenture could result in an event of default under the
Revolving Credit Facility or an Event of Default (as defined herein) under the
Indenture that, if not cured or waived, would permit acceleration of the
relevant debt and acceleration of debt under other instruments that may contain
cross-acceleration or cross-default provisions. Other indebtedness of the
Company and its subsidiaries could contain amortization and other prepayment
provisions, or financial or other covenants, more restrictive than those
applicable to the Notes.
REALIZATION OF BENEFITS OF THE MARION ACQUISITION; INTEGRATION OF MARION
Management has estimated that significant cost savings can be achieved as a
result of the integration of Marion into the Company. The estimates of potential
cost savings are forward looking statements that are inherently uncertain.
Actual cost savings, if any, could differ materially from those projected. All
of these forward looking statements are based on estimates and assumptions made
by management of the Company, which although believed to be reasonable, are
inherently uncertain and difficult to predict; therefore, undue reliance should
not be placed upon such estimates.
Full realization of the potential benefits and savings of the Marion
Acquisition will be dependent upon a variety of factors, including (i) retention
of a substantial portion of Marion's net sales, particularly aftermarket sales;
(ii) achievement of significant reductions in operating costs through the
consolidation of operations and the restructuring of engineering, manufacturing,
selling, and administrative functions; and (iii) expansion of the Company's
presence in several markets where Marion has established relationships with
local mining interests and government authorities. Any material delays or
unexpected costs incurred in connection with the integration of Marion into the
Company could have a material adverse effect on the Company and its results of
operations, liquidity, and financial condition.
The integration of Marion will require substantial attention from the
Company's management team. The diversion of management's attention, as well as
any other difficulties which may be encountered in the transition and
integration process, could have a material adverse effect on the revenue and
operating results of the Company. There can be no assurance that the Company
will be able to integrate the operations of the Company and Marion successfully
or the extent to which the Company will be able to realize the potential
benefits of the Marion Acquisition or the timing of any such benefits. Failure
to achieve a substantial portion of these benefits within the time frame
expected by the Company could have a material adverse effect on the Company,
including its ability to make payments on the Notes. See "Unaudited Pro Forma
Combined Condensed Financial Statements" and "Business -- Integration
Strategies."
CYCLICAL NATURE OF INDUSTRY; POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
The Company's business is cyclical in nature and sensitive to changes in
general economic conditions, including fluctuations in market prices for coal
and energy alternatives to coal, copper,
12
<PAGE> 5
iron ore, and phosphate. These businesses are in turn influenced by a variety of
factors beyond the Company's control, including interest rates and general
economic conditions throughout the world. As a result of this cyclicality, the
Company has experienced, and in the future could experience, reduced net sales
and margins, which may affect the Company's ability to satisfy its debt service
obligations, including payments on the Notes, on a timely basis. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company's net sales and operating results may fluctuate significantly
from period to period. Given the large sales price of the Company's machinery,
one or a limited number of machines may account for a substantial portion of net
sales in any particular period. As a result, in any given period, a single
customer may account for a large percentage of net sales. Losing the business of
any of its top customers could have an adverse effect upon the results of
operations and financial condition of the Company. Although the Company
recognizes net sales on a percentage-of-completion basis for new machines, the
timing of one or a small number of contracts in any particular period may
nevertheless affect operating results. In addition, net sales and gross profit
may fluctuate depending upon the size and the requirements of the particular
contracts entered into in that period. As a result of these and other factors,
the Company may 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."
FOREIGN OPERATIONS
Both the Company and Marion have significant operations in foreign
countries and derive a substantial portion of their net sales from foreign
markets. During 1996, $279.6 million, or approximately 75%, of the Company's pro
forma net sales were generated outside the United States.
The value of the Company's foreign sales and earnings may vary with
currency exchange rate fluctuations. To the extent that the Company does not
take steps to mitigate the effects of changes in relative values, 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 debt service obligations, including payments on the Notes. Furthermore,
international manufacturing, sales and service operations 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 support, and potentially adverse tax consequences. There can be no
assurance that these factors
13
<PAGE> 6
will not have a material adverse effect on the Company or its international
operations or sales. See "Business -- Foreign Operations."
COMPETITION
The Company operates in a highly competitive environment. It competes
directly and indirectly with other manufacturers of draglines, mining shovels
(both electric and hydraulic), and rotary blast hole drills, as well as with
manufacturers of parts and components for all of the foregoing. Some of the
Company's competitors are larger, have greater financial resources, and may be
less leveraged than the Company. See "Business -- Competition."
ENVIRONMENTAL AND RELATED MATTERS
The Company's operations and properties are subject to a broad range of
federal, state, local and foreign laws and regulations relating to environmental
matters, including laws and regulations governing discharges into the air and
water, the handling and disposal of solid and hazardous substances and wastes,
and the remediation of contamination associated with releases of hazardous
substances at Company facilities and at off-site disposal locations. These laws
are complex, change frequently and have tended to become more stringent over
time.
Based upon the Company's experience to date, the Company believes that the
future cost of compliance with existing environmental laws, regulations and
ordinances (or liability for known environmental claims) will not have a
material adverse effect on the Company's business, financial condition and
results of operations. Nevertheless, future events, such as compliance with more
stringent laws or regulations, or more vigorous enforcement policies of
regulatory agencies or stricter or different interpretations of existing laws
could require additional expenditures by the Company which may be material.
Certain laws, such as the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA" or "Superfund") provide for strict joint and several
liability for investigation and remediation of spills and other releases of
hazardous substances. Such laws may apply to conditions at properties presently
or formerly owned or operated by an entity or its predecessors, as well as to
conditions at properties at which wastes or other contamination attributable to
an entity or its predecessors come to be located. The Company is currently a
Potentially Responsible Party ("PRP") under CERCLA at several sites. While no
assurance can be given, the Company believes that expenditures for compliance
and remediation will not have a material effect on its capital expenditures,
earnings or competitive position. See "Business -- Environmental Matters."
LABOR RELATIONS
As of July 31, 1997, 418 of the 797 employees at the Company's South
Milwaukee facility were represented by the United Steelworkers of America Union.
In May 1997, the union ratified a new four-year agreement with the Company that
expires on April 30, 2001. Although the Company believes that its relations with
its employees are satisfactory, a dispute between the Company and its employees
could have a material adverse effect on the Company. See "Business --
Employees."
14
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The reorganization of the Company under Chapter 11 of the Bankruptcy Code
was effective December 14, 1994. The reorganization was accounted for using the
principles of fresh start reporting as required by AICPA Statement of Position
90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code." Under the principles of fresh start reporting, total assets were recorded
at their assumed reorganization value, with the reorganization value allocated
to identifiable tangible and intangible assets on the basis of their estimated
fair value, and liabilities were adjusted to the present values of amounts to be
paid where appropriate. The consolidated financial statements for periods
subsequent to December 14, 1994, include the related amortization charges
associated with the fair value adjustments.
As a result of the implementation of fresh start reporting, the
consolidated financial statements of the Company are not comparable to the
consolidated financial statements of periods prior to December 14, 1994. The
consolidated financial statements presented for prior periods are not the
Company's, but instead are those of B-E Holdings, Inc. (the "Predecessor
Company"), the former parent of the Company, which was merged with and into the
Company on December 14, 1994.
RESULTS OF OPERATIONS
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 AND 1996
NET SALES. Net sales for the first six months of 1997 were $143.8 million
compared with $130.8 million for the first six months of 1996. Net sales of
repair parts and services were $88.6 million, which is an increase of 8% from
the first six months of 1996. The increase in repair parts and service net sales
occurred primarily at foreign locations. Net machine sales were $55.1 million,
which is an increase of 13% from the first six months of 1996. Net sales of
electric mining shovels increased 39% from the first six months of 1996. The
increase in electric mining shovel volume was primarily in copper markets. Net
sales of blast hole drills decreased 28% from the first six months of 1996.
There has been an overall decline in worldwide blast hole drill sales activity
in 1997.
OTHER INCOME. Other income, which consists primarily of interest income,
was $0.6 million and $0.5 million for the six months ended June 30, 1997 and
1996, respectively.
COST OF PRODUCTS SOLD. Cost of products sold for the first six months of
1997 was $116.3 million, or 81% of net sales, compared with $107.0 million, or
82% of net sales, for the first six months of 1996. The increase in gross margin
percentage was primarily due to improved machine margins.
PRODUCT DEVELOPMENT, SELLING, ADMINISTRATIVE AND MISCELLANEOUS
EXPENSES. Product development, selling, administrative and miscellaneous
expenses for the first six months of 1997 were $18.3 million, or 13% of net
sales, compared with $17.9 million, or 14% of net sales, for the first six
months of 1996.
INTEREST EXPENSE. Interest expense for the first six months of 1997 was
$4.0 million compared with $4.2 million for the first six months of 1996. The
Company has the option of paying interest on the Secured Notes in cash at 10.5%
or in kind (issuance of additional Secured Notes) at 13%. For the first six
months of 1997, interest was accrued at 10.5% since the Company paid this
interest in cash. For the first six months of 1996, interest was accrued at 13%
since the Company paid this interest in kind. Interest was accrued on a higher
principal balance in 1997 since all interest was paid in kind through December
31, 1996.
INCOME TAXES. For the six months ended June 30, 1997, income tax expense
consists primarily of foreign taxes at applicable statutory rates and a non-cash
income tax provision on United States taxable income at applicable statutory
rates. For the component of the United States tax provision relating to tax
benefits realized from reductions in the valuation allowance established as of
3
<PAGE> 8
December 14, 1994 (the date the Company reorganized under chapter 11 of the
Bankruptcy Code), a corresponding $0.5 million reduction of intangible assets
was recorded in accordance with AICPA Statement of Position 90-7, "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code". For the
component of the United States tax provision relating to reductions in the
valuation allowance established after December 14, 1994, an income tax benefit
was recorded.
For the six months ended June 30, 1996, income tax expense consists
primarily of foreign taxes at applicable statutory rates. For United States tax
purposes there was a loss for which there was no income tax benefit.
NET EARNINGS. Net earnings for the first six months of 1997 were $3.4
million compared with $0.9 million for the first six months of 1996. The
increase in net earnings was primarily due to increased sales volume and
improved gross margin percentage.
INVENTORY, BACKLOG AND NEW ORDERS. The Company maintains a substantial
inventory of partially manufactured machines and components, as well as finished
goods inventory, primarily consisting of replacement parts, in order to reduce
lead times and respond quickly to customers' delivery requirements. Inventories
at June 30, 1997 were $74.6 million (27% of net sales for the twelve months
ended June 30, 1997), compared with $70.5 million (28% of net sales for the
twelve months ended June 30, 1996) at June 30, 1996. At June 30, 1997 and 1996,
$48.1 million and $43.4 million, respectively, were held as finished goods
inventory.
The Company's consolidated backlog at June 30, 1997, was $215.8 million
compared with $158.7 million at December 31, 1996, and $184.1 million at June
30, 1996. Machine backlog at June 30, 1997, was $103.8 million, which is an
increase of 112% from December 31, 1996, and an increase of 12% from June 30,
1996. The Company has received a letter of intent from BHP Coal Pty. Ltd., an
Australian mining company, to purchase a 257OWS walking dragline which is
scheduled for completion by December 31, 1999. This is expected to generate net
sales of approximately $60.2 million and is included in machine backlog at June
30, 1997. Machine backlog for electric mining shovels and blast hole drills has
decreased 53% from June 30, 1996. Repair parts and service backlog at June 30,
1997 was $112.0 million, which is an increase of 2% from December 31, 1996, and
an increase of 23% from June 30, 1996. The increase in repair parts and service
backlog from June 30, 1996, was at both United States and foreign locations.
Backlog includes the dollar value of orders placed for new equipment as well as
parts and services, including estimates of revenues expected to be generated
from MARCs, minus dollars billed through manufacturing contracts, which are
billed on a percentage of completion basis. MARC revenue estimates are based on
payments expected for parts and for maintenance and operational services over
the life of each contract, some of which have terms through 2002.
New orders for the first six months of 1997 were $200.8 million, which is
an increase of 2% from the first six months of 1996. New machine orders were
$109.9 million, which is an increase of 44% from the first six months of 1996.
Included in new machine orders for the first six months of 1997 was
approximately $60.2 million for the aforementioned 257OWS walking dragline for
BHP Coal Pty. Ltd. of Australia. New machine orders for electric mining shovels
for the first six months of 1997 were even with last year while new machine
orders for blast hole drills have decreased. There has been an overall decline
in worldwide blast hole drill orders in 1997, which was anticipated as a result
of a temporary lower demand for copper. During the first six months of 1996, a
multiple machine order was received from one South American customer in the
copper market resulting in new machine orders substantially higher than
historical levels in that six months. As a result of a decline in copper prices
in 1996 from historically high levels, demand from this market segment has
remained low. However, due to a resurgence in copper prices in late 1996, which
the Company expects to continue through 1997, there should be continued demand
from this market segment for electric mining shovels and blast hole drills.
There also was an increase in iron ore production in late 1994 that was
sustained through 1995 and 1996. The Company anticipates that some iron ore
producers will continue to replace aged electric mining shovel and blast hole
drill fleets with new
4
<PAGE> 9
machines in an effort to reduce iron ore production costs. Also, price increases
for hard coking coal in 1995 and 1996 have brought new demand for machines in
western Canada and Australia in recent months. New repair parts and service
orders were $90.9 million for the first six months of 1997, which is a decrease
of 25% from the first six months of 1996. Included in new repair parts and
service orders for the first six months of 1996 were large maintenance and
repair contract orders at foreign locations.
COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NET SALES. Net sales for 1996 were $263.8 million compared with $231.9
million for 1995. Net sales of repair parts and services for 1996 were $156.4
million, which is an increase of 1% from 1995. This increase consists of an
increase in net sales at Minserco, Inc., a mining service subsidiary of the
Company, offset by a decrease in net sales of repair parts, primarily at foreign
locations. Net machine sales for 1996 were $107.4 million, which is an increase
of 40% from 1995. The increase in net machine sales was primarily due to
increased electric mining shovel shipments, primarily in copper markets.
Net sales for 1995 were $231.9 million compared with $194.0 million for
1994. Net sales of repair parts and services for 1995 were $155.4 million, which
is an increase of 8% from 1994. The increase in repair parts and service net
sales was primarily due to increased repair parts net sales at foreign locations
as a result of higher demand for replacement parts. Net machine sales for 1995
were $76.5 million, which is an increase of 55% from 1994. The increase was due
to increased blast hole drill and electric mining shovel shipments, primarily in
copper, coal, and iron ore markets.
OTHER INCOME. Other income, which consists primarily of interest income,
was $1.0 million, $1.3 million, and $3.1 million for 1996, 1995, and 1994,
respectively. Included in the amount for 1994 was a favorable insurance
settlement of $1.4 million.
COST OF PRODUCTS SOLD. Cost of products sold for 1996 was $215.1 million,
or 82% of net sales, compared with $205.6 million, or 89% of net sales, for
1995, and $164.1 million, or 85% of net sales, for 1994. Included in cost of
products sold for 1995 and 1994 were charges of $10.1 million and $0.4 million,
respectively, as a result of the fair value adjustment to inventory. This
adjustment was made in accordance with the principles of fresh start reporting
adopted in 1994 and was charged to cost of products sold as the inventory was
sold. Also included in cost of products sold for 1995 was a charge of $4.4
million for the scrapping and disposal of excess inventory which related to
certain older and discontinued machine models. Excluding the effects of the
inventory fair value adjustment and excess inventory charge, cost of products
sold as a percentage of net sales for 1995 was 82%.
PRODUCT DEVELOPMENT, SELLING, ADMINISTRATIVE, AND MISCELLANEOUS
EXPENSES. Product development, selling, administrative, and miscellaneous
expenses for 1996 were $36.5 million, or 14% of net sales, compared with $34.2
million, or 15% of net sales, in 1995, and $31.3 million, or 16% of net sales,
in 1994. The dollar increase for 1996 was primarily due to higher product
development and service costs to provide increased support to customers.
INTEREST EXPENSE. Interest expense for 1996 was $8.6 million compared with
$6.3 million for 1995. The increase for 1996 was primarily due to an increase in
the interest rate on the Secured Notes from 10.5% to 13% effective December 14,
1995, for interest paid in kind by adding the interest to the principal balance.
Also, interest on the Secured Notes was accrued on a higher principal balance in
1996 since all interest was paid in kind through December 31, 1996. The Company
has the option of paying interest on the Secured Notes in cash at 10.5% or in
kind at 13%.
Interest expense for 1995 was $6.3 million compared with $14.2 million for
1994. The decrease was primarily due to the exchange of unsecured debt
securities of B-E Holdings, Inc. and the Company for shares of the Company's
common stock in connection with the Company's reorganization.
5
<PAGE> 10
RESTRUCTURING EXPENSES. Restructuring expenses of $2.6 million in 1995
consist of employee severance expenses recorded to reflect the cost of reduced
employment and the severance costs related to the resignation of three officers
of the Company. See Note B to the Company's audited financial statements
appearing elsewhere herein.
REORGANIZATION ITEMS. Reorganization items represent the expenses incurred
as a result of the Company's efforts to reorganize under Chapter 11 of the
Bankruptcy Code. In 1995, reorganization items consist entirely of legal and
professional fees. Reorganization items in 1994 consist of $8.0 million of legal
and professional fees, $41.1 million to adjust debt and redeemable preferred
stock to the amount of the allowed claims in the Amended Plan, and a $1.1
million write-off of capitalized financing costs. These expenses were partially
offset by $0.4 million of interest income earned from the Petition Date through
December 13, 1994, on accumulated cash balances of B-E Holdings, Inc. and the
Company.
INCOME TAXES. Income tax expense consists primarily of foreign taxes at
applicable statutory rates.
NET EARNINGS (LOSS). Net earnings for 1996 were $2.9 million compared with
a net loss of $18.8 million for 1995. During 1995, the Company undertook a
restructuring of its corporate headquarters and foreign subsidiaries and
completed an evaluation of its inventories and other items. The Company, in
evaluating its inventory, determined that excess levels existed for certain
older and discontinued machine models. Accordingly, a charge of $4.4 million was
made in 1995 for the eventual scrapping and disposal of this inventory.
Severance costs of $2.6 million were also recorded to reflect the cost of
reduced employment at the corporate headquarters and foreign subsidiaries, and
the resignation of three former officers. In addition, a $1.0 million charge
resulting from the reestimation of certain customer warranty reserves was
recorded in 1995, and a $0.9 million charge was made for reorganization items
related to issues continuing from the bankruptcy proceedings. Net loss for 1995
also included $8.6 million (net of income taxes) of the inventory fair value
adjustment related to fresh start reporting.
Net loss for 1995 was $18.8 million compared with net earnings of $119.1
million for 1994. Included in net earnings for 1994 was an extraordinary gain on
debt discharge of $142.5 million which was partially offset by reorganization
items of $9.3 million.
INVENTORY, BACKLOG, AND NEW ORDERS. Inventories at December 31, 1996, were
$70.9 million (27% of net sales) compared with $73.6 million (32% of net sales)
at December 31, 1995, and $82.4 million (42% of net sales) at December 31, 1994.
At December 31, 1996, 1995, and 1994, $44.1 million, $44.5 million, and $51.9
million, respectively, were held as finished goods inventory.
The Company's consolidated backlog on December 31, 1996 was $158.7 million
compared with $118.0 million at December 31, 1995 and $72.3 million at December
31, 1994. Machine backlog at December 31, 1996 was $49.0 million, which is a
decrease of 26% from December 31, 1995. The decrease in machine backlog from
December 31, 1995 was primarily in electric mining shovel volume. Repair parts
and service backlog at December 31, 1996 was $109.7 million, which is an
increase of 110% from December 31, 1995. The increase in repair parts and
service backlog from December 31, 1995, was primarily at foreign locations and
reflect new orders related to long-term maintenance and repair contracts which
will be completed in the next three to five years.
New orders for 1996 were $304.5 million, which is an increase of 10% from
1995. New machine orders for 1996 were $90.6 million, which is a decrease of 22%
from 1995. The decrease in new machine orders for 1996 was primarily in electric
mining shovel volume and represented low machine net sales activity during the
second half of 1996, primarily related to copper markets. New repair parts and
service orders for 1996 were $213.9 million, which is an increase of 33% from
1995. The increase in repair parts and service orders for 1996 was primarily due
to large maintenance and repair contract orders at foreign locations in the
first three months of 1996.
6
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
Working capital and current ratio are two financial measurements which
provide an indication of the Company's ability to meet its short-term
obligations. These measurements at December 31, 1994, 1995, and 1996, and June
30, 1997, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------- JUNE 30,
1994 1995 1996 1997
---- ---- ---- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Working capital.................................... $ 78,208 $ 65,330 $ 78,814 $ 82,521
Current ratio (ratio of current assets to current
liabilities)..................................... 2.6 to 1 2.2 to 1 2.9 to 1 2.3 to 1
</TABLE>
The decrease in the current ratio from December 31, 1996 to June 30, 1997,
was primarily due to increased liabilities in order to support increased
production of machines. The increase in working capital and the current ratio
for the year ended December 31, 1996, was primarily due to a decrease in current
liabilities to customers on uncompleted contracts and warranties and a decrease
in outstanding project financing borrowings. The decrease in working capital and
the current ratio for the year ended December 31, 1995, was primarily due to the
inventory fair value adjustment of $10.1 million being charged to cost of
products sold as the inventory was sold and an inventory obsolescence provision
of $4.4 million. See "Results of Operations -- Comparison of Fiscal Years Ended
December 31, 1996, 1995, and 1994 -- Cost of Products Sold."
Equipment Assurance Limited, a subsidiary of Bucyrus, has pledged $1.1
million of its cash to secure its reimbursement obligations for outstanding
letters of credit at June 30, 1997. This collateral amount is classified as
Restricted Funds on Deposit in the Company's Consolidated Condensed Balance
Sheets.
The Company believes that current levels of cash and liquidity, together
with funds generated by operations, funds available from the Revolving Credit
Facility, and other project financing arrangements will be sufficient to permit
the Company to satisfy its debt service requirements and fund operating
activities through at least 1998. The Company is subject to significant
business, economic, and competitive uncertainties that are beyond its control.
Accordingly, there can be no assurance that the Company's financial resources
will be sufficient for the Company to satisfy its debt service obligations and
fund operating activities under all circumstances. See "Revolving Credit
Facility."
The Company had outstanding letters of credit and guarantees of $6.1
million at June 30, 1997. Of this amount, $4.7 million is related to the
Company's existing credit agreement with Bank One, Wisconsin, with the remainder
provided by various banks and insurance companies.
At June 30, 1997, the Company had approximately $2.3 million of approved
but unspent capital appropriations. Included in this amount is the remaining
$1.2 million to be spent for a new service shop facility in Chile which is being
financed primarily with a local bank in Chile.
In addition, at June 30, 1997, the Company had committed approximately $5.5
million of a planned $20.0 million machine shop tool modernization project. The
initial machine tools have been financed with operating leases and the remaining
machine tools are expected to be financed using internally generated cash,
borrowings under the Revolving Credit Facility, or operating leases.
7
<PAGE> 12
EBITDA
For purposes of this Offering Memorandum (other than "Description of
the Notes"), "EBITDA" is defined as earnings (loss) before (i) income taxes;
(ii) interest expense; (iii) extraordinary gain; (iv) depreciation; (v)
amortization; (vi) non-cash stock compensation; (vii) loss (gain) on sale of
fixed assets; (viii) restructuring expenses; (ix) reorganization items; (x)
inventory fair-value adjustment charged to cost of products sold; (xi) the AIP
Management Fee, which will be subordinated to the Notes and will not be
incurred by the Company until after the AIP Merger is consummated; and (xii) in
1995 only, a non-cash charge related to the scrapping and disposal of excess
inventory related to certain older and discontinued machine models. Since cash
flow from operations is very important to the Company's future, the EBITDA
calculation provides a summary review of cash flow performance. In addition,
the Revolving Credit Facility requires the calculation of EBITDA for certain
ratios and covenants. EBITDA (as defined herein) should not be considered an
alternative to operating income determined in accordance with GAAP as an
indicator of operating performance or to cash flows from operating activities
determined in accordance with GAAP as a measure of liquidity. The following
table reconciles the Company's historical earnings (loss) before income taxes
and extraordinary gain to EBITDA (as defined herein).
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
------------ YEARS ENDED SIX MONTHS ENDED
JANUARY 1- DECEMBER 14- DECEMBER 31, JUNE 30,
DECEMBER 13, DECEMBER 31, ------------------ -----------------
1994 1994 1995 1996 1996 1997
------------ ------------ ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Earnings (loss) before income taxes and
extraordinary gain.................... $(21,438) $(427) $(16,258) $ 4,636 $ 2,234 $ 5,815
Restructuring expenses.................. -- -- 2,577 -- -- --
Reorganization items.................... 9,338 -- 919 -- -- --
Inventory fair value adjustment charged
to cost of products
sold.................................. -- 362 10,065 -- -- --
Non-cash expenses:
Depreciation.......................... 7,356 145 3,671 3,882 1,980 2,179
Amortization.......................... 3,679 23 1,194 1,142 584 534
Stock compensation.................... -- -- -- 668 116 420
(Gain) loss on sale of fixed assets... 37 5 (166) 362 246 (4)
Payment in kind interest on the
Secured Notes and deferred rent
(interest) on sale and leaseback
financing arrangement (Predecessor
Company)............................ 7,287 258 5,691 7,783 3,767 --
Amortization of debt discount......... 71 -- -- -- -- --
Cash interest expense(1)................ 6,553 26 563 774 406 3,956
-------- ----- -------- ------- ------- -------
Adjusted EBITDA(2)(3)................... 12,883 392 8,256 19,247 9,333 12,900
Excess inventory charge(3).............. -- -- 4,416 -- -- --
-------- ----- -------- ------- ------- -------
EBITDA (as defined herein)(3)........... $ 12,883 $ 392 $ 12,672 $19,247 $ 9,333 $12,900
======== ===== ======== ======= ======= =======
</TABLE>
- -------------------------
(1) Cash interest expense for the Predecessor Company includes all accrued but
unpaid interest prior to February 18, 1994, the date the Predecessor Company
commenced voluntary petitions under Chapter 11 of the Bankruptcy Code (the
"Petition Date"). Contractual interest of $20.3 million on the unsecured
debt of the Predecessor Company did not accrue subsequent to the Petition
Date. Excludes interest on the Secured Notes that has been paid in kind,
amortization of debt discount, and deferred rent (interest) on the sale and
leaseback financing arrangement.
8
<PAGE> 13
(2) The Company has historically reported "Adjusted EBITDA" in its financial
disclosures to highlight the effects that fresh start accounting,
restructuring expenses, and reorganization items have on reported net
earnings.
(3) For the year ended December 31, 1995, the Company recognized a charge of
$4.4 million to cost of products sold for the scrapping and disposal of
excess inventory which related to certain older and discontinued machine
models. See Note E to the Company's audited financial statements appearing
elsewhere herein. The Company is presenting an alternative calculation of
EBITDA (as defined herein) as compared to Adjusted EBITDA, to reflect the
non-cash impact of this charge for comparison purposes.
9
<PAGE> 14
BUSINESS
GENERAL
The Company (formerly known as Bucyrus-Erie Company) was incorporated in
Delaware in 1927 as the successor to a business that has been in continuous
operation since 1880. The Company is one of the world's leading manufacturers of
large-scale excavation equipment used in surface mining and other earth moving
operations, including rotary blast hole drills, electric mining shovels, and
draglines. Bucyrus machines are used throughout the world by customers who mine
coal, iron ore, copper, gold, phosphate, bauxite, oil sands, and other minerals,
as well as for land reclamation activities.
An important part of the Company's business consists of aftermarket sales,
such as supplying parts, providing maintenance and repair services, providing
technical advice, as well as refurbishing and relocating older, installed
machines. The importance of aftermarket products and services in this industry
is a function of the equipment's size, expense, complexity, and long life.
Through domestic and foreign subsidiaries and overseas offices, the Company
offers a global network of comprehensive direct marketing services and
aftermarket support, which is critical to enhance machine longevity and
productivity in the field. This network caters primarily to the Company's own
installed equipment base; however, it also provides repair parts and maintenance
services for other manufacturers' equipment on a limited basis.
For the fiscal year ended December 31, 1996, the Company had total net
sales of $263.8 million, comprised of $107.4 million (41%) in new equipment
sales and $156.4 million (59%) in aftermarket parts and service sales, and had
EBITDA (as defined herein) of $19.2 million. See the Company's consolidated
financial statements appearing elsewhere herein.
THE MARION ACQUISITION
On August 26, 1997, the Company consummated the Marion Acquisition. The
purchase price for Marion was $40.1 million, subject to post-closing adjustments
which would have reduced the purchase price by approximately $3.7 million if the
Marion Acquisition had taken place on June 30, 1997. For the fiscal year ended
October 31, 1996, Marion had total net sales of $109.6 million, comprised of
$36.4 million (33%) in new equipment sales and $73.2 million (67%) in
aftermarket parts and service sales.
The Company financed the Marion Acquisition and related fees and expenses
utilizing a $45.0 million unsecured bridge loan (the "Bridge Loan") provided by
the PPM Fund, an affiliate of PPM America, Inc. and JNL, currently the Company's
largest shareholder. A portion of the proceeds of the Offering will be used to
refinance the Bridge Loan. See "Offering Memorandum Summary -- Sources and Uses
of Funds."
Like the Company, Marion manufactures large surface mining excavation
equipment, primarily draglines and electric mining shovels, and has a
significant aftermarket parts and services business supporting its installed
base of over 300 machines throughout the world. The aftermarket business
provides Marion-engineered components and replacement parts, as well as ongoing
electrical and mechanical service assistance on an as-required basis. Marion's
principal customers for both new machines and aftermarket parts and services are
operators of surface coal mines worldwide. Coal producers accounted for
approximately 70% of Marion's total net sales in recent years, with copper, iron
ore, phosphate rock and oil sands mining primarily accounting for the balance.
Australia, Canada, India, South Africa, and the United States are Marion's
largest geographical markets, although sales volume by country varied
substantially from year to year. In recent years, approximately 70% of Marion's
total net sales were in markets outside the United States.
The Marion Acquisition provides a number of benefits to the Company,
including a substantial increase in the Company's worldwide installed equipment
base, expansion of the Company's
10
<PAGE> 15
presence in several important markets, and the opportunity to achieve
significant cost savings. See "Risk Factors -- Realization of Benefits of the
Marion Acquisition; Integration of Marion."
INCREASED INSTALLED EQUIPMENT BASE. The Marion Acquisition increased
the Company's installed equipment base from approximately 900 machines to
nearly 1,200 machines worldwide, providing the Company with significantly
greater opportunities to market its aftermarket parts and services.
EXPANDED PRESENCE IN POTENTIALLY HIGH GROWTH MARKETS. The Marion
Acquisition provides the Company with an increased strategic presence in
markets that are anticipated to experience substantial growth over the next
several years, such as India and Russia, through Marion's established
relationships with local mining interests and governmental authorities.
SIGNIFICANT COST SAVINGS. The Marion Acquisition results in pro forma
cost savings of $12.5 million for fiscal 1996 as described below, and $5.9
million for the six months ended June 30, 1997, through the consolidation
of manufacturing operations and the rationalization of engineering and
administrative functions. In addition, the Company has identified an
estimated $3.0 million in potential annual cost savings that are not
reflected in the pro forma financial results. The cost savings reflected in
the pro forma results and summarized below, and other anticipated cost
savings, are based on assumptions and expectations that the Company
believes to be reasonable, but are dependent on a variety of important
factors. See "Risk Factors -- Realization of Benefits of the Marion
Acquisition; Integration of Marion" and "Unaudited Pro Forma Combined
Condensed Financial Statements."
The Company will consolidate all of Marion's manufacturing operations
into the Company's existing facilities as Marion's manufacturing facility
was not acquired as part of the Marion Acquisition. This results in pro
forma manufacturing cost savings of $5.0 million for fiscal 1996, and $2.5
million for the six months ended June 30, 1997, including reductions in
direct facility costs, fixed manufacturing administrative costs, and
nonpayroll manufacturing costs. Cost savings of $2.2 million (excluding
depreciation) for fiscal 1996, and $1.1 million for the six months ended
June 30, 1997, are attributed to the elimination of direct costs related to
the operation of Marion's primary facility in Marion, Ohio. The Company has
hired only certain of Marion's manufacturing employees, resulting in pro
forma cost savings of $1.8 million for fiscal 1996, and $0.9 million for
the six months ended June 30, 1997. The elimination of overhead expenses
relating to manufacturing, including corporate allocations, travel costs,
and consulting expenses, results in pro forma cost savings of $1.0 million
for fiscal 1996, and $0.5 million for the six months ended June 30, 1997.
Management believes that the Company has adequate capacity to integrate
Marion's manufacturing operations.
The Marion Acquisition also results in pro forma cost savings of $7.5
million for fiscal 1996, and $3.4 million for the six months ended June 30,
1997, through the consolidation of duplicative product development,
general, and administrative functions. The Company has hired only certain
of Marion's administrative employees, with the associated elimination of
salaries and related expenses resulting in pro forma cost savings of $4.3
million for fiscal 1996, and $2.1 million for the six months ended June 30,
1997. The elimination of general and administrative overhead expenses,
primarily relating to allocated corporate expenses, results in pro forma
cost savings of $2.2 million for fiscal 1996, and $1.2 million for the six
months ended June 30, 1997. In late 1996, Marion eliminated various
full-time engineering positions, resulting in pro forma cost savings of
$1.0 million for fiscal 1996. Based on a department-by-department analysis,
management believes that the Company's current operations, which will be
supplemented by employees hired from Marion, will be adequately staffed for
the foreseeable future; however, there can be no assurance that this will
be the case.
The Company expects to generate the $3.0 million in additional cost
savings not reflected in the pro forma financial results by reducing direct
labor costs, consolidating engineering functions, eliminating marketing
personnel, and closing certain parts and service locations. The
11
<PAGE> 16
Company has hired only certain of Marion's engineering and marketing staff
which is expected to result in incremental annual cost saving of
approximately $1.3 million. The Company's current engineering staff, along
with selected individuals from Marion's engineering staff, is expected to
be adequate to handle the engineering function. Application of the
Company's direct labor operating efficiencies to the former Marion
operations is expected to result in annual cost savings of approximately
$1.3 million. Since Marion operates administrative and sales offices, parts
warehouses and repair facilities in the same geographical areas as the
Company, the consolidation of these functions is expected to result in
annual cost savings of approximately $0.4 million.
After giving pro forma effect to the Marion Acquisition, the Company's net
sales for fiscal 1996 would have been $373.4 million, comprised of $143.8
million (39%) of new equipment sales and $229.6 million (61%) of aftermarket
sales, and in fiscal 1996 EBITDA (as defined herein) would have been $34.0
million. See "Unaudited Pro Forma Combined Condensed Financial Statements."
BUSINESS STRATEGY
Following an in-depth, strategic review of management and operations in
1995, the Board of Directors refocused the Company's business strategy and hired
a new management team, including Willard R. Hildebrand, President and Chief
Executive Officer, and Daniel J. Smoke, Vice President and Chief Financial
Officer. In addition, the Board increased the responsibilities of four other
senior officers who had been with the Company for an average of 23 years. AIP
intends to continue the Company's existing business strategy, which includes the
following key elements:
GROW THE AFTERMARKET BUSINESS. The Company has increased its focus on
the important aftermarket business because of its attractive profit margins
and its greater stability and predictability compared to the market for new
equipment. In addition, providing aftermarket support, which is critical to
maintain machine longevity and productivity in the field, enhances the
Company's ability to secure new machine orders in the future. The Company's
focus on its aftermarket business is reflected in a number of recently
implemented strategic initiatives that include: (i) working with suppliers
to increase stock levels of replacement parts to shorten response times to
customer inquiries; (ii) installation of a new computerized parts quoting
system to improve responsiveness to customer inquiries; (iii) forming a
dedicated engineering team to focus on reducing manufacturing costs for
replacement parts; (iv) enhancing relationships with key suppliers in order
to reduce raw material and purchased part costs; (v) expanding the
Company's facilities in important foreign markets, such as Chile and South
Africa; (vi) investing additional capital in the Company's domestic repair
and service subsidiaries, Boonville Mining Services, Inc. and Minserco,
Inc.; and (vii) purchasing Von's Welding, Inc., an aftermarket supplier of
mining machinery parts and services, located in Gillette, Wyoming, in North
America's most important coal mining region.
The Company has formed relationships with key suppliers of Bucyrus
products to reduce costs, advance product technology, and improve customer
support. In addition, the Company is working with suppliers to increase
their average stock levels of parts in an effort to improve response time
to customer inquiries. Since 1995, average stock levels have increased from
approximately $1.0 million to approximately $5.5 million.
Because approximately 64% of the Company's installed equipment base is
located in international markets, and 76% of the Company's new machine
sales over the past five years have been to international customers, the
Company is committed to providing first-rate customer service on a
worldwide basis. In 1996 and 1997, the Company invested capital in a new
expanded service center and office complex in Antofagasta, Chile, which
will primarily service nearby copper mining customers, and an important new
warehouse facility located in Middleburg, in the heart of the South African
coal fields.
12
<PAGE> 17
Domestically, the Company remains committed to strengthening
operations at its two wholly-owned subsidiaries, Boonville Mining Services,
Inc. ("BMSI") and Minserco, Inc. ("Minserco"). BMSI provides replacement
parts and repair and rebuild services for surface mining equipment
manufactured both by the Company and by its competitors. Among other
things, BMSI competes directly with "will-fitters" who sell non-OEM and
knock off replacement parts, and provides additional manufacturing capacity
for the Company. Minserco services the mining industry with comprehensive
structural and mechanical engineering, non-destructive testing, repairs and
rebuilds of machine components, product and component upgrades, contract
maintenance, turnkey erections, and machine moves. Minserco's new orders
have increased from $13.7 million in 1994 to $28.5 million in 1996. In June
1997, the Company purchased 100% of the stock of Von's Welding, Inc.
("Von's") for approximately $2.0 million, including the assumption of
approximately $1.1 million in liabilities. Von's, located in Gillette,
Wyoming, is engaged in the business of providing replacement parts and
aftermarket services for mining equipment and trucks. Von's business will
be consolidated into Minserco, which will maintain Von's operating facility
and employees. This acquisition will enhance the Company's presence and
ability to provide tooling and repair services and replacement parts in
North America's most important coal mining region.
INCREASE OEM QUALITY AND PROFITABILITY. The Company is committed to
increasing the profitability of OEM sales by improving the design and
engineering of its existing line of machines, as well as developing new
products. During 1996, the Company's engineering and service functions were
significantly restructured in response to feedback from a customer focus
group formed to provide direction to the Company's engineering development
activities. A continuation of this close relationship with customers is
fundamental to the Company's objective to become more market driven.
Specific goals included reducing lead times, improving product quality and
reliability, and improving profit margins and OEM sales. To further these
goals, the Company has increased its investment in work-in-process
inventory to reduce delivery times for new equipment orders. The Company's
commitment to quality has been formally recognized by its receipt of ISO
9001 Certification from Det Norske Veritas, one of the world's leading
standards organizations.
MODERNIZE PLANT AND EQUIPMENT. During 1996, the Company began a number
of initiatives to modernize its manufacturing facilities in order to reduce
lead times and inventory levels, provide quicker turn around, and reduce
overall costs of manufacturing both new machines and replacement parts. The
most significant initiative is a three-year, $20 million modernization
program at the Company's South Milwaukee facility. The program includes
replacing approximately 47 older, less efficient machines with 14
technologically advanced machines, and upgrading 10 existing machine tools.
Some older machines will be retained by the Company to replace the
manufacturing capacity of certain Marion machines that will not be
transferred to the Company's South Milwaukee facility. As of June 30, 1997,
approximately $5.5 million had been committed to this project and seven of
the 14 machines had been installed, with the remainder scheduled for
installation by early 1999. The significant reduction in the number of
machines will open floor space, allowing the Company to increase capacity
and to complete the fabrication of Marion's current in-progress inventory
in South Milwaukee. Following the completion of the modernization program,
the Company expects to realize significant annual cost savings not
reflected in the pro forma financial results through the reduction of
labor, overhead, and raw materials costs.
FOCUS ON STRATEGIC MARKETS. Although 76% of the Company's net sales of
new machines have come from foreign markets during the past five years
(primarily Australia, Chile, China, and South Africa), management believes
that North America (primarily western Canada, the western United States,
and Mexico) continues to be one of the world's most important markets for
surface mining equipment. Therefore, the Company's focus includes the
strategic placement of its new, quality-engineered electric mining shovels
in high-profile North American installa-
13
<PAGE> 18
tions. The Company sold the first of these shovels in Canada in 1995, and
in the United States and Mexico in 1996. The Company believes that these
installations will create opportunities for increased new machine sales in
North America. Management has been encouraged by repeat orders in 1997 for
two additional shovels from one of these customers, and the receipt of a
shovel order from a new North American customer that has historically
purchased all its equipment from the Company's primary competitor.
EXPAND MARC PROGRAM. The Company is aggressively promoting its
Maintenance and Repair Contracts, under which mine operators outsource to
the Company all regular maintenance services, repair functions and, in some
cases, operation of the equipment serviced. MARCs offer the Company a
generally predictable, high-margin revenue stream. New mines are the
primary target for MARCs because it is difficult and expensive for a mining
company to establish infrastructures for necessary and ongoing maintenance
and repair in undeveloped or remote areas. The Company currently operates
eight MARCs and is seeking to expand the MARC program. See "-- Aftermarket
Parts and Services."
While a number of these initiatives have not been fully implemented and the
anticipated benefits have not yet been fully realized, from 1995 to 1996 the
Company's net sales increased 14%, from $231.9 million to $263.8 million, and
EBITDA (as defined herein) improved from $12.7 million (5.5% of net sales) to
$19.2 million (7.3% of net sales). For the first six months of 1997, as compared
to the first six months of 1996, net sales increased 10%, from $130.8 million to
$143.8 million, and EBITDA (as defined herein) improved from $9.3 million (7.1%
of net sales) to $12.9 million (9.0% of net sales). The Company's consolidated
backlog increased 36% from $158.7 million at December 31, 1996 to $215.8 million
at June 30, 1997. The Marion Acquisition provides the Company with increased
opportunities to implement these initiatives, particularly with respect to
Marion's aftermarket business.
INTEGRATION STRATEGIES
Following a detailed review of Marion's business, the Company has developed
a comprehensive plan to integrate Marion's operations into those of the Company.
The Marion Acquisition results in substantial pro forma cost savings, primarily
through the consolidation of Marion's manufacturing operations into the
Company's existing facilities and the rationalization of engineering and
administrative functions. In addition, the Marion Acquisition enhances the
Company's product offering and, through application of the Company's established
business strategies, creates opportunities to capture additional new machine and
aftermarket sales. See "Risk Factors -- Realization of Benefits of the Marion
Acquisition; Integration of Marion" and "Unaudited Pro Forma Combined Condensed
Financial Statements."
CONSOLIDATION OF OPERATIONS. Management expects to realize significant
cost savings through the integration of Marion's manufacturing operations
into those of the Company. The Company will relocate some of Marion's
production machinery and fabricating equipment from the Marion facility to
the Company's manufacturing operations in South Milwaukee, Wisconsin, and
Boonville, Indiana. Machinery and tooling that cannot be used in the
Company's existing facilities will be sold. The estimated annual cost
savings from the consolidation of manufacturing operations included in the
pro forma adjustments are approximately $5.0 million. The Company will
commence the integration of Marion's manufacturing operations as soon as
possible.
CONSOLIDATION OF SALES, SERVICE, AND ADMINISTRATIVE
FUNCTIONS. Management expects to realize significant cost savings through
the rationalization of Marion's and the Company's sales, service, and
administrative functions. The Company has performed a detailed,
department-by-department assessment of Marion's existing administrative
functions and has identified a number of redundant and duplicative
positions and functions, the elimination of which results in pro forma
annual cost savings of $6.5 million. The pro forma statements do not
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include any consolidation of sales functions, although it is anticipated
that numerous positions will be eliminated. In addition, because Marion
operates administrative and sales offices, parts warehouses, and repair
facilities in the same geographical areas as the Company, the consolidation
plan includes closing certain of the former Marion facilities, including
warehouses and/or repair facilities in Ohio, Wyoming, Alberta, Quebec, and
South Africa. These cost savings are not reflected in the pro forma
adjustments. In Australia, the Company plans to close its administrative
and sales offices and operate out of facilities acquired from Marion.
Although numerous duplicative positions will be eliminated, certain key
personnel from Marion's offices, warehouses, and repair facilities will be
hired and integrated into the Company's administrative, sales, and service
staff.
CONSOLIDATION OF ENGINEERING FUNCTIONS. The Company has hired certain
of Marion's best-qualified engineers and technicians to assist with the
integration process and the continued development and production of high
quality machines. As of December 31, 1996, Marion had already eliminated
various engineering positions, resulting in the $1.0 million in annual cost
savings reflected in the pro forma adjustments. The anticipated elimination
of additional engineering positions is expected to generate additional cost
savings that are not reflected in the pro forma adjustments. The Company
currently employs an engineering staff of 70 and believes that this staff,
in conjunction with the hiring of certain Marion engineers, will provide
the Company with sufficient engineering support for the foreseeable future;
however, there can be no assurance that this will be the case.
EXPANSION OF AFTERMARKET BUSINESS. The Marion Acquisition
significantly increases the Company's aftermarket parts and service
business, which generated $73.2 million, or approximately 67% of Marion's
total net sales, during fiscal 1996. By converting Marion's aftermarket
customers to the Company's service and support programs as soon as
practicable, the Company seeks not only to maintain existing levels of
aftermarket sales, but to increase its aftermarket penetration of Marion
accounts. Although the Company already has relationships with substantially
all of Marion's customers, to better serve these customers, the Company has
hired a number of Marion's field personnel, who will continue to be
responsible for servicing Marion's installed equipment base. The Company
also believes that the Marion Acquisition creates additional opportunities
to expand BMSI's and Minserco's operations, helping the Company to become
more competitive in the aftermarket for parts and services.
INTEGRATION OF PRODUCTS AND TECHNOLOGY. Three of Marion's five
equipment models and its best technology will be integrated into the
Company's existing product lines. Marion manufactured two basic models of
electric mining shovels. The smaller model, which represented six of
Marion's nine electric mining shovels sold during the past two years and
has been particularly popular in India, will be incorporated into the
Company's product line. The larger model is similar to the Company's most
popular electric shovel model and will therefore be discontinued. Two of
Marion's smaller special purpose dragline models will be incorporated into
the Company's product line to complement the larger models currently
offered by the Company.
COSTS AND EXPENSES ASSOCIATED WITH THE MARION ACQUISITION. The Company
expects to incur one-time costs and expenses of approximately $6.2 million
in connection with the Marion Acquisition and the integration of Marion's
business into the Company's operations. These costs primarily relate to
moving certain equipment from Marion, Ohio, to the Company's existing
facilities, relocating personnel, and consolidating offices and warehouses.
Under the terms of the purchase agreement, Global retained ownership of
Marion's manufacturing facility in Marion, Ohio, and is responsible for all
severance costs, pension expenses, and postretirement medical and other
benefits associated with the closing of Marion's manufacturing operations.
The Company's existing facilities and equipment are anticipated to be
adequate to fulfill expected sales with little need for additional capital
expenditures other than previously planned modernization of specific
equipment; however, there can be no assurance that this will be the case.
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INDUSTRY OVERVIEW
The large-scale surface mining equipment manufactured and serviced by the
Company is used primarily in coal, copper, and iron ore mines worldwide. Growth
in demand for these commodities is a function of population growth and
continuing improvements in standards of living in many areas of the world. The
market for new surface mining equipment is somewhat cyclical in nature due to
market fluctuations for these commodities; however, the aftermarket for parts
and services is more stable because these expensive, complex machines are
typically kept in continuous operation for 15 to 30 years and require regular
maintenance and repair throughout their productive lives.
Although total industry sales of new equipment have varied substantially
from year to year, management estimates that since 1987 total worldwide sales of
rotary blast hole drills, electric mining shovels and draglines have averaged
approximately $285 million annually. The largest markets for this mining
equipment have been in Australia, Canada, China, India, Russia, South Africa,
South America, and the United States. Together, these markets typically account
for approximately 90% of all new machines sold, although in any given year,
markets in other countries may assume greater importance. See "Risk Factors --
Cyclical Nature of Industry; Potential Fluctuations in Operating Results," and
"-- Competition."
MARKETS SERVED
While the Company's products are used in a variety of different types of
mining operations, including gold, phosphate, bauxite, and oil sands, as well as
for land reclamation, the Company manufactures surface mining equipment
primarily for large companies and quasi-governmental entities engaged in the
mining of coal, iron ore, and copper throughout the world. Until the late 1980s,
coal mining accounted for the largest percentage of industry demand for the
Company's machines, and it continues to be one of the largest users of
replacement parts and services. In recent years, however, copper and iron ore
mining operations have accounted for an increasingly greater share of new
machine sales. During the past five years, approximately 55% of the Company's
new equipment orders have gone to customers who mine copper, 32% to iron ore
mining customers, and 13% to coal mining customers. Nevertheless, while the
copper and iron ore mining industries have accounted for the majority of new
machine sales in recent years, the increasing worldwide demand for coal is
expected to continue and the Company expects that coal mining will account for
an increasing percentage of new machine sales over the next several years.
COPPER. From 1995 to 1996, copper consumption increased by 2.5% in the
United States, with European countries such as France, Germany, Italy and
Britain experiencing similar growth. This growth in demand is attributable
to both general economic growth, as well as increased use of copper in
high-tech industrial production. Unusual trading activity led to a sharp
decline in copper prices in mid-1996 from historically high levels; since
then, copper prices have recovered, and as a result, several new copper
projects have been put back on line and existing mines expanded in
Argentina, Chile, Indonesia, Mexico, and Sweden. These initiatives have
resulted in increased demand for the Company's excavation equipment in
these markets. In spite of the fluctuations during 1996, copper prices are
expected to remain relatively firm through 1997. According to Metal
Bulletin Research, an industry periodical, copper consumption is expected
to grow at approximately 2.3% in 1997.
IRON ORE. Although iron ore demand decreased with the worldwide
recession of 1992 and 1993, and Japanese and European iron ore buyers
lowered ore contract prices significantly in 1992 and again in 1993, there
was an increase in iron ore production in late 1994 that was sustained
through 1995 when global consumption increased, creating additional demand
for steel. In 1995, iron ore was the most widely traded non-energy
commodity in both value and volume, and the iron ore market passed the one
billion tons level, setting a new record for the worldwide industry. Prices
for iron ore began to recover slightly in 1995 and 1996, climbing back
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to 1992 levels. AME Mineral Economic analysts predict that iron ore
production will rise 10% by the year 2000.
COAL. The demand for steam coal, which represents approximately 85% of
total coal mining activity, is based largely on the demand for electric
power and the price and availability of competing sources of energy, such
as oil, natural gas, and nuclear power. Initially, the 1973 Arab oil
embargo resulted in an unprecedented increase in the demand for coal
production, reflecting expectations that oil prices would continue to rise.
Eventually the effects of a worldwide recession, escalating interest rates,
energy conservation efforts, and an increase in the world's supply of oil
resulted in a sharp drop in demand for coal. More recently, coal production
in the United States has been impacted by the Clean Air Act, causing higher
sulfur coal mines to be closed or to have outputs drastically curtailed.
Many machines have been shut down and a few have been relocated to lower
sulfur mines in eastern Appalachia and Wyoming's Powder River Basin where
excess production capacity and stagnant demand have driven coal prices
downward. Nevertheless, the increase in demand for coal in developing
countries with rapidly growing populations, such as India and China, has
stimulated coal mining production worldwide and is eventually expected to
increase both domestic and foreign demand for excavation equipment. The
Energy Information Administration is forecasting an increase in world
energy demand and an increase in world coal consumption.
The Company's excavation machines are used for land reclamation as well as
for mining, which has a positive effect on the demand for its products and
replacement parts and expands the Company's potential customer base. Current
federal and state legislation regulating surface mining and reclamation may
affect some of the Company's customers, principally with respect to the cost of
complying with, and delays resulting from, reclamation and environmental
requirements.
OEM PRODUCTS
The Company's line of original equipment manufactured ("OEM") products
includes a full range of rotary blast hole drills, electric mining shovels, and
draglines.
ROTARY BLAST HOLE DRILLS. Most surface mines require breakage or
blasting of rock, overburden, or ore by explosives. To accomplish this, it
is necessary to bore out a pattern of holes into which the explosives are
placed. Rotary blast hole drills are used to drill these holes, and are
usually described in terms of the diameter of the hole they bore. The
average life of a blast hole drill is 15 to 20 years.
The Company manufactures the world's top selling rotary blast hole
drills, having produced a majority of the estimated 69 drills sold in the
industry during 1995 and 1996. The Company offers a line of rotary blast
hole drills ranging in hole diameter size from 9.0 inches to 17.5 inches
and ranging in price from approximately $1.5 million to $2.8 million per
drill, depending on machine size and variable features.
In an effort to enhance drill sales and expand its market position,
during 1996 the Company introduced the Model 39R diesel hydraulic blast
hole drill, the Company's third drill model and first diesel hydraulic
blast hole drill. This innovative machine breaks new ground in
maneuverability and the ability to drill in difficult terrain, as well as
offering extraordinary drill productivity and functions unavailable in
other manufacturers' models.
ELECTRIC MINING SHOVELS. Mining shovels are primarily used to load
coal, copper ore, iron ore, other mineral-bearing materials, overburden, or
rock into trucks. There are two basic types of mining shovels, electric and
hydraulic. Electric mining shovels are able to handle larger shovels or
"dippers," allowing them to load greater volumes of rock and minerals,
while hydraulic shovels are smaller and more maneuverable. The Company
manufactures only electric mining shovels. The average life of an electric
mining shovel is 15 to 20 years.
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Shovels are characterized in terms of weight and dipper capacity. The
Company offers a full line of electric mining shovels, weighing from 400 to
1,000 tons and having dipper capacities from 12 to 80 cubic yards. Prices
range from approximately $3 million to approximately $9 million per shovel.
The Company's most popular electric mining shovel model is the Model 495B,
which is known for its reliability and productivity.
The Company's electric mining shovels continue to be extremely popular
in the surface mining industry. In the developing coal mining market of
China and in the rapidly growing Chilean copper mining market, Bucyrus
shovels have accounted for the majority of new electric mining shovels
purchased since 1988. Among the Company's business strategies is the
strategic placement of new electric mining shovels in high-profile North
American mining installations.
DRAGLINES. Draglines are primarily used to remove overburden, which is
the earth located over a coal or mineral deposit, by dragging a large
bucket through the overburden, carrying it away and depositing it in a
remote spoil pile. The Company's draglines weigh from 500 to 7,500 tons,
and are typically described in terms of their "bucket size," which can
range from nine to 220 cubic yards. The Company currently offers a full
line of models ranging in price from $10 million to over $60 million per
dragline. The average life of a dragline is 20 to 30 years.
Draglines are the industry's largest and most expensive type of
equipment, and while sales are sporadic, each dragline represents a
significant sales opportunity. Management therefore remains committed to
maintaining the Company's ability to produce these machines. In June 1997,
the Company received a letter of intent from an Australian mining company
to build the world's fourth largest dragline, which is scheduled for
completion by December 31, 1999. This is expected to generate net sales of
approximately $60.2 million over the next two and a half years.
AFTERMARKET PARTS AND SERVICES
The Company has a comprehensive aftermarket business that supplies
replacement parts and services for the surface mining industry. Although the
vast majority of the Company's sales of aftermarket parts and services has been
in support of the large installed equipment base of over 900 Bucyrus machines
worldwide, the Company also manufactures parts and provides services for other
manufacturers' installed equipment. The Company's aftermarket services include
maintenance and repair labor, technical advice, refurbishment, and relocation of
older, installed machines, particularly draglines. The Company also provides
engineering, manufacturing, and servicing for the consumable rigging products
that attach to dragline buckets (such as dragline teeth and adapters, shrouds,
dump blocks, and chains) and shovel dippers (such as dipper teeth, adapters, and
heel bands).
During 1996, the Company generated $156.4 million (59% of total net sales)
from its aftermarket business. In general, the Company realizes higher margins
on sales of parts and services than it does on sales of new machines. Moreover,
because the expected life of large, complex mining machines ranges from 15 to 30
years, the Company's aftermarket business is inherently more stable and
predictable than the fluctuating market for new products. Over the life of a
machine, net sales generated from aftermarket parts and services can exceed the
original purchase price.
Approximately 70% of the Company's aftermarket business relates to
providing parts and services to newer mining equipment operating in
international markets, while the remaining 30% of the aftermarket business
caters to equipment located in the United States, which is generally older. A
substantial portion of the Company's international repair and maintenance
services are provided through its global network of wholly-owned foreign
subsidiaries and overseas offices, operating in Australia, Brazil, Canada,
Chile, China, England, India, Mauritius, and South Africa. The Company's two
domestic subsidiaries, Minserco and BMSI, provide repair and maintenance
services
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throughout North America. Minserco, which maintains offices in Florida, Texas,
West Virginia, and Wyoming, provides comprehensive structural and mechanical
engineering, non-destructive testing, repairs and rebuilds of machine
components, product and component upgrades, contract maintenance, turnkey
erections, and machine moves. Minserco's services are provided almost
exclusively to maintenance and repair of Bucyrus machines operating in North
America. BMSI, located in Boonville, Indiana, builds replacement parts and
provides repair and rebuild services both for Bucyrus machines and other
manufacturers' equipment. The majority of BMSI's business is located in North
America.
To comply with the increasing aftermarket demands of larger mining
customers, the Company offers comprehensive maintenance and repair contracts.
Under these contracts, the Company provides all replacement parts, regular
maintenance services, and necessary repairs for the excavation equipment at a
particular mine with an on-site support team. In addition, two of these
contracts call for Company personnel to operate the equipment serviced. MARCs
are highly beneficial to the Company's mining customers because they promote
high levels of equipment reliability and performance, allowing the customer to
concentrate on mining production. MARCs typically have terms of three to five
years with standard termination and renewal provisions, although some contracts
allow termination by the customer for any cause. In recent years, the Company
has aggressively promoted its MARC program because it provides the Company with
a predictable, high margin form of business. New mines in areas such as Chile
and Argentina are the primary targets for MARCs because it is difficult and
expensive for mining companies to establish the necessary infrastructures for
ongoing maintenance and repair in underdeveloped or remote locations. The
Company currently operates eight MARCs and has plans to expand this program.
CUSTOMERS
The Company does not consider itself dependent upon any single customer or
group of customers; however, on an annual basis a single customer may account
for a large percentage of sales, particularly new machine sales. For example,
during fiscal 1996, sales to Compania Minera Dona Ines de Collahuasi, S.A., a
Chilean copper mining company, accounted for approximately 14% of the Company's
net sales. In fiscal 1994 and 1995, BHP Coal Pty. Ltd., an Australian mining
company, accounted for approximately 20% and 22%, respectively, of the Company's
net sales, and approximately 26% and 17%, respectively, of Marion's net sales.
See "Risk Factors -- Cyclical Nature of Industry; Potential Fluctuations in
Operating Results."
MARKETING, DISTRIBUTION AND SALES
In the United States, new mining machinery is primarily sold directly by
Company personnel, and to a lesser extent, through a northern Minnesota
distributor who supplies customers in the iron ore mining regions of the Upper
Midwest. Outside of the United States, new equipment is sold by Company
personnel, through independent distributors and through the Company's
subsidiaries and offices located in Australia, Brazil, Canada, Chile, China,
England, India, Mauritius, and South Africa. Aftermarket parts and services are
primarily sold directly through the Company's foreign subsidiaries and offices
and through the Company's domestic subsidiaries, Minserco and BMSI. The Company
believes that marketing through its own global network of subsidiaries and
offices offers better customer service and support by providing customers with
direct access to the Company's technological and engineering expertise.
With the exception of the MARC business, all the Company's sales are on a
project-by-project basis. Typical payment terms for new equipment require a down
payment, and invoicing is done on a percent of completion basis, such that a
substantial portion of the purchase price is received by the time shipment is
made to the customer. Sales contracts for machines are predominantly at fixed
prices, with escalation clauses in certain cases. Most sales of replacement
parts call for prices in effect at the time of order. During 1996, price
increases from inflation had a relatively minor impact on the Company's reported
net sales.
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FOREIGN OPERATIONS
A substantial portion of the Company's net sales and operating earnings is
attributable to operations located abroad. Over the past five years, 76% of the
Company's new machine sales have been in international markets. The Company's
foreign sales, consisting of exports from the United States and sales by
consolidated foreign subsidiaries, totaled $191.9 million in 1996, $169.1
million in 1995, and $131.8 million in 1994.
The Company's largest foreign markets are in Australia, Chile, China, and
South Africa. The Company also employs direct marketing strategies in developing
markets, such as Brazil, India, Indonesia, Jordan, Morocco, and Russia. In
recent years, Australia and South Africa have emerged as strong producers of
metallurgical coal, while Chile and South Africa have continued to be leading
producers of other minerals, primarily copper and gold, respectively. The
Company expects that India and Russia will become major coal producing regions
in the future. In India, the world's second most populous country, the demand
for coal as a major source of energy is expected to increase over the next
several decades.
New machine sales in foreign markets are supported by the Company's
established network of foreign subsidiaries and overseas offices that directly
market the Company's products and provide ongoing services and replacement parts
for equipment installed abroad. The availability and convenience of the services
provided through this worldwide network not only promotes high margin
aftermarket sales of parts and services, but also gives the Company an advantage
in securing new machine orders.
Bucyrus and its U.S. subsidiaries normally price their products, including
direct sales of new equipment to foreign customers, in U.S. dollars. Foreign
subsidiaries normally procure and price aftermarket replacement parts and repair
services in the local currency. Approximately 70% of the Company's net sales are
priced in U.S. dollars. The value, in U.S. dollars, of the Company's investments
in its foreign subsidiaries and of dividends paid to the Company by those
subsidiaries will be affected by changes in exchange rates. The Company does not
normally enter into currency hedges, although it may do so with regard to
certain individual contracts. See "Risk Factors -- Foreign Operations."
COMPETITION
There are a limited number of manufacturers of new surface mining
equipment. The Company is one of two manufacturers of electric mining shovels
and draglines. The Company's only competitor in electric mining shovels and
draglines is Harnischfeger Corporation, although electric mining shovels also
compete against hydraulic shovels of which there are at least six other
manufacturers. In rotary blast hole drills, the Company competes with at least
three other manufacturers, including Harnischfeger Corporation. Methods of
competition are diverse and include product design and performance, service,
delivery, application engineering, pricing, financing terms, and other
commercial factors. See "Risk Factors -- Competition."
For most owners of the Company's machines, the Company is the primary
replacement source for large, heavily engineered, integral components; however,
the Company encounters intense competition for sales of smaller, less
sophisticated, consumable replacement parts and repair services in certain
markets. The Company's competition in parts sales consists primarily of smaller,
independent firms called "will-fitters," that produce copies of the parts
manufactured by the Company and other original equipment manufacturers. These
copies are generally sold at lower prices than genuine parts produced by the
manufacturer. Management estimates that there are over 90 will-fitters competing
with the Company in the aftermarket business, almost exclusively in North
America, and that they accounted for an estimated 75% of North American sales in
the aftermarket parts and service business in 1996. Outside North America,
customers mainly rely upon the Company's subsidiaries to provide aftermarket
parts and services.
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The Company has a variety of programs to attract large volume customers for
its replacement parts. Although will-fitters engage in significant price
competition in parts sales, the Company possesses clear non-price advantages
over will-fitters. The Company's engineering and manufacturing technology and
marketing expertise exceed that of its will-fit competitors, who are in many
cases unable to duplicate the exact specifications of genuine Bucyrus parts.
Moreover, use of parts not manufactured by the Company can void the warranty on
a new Bucyrus machine, which generally runs for one year on new equipment, with
certain components being warranted for longer periods.
RAW MATERIALS AND SUPPLIES
The Company purchases from outside vendors the semi- and fully-processed
materials (principally structural steel, castings, and forgings) required for
its manufacturing operations, and other items, such as electrical equipment,
that are incorporated directly into the end product. The Company's foreign
subsidiaries purchase components and manufacturing services both from local
subcontractors and from Bucyrus. Certain additional components are sometimes
purchased from subcontractors, either to expedite delivery schedules in times of
high demand or to reduce costs. Moreover, in countries where local content
preferences or requirements exist, local subcontractors are used to manufacture
a substantial portion of the components required in the Company's foreign
manufacturing operations. Although the Company is not dependent upon any single
supplier, there can be no assurance that the Company will continue to have an
adequate supply of raw materials or components necessary to enable it to meet
the demand for its products. Competitors are believed to be subject to similar
conditions.
MANUFACTURING
A substantial portion of the design, engineering, and manufacturing of
Bucyrus machines is done at the Company's South Milwaukee plant. The size and
weight of these mining machines dictates that the machines be shipped to the job
site in sub-assembled units where they are assembled for operation with the
assistance of Company technicians. Planning and on-site coordination of machine
assembly is a critical component of the Company's service to its customers.
Moreover, to reduce lead time and assure that customer delivery requirements are
met, the Company maintains an inventory of sub-assembled units for frequently
utilized components of various types of equipment.
The Company manufactures and sells replacement parts and components and
provides comprehensive aftermarket service for its entire line of mining
machinery. The Company's large installed base of surface mining machinery
provides a steady stream of parts sales due to the long useful life of the
Company's machines, averaging 20 to 30 years for draglines and 15 to 20 years
for electric mining shovels and blast hole drills. Parts sales and aftermarket
services comprise a substantial portion of the Company's net sales. The Company
also provides aftermarket service for certain equipment of other original
equipment manufacturers through BMSI.
Although a majority of the Company's operating profits are derived from
sales of parts and services, the long-term prospects of the Company depend upon
maintaining a large installed equipment base worldwide. Therefore, the Company
remains committed to improving the design and engineering of its existing line
of machines, as well as developing new products. In 1996, a three year machine
shop modernization program began in the Company's South Milwaukee manufacturing
facility that involves a $20 million investment in the latest technology in the
machine tool industry. The program is aimed at reduced lead times, quicker
turnaround, reduced in-process inventory, and overall cost reduction. See "--
Business Strategy -- Plant and Equipment Modernization."
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PROPERTIES
The Company's principal manufacturing plant in the United States is located
in South Milwaukee, Wisconsin, and is owned by the Company. This plant comprises
approximately 1,038,000 square feet of floor space. A portion of this facility
houses the Company's corporate offices. The major buildings at this facility are
constructed principally of structural steel, concrete, and brick and have
sprinkler systems and other devices for protection against fire. The buildings
and equipment therein, which include machine tools and equipment for fabrication
and assembly of the Company's mining machinery, including draglines, electric
mining shovels, and blast hole drills, are well-maintained, in good condition,
and in regular use.
The Company leases a facility in Memphis, Tennessee, which has
approximately 110,000 square feet of floor space and is used as a central parts
warehouse. The current lease is for five years commencing in July 1996 and
contains an option to renew for an additional five years.
BMSI leases a facility in Boonville, Indiana which has approximately 60,000
square feet of floor space on a 5.84 acre parcel of land. The facility has the
manufacturing capability of large machining, gear cutting, heavy fabricating,
rebuilding, and stress relieving. The major manufacturing buildings are
constructed principally of structural steel with metal siding.
The Company also has administrative and sales offices and, in some
instances, repair facilities and parts warehouses, at certain of its foreign
locations, including Australia, Brazil, Canada, Chile, China, India, and South
Africa. The Company plans to do business out of Marion's offices in Australia,
and close down the Company's existing leased offices there.
EMPLOYEES
As of July 31, 1997, the Company had approximately 1,413 full-time
employees, approximately 892 of whom were working primarily in the United
States. In addition, from time to time the Company employs part-time employees
to handle peak loads. Of the 797 employees at the Company's South Milwaukee
facility, 418 are represented by the United Steelworkers of America. In May
1997, the union ratified a new four year agreement with the Company that expires
on April 30, 2001. See "Risk Factors -- Labor Relations."
LEGAL PROCEEDINGS
JOINT PROSECUTION. Contemporaneously with the execution of the Stockholder
Agreement (see "Certain Relationships and Related Transactions -- Stockholder
Agreement"), the Company and JNL entered into a joint prosecution agreement (the
"Joint Prosecution Agreement") relating to various claims the Company and JNL
have or may have resulting from the Company's reorganization in 1994 under
Chapter 11 of the United States Bankruptcy Code (the "Chapter 11
Reorganization") against the law firm of Milbank, Tweed, Hadley & McCloy
("Milbank") for disgorgement of fees (the "Disgorgement Claim") and other claims
(collectively, the "Milbank Claims"). All proceeds of the Milbank Claims will be
allocated as follows: (i) first, to pay, or to reimburse the prior payment of,
all bona fide third-party costs, expenses and liabilities incurred on or after
September 1, 1997 in connection with prosecuting the Milbank Claims (the "Joint
Prosecution") including, without limitation, the reasonable fees and
disbursements of counsel and other professional advisors, which are to be
advanced by JNL; (ii) the next $8.675 million of proceeds from the Milbank
Claims, if any, will be paid to JNL, provided that the Company will retain 10%
of the proceeds of the Disgorgement Claim, if any, and will direct payment to
JNL of the balance of such proceeds; and (iii) all additional proceeds of the
Milbank Claims will be divided equally between JNL and the Company.
Notwithstanding the foregoing, the Company shall also receive the benefit of any
reduction of any obligation it may have to pay Milbank's outstanding fees if
any. JNL will indemnify the Company in respect of any liability resulting from
the Joint Prosecution other than in respect of legal fees and expenses incurred
prior to September 1, 1997. The Joint Prosecution Agreement will continue in
force irrespective of whether the AIP Merger is consummated. The Joint
Prosecution
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may involve lengthy and complex litigation and there can be no assurance whether
or when any recovery may be obtained or, if obtained, whether it will be in an
amount sufficient to result in the Company receiving any portion thereof under
the formula described above.
SETTLEMENT. During the pendency of the Chapter 11 Reorganization, JNL filed
a claim (the "503(b) Claim") against the Company with the United States
Bankruptcy Court, Eastern District of Wisconsin ("Bankruptcy Court") for
reimbursement of approximately $3.3 million of professional fees and
disbursements incurred in connection with the Chapter 11 Reorganization pursuant
to Section 503(b) of the Bankruptcy Code. By order dated June 3, 1996, the
Bankruptcy Court awarded JNL the sum of $500. JNL appealed the decision to the
United States District Court for the Eastern District of Wisconsin. On June 26,
1997, the District Court denied the appeal as moot but returned the matter to
the Bankruptcy Court for further proceedings with leave to appeal again after
further determination of the Bankruptcy Court. On July 11, 1997, JNL moved the
Bankruptcy Court for relief from the final judgment entered on the 503(b) Claim.
Pursuant to a Settlement Agreement between the Company and JNL dated as of
August 21, 1997, attached to this Schedule 14D-9 as Exhibit 10 and incorporated
herein by reference, subject to Bankruptcy Court approval, JNL will settle and
release the Company from the 503(b) Claim in consideration of a payment to JNL
by the Company of $200,000.
The Company is normally subject to numerous product liability claims, many
of which relate to products no longer manufactured by Bucyrus or its
subsidiaries, and other claims arising in the ordinary course of business. The
Company has insurance covering most of said claims, subject to varying
deductibles ranging from $0.3 million to $3.0 million, and has various limits of
liability depending on the insurance policy year in question. It is the view of
management that the final resolution of said claims and other similar claims
which are likely to arise in the future will not individually or in the
aggregate have a material effect on the Company's financial position or results
of operations, although no assurance to that effect can be given.
The Company is involved in various other litigation arising in the normal
course of business. It is the view of management that the Company's recovery or
liability, if any, under pending litigation is not expected to have a material
effect on the Company's financial position or results of operations, although no
assurance to that effect can be given.
ENVIRONMENTAL AND RELATED MATTERS
The Company's operations and properties are subject to a broad range of
federal, state, local and foreign laws and regulations relating to environmental
matters, including laws and regulations governing discharges into the air and
water, the handling and disposal of solid and hazardous substances and wastes,
and the remediation of contamination associated with releases of hazardous
substances at Company facilities and at off-site disposal locations. These laws
are complex, change frequently and have tended to become more stringent over
time. Future events, such as compliance with more stringent laws or regulations,
or more vigorous enforcement policies of regulatory agencies or stricter or
different interpretations of existing laws, could require additional
expenditures by the Company, which may be material. See "Risk Factors --
Environmental and Related Matters."
Certain environmental laws, such as CERCLA, provide for strict, joint and
several liability for investigation and remediation of spills and other releases
of hazardous substances. Such laws may apply to conditions at properties
presently or formerly owned or operated by an entity or its predecessors, as
well as to conditions at properties at which wastes or other contamination
attributable to an entity or its predecessors come to be located.
The Company was one of 53 entities named by the U.S. Environmental
Protection Agency ("EPA") as PRPs with regard to the Millcreek dumpsite, located
in Erie County, Pennsylvania, which is on the National Priorities List of sites
for cleanup under CERCLA. The Company was named as a result of allegations that
it disposed of foundry sand at the site in the 1970's. Both the
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United States government and the Commonwealth of Pennsylvania initiated actions
to recover cleanup costs; the Company has settled with both with respect to its
liability for past costs. In addition 37 potentially responsible parties
("PRPs"), including the Company, have received Administrative Orders issued by
the EPA pursuant to Section 106(a) of CERCLA to perform site capping and flood
control remediation at the Millcreek site. The Company is one of 18 parties
responsible for a share of the estimated $7.0 million in costs, which share is
presently proposed as per capita but may be subject to reallocation before the
conclusion of the case.
In December 1990, the Wisconsin Department of Natural Resources ("DNR")
conducted a pre-remedial screening site inspection on property owned by the
Company located at 1100 Milwaukee Avenue, in South Milwaukee, Wisconsin.
Approximately 35 acres of this site were allegedly used as a landfill by the
Company until approximately 1983. The Company disposed of certain manufacturing
wastes at the site, primarily foundry sand. DNR's Final Site Screening Report,
dated April 16, 1993, summarized the results of additional investigation. A DNR
Decision Memo, dated July 21, 1991, which was based upon the testing results
contained in the Final Site Screening Report, recommended additional
groundwater, surface water, sediment and soil sampling. To date, the Company is
not aware of any initiative by the DNR to require any further action with
respect to this site. Consequently, the Company has not regarded and does not
regard, this site as presenting a material contingent liability. There can be no
assurance, however, that additional investigation by the DNR will not be
conducted with respect to this site at some later date or that this site will
not in the future require removal or remedial actions to be performed by the
Company, the costs of which could, depending on the circumstances, be material.
Prior to 1985, a wholly owned indirect subsidiary of Bucyrus provided
comprehensive general liability insurance coverage for affiliate corporations.
The subsidiary issued such policies for occurrences during the years 1974 to
1984, which policies could involve material liability. Claims have been made
under certain of these policies for certain potential CERCLA liabilities of
former Bucyrus subsidiaries. It is possible that other claims could be asserted
in the future with respect to such policies. While the Company does not believe
that liability under such policies will result in material costs, this cannot be
guaranteed.
Along with multiple other parties, the Company or its subsidiaries are
currently PRPs under CERCLA and analogous state laws at three additional sites
at which Bucyrus and/or its subsidiaries (including the above referenced
insurance subsidiary by insurance claim) may incur future costs. While CERCLA
imposes joint and several liability on responsible parties, liability for each
site is likely to be apportioned among the parties. The Company does not believe
that its potential liability in connection with these sites or any other
discussed above, either individually or in the aggregate, will have a material
adverse effect on the Company's business, financial condition or results of
operations. However, the Company cannot guarantee that it will not incur cleanup
liability in the future with respect to sites formerly or presently owned or
operated by the Company, or with respect to off-site locations, the costs of
which could be material.
The Company has also been named as a defendant in seven pending premises
liability asbestos cases, which are proceeding both in the state courts of
Indiana and federal court. In all these cases, insurance carriers have accepted
the defense of such cases. These cases are in preliminary stages and while the
Company does not believe that costs associated with these matters will be
material, it cannot guarantee that this will be the case.
While no assurance can be given, the Company believes that expenditures for
compliance and remediation will not have a material effect on its capital
expenditures, earnings or competitive position.
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PATENTS, LICENSES AND FRANCHISES
The Company has a number of United States and foreign patents, patent
applications and patent licensing agreements. It does not consider its business
to be materially dependent upon any patent, patent application, or patent
license agreement.
CHAPTER 11 REORGANIZATION
On February 4, 1988, the Company was acquired in a leveraged buyout by
former members of management and a group of investors led by Goldman, Sachs &
Co. and Broad Street Investment Fund (the "LBO"). The Company was acquired for
approximately $300 million of which only $2.0 million was equity.
Although the Company's strong aftermarket parts business covered most of
its cash flow requirements, it was insufficient to service the LBO debt and
simultaneously provide the working capital necessary to build new machines.
Moreover, the Company's former management employed a strategy of selling new
machines below cost in order to maintain market share and to compensate its
customers for the long lead times that resulted from the lack of sufficient
working capital to stock the components required to match the lead times of its
competitors.
While the Company experienced increasing net sales from 1988 to 1991, the
Company continued to increase its use of leverage. Additionally, in 1990 the
Company settled tax disputes for the years 1977 to 1982 that required an
additional $22 million of borrowings. Subsequently, in January 1993, in the
midst of a cyclical downturn in the mining industry, the Company's interest
expense obligations increased dramatically as the interest rates on several
issues of the Company's debt obligations reset resulting in the majority of the
Company's debt obligations accruing interest at effective rates ranging from 15%
to in excess of 20%. The Company subsequently announced its intention not to pay
interest on a large majority of its debt obligations, and in February 1994, the
Company filed a prepackaged plan of reorganization under Chapter 11 of the U.S.
Bankruptcy Code. In December 1994, the Company's plan of reorganization was
confirmed.
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