HOSOKAWA MICRON INTERNATIONAL INC, S-1/A, 1998-07-22

HOSOKAWA MICRON INTERNATIONAL INC
S-1/A, 1998-07-22
GENERAL INDUSTRIAL MACHINERY & EQUIPMENT

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As filed with the Securities and Exchange Commission on July 22, 1998

Registration No. 333-50551
================================================================================
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
---------------

AMENDMENT NO.3 TO

FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------
Hosokawa Micron International Inc.
(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C> <C>
Delaware 3560 13-3366823
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
780 Third Avenue
New York, New York 10017
(212) 826-3830
</TABLE>

(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
Corporate Trust Company
Corporate Trust Center
1209 Orange Street
Wilmington, Delaware 19801
(302) 658-7581

(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies of Communications to:

<TABLE>
<S> <C>
Robert A. Cantone, Esq. David W. Ambrosia, Esq.
Proskauer Rose LLP Winthrop, Stimson, Putnam & Roberts
1585 Broadway One Battery Park Plaza
New York, New York 10036-8299 New York, New York 10004-1490
(212) 969-3000 (212) 858-1000
</TABLE>

Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effectiveness of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box.[ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering.[ ]_______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.[ ]

---------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Title of each class of Amount to be
securities to be registered registered(1)
- ---------------------------------------- ------------------
<S> <C>
Common Stock, par value $.01 per share 3,933,000 shares

Amount of
Title of each class of Proposed maximum Proposed maximum registration
securities to be registered offering price per unit(2) aggregate offering price(2) fee
- ---------------------------------------- ---------------------------- ----------------------------- ---------------
<S> <C> <C> <C>
Common Stock, par value $.01 per share $ 15.00 $58,995,000 $ 17,985.00
</TABLE>

- --------------------------------------------------------------------------------
(1) Includes 513,000 shares of Common Stock, which the Underwriters have the
option to purchase to cover over-allotments, if any.

(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.

The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

<PAGE>

This Registration Statement contains two forms of prospectus: one to be
used in connection with an underwritten offering in the United States and Canada
(the "U.S. Prospectus") and one to be used in a concurrent international
offering (the "International Prospectus") of the common stock, par value $.01
per share, of Hosokawa Micron International Inc. The U.S. Prospectus for the
offering in the United States and Canada follows immediately after this
Explanatory Note. After the U.S. Prospectus are the alternate pages for the
International Prospectus: a front cover page, a table of contents page, pages
revised to conform cross-references and a "Subscription and Sale" section. A
copy of the complete U.S. Prospectus and International Prospectus in the exact
forms in which they are to be used after effectiveness will be filed with the
Securities and Exchange Commission pursuant to Rule 424(b).

<PAGE>

SUBJECT TO COMPLETION DATED JULY 22, 1998

3,420,000 Shares

[GRAPHIC OMITTED] HOSOKAWA MICRON INTERNATIONAL INC.

Common Stock
($.01 par value)
------------
Of the 3,420,000 shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby, 2,670,000 shares are being sold by Hosokawa Micron
International Inc. ("Hosokawa" or the "Company") and 750,000 shares are
being sold by Hosokawa Micron Corporation ("HMC" or the "Selling
Stockholder"). See "Principal Stockholders and Selling Stockholder." Upon
closing of the Offering (as defined below), the Selling Stockholder will own
70.4% of the outstanding Common Stock (67.5%, if the over-allotment option
is exercised in full). The Company will not receive any proceeds from the
sale of the shares by the Selling Stockholder.

Of the 3,420,000 shares of Common Stock being offered, 2,736,000 shares (the
"U.S. Shares") are initially being offered in the United States and Canada by
the U.S. Underwriters (the "U.S. Offering") and 684,000 shares (the
"International Shares") are initially being concurrently offered outside the
United States and Canada by the Managers (the "International Offering" and,
together with the U.S. Offering, the "Offering"). The offering price and
underwriting discounts and commissions of the U.S. Offering and the
International Offering are identical.

Prior to the Offering, there has been no public market for the Common Stock of
the Company. It is currently anticipated that the initial public offering price
will be between $13.00 and $15.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price.

The Common Stock has been approved for listing on the New York Stock Exchange
under the symbol "HOS."

The Common Stock Offered Hereby Involves a High Degree of Risk. See "Risk
Factors" Beginning on Page 8 of this Prospectus.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
Underwriting Proceeds
Price to Discounts and Proceeds to to Selling
Public Commissions Company (1)(2) Stockholder (1)(2)
---------- --------------- ---------------- -------------------
<S> <C> <C> <C> <C>
Per Share ...... $ $ $ $
Total (2) ...... $ $ $ $
</TABLE>

- ----------------
(1) Before deducting expenses of the Offering payable by the Company and by the
Selling Stockholder estimated to be $1,130,456 and $317,544, respectively.

(2) The Company has granted the U.S. Underwriters and the Managers an option,
exercisable by Credit Suisse First Boston Corporation within 30 days of
the date hereof, to purchase up to a maximum of 513,000 additional shares
to cover over-allotments, if any. If all such additional shares are
purchased, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."

The U.S. Shares are offered by the several U.S. Underwriters when, as and
if delivered to and accepted by them, and subject to their right to reject
orders in whole or in part. It is expected that the U.S. Shares will be ready
for delivery on or about , 1998, against payment in immediately available
funds.

Credit Suisse First Boston PaineWebber Incorporated

Prospectus dated , 1998

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

<PAGE>

----------------
Alpine, Bepex, Vrieco-Nauta, Schugi, Stott, Mikro, Strong-Scott, K-G,
Hutt, Kreuter, Ter Braak, Filtex, MikroPul, Menardi-Criswell, MikroPulverizer,
Rotoplex, MikroCut, PEAC, Rietz, MikroACM, Solidaire, Pharmapaktor, Kompaktor,
MikroPulsaire, Mikrotex and Pop-Top are trademarks or registered trademarks of
the Company and affiliated companies.

Micron, Hosokawa Micron and the Hosokawa Micron logo are registered
trademarks of HMC and Hosokawa Micron B.V., a wholly owned Dutch subsidiary of
the Company.

"PolyQuest" is a registered service mark of Hosokawa Bepex Corporation, a
subsidiary of the Company. "Process Technologies For Tomorrow" and "Hosokawa
Pharma-Tech Center" are service marks of the Company.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."

2
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus, including information
under "Risk Factors". Except as otherwise noted, all information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option and a
.899 for 1.0 reverse stock split to be effective July 16, 1998. Unless otherwise
indicated, all references to "Hosokawa" or the "Company" refer collectively to
Hosokawa Micron International Inc. and its subsidiaries, and all references to
"HMC" refer collectively to Hosokawa Micron Corporation and its subsidiaries
other than the Company.

The Company

The Company is a global leader in designing, engineering and manufacturing
powder and particle, plastics and confectionery processing equipment and
systems and product recovery equipment and systems. Through its extensive array
of brandname products and industry expertise, the Company provides
custom-designed technological solutions to its customers' specific
requirements. The Company's customers include a diverse group of leading
multinational industrial, chemical, pharmaceutical, film extrusion and
plastics, minerals, metals and food companies. In the fiscal year ended
September 30, 1997, approximately 33.0% of the Company's sales were in the
United States, approximately 44.2% were in Europe and approximately 22.8% were
in the rest of the world. The Company believes that its diverse customer base,
geographic markets served and product lines have contributed to consistent
sales and operating profit growth over the last three years. The Company's net
sales and operating income in the fiscal year ended September 30, 1997 were
$360.5 million and $14.6 million, respectively.

Hosokawa's goal is to be the primary supplier of highly-engineered,
state-of-the-art process technology systems to the industries it serves. In
order to achieve this goal, the Company has adopted several business
strategies, the principal elements of which are:

o Research and Development. Research and development, a significant source
of growth for the Company, focuses on product innovation and new product
development. The Company has over 35 products currently under
development, 10 of which have been introduced in the first six months of
the fiscal year ending September 30, 1998. Management believes that
research and development will continue to be a significant source of
growth for the Company. As a percentage of net sales, research and
development expenses for the fiscal years ended September 30, 1995, 1996
and 1997 were 3.3%, 3.4% and 3.4%, respectively.

o Acquisitions. In the last 10 fiscal years, the Company has successfully
completed seven acquisitions to enhance its position as a supplier of
integrated processing and product recovery technology solutions. For the
fiscal year ended September 30, 1997, 54.8% of net sales were
attributable to acquisitions completed since fiscal year 1988. Hosokawa
expects to continue growing through acquisitions.

o Penetrating New Markets. Hosokawa believes that there is substantial
opportunity to grow by increasing its presence in new markets, including
emerging markets. The Company expects to expand into new geographic
markets by servicing existing core clients and by targeting new markets
where opportunities arise. Between the fiscal year ended September 30,
1994 and the fiscal year ended September 30, 1997, the Company's net
sales in new markets increased at a 13.5% compound annual growth rate,
from $34.1 million to $49.9 million.

o Product Integration. Hosokawa will continue integrating existing
products into flexible systems specifically designed to solve a
customer's processing needs. For example, the Company was able to design
a system to manufacture expanded glass using existing products from a
number of the Company's operating subsidiaries. This enabled the Company
to secure the order and increase its gross margin on the existing
products for such order. The Company believes that this strategy will
continue to increase margins.

o Product Repositioning. Hosokawa will continue to focus on broadening the
applications of its existing products, with minimal modifications, for
expansion into new applications in markets that the Company believes may
have higher margins. For example, the Company's Bepex Compactor,
currently used for compaction and forming powders in the chemical
industry, has potential application for the production of medicinal
chewing gums for the pharmaceutical industry.

3
<PAGE>

o Cost Reductions. Hosokawa will also continue its efforts to reduce costs
as a percentage of costs of goods sold in order to increase margins,
such as through increased productivity, expanded subcontracting of
manufacturing, improved monitoring of worldwide purchasing costs and
improved working capital management.

The Company designs, engineers, manufactures and installs its equipment
and systems through the following four product lines:

The powder and particle processing product line provides, among other
products, separators, mixers, dryers, agglomerators and compacting equipment
and systems used in applications where precise particle size and structure are
critical. For the fiscal year ended September 30, 1997, this product line's net
sales and percentage contribution to the Company's total net sales was $168.5
million and 46.7%, respectively.

The plastics processing product line provides plastic film blowing and
extrusion equipment and systems for the manufacture of single- and multi-layer
plastic films used primarily in the packaging and bag-making industries. For
the fiscal year ended September 30, 1997, this product line's net sales and
percentage contribution to the Company's total net sales was $66.6 million and
18.5%, respectively.

The confectionery processing product line provides a full line of
equipment and systems for the production of hard, soft and chewy candies,
granola, health and candy bars and convenience foods and breakfast bars. For
the fiscal year ended September 30, 1997, this product line's net sales and
percentage contribution to the Company's total net sales was $25.5 million and
7.1%, respectively.

The product recovery product line provides product recovery and dust
collection equipment and systems and filter media. For the fiscal year ended
September 30, 1997, this product lines's net sales and percentage contribution
to the Company's total net sales was $99.9 million and 27.7%, respectively.

Background

The Company is a 98.0%-owned subsidiary of HMC, a publicly-traded Japanese
corporation headquartered in Osaka, Japan and listed on the Osaka and Tokyo
stock exchanges. HMC was founded in Osaka, Japan in 1916. In 1986, HMC
reorganized all of its non-Japanese operations under the umbrella of Hosokawa.
The Company was incorporated in Delaware in 1986. See "Business--History of the
Company."

HMC currently engages in generally the same businesses as the Company
except for the plastics and confectionery processing product lines. For the
fiscal year ended September 30, 1997, HMC had net sales of $484.5 million, of
which $357.1 million were attributable to net sales of the Company (excluding
intercompany sales).

HMC, after completion of the Offering, will own 70.4% of the outstanding
Common Stock (67.5%, if the Underwriters' over-allotment option is exercised in
full). See "Risk Factors -- Control of the Company." In addition, four members
of the Company's Board of Directors are members of HMC's senior management. See
"Management--Directors and Executive Officers."

The Company's principal executive offices are located at 780 Third Avenue,
Suite 3201, New York, New York 10017. Its telephone number is (212) 826-3830.

4
<PAGE>

The Offering

<TABLE>
<S> <C>
Common Stock offered by:
The Company ........................... 2,670,000 shares
The Selling Stockholder ............... 750,000 shares
---------
Total ............................... 3,420,000 shares
Common Stock offered for sale in:
The U.S. Offering ..................... 2,736,000 shares
The International Offering ............ 684,000 shares
---------
Total ............................... 3,420,000 shares
Common Stock to be outstanding
after the Offering .................... 12,165,517 shares(1)(2)
Use of proceeds by the Company ......... To reduce existing short-term indebtedness, including
under promissory notes issued to various banks and
indebtedness incurred under a commercial paper
program. See "Use of Proceeds."
Proposed NYSE symbol ................... "HOS"
</TABLE>

- ----------------
(1) On April 16, 1998, the Board of Directors authorized and the Selling
Stockholder approved a 0.89904874 for 1.0 reverse stock split of the
Common Stock, effective July 16, 1998.

(2) Excludes 87,657 shares of Common Stock reserved for issuance upon the
exercise of outstanding options granted pursuant to the Company's 1997
Stock Option Plan at an exercise price of $9.89 per share and excludes
890,058 shares of Common Stock reserved for issuance under the Company's
Stock Incentive Plan. See "Management--Stock Option Plan" and "--Stock
Incentive Plan."

5
<PAGE>

Summary Consolidated Financial Data

The following summary consolidated financial data with respect to the
Company's results of operations for the years ended September 30, 1995, 1996
and 1997, has been derived from the audited consolidated financial statements
of the Company included elsewhere in this Prospectus. The summary consolidated
financial information with respect to the Company's results of operations for
the years ended September 30, 1993 and 1994, has been derived from the audited
consolidated financial statements of the Company which are not included in this
Prospectus. The information for the interim periods is unaudited; however, in
the opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such information have been
included. The interim results of operations may not be indicative of the
results for the full year. The summary consolidated financial data presented
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
(Dollars in thousands except per share data)
----------------------------------------------------------------------
Year Ended
September 30,
----------------------------------------------------------------------
1993 1994 1995 1996(1) 1997
------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales ............................... $ 283,311 $ 272,225 $ 339,048 $ 371,710 $ 360,472
Cost of sales ........................... 196,385 185,587 236,904 259,316 247,022
---------- ----------- ----------- ----------- ------------
Gross profit ............................ 86,926 86,638 102,144 112,394 113,450
Selling, general and administrative
expenses ............................... 81,550 69,767 82,989 85,690 85,355
Research and development expenses ....... 8,637 8,489 11,019 12,610 12,152
Amortization of intangibles ............. 2,291 2,171 2,281 2,336 2,228
Restructuring(2) ........................ 20,131 0 (3,239) 0 247
Other (income) .......................... (404) (1,258) (763) (493) (1,110)
---------- ----------- ----------- ----------- ------------
Operating (loss) income ................. (25,279) 7,469 9,857 12,251 14,578
Interest expense, net ................... 5,288 4,292 6,656 6,100 5,573
Other expense (income), net ............. (236) 207 (3,393) 416 756
---------- ----------- ----------- ----------- ------------
(Loss) income before taxes on income (30,331) 2,970 6,594 5,735 8,249
Provision for income taxes .............. 382 1,669 1,828 2,931 3,996
---------- ----------- ----------- ----------- ------------
(Loss) income before minority interest (30,713) 1,301 4,766 2,804 4,253
Minority interest ....................... (643) (283) 0 0 0
Net (loss) income before cumulative
effect of change in accounting
principle .............................. (31,356) 1,018 4,766 2,804 4,253
Cumulative effect at October 1, 1993
of change in accounting principle ...... 0 310 0 0 0
---------- ----------- ----------- ----------- ------------
Net (loss) income ....................... (31,356) 1,328 4,766 2,804 4,253
Preferred dividends paid ................ 3,252 3,972 3,972 3,972 3,683
---------- ----------- ----------- ----------- ------------
Net (loss) income available to
common stockholders .................... $ (34,608) $ (2,644) $ 794 $ (1,168) $ 570
========== =========== =========== =========== ============
Dividend declared per common share....... -- $ 0.33 $ 0.33 -- --
(Loss) earnings per common share:
Basic (3) ............................... $ (21.56) $ (1.64) $ 0.49 $ (0.73) $ 0.25
Diluted(3) .............................. $ (21.56) $ (1.64) $ 0.49 $ (0.73) $ 0.25
Shares applicable in computing (loss)
earnings per common share:
Basic(3) ................................ 1,604,877 1,607,346 1,607,346 1,607,346 2,264,694
Diluted(3) .............................. 1,621,290 1,623,759 1,623,759 1,623,759 2,281,107
Pro forma interest expense(4) ........... $ 3,654
Pro forma net income(4) ................. $ 5,939
Pro forma earnings per share(4):
Basic ................................... $ 0.46
Diluted ................................. $ 0.46
Adjusted diluted(4) ..................... $ 0.49
Shares used in computing pro forma
earnings per common share(4):
Basic ................................... 4,934,694
Diluted ................................. 4,951,107
Adjusted diluted(4) ..................... 12,181,930
Other Data:
EBITDA(5) ............................... $ (13,728) $ 17,632 $ 20,991 $ 24,494 $ 27,031
Backlog ................................. 94,312 111,883 120,153 130,976 115,495

<CAPTION>
(Dollars in thousands except
per share data)
-----------------------------
Six Months Ended
March 31,
-----------------------------
1997 1998
-------------- --------------
<S> <C> <C>
Statement of Operations Data: (unaudited)
Net sales ............................... $ 183,750 $ 178,856
Cost of sales ........................... 126,945 122,469
------------- ------------
Gross profit ............................ 56,805 56,387
Selling, general and administrative
expenses ............................... 44,337 41,344
Research and development expenses ....... 6,256 6,023
Amortization of intangibles ............. 1,136 1,092
Restructuring(2) ........................ 0 0
Other (income) .......................... (645) (384)
------------- ------------
Operating (loss) income ................. 5,721 8,312
Interest expense, net ................... 2,756 2,686
Other expense (income), net ............. 718 407
------------- ------------
(Loss) income before taxes on income 2,247 5,219
Provision for income taxes .............. 1,088 1,743
------------- ------------
(Loss) income before minority interest 1,159 3,476
Minority interest ....................... 0 0
Net (loss) income before cumulative
effect of change in accounting
principle .............................. 1,159 3,476
Cumulative effect at October 1, 1993
of change in accounting principle ...... 0 0
------------- ------------
Net (loss) income ....................... 1,159 3,476
Preferred dividends paid ................ 1,986 --
------------- ------------
Net (loss) income available to
common stockholders .................... $ (827) $ 3,476
============= ============
Dividend declared per common share....... -- $ 0.21
(Loss) earnings per common share:
Basic (3) ............................... $ (0.51) $ 0.37
Diluted(3) .............................. $ (0.51) $ 0.37
Shares applicable in computing (loss)
earnings per common share:
Basic(3) ................................ 1,607,346 9,495,517
Diluted(3) .............................. 1,623,759 9,511,930
Pro forma interest expense(4) ........... $ 1,796 $ 1,644
Pro forma net income(4) ................. $ 2,003 $ 4,402
Pro forma earnings per share(4):
Basic ................................... $ 0.00 $ 0.36
Diluted ................................. $ 0.00 $ 0.36
Adjusted diluted(4) ..................... $ 0.16 $ 0.36
Shares used in computing pro forma
earnings per common share(4):
Basic ................................... 4,277,346 12,165,517
Diluted ................................. 4,293,759 12,181,930
Adjusted diluted(4) ..................... 12,181,930 12,181,930
Other Data:
EBITDA(5) ............................... $ 11,926 $ 14,030
Backlog ................................. 130,407 129,019
</TABLE>

6
<PAGE>

<TABLE>
<CAPTION>
(Dollars in thousands except per share data)
------------------------------------------------------------------------------------
Year Ended Six Months Ended
September 30, March 31,
------------------------------------------------------------ -----------------------
1993 1994 1995 1996(1) 1997 1997 1998
----------- ----------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(unaudited)
Cash provided by (used in) operating
activities ............................ 11,204 12,012 (1,882) 13,831 13,057 (6,394) 2,510
Cash used in investing activities ...... (8,976) (3,263) (9,628) (13,104) (9,359) (3,378) (5,053)
Cash provided by (used in) financing
activities ............................ 1,336 3,781 (7,402) 1,920 (2,136) 7,442 (1,313)
</TABLE>

<TABLE>
<CAPTION>
March 31, 1998
-----------------------------
Pro Forma,
Actual As Adjusted(6)
------------- ---------------
(Dollars in thousands)
<S> <C> <C>
Balance Sheet Data:
Working capital ......................... $ (49,265) $ (15,950)
Total assets ............................ 286,820 286,820
Short-term debt including current
portion of long-term debt .............. 83,361 50,046
Long-term debt less current portion ..... 15,229 15,229
Stockholders' equity .................... 59,056 92,371
</TABLE>

- ----------------
(1) Includes the results of Kreuter GmbH and Ter Braak B.V. from March 1996.
(2) Restructuring includes costs recognized by the Company in connection with
the liquidation of an Italian subsidiary and the restructuring of its
manufacturing operations within the United States. In fiscal 1995, the
Company substantially completed its restructuring program. Since the actual
costs associated with the restructuring were less than originally provided
for in fiscal 1993, such amount was reversed into income in fiscal 1995. In
addition, in fiscal 1997 the Company recorded a charge of $843 (the charge
was allocated as follows: cost of sales, $90 and restructuring, $753). This
charge was partially offset by a reversal of a prior restructuring charge in
the amount of $506 as actual restructuring costs were lower than
anticipated. (3) The basic (loss) earnings per common share has been
computed based upon the weighted average number of shares of Common Stock
outstanding. Diluted (loss) earnings per common share has been computed
based on weighted average number of shares of Common Stock outstanding,
including shares that would have been outstanding assuming the issuance of
Common Stock for all potentially dilutive instruments. The shares issuable
upon the exercise of outstanding stock options represent the only
potentially dilutive common shares. The amount of (loss) earnings and number
of shares used in the calculation of basic and diluted (loss) earnings per
common share were the same for the loss periods presented. Diluted loss per
share does not include any incremental shares that would have been
outstanding assuming the exercise of any stock options because those shares
would have been anti-dilutive. Due to the exchange in fiscal 1997 of both
classes of preferred stock for Common Stock, historical earnings per share
are not indicative of future earnings per share.

(4) Gives effect to the sale of 2,670,000 shares of Common Stock to be sold by
the Company in the Offering at an estimated public offering price of
$14.00 per share (the midpoint of the estimated range), and the
application of the estimated net proceeds therefrom to repay debt, as if
the transaction had occurred at the beginning of each period presented.
See "Use of Proceeds." Adjusted diluted assumes the exchange of the
preferred stock as of October 1, 1996, and, accordingly, no preferred
stock dividends were paid. Adjusted diluted earnings per share were
calculated using net income of $5,939 for the year ended September 30,
1997, $2,003 for the six months ended March 31, 1997 and $4,402 for the
six months ended March 31, 1998.

(5) EBITDA consists of operating (loss) income plus depreciation and
amortization of intangibles. Adjusted EBITDA is defined as EBITDA adjusted
to exclude the impact of restructuring activities resulting in adjustments
in fiscal 1993, 1995 and 1997 of $20,131, $(3,239) and $337, respectively.
For fiscal years ended September 30, 1993, 1995 and 1997, Adjusted EBITDA
was $6,403, $17,752 and $27,368, respectively. The Company does not
consider EBITDA and Adjusted EBITDA, nor should they be considered, as
alternative measures of operating results or cash flows from operating
activities as determined in accordance with generally accepted accounting
principles. Instead, the Company includes them because they are widely
used financial measures of the potential capacity of a company to incur
and service debt. The presentation of EBITDA and Adjusted EBITDA may not
be comparable to similarly titled measures used by other companies.

(6) Gives effect to the sale of 2,670,000 shares of Common Stock to be sold by
the Company in the Offering at an estimated public offering price of
$14.00 per share (the midpoint of the estimated range), and the
application of the estimated net proceeds therefrom to repay debt, as if
the transactions had occurred as of March 31, 1998. See "Use of Proceeds."

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RISK FACTORS

An investment in the shares of Common Stock involves a high degree of
risk. In addition to the other information in this Prospectus, prospective
investors should carefully consider the following factors in evaluating the
Company and its business before purchasing any shares of Common Stock.

Fluctuating Results of Operations

Historically, the Company's results of operations have fluctuated
materially both annually and quarterly. These fluctuations have resulted from
several factors, including, among others, changes in the exchange rate of the
U.S. dollar against other currencies (in particular, the German mark and the
Dutch guilder), the timing of new products and systems introductions by the
Company and its competitors, acquisitions, certain nonrecurring expenses
related to the Company's restructuring in 1993, competitive pressures,
fluctuations in volume of shipments and recognition of unanticipated warranty
claims on large product recovery projects. In addition, the unit price of
certain of the Company's systems and products can exceed $3.0 million.
Accordingly, a delay in or a cancellation of the delivery of a limited number
of orders and shipments can constitute a meaningful percentage of the Company's
revenue in any one period and can have a material impact on the Company's
revenues in any one quarter or year. The Company believes that it will continue
to experience fluctuations in its results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

Exposure to Exchange Rate Fluctuations

Although the Company reports its results in U.S. dollars, a substantial
portion of its net sales, expenses and indebtedness are denominated in other
currencies, in particular, the German mark and the Dutch guilder. As a result,
the Company is significantly exposed to fluctuations in the exchange rate of
the U.S. dollar against such currencies. For the fiscal year ended September
30, 1997, approximately 64.0% of net sales and approximately 70.0% of expenses
were denominated in foreign currencies. Any appreciation in the value of the
U.S. dollar against such currencies may be expected to adversely affect the
Company's results of operations. The cumulative foreign currency translation
adjustments as of March 31, 1998 have not been material. While management will
continue to monitor the Company's exposure to currency fluctuations and to
enter into foreign exchange contracts to hedge firm foreign currency
commitments based on firm orders and shipments, in an attempt to minimize the
effect of these fluctuations, there can be no assurance that exchange rate
fluctuations will not have a material adverse effect on the Company's results
of operations or financial condition, or that any hedging strategies, if
employed, will be successful. The Company does not hold or issue derivative
financial instruments for trading or speculative purposes. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Notes to Consolidated Financial Statements--(1) Summary of Significant
Accounting Policies."

Risks Associated with International Operations

The Company operates manufacturing, sales and other facilities in sixteen
countries on six continents and sells its products and systems in over 115
countries. In the fiscal year ended September 30, 1997, net sales of the
Company's products outside the United States totaled approximately $241.7
million, representing approximately 67.0% of the Company's net sales for that
fiscal year. As a result of its international operations, the Company is
subject to risks associated with operating in foreign countries, including
devaluations and revaluations of currencies, imposition of limitations on
conversion of foreign currencies into dollars or remittance of dividends and
other payments by foreign subsidiaries, imposition or increase of withholding
and other taxes on remittances and other payments by foreign subsidiaries,
hyperinflation, imposition of or changes in investment regulations by foreign
governments, availability of suitable export financing, barriers to trade,
export license requirements, tariff regulations, and other United States and
foreign regulations that may apply to the export or import of the Company's
products, components and systems, as well as the generally greater difficulties
of doing business abroad. In addition, the Company may be directly affected by
economic, political and military conditions in the countries in which it
operates, particularly in emerging markets such as South America, India, South
Africa, Asia and Eastern Europe. Such risks have not had a material adverse
effect on the Company, although no assurance can be given that such risks will
not have a material adverse effect on the Company in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."

Cyclical End Markets

The markets for certain of the Company's systems and products are
cyclical. During periods of expansion in capital investment, the Company
generally has benefited from increased demand for its systems and products.
Conversely, during recessionary times, the Company has been adversely affected
by declines in demand for such

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<PAGE>

systems and products. There can be no assurance that growth in the markets for
the Company's systems and products will occur or that such growth will result
in increased demand for the Company's systems and products. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business."

Risks Related to Intellectual Property Protection

The Company relies primarily upon a combination of copyright and trademark
laws, patents, trade secrets, confidentiality procedures and contractual
arrangements to protect its proprietary rights. The Company also relies upon
unpatented proprietary and trade secret technology, particularly with respect
to certain products in its powder and particle processing and product recovery
product lines, and some of the Company's competitors in the past have used such
technologies to manufacture and market copies of the Company's products. To the
extent that the Company has proprietary rights to these technologies, such as
through copyright protection in the United Kingdom, it has taken appropriate
steps to enforce its rights. Despite the Company's efforts to protect its
proprietary rights, there can be no assurance that the steps taken by the
Company will be adequate to deter misappropriation of its proprietary
information, that the Company will be able to detect unauthorized use and take
appropriate steps to enforce its intellectual property rights or that the
Company's competitors will not independently develop similar technology.

To date, the Company has received only two claims that its intellectual
property rights infringe on the rights of others and management does not
believe their disposition will have a material adverse effect on the Company.
There can be no assurance, however, that any additional claims will not be
asserted against the Company in the future, that the assertion of such a claim
will not result in litigation or that the Company would prevail in such
litigation or be able to obtain a license for the use of any alleged infringed
intellectual property from a third party on commercially reasonable terms. The
risk of infringement claims against the Company may increase if other parties
are able to successfully obtain patents for products and processes related to
the Company's business. Any such claims, regardless of their outcome, could
result in substantial cost to the Company, require the Company to modify the
manner in which it provides products and services and divert management's
attention from the Company's operations, any of which could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Business--Intellectual Property Rights."

Dependence Upon New Systems and Products

The Company's results of operations depend, to a significant extent, upon
its ability to develop and commercialize new systems and products in response
to the competitive dynamics within the powder and particle, confectionery and
plastics processing and product recovery equipment industries. The Company's
ability to achieve growth in revenues and profitability depends in part on its
being among the first companies to introduce new systems and products. While
the Company believes its product development pipeline will allow it to compete
effectively, no assurance can be given that any of the systems and products in
development will be successful and generate significant revenues and
profitability. See "-- Competition," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business."

Risk of Product Liability Claims; No Assurance of Adequate Insurance

The sale of the Company's systems and products involves a risk of product
liability claims and the adverse publicity that may accompany such claims. The
Company is a defendant in a number of product liability cases, the outcome of
which the Company believes should not materially adversely affect the Company's
business or its financial condition. Although the Company maintains what it
believes to be an adequate amount of product liability insurance coverage,
there can be no assurance that the Company's existing product liability
insurance will cover all current and future claims or that the Company will be
able to maintain existing coverage or obtain, if it determines to do so,
insurance providing additional coverage at reasonable rates. No assurance can
be given that one or more of the claims arising under any pending or future
product liability cases, whether or not covered by insurance, will not have a
material adverse effect on the Company's business or financial position. See
"Business -- Legal Proceedings" and "Business--Product Liability; Insurance."

Potential Liability to Clients

Much of the Company's business involves projects that are critical to the
operations of its clients' businesses and provide benefits that may be
difficult to quantify. Any failure in a client's system could result in a claim
for substantial damages against the Company, regardless of the Company's
responsibility for such failure. While the

9
<PAGE>

Company attempts to contractually limit its liability for damages arising from
its products and systems, there can be no assurance the limitations of
liability set forth in its purchase contracts will be enforceable in all
instances or would otherwise protect the Company from liability for damages.
While the Company currently maintains general liability insurance, there can be
no assurance that the Company will avoid significant claims and attendant
publicity. Furthermore, there can be no assurance that the Company's insurance
coverage will be adequate or that such coverage will remain available at
acceptable costs. Successful claims brought against the Company in excess of
its insurance coverage could have a material adverse effect on the Company's
business, operating results and financial condition.

Indebtedness of the Company

After giving effect to the completion of the Offering, the Company had
outstanding on a pro forma basis as of March 31, 1998, long-term and short-term
debt of approximately $65.3 million, $50.0 million of which bears interest at
variable rates. The Company's growth strategy contemplates acquiring companies
with complementary products or technologies. All or a portion of such
acquisitions may be financed through additional indebtedness. A substantial
amount of indebtedness could have adverse consequences on the Company,
including the following: (i) an inability to obtain additional financing for
working capital, capital expenditures, acquisitions, general corporate purposes
or other purposes; (ii) the dedication of a substantial portion of the
Company's cash flow from operations to the payment of principal and interest on
its indebtedness, thereby reducing the funds available to the Company for other
purposes; (iii) an exposure to the risk of increased interest rates as certain
of the Company's borrowings are and will continue to be at variable rates of
interest; (iv) a competitive disadvantage, since the Company may be
substantially more leveraged than certain of its competitors; (v) a reduced
ability to adjust rapidly to changing market conditions and increased
vulnerability in the event of a downturn in general economic conditions or its
business.

As of March 31, 1998, approximately 29.6 million German marks ($16.0
million) were outstanding with three German banks under agreements that require
a subsidiary of the Company (HMI Unternehmens-Holding GmbH ("HMI-U"), the
holding company for Hosokawa Alpine AG, Hosokawa Bepex GmbH and Hosokawa
Kreuter GmbH), to increase its equity by an amount equal to after-tax profits
until equity is at least 25.0% of total assets, and to maintain such equity
level thereafter, and to satisfy certain financial tests (primarily to maintain
cash flow at levels no less than 70.0% of those provided for in fiscal 1996).
HMI-U's ability to meet such financial tests may be affected by events beyond
its control related to restrictions or limits on the level of earnings which
may be paid to HMI-U from its subsidiaries, and there can be no assurance that
HMI-U will meet such tests. As of March 31, 1998, the Company believes that
HMI-U is in compliance with such financial tests. A breach of financial tests
could result in an event of default under such debt, in which case the lenders
could elect to declare all liabilities and obligations thereunder to be
immediately due and payable and to terminate all commitments under such debt.
If such debt were to be accelerated, there can be no assurance that the Company
would be able to repay in full such indebtedness and other indebtedness of the
Company, and in such event the equity holders could lose their entire
investment. The Company had negative working capital at March 31, 1998
amounting to $49.3 million. This includes short term bank and commercial paper
borrowings of $83.4 million. These borrowings, principally used to fund
acquisitions, have been renewed on an annual basis over the past several years
and management believes they will continue to be renewed on an ongoing basis.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

Competition

The powder and particle, confectionery and plastics processing and product
recovery equipment and systems industries are competitive. The Company competes
with numerous companies in each industry, and within the product recovery
industry generally and the filter media segment of that industry specifically,
the competition is particularly intense. In addition, the Company may encounter
competition from new market entrants, particularly within the market for
product recovery equipment. Furthermore, because of the relatively low rate of
technological obsolescence in the pulverizing machinery market, there exists a
large supply of used pulverizing machinery which can result in substantial
price competition for orders. Some of the Company's competitors have
significantly greater financial resources than the Company and, therefore, may
spend more than the Company on research, product development and marketing.
Finally, there can be no assurance that competitors will not take actions,
including developing new systems and products and reducing prices, which could
adversely affect the Company's sales and operating results. See
"Business--Industry Background and Competition."

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<PAGE>

Dependence on Key Personnel

The Company's success is largely dependent upon the continued
contributions of its key management and operating personnel. Many of the
Company's key personnel, particularly its key engineers, would be difficult to
replace and are not subject to employment agreements. However, such personnel
have entered into non-competition and assignment of invention agreements.

The Company's growth and future success will depend in large part upon its
ability to attract and retain highly qualified engineering, sales and marketing
personnel. Competition for such personnel from other companies, academic
institutions, government entities and other organizations is intense. Although
the Company has been successful to date in recruiting and retaining key
personnel, there can be no assurance that the Company will be successful in
attracting and retaining the personnel it requires in order to continue to grow
and operate profitably. Also, there can be no assurance that management skills
which have been appropriate for the Company in the past will continue to be
appropriate if the Company continues to grow and diversify.

The Company's success also depends to a significant extent upon its
President and Chief Executive Officer, Isao Sato. The loss of the services of
Mr. Sato could have a material adverse effect on the Company. The Company has
entered into an employment contract with Mr. Sato, but does not maintain key
person life insurance on Mr. Sato and does not intend to obtain such insurance.
See "Management--Directors and Executive Officers" and "-- Executive
Compensation."

Risks Associated with Potential Acquisitions

As part of its operating history and growth strategy, the Company has
consummated and seeks to consummate the acquisition of other businesses. The
Company continually seeks acquisition candidates in selected markets and from
time to time engages in exploratory discussions with suitable candidates. There
can be no assurance, however, that the Company will be able to identify and
acquire targeted businesses or obtain financing for such acquisitions on
satisfactory terms. The process of integrating acquired businesses into the
Company's operations may result in unforeseen difficulties and may require a
significant amount of resources and management attention. Future acquisitions
may be financed through the issuance of Common Stock, which may dilute the
ownership of the Company's shareholders, or through the incurrence of
additional indebtedness which could result in the use of a significant portion
of the Company's debt capacity. In addition, there can be no assurance that
competition for acquisition candidates will not escalate, thereby increasing
the costs of making acquisitions or making suitable acquisitions unattainable.
Furthermore, there can be no assurance that any acquired products or technology
will gain acceptance in the Company's markets. Should the Company's management
fail to respond effectively to these challenges, future acquisitions could have
a material adverse effect on the Company's business, operating results and
financial condition.

Environmental Matters

The Company's operations are subject to federal, state, local and foreign
laws and regulations concerning pollution and protection of the environment,
including those relating to the storage, handling, generation, treatment,
emission, release, discharge and disposal of certain substances, materials and
wastes (collectively, the "Environmental Laws"). While the Company believes it
is currently in material compliance with the Environmental Laws, there can be
no assurance that the Company will not incur significant costs in the future to
cure any violations thereof, remediate any contamination attributable to its
operations or to maintain compliance in response to changes in the
Environmental Laws.

Dependence on Component Availability, Subcontractor Performance
and Key Suppliers

The Company's ability to deliver its products and systems to customers on
a timely basis is dependent in part upon the availability of and timely
delivery by subcontractors and suppliers of the components and subsystems that
are used by the Company in manufacturing its products and systems. The Company
does not, in most areas, maintain a substantial inventory of components and
subsystems. The Company obtains certain components and subsystems from a
limited number of sources, but believes that most components and subsystems are
available from alternative suppliers and subcontractors. A significant
interruption in the delivery of such items, however, could have a material
adverse effect on the Company's business and results of operations. See
"Business--Manufacturing and Other Facilities."

No Prior Public Market; Possible Share Price Volatility

Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained after the Offering. The public offering price of the Common

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<PAGE>

Stock will be determined by negotiations among the Company, the Selling
Stockholder and the representatives of the Underwriters. The stock market,
including the New York Stock Exchange, on which the Common Stock has been
approved for listing, has from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. In addition, the market price of the Common Stock, like
the stock prices of many publicly traded companies, may be highly volatile.
Announcements of new systems or products by the Company or its competitors and
economic and other external factors, as well as period-to-period fluctuations in
financial results, among other factors, may significantly influence the market
price of the Common Stock. See "Underwriting."

Control of the Company

Following the completion of this Offering, HMC will own an aggregate 70.4%
(or approximately 67.5% if the Underwriters exercise in full the over-allotment
option granted by the Company) of the outstanding Common Stock. As a result of
its stock ownership, HMC will be able to elect all of the directors of the
Company and to control the Company's affairs following the Offering. Currently,
four members of the board of directors of the Company are members of senior
management of HMC. See "Management--Directors and Executive Officers."

In addition, the stock ownership described above may also have the effect
of either delaying or preventing a change of control of the Company and could
limit the price that certain investors might be willing to pay in the future
for shares of Common Stock. See "Principal Stockholders and Selling
Stockholder."

Related Party Transactions

The Company, in the normal course of business, conducts business with HMC
and its affiliated companies other than the Company. For the fiscal year ended
September 30, 1997, $3.4 million of net sales of the Company were made to HMC
and its other affiliated companies and $0.5 million of net sales of HMC and its
other affiliated companies were made to the Company. The Company operates as
licensor and licensee under various license agreements with HMC. Royalty income
of $0.3 million and $0.4 million were received from HMC and royalty payments of
$0.1 million and $0.1 million were paid to HMC under the license agreements, in
fiscal years ended September 30, 1997 and 1996, respectively. The Company's
licensing agreements with HMC granting HMC the right to manufacture, use and
sell certain products in the Company's powder and particle processing and
product recovery product lines on an exclusive basis in Japan and on a
non-exclusive basis in all other Asian countries, including the countries which
comprised the former USSR (but excluding India and all countries west of
India), may limit the Company's ability to expand its markets to include such
regions or products or limit its ability to increase its sales of such products
in those regions.

The Company has also entered into marketing agreements with HMC, whereby
all of the Company's subsidiaries and divisions can access HMC's Asian sales
and marketing network. Total fees paid under such agreements were $1.0 million
for the fiscal years ended September 30, 1997 and 1996. HMC has also guaranteed
certain obligations of the Company with respect to the commercial paper program
and certain other indebtedness of the Company. Guarantee fees paid to HMC with
respect to its commercial paper guarantee were $0.1 million for the fiscal
years ended September 30, 1997 and 1996. Beginning October 1, 1997, the amounts
to be paid for these services and guarantees were revised. The revisions to the
guarantees provide that the Company pay HMC fees of 0.1875% on unused lines of
credit and 0.375% on used lines of credit. For the first six months of fiscal
1998, guarantee fees totalled $0.1 million. The loss of any of these guarantees
could have a material adverse impact on the Company's ability to secure
financing or force the Company to secure such financing on terms which are less
favorable to the Company than currently exist. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Certain Transactions."

Anti-Takeover Provisions

Certain provisions of the Company's Restated Certificate of Incorporation
and Bylaws, as well as the Delaware General Corporation Law (the "Delaware
GCL"), could discourage a third party from attempting to acquire, or make it
more difficult for a third party to acquire, control of the Company without
approval of the Company's Board of Directors. Such provisions could also limit
the price that certain investors might be willing to pay in the future for
shares of Common Stock. Such provisions allow the Board of Directors to
authorize the issuance of preferred stock with rights superior to those of the
Common Stock. Moreover, certain provisions of the Company's Restated
Certificate of Incorporation or Bylaws (i) require that certain business
combination transactions and other specified

12
<PAGE>

transactions entered into with stockholders of the Company beneficially owning
more than 10% of the Company's voting power be approved by the affirmative vote
of not less than 80% of the outstanding voting power or by a two-thirds vote of
the Company's incumbent directors, (ii) generally permit removal of directors
with cause only by a majority vote of the stockholders of the Company, (iii)
classify the Board of Directors into three classes, (iv) require that
stockholder actions taken without an annual or special meeting be taken by
written consent of all stockholders entitled to vote, (v) require that the
provisions of the Restated Certificate of Incorporation regarding the
classified Board, certain business combination transactions and the unanimous
stockholder consent be amended, altered or repealed only by the affirmative
vote of not less than 80% of the outstanding stock, and (vi) require the
Company's Board of Directors, Chairman of the Board, the President or the
Secretary at the request of the Chairman or President, to call a special
meeting of the stockholders. See "Description of Capital Stock."

Shares Eligible for Future Sale

In addition to the 3,420,000 shares offered hereby, approximately 8,745,517
shares of Common Stock constituting 71.9% of the shares outstanding after
completion of the Offering will be eligible for sale in the public market
pursuant to Rule 144 under the Securities Act immediately after the Offering.
The sale of any substantial number of shares of Common Stock may have an adverse
effect on the market price for the Common Stock and could impair the Company's
ability to raise capital through an offering of its equity securities. However,
holders of 8,718,696 shares of Common Stock have entered into lock-up agreements
in which such holders have agreed not to offer or sell publicly or otherwise
dispose of such shares without the consent of Credit Suisse First Boston
Corporation for 180 days after the date of the Offering. See "Principal
Stockholders and Selling Stockholder," "Shares Eligible for Future Sale" and
"Underwriting."

Dilution

The public offering price is substantially higher than the net tangible
book value per share of Common Stock. Investors purchasing shares of Common
Stock in the Offering will therefore incur immediate, substantial dilution
estimated to be $12.54 per share (based on an estimated offering price of $14.00
per share, the midpoint of the estimated range, and after deducting underwriting
discounts and offering expenses). See "Dilution."

Broad Discretion in Use of Proceeds

All of the net proceeds to be received by the Company in connection with
this Offering will be used to reduce existing short-term indebtedness, including
under promissory notes issued to various banks and a commercial paper program.
Accordingly, management of the Company will be able to incur additional
indebtedness by issuing additional promissory notes or increasing borrowings
under the commercial paper program and will have broad discretion with respect
to the expenditure of the funds resulting from such additional indebtedness. In
particular, the Company could use a portion of these funds for the acquisition
of complementary businesses, products and technologies. The Company has entered
into an agreement to acquire certain assets with a book value of approximately
$2.0 million and to assume certain liabilities of approximately $1.0 million of
Polymer Systems, Inc. ("Polymer"), a privately held company, located in Berlin,
Connecticut for a purchase price of approximately $2.7 million. Polymer is
engaged in the design, manufacture and sale of particle size reduction
equipment. The Company also signed a letter of intent on July 9, 1998 with
respect to the acquisition of all of the stock of a UK company, located near
Manchester, England for approximately $1.6 million. The Company is privately
held and is engaged in the design, assembly and sale of airflow booths used by
the pharmaceutical, fine chemical and food industries in the packaging and
movement of product. The Company has assets with a book value of approximately
$1.3 million and liabilities of approximately $0.6 million. It is expected that
both acquisitions will close in the Summer of 1998 and that a portion of the
available credit resulting from the repayment of short-term indebtedness with
the proceeds of this Offering will be used for the acquisitions. There can be no
assurance that the Company will successfully deploy these proceeds in a manner
that enhances shareholder value. See "-- Risks Associated with Potential
Acquisitions" and "Use of Proceeds."

Restrictions on the Payment of Dividends

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<PAGE>

holders of record of Common Stock on September 15, 1998. The Board of Directors
may revoke or modify such policy at any time in the future at its sole
discretion. In addition, as a holding company, the ability of the Company to pay
dividends depends upon the consolidated financial condition and results of
operations of the Company and its subsidiaries. Furthermore, the Company's
subsidiaries, from time to time, may be subject to restrictions on their ability
to make distributions to the Company, including as a result of restrictive
covenants in loan agreements, restrictions on the conversion of local currency
into U.S. dollars or other hard currency and other regulatory restrictions. See
"Dividend Policy" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."

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<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the Common Stock offered
hereby, after deducting underwriting discounts and commissions and estimated
offering expenses of $4.1 million, will be approximately $33.3 million, assuming
a public offering price of $14.00 per share (the midpoint of the estimated
range), ($40.0 million, if the Underwriters' over-allotment option is exercised
in full). The Company intends to use such net proceeds to repay short-term
indebtedness under promissory notes issued to banks, which bear interest as of
March 31, 1998 at an average rate of 6.9% and a portion of the Commercial Paper
Notes issued under the Company's commercial paper program, which bear interest
as of March 31, 1998 at an average implied rate of 6.0%. The determination of
which indebtedness to repay and to what extent will depend upon a number of
factors at the time of repayment, including the interest rates then in effect.
The Company intends to use a portion of the available credit resulting from the
repayment of such indebtedness to fund the $4.3 million purchase price for two
acquisitions, one being the subject of a letter of intent and the other being
the subject of an acquisition agreement. See "Business--Acquisitions." The
Company will receive no proceeds from shares sold by the Selling Stockholder.
See "Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."

DIVIDEND POLICY

At its March 19, 1998 meeting, the Board of Directors adopted a policy for
the Company to pay an annual dividend of $0.42 per share of Common Stock,
payable quarterly, subject to the Company's results of operations, financial
condition, contractual restrictions, availability of assets out of which to pay
such dividends under applicable law and other factors deemed relevant by the
Board of Directors. At the same meeting, the Board of Directors of the Company
declared a dividend of $0.21 per share payable to holders of record of Common
Stock on March 31, 1998, which represents the aggregate dividend for the first
two quarters of the 1998 fiscal year in accordance with the policy adopted at
such meeting. In addition, the Board of Directors by unanimous written consent
dated June 12, 1998 declared a dividend of $0.105 per share payable to holders
of record of Common Stock on June 15, 1998, which represents the dividend for
the third quarter of the 1998 fiscal year. Therefore, following completion of
the Offering and subject to the foregoing limitations, the one quarterly
dividend equal to $0.105 per share to be declared by the Board of Directors for
the remainder of fiscal year 1998 in accordance with such policy will be
payable, if so declared, to holders of record of Common Stock on September 15,
1998. The Board of Directors may revoke or modify such policy at any time in the
future at its sole discretion. In addition, the ability of the Company to pay
dividends depends upon the consolidated financial condition and results of
operations of the Company and its subsidiaries. Furthermore, the Company's
subsidiaries, from time to time, may be subject to restrictions on their ability
to make distributions to the Company, including as a result of restrictive
covenants in loan agreements, restrictions on the conversion of local currency
into U.S. dollars or other hard currency and other regulatory restrictions.
There are no restrictive covenants in loan agreements which currently restrict
the payment of dividends by the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."

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CAPITALIZATION

The following table sets forth the capitalization of the Company as of
March 31, 1998 (i) on a historical basis, and (ii) pro forma, as adjusted to
give effect to the receipt and application of the estimated net proceeds of the
sale of 2,670,000 shares of Common Stock offered by the Company in the
Offering, assuming a public offering price of $14.00 per share (the midpoint of
the estimated range). This table should be read in conjunction with the
Consolidated Financial Statements of the Company and the notes thereto included
elsewhere in this Prospectus. See "Use of Proceeds."

<TABLE>
<CAPTION>
March 31, 1998
------------------------------
Pro Forma
Actual As Adjusted(1)
------------ ---------------
(Dollars in thousands)
<S> <C> <C>
Notes payable to banks ........................ $ 34,111 $ 24,111
========= =========
Commercial paper .............................. 49,250 25,935
========= =========
Notes payable to banks--long term ............. 15,229 15,229
========= =========
Stockholders' equity
Common stock ($.01 par value, 12,500,000
shares authorized at March 31, 1998; issued
and outstanding: 9,495,517 at
March 31, 1998) .............................. 95 122
Additional paid-in capital .................... 103,665 136,953
Accumulated deficit ........................... (45,746) (45,746)
Unrealized loss in marketable securities ...... (110) (110)
Cumulative translation adjustment ............. 1,152 1,152
--------- ---------
Total stockholders' equity ................. $ 59,056 $ 92,371
--------- ---------
Total capitalization ....................... $ 157,646 $ 157,646
========= =========
</TABLE>

- --------------------
(1) Excludes 87,657 shares of Common Stock reserved for issuance upon the
exercise of outstanding options granted pursuant to the Company's 1997
Stock Option Plan at an exercise price of $9.89 per share and excludes
890,058 shares of Common Stock reserved for issuance under the Company's
Stock Incentive Plan. See "Management--Stock Option Plan" and "-- Stock
Incentive Plan."

16
<PAGE>

DILUTION

The consolidated net tangible book value of the Company as of March 31,
1998 was approximately negative $15.6 million, or negative $1.64 per share.
Consolidated net tangible book value per share is equal to the Company's total
tangible assets less its total liabilities, divided by 9,511,930, the total
number of shares of Common Stock and common equivalents outstanding, in each
case as of March 31, 1998.

Dilution per share represents the difference between the amount per share
paid by purchasers of shares of Common Stock offered by the Company in the
Offering and the pro forma consolidated net tangible book value per share of
Common Stock immediately after completion of the Offering. After giving effect
to the sale of 2,670,000 shares of Common Stock offered by the Company in the
Offering at an assumed initial public offering price of $14.00 (the midpoint of
the estimated range) per share and after deducting underwriting discounts and
commissions and estimated offering expenses of $4.1 million payable by the
Company, the pro forma consolidated net tangible book value of the Company as
of March 31, 1998 would have been $17.7 million, or $1.46 per share. This
represents an immediate increase in net tangible book value of $3.10 per share
to existing stockholders and an immediate dilution in net tangible book value
of $12.54 per share to purchasers of Common Stock in the Offering, as
illustrated in the following table:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share ..... $ 14.00
Consolidated net tangible book value per share
before the Offering ................................ $ (1.64)
Increase per share attributable to new investors .... 3.10
----------
Pro forma consolidated net tangible book value
per share after the Offering ....................... 1.46
--------
Dilution per share to new investors ................ $ (12.54)
========
</TABLE>

The following table summarizes, as of March 31, 1998, the number of shares
of Common Stock purchased from the Company, the total consideration paid and
the average price paid per share by the existing stockholders and by new
investors (at an assumed initial public offering price of $14.00 per share and
before deducting underwriting discounts and commissions and estimated offering
expenses of $4.1 million payable by the Company):

<TABLE>
<CAPTION>
Shares Purchased(1) Total Consideration(1)
------------------------------ --------------------------- Average Price
Number Percent Amount Percent Per Share
------------------ --------- --------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders ......... 9,495,517(2) 78.1% $103,760,000 73.5% $ 10.93
New investors ................. 2,670,000 21.9 37,380,000 26.5 14.00
--------- ----- ------------ -----
Total ........................ 12,165,517 100.0% 141,140,000 100.0%
========== ===== ============ =====
</TABLE>

- ----------------
(1) Assuming the Underwriters' over-allotment option is exercised in full,
sales of Common Stock by the Company in the Offering will reduce the
percentage of shares of Common Stock and Common Stock equivalents held by
existing stockholders to 74.4% of the total shares of Common Stock and
Common Stock equivalents to be outstanding after the Offering, and will
increase the percentage of shares held by new investors to 25.6% of the
total number of shares of Common Stock and Common Stock equivalents to be
outstanding after the Offering. See "Principal Stockholders and Selling
Stockholder."

17
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data with respect to the
Company's financial position as of September 30, 1996 and 1997, and its results
of operations for the years ended September 30, 1995, 1996 and 1997, has been
derived from the audited consolidated financial statements of the Company
included elsewhere in this Prospectus. The selected consolidated financial
information with respect to the Company's financial position at September 30,
1993, 1994 and 1995, and its results of operations for the years ended
September 30, 1993 and 1994, has been derived from the audited consolidated
financial statements of the Company which are not included in this Prospectus.
The information for the interim periods is unaudited; however, in the opinion
of management, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such information have been
included. The interim results of operations may not be indicative of the
results for the full year. The selected consolidated financial data presented
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
(Dollars in thousands except per share data)
----------------------------------------------------------------------
Year Ended
September 30,
----------------------------------------------------------------------
1993 1994 1995 1996(1) 1997
------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales ............................................ $ 283,311 $ 272,225 $ 339,048 $ 371,710 $ 360,472
Cost of sales ........................................ 196,385 185,587 236,904 259,316 247,022
---------- ----------- ----------- ----------- ------------
Gross profit ......................................... 86,926 86,638 102,144 112,394 113,450
Selling, general and administrative
expenses ............................................ 81,550 69,767 82,989 85,690 85,355
Research and development expenses .................... 8,637 8,489 11,019 12,610 12,152
Amortization of intangibles .......................... 2,291 2,171 2,281 2,336 2,228
Restructuring(2) ..................................... 20,131 0 (3,239) 0 247
Other (income) ....................................... (404) (1,258) (763) (493) (1,110)
---------- ----------- ----------- ----------- ------------
Operating (loss) income .............................. (25,279) 7,469 9,857 12,251 14,578
Interest expense, net ................................ 5,288 4,292 6,656 6,100 5,573
Other expense (income), net .......................... (236) 207 (3,393) 416 756
---------- ----------- ----------- ----------- ------------
(Loss) income before taxes on income ................. (30,331) 2,970 6,594 5,735 8,249
Provision for income taxes ........................... 382 1,669 1,828 2,931 3,996
---------- ----------- ----------- ----------- ------------
(Loss) income before minority interest ............... (30,713) 1,301 4,766 2,804 4,253
Minority interest .................................... (643) (283) 0 0 0
---------- ----------- ----------- ----------- ------------
Net (loss) income before cumulative
effect of change in accounting principle ............ (31,356) 1,018 4,766 2,804 4,253
Cumulative effect at October 1, 1993 of change in
accounting principle ................................ 0 310 0 0 0
---------- ----------- ----------- ----------- ------------
Net (loss) income .................................... (31,356) 1,328 4,766 2,804 4,253
Preferred dividends paid ............................. 3,252 3,972 3,972 3,972 3,683
---------- ----------- ----------- ----------- ------------
Net (loss) income available to
common stockholders ................................. $ (34,608) $ (2,644) $ 794 $ (1,168) $ 570
========== =========== =========== =========== ============
Dividend declared per common share ................... -- $ 0.33 $ 0.33 -- --
(Loss) earnings per common share:
Basic (3) ............................................ $ (21.56) $ (1.64) $ 0.49 $ (0.73) $ 0.25
Diluted(3) ........................................... $ (21.56) $ (1.64) $ 0.49 $ (0.73) $ 0.25
Shares applicable in computing (loss) earnings per
common share:
Basic(3) ............................................. 1,604,877 1,607,346 1,607,346 1,607,346 2,264,694
Diluted(3) ........................................... 1,621,290 1,623,759 1,623,759 1,623,759 2,281,107
Pro forma interest expense(4) ........................ $ 3,654
Pro forma net income(4) .............................. $ 5,939
Pro forma earnings per share(4):
Basic ................................................ $ 0.46
Diluted .............................................. $ 0.46
Adjusted diluted(4) .................................. $ 0.49
Shares used in computing pro forma earnings per
common share(4):
Basic ................................................ 4,934,694
Diluted .............................................. 4,951,107
Adjusted diluted(4) .................................. 12,181,930

<CAPTION>
(Dollars in thousands except
per share data)
-----------------------------
Six Months Ended
March 31,
-----------------------------
1997 1998
-------------- --------------
(unaudited)
<S> <C> <C>
Statement of Operations Data:
Net sales ............................................ $ 183,750 $ 178,856
Cost of sales ........................................ 126,945 122,469
------------ ------------
Gross profit ......................................... 56,805 56,387
Selling, general and administrative
expenses ............................................ 44,337 41,344
Research and development expenses .................... 6,256 6,023
Amortization of intangibles .......................... 1,136 1,092
Restructuring(2) ..................................... 0 0
Other (income) ....................................... (645) (384)
------------ ------------
Operating (loss) income .............................. 5,721 8,312
Interest expense, net ................................ 2,756 2,686
Other expense (income), net .......................... 718 407
------------ ------------
(Loss) income before taxes on income ................. 2,247 5,219
Provision for income taxes ........................... 1,088 1,743
------------ ------------
(Loss) income before minority interest ............... 1,159 3,476
Minority interest .................................... 0 0
------------ ------------
Net (loss) income before cumulative
effect of change in accounting principle ............ 1,159 3,476
Cumulative effect at October 1, 1993 of change in
accounting principle ................................ 0 0
------------ ------------
Net (loss) income .................................... 1,159 3,476
Preferred dividends paid ............................. 1,986 --
------------ ------------
Net (loss) income available to
common stockholders ................................. $ (827) $ 3,476
============ ============
Dividend declared per common share ................... -- $ 0.21
(Loss) earnings per common share:
Basic (3) ............................................ $ (0.51) $ 0.37
Diluted(3) ........................................... $ (0.51) $ 0.37
Shares applicable in computing (loss) earnings per
common share:
Basic(3) ............................................. 1,607,346 9,495,517
Diluted(3) ........................................... 1,623,759 9,511,930
Pro forma interest expense(4) ........................ $ 1,796 $ 1,644
Pro forma net income(4) .............................. $ 2,003 $ 4,402
Pro forma earnings per share(4):
Basic ................................................ $ 0.00 $ 0.36
Diluted .............................................. $ 0.00 $ 0.36
Adjusted diluted(4) .................................. $ 0.16 $ 0.36
Shares used in computing pro forma earnings per
common share(4):
Basic ................................................ 4,277,346 12,165,517
Diluted .............................................. 4,293,759 12,181,930
Adjusted diluted(4) .................................. 12,181,930 12,181,930
</TABLE>

18
<PAGE>

<TABLE>
<CAPTION>
(Dollars in thousands)
------------------------------------------------------------------ ------------------------
Year Ended Six Months Ended
September 30, March 31,
------------------------------------------------------------------ ------------------------
1993 1994 1995 1996(1) 1997 1997 1998
------------- ------------- ------------ ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Other Data:
EBITDA(5) ............................. $ (13,728) $ 17,632 $ 20,991 $ 24,494 $ 27,031 $ 11,926 $ 14,030
Backlog ............................... 94,312 111,883 120,153 130,976 115,495 130,407 129,019
Cash provided by (used in)
operating activities ................. 11,204 12,012 (1,882) 13,831 13,057 (6,394) 2,510
Cash used in investing activities ..... (8,976) (3,263) (9,628) (13,104) (9,359) (3,378) (5,053)
Cash provided by (used in)
financing activities ................. 1,336 3,781 (7,402) 1,920 (2,136) 7,442 (1,313)

Balance Sheet Data:
Working capital ....................... $ (42,370) $ (37,568) $(70,547) $(53,583) $(51,687) $(54,447) $(49,265)
Total assets .......................... 308,672 319,646 302,204 307,630 283,890 295,089 286,820
Short-term debt including current
portion of long-term debt ............ 58,914 66,998 92,471 75,096 77,922 87,255 83,361
Long-term debt less current portion ... 24,872 26,166 0 23,786 17,546 17,671 15,229
Stockholders' equity .................. 62,445 63,355 63,390 60,958 58,688 58,741 59,056
</TABLE>

- ----------------
(1) Includes the results of Kreuter GmbH and Ter Braak B.V. from March 1996.

(2) Restructuring includes costs recognized by the Company in connection with
the liquidation of an Italian subsidiary and the restructuring of its
manufacturing operations within the United States. In fiscal 1995, the
Company substantially completed its restructuring program. Since the
actual costs associated with the restructuring were less than originally
provided for in fiscal 1993, such amount was reversed into income in
fiscal 1995. In addition, in fiscal 1997 the Company recorded a charge of
$843 (the charge was allocated as follows: cost of sales, $90 and
restructuring, $753). This charge was partially offset by a reversal of a
prior restructuring charge in the amount of $506 as actual restructuring
costs were lower than anticipated.

(3) The basic (loss) earnings per common share has been computed based upon the
weighted average number of shares of Common Stock outstanding. Diluted
(loss) earnings per common share has been computed based on weighted
average number of shares of Common Stock outstanding, including shares
that would have been outstanding assuming the issuance of Common Stock for
all potentially dilutive instruments. The shares issuable upon the
exercise of outstanding stock options represent the only potentially
dilutive common shares. The amount of (loss) earnings and number of shares
used in the calculation of basic and diluted (loss) earnings per common
share were the same for the loss periods presented. Diluted loss per share
does not include any incremental shares that would have been outstanding
assuming the exercise of any stock options because those shares would have
been anti-dilutive. Due to the exchange in fiscal 1997 of both classes of
preferred stock for Common Stock, historical earnings per share are not
indicative of future earnings per share.

19
<PAGE>

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following Unaudited Pro Forma Condensed Consolidated Financial
Statements have been derived from the Company's historical condensed
consolidated financial statements. The Unaudited Pro Forma Condensed
Consolidated Statements of Income give effect to the Offering as if it occurred
on October 1, 1996 and 1997. The Unaudited Pro Forma Condensed Consolidated
Balance Sheet gives effect to the Offering as if it occurred on March 31, 1998.

The pro forma adjustments are based upon available information and certain
assumptions that the Company believes are reasonable under the circumstances.
The Unaudited Pro Forma Condensed Consolidated Financial Statements should be
read in conjunction with the consolidated financial statements of the Company
and the related notes, and other financial information included elsewhere in
this Prospectus. This unaudited pro forma financial information is provided for
informational purposes only and does not purport to be indicative of the results
of the Company's future operations. In the opinion of management, all
adjustments necessary to present fairly such Unaudited Pro Forma Condensed
Consolidated Financial Statements have been made.

20
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC.
(A Majority Owned Subsidiary of Hosokawa Micron Corporation)
AND SUBSIDIARIES

Unaudited Pro Forma Condensed Consolidated
Balance Sheet
(Dollars in thousands)

<TABLE>
<CAPTION>
Adjusted
March 31, Pro Forma March 31,
1998 Adjustments 1998
----------- ------------------ ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................ $ 9,442 $ 9,442
Marketable securities ................................ 222 222
Accounts and notes receivable, less
allowance for doubtful accounts of $2,636 ........... 64,725 64,725
Due from parent and affiliates ....................... 2,568 2,568
Costs and estimated earnings in excess of
billings on uncompleted contracts ................... 12,801 12,801
Inventories .......................................... 39,553 39,553
Prepaid expenses and other assets .................... 6,106 6,106
--------- ---------
Total current assets ............................... 135,417 135,417
Property, plant and equipment, net ................... 76,469 76,469
Cost in excess of net assets acquired, less
accumulated amortization of $15,826 ................. 70,521 70,521
Other assets ......................................... 4,413 4,413
--------- ---------
Total assets ....................................... $ 286,820 $ 286,820
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Notes payable to banks ............................... $ 34,111 (10,000)(1) $ 24,111
Commercial paper ..................................... 49,250 (23,315)(1) 25,935
Accounts payable ..................................... 40,505 40,505
Current taxes payable ................................ 2,272 2,272
Deferred income taxes ................................ 1,948 1,948
Contract advances .................................... 17,344 17,344
Accrued liabilities .................................. 36,016 36,016
Due to parent and affiliates ......................... 3,236 3,236
--------- ---------
Total current liabilities .......................... 184,682 (33,315) 151,367
Notes payable to banks-long term ..................... 15,229 15,229
Pension liabilities .................................. 14,426 14,426
Other long-term liabilities .......................... 1,136 1,136
Deferred income taxes ................................ 12,291 12,291
--------- ---------
Total liabilities .................................. 227,764 (33,315) 194,449

Stockholders' equity:
Common stock ......................................... 95 27(2) 122
Additional paid-in capital ........................... 103,665 33,288(3) 136,953
Accumulated deficit .................................. (45,746) (45,746)
Unrealized loss in marketable securities ............. (110) (110)
Cumulative translation adjustment .................... 1,152 1,152
--------- ---------
Total stockholders' equity ......................... 59,056 33,315 92,371
--------- ---------
Total liabilities and stockholders' equity ......... $ 286,820 $ 286,820
========= =========
</TABLE>

See accompanying notes to the
Unaudited Pro Forma Condensed Consolidated Financial Statements.

21
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC.
(A Majority Owned Subsidiary of Hosokawa Micron Corporation)
AND SUBSIDIARIES

Unaudited Pro Forma Condensed Consolidated Statements of Income
(Dollars in thousands)

Six Months Ended March 31, 1998

<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
------------ ----------------- ------------
<S> <C> <C> <C>
Sales to third parties ..................................... $175,267 $175,267
Related party sales ........................................ 3,589 3,589
-------- --------
Net sales .................................................. 178,856 178,856
Cost of sales .............................................. 122,469 122,469
-------- --------
Gross profit ............................................... 56,387 56,387
Selling, general and administrative expenses ............... 41,344 160(4) 41,504
Research and development expenses .......................... 6,023 6,023
Amortization of intangibles ................................ 1,092 1,092
Other income ............................................... (384) (384)
-------- --------
Operating income (loss) .................................... 8,312 (160) 8,152
Interest expense, net ...................................... 2,686 (1,042)(1) 1,644
Other (income) expense ..................................... 407 (44)(5) 363
-------- --------
Income before provision for income taxes ................... 5,219 926 6,145
Provision for income taxes ................................. 1,743 1,743
-------- --------
Net income ................................................. $ 3,476 926 $ 4,402
======== ====== ========

Six Months Ended March 31, 1997

<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
------------ --------------- ------------
<S> <C> <C> <C>
Sales to third parties ..................................... $181,793 $181,793
Related party sales ........................................ 1,957 1,957
-------- --------
Net sales .................................................. 183,750 183,750
Cost of sales .............................................. 126,945 126,945
-------- --------
Gross profit ............................................... 56,805 56,805
Selling, general and administrative expenses ............... 44,337 160(4) 44,497
Research and development expenses .......................... 6,256 6,256
Amortization of intangibles ................................ 1,136 1,136
Other income ............................................... (645) (645)
-------- --------
Operating income (loss) .................................... 5,721 (160) 5,561
Interest expense, net ...................................... 2,756 (960)(1) 1,796
Other (income) expense ..................................... 718 (44)(5) 674
Income before provision for income taxes ................... 2,247 844 3,091
Provision for income taxes ................................. 1,088 1,088
-------- --------
Net income ................................................. 1,159 844 2,003
Preferred dividends paid ................................... 1,986 (1,986)(6) --
Net (loss) income available to common stockholders ......... $ (827) 2,830 $ 2,003
======== ===== ========
</TABLE>

See accompanying Notes to Unaudited
Pro Forma Condensed Consolidated Financial Statements.

22
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC.
(A Majority Owned Subsidiary of Hosokawa Micron Corporation)
AND SUBSIDIARIES

Unaudited Pro Forma Condensed Consolidated Statement of Income
(Dollars in thousands)

Year Ended September 30, 1997

<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
------------ ----------------- ------------
<S> <C> <C> <C>
Sales to third parties ............................... $357,076 $357,076
Related party sales .................................. 3,396 3,396
-------- --------
Net sales ............................................ 360,472 360,472
Cost of sales ........................................ 247,022 247,022
-------- --------
Gross profit ......................................... 113,450 113,450
Selling, general and administrative expenses ......... 85,355 320(4) 85,675
Research and development expenses .................... 12,152 12,152
Amortization of intangibles .......................... 2,228 2,228
Restructuring ........................................ 247 247
Other income ......................................... (1,110) (1,110)
-------- --------
Operating income ..................................... 14,578 (320) 14,258
Interest expense, net ................................ 5,573 (1,919)(1) 3,654
Other (income) expense ............................... 756 (87)(5) 669
Income before provision for income taxes ............. 8,249 1,686 9,935
Provision for income taxes ........................... 3,996 3,996
-------- --------
Net income ........................................... 4,253 1,686 5,939
Preferred dividends paid ............................. 3,683 (3,683)(6) --
-------- -------- --------
Net income available to common stockholders .......... $ 570 5,369 $ 5,939
======== ======== ========
</TABLE>

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

(1) The Company intends to use the proceeds from the Offering to repay
short-term indebtedness under promissory notes issued to banks. Interest
during the year ended September 30, 1997 (including the six months ended
March 31, 1997) and six months ended March 31, 1998 were calculated at
average effective rates of 6.1% and 6.9%, respectively. A portion of the
Commercial Paper notes issued under the Company's commercial paper
program, which bear interest during the year ended September 30, 1997
(including the six months ended March 31, 1997) and six months ended March
31, 1998, were calculated at average effective interest rates of 5.6% and
6.0%, respectively.

(2) Represents the issuance of 2,670,000 shares of common stock at par value
of $0.01.

(3) Represents the additional paid-in capital of $13.99 per share on the
issuance of 2,670,000 shares of common stock, less the total estimated
offering costs of $4,065,000.

(4) Reflects anticipated continuing costs related to quarterly and annual SEC
filing requirements and other general and administrative ongoing costs of
being a public entity.

(5) Represents the decrease in letter of credit fees related to the Company's
commercial paper program at a rate of 0.375%.

(6) In fiscal 1997, all of the issued shares for both classes of preferred
stock were exchanged for Common Stock. Represents the elimination of the
preferred stock dividends as a result of the conversion of the preferred
stock to Common Stock.

23
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Consolidated Financial
Statements of the Company and Notes thereto included elsewhere in this
Prospectus.

Overview

The Company is a global leader in designing, engineering, manufacturing
and servicing powder and particle, plastics and confectionery processing
equipment and systems and product recovery equipment and systems. Through its
extensive array of brandname products and industry expertise, the Company
provides custom-designed technological solutions to its customers' specific
requirements. The Company's customers include a diverse group of leading
multinational industrial, chemical, pharmaceutical, film extrusion and
plastics, minerals, metals, and food companies.

The Company sells its products and systems to its customers through a
number of contractual arrangements, although most of the Company's sales are
governed by individual purchase orders. The Company generally requires an
advance payment of approximately 20.0% of the total purchase price for all
orders except with regard to filter media and spare parts and thereafter
receives periodic progress payments from the customer during the completion
phase of the product or system. This arrangement generally results in the
Company receiving about 90.0% of the purchase price by the time of shipment or
the Company having a letter of credit to secure payment of the balance of the
purchase price. For all other orders, the Company bills the customer when the
equipment is shipped. See "Business--Sales and Marketing--Contracting."

Some of the Company's sales can take a year or longer from initial
discussions through project development and the placement of orders. Typically,
larger contracts are secured after the customer has successfully tested its
product and/or developed the process expertise together with the Company at the
Company's Technical Centers. Even after a sale is made, the execution of the
order can extend for up to 18 months, depending on the size and complexity of
the order and the customers' project requirements. Order values vary from the
sale of components to complex turnkey systems which historically can exceed
$3.0 million in value. Although the customer is subject to certain financial
penalties for cancellation of orders, a delay in or a cancellation of the
delivery of, a limited number of orders and shipments can have a material
impact on the Company's revenues in any one quarter or year. In addition, the
Company's contracts generally contain performance guarantees for one year and
the Company's results can be affected by recognition of unanticipated warranty
claims on large product recovery projects, for example. The Company's results
are also impacted by acquisitions made over the last ten years. For the fiscal
year ended September 30, 1997, 54.8% of net sales were attributable to such
acquisitions.

The Company's results of operations have fluctuated both annually and
quarterly due to several factors. One external factor is that, although the
Company reports its results in U.S. dollars, a substantial portion of its net
sales, expenses and indebtedness are denominated in other currencies, in
particular, the German mark and the Dutch guilder. As a result, the Company is
significantly exposed to fluctuations in the exchange rate of the U.S. dollar
against such currencies. For the fiscal year ended September 30, 1997,
approximately 64.0% of net sales and approximately 70.0% of expenses were
denominated in foreign currencies. Any appreciation in the value of the U.S.
dollar against such currencies may be expected to adversely affect the
Company's results of operations. However, the cumulative foreign currency
translation adjustments as of March 31, 1998 have not been material. Other
factors relating to the Company's business include the timing of new products
and systems introductions by the Company and its competitors, competitive
pressures and fluctuations in volume of shipments.

An important element of the Company's strategy has been to develop a
balanced group of businesses serving diverse markets. In the fiscal year ended
September 30, 1997, approximately 33.0% of the Company's net sales were in the
United States, approximately 44.2% were in Europe and approximately 22.8% were
in the rest of the world.

In 1993, the Company initiated a major review of its business units and
cost structure which resulted in the following restructuring: (A) The Italian
Flexographic printing subsidiary (Omal srl) was put in liquidation and a
reserve was established for the estimated costs to liquidate the operation; (B)
The manufacturing operations based in Summit, New Jersey, United States were
closed and the manufacturing was relocated to Santa Rosa, California, United
States; and (C) The product recovery division in New Jersey, United States was
relocated from leased premises to a facility owned by the Company. In addition,
provisions were made to cover the costs to exit from

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the leases on a number of other facilities which had been vacated and for
severance costs for the reduction of personnel at several operations both in
the United States and Europe. This restructuring program was substantially
completed by the end of fiscal 1995. As a result of these actions, the Company
recorded a restructuring charge of $20.1 million in fiscal 1993 but was able to
reverse $3.2 million in fiscal 1995 as the actual costs of the restructuring
program was less than originally estimated. The results, among others, of the
restructuring were cost savings estimated at $6.5 million annually beginning in
fiscal 1994.

The Company's United States units recorded overall losses between fiscal
1993 and fiscal 1996. In fiscal 1997 the United States operations generated an
overall profit. As a consequence, as of the end of fiscal 1997, the Company has
$23.1 million of United States net operating loss carryforwards and $7.5
million in foreign tax credit carryforwards. A Dutch net operating loss was
realized on the liquidation of an Italian subsidiary in fiscal 1993. Since that
time, the Company's Dutch operations have operated at or near break-even. As a
consequence, the Company has $23.1 million of Dutch net operating loss
carryforwards. The Dutch net operating loss carryforwards do not expire but can
only be used as an offset against operating earnings of the Company's Dutch
operations. Because of the lack of an earnings history in the United States and
an operating earnings history in The Netherlands, the Company has not
recognized a benefit for these tax attributes. Accordingly, a valuation
allowance was recorded for these tax attributes.

Recent Developments

Net sales in the three months ended June 30, 1998 are expected to be
approximately $93.7 million. An expected increase in net sales over the
corresponding prior period, together with an improvement in the gross margin
percentage and combined with tight cost controls are expected to result in
income before taxes of approximately $6.0 million for the three month period.
Net income is expected to be approximately $4.0 million.

Six Months Ended March 31, 1998 Compared to Six Months Ended March 31, 1997

Net sales. Net sales of $178.9 million in the six months ended March 31,
1998 represented a decrease of $4.9 million or 2.7% from $183.8 million in the
six months ended March 31, 1997. This decline is primarily the result of
changes in foreign currency exchange rates (approximately $13.8 million)
partially offset by price and sales volume increases.

Gross profit. Gross profit decreased slightly, to $56.4 million in the six
months ended March 31, 1998, from $56.8 million in the six months ended March
31, 1997. However, the gross profit margin improved from 30.9% in the six
months ended March 31, 1997 to 31.5% in the six months ended March 31, 1998.
The gross profit decreased by approximately $4.3 million due to changes in
foreign currency exchange rates significantly offset by price and sales volume
increases. Gross profit margin increased due primarily to an improvement in
gross margins in the product recovery product line following changes in
management in fiscal 1997.

Selling, general and administrative expense. Selling, general and
administrative expense for the six months ended March 31, 1998 decreased by
$3.0 million primarily due to changes in foreign currency exchange rates.
Expenses were essentially unchanged from the corresponding prior year period
after allowing for foreign currency translation.

Operating income. Operating income increased by $2.6 million, from $5.7
million to $8.3 million as a result of a relatively unchanged gross profit and
lower selling, general and administrative expense.

Tax rates. The Company's effective tax rate of 33.4% for the six months
ended March 31, 1998 represents a decrease from the 48.4% rate in the first six
months of fiscal 1997. The reduction in the effective rate largely reflects the
anticipated utilization of a portion of the net operating loss carryforward in
the United States, the Netherlands and the U.K. in fiscal 1998.

Net income. Net income for the six months ended March 31, 1998 was $3.5
million compared to $1.2 million in the six month period ended March 31, 1997.
The increase is primarily the result of lower selling, general and
administrative expense coupled with a lower effective tax rate.

1997 Compared to 1996

Net sales. Net sales of $360.5 million in fiscal 1997 represented a
decrease of $11.2 million or 3.0%, from $371.7 million in fiscal 1996. The
decline in sales resulted primarily from foreign currency translations
(approximately $24.7 million) partially offset by increased sales attributable
to the two acquisitions described below completed in fiscal 1996 and for which
only seven-month results in the amount of $10.3 million are included in fiscal
1996 revenues. In March 1996, the Company acquired Ter Braak B.V. in Holland
for a total consideration of $3.1 million and acquired certain assets and
assumed certain liabilities of Kreuter GmbH in Germany for a nominal amount.
These companies are part of the Company's confectionery product line and had
annual sales of approximately $17.3 million in fiscal 1997.

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Gross profit. Gross profit increased in fiscal 1997 by $1.1 million, from
$112.4 million in fiscal 1996 to $113.5 million, and gross profit margins
increased from 30.2% to 31.5%. The Company derives a significant portion of its
sales and incurs a significant portion of its expenses from overseas
operations. The gross profit in 1997 was significantly reduced by the continued
appreciation in the U.S. dollar versus certain European currencies,
particularly the German mark and the Dutch guilder. As a result, gross profit
in U.S. dollars was reduced by approximately $8.2 million. Plastics processing
gross profit increased by $5.0 million or 30.7% over the prior year and
confectionery processing gross profit increased by $2.6 million or 39.8% over
the prior year. These improvements are largely volume related. Powder and
particle processing gross profit was lower in absolute dollars due to a decline
in sales volume and currency exchange fluctuations; however, gross profit
margins improved as the Company benefitted from the consolidation of its United
States manufacturing operations. The consolidation of manufacturing for the
powder and particle product line within the United States was completed in
fiscal 1996 and has resulted in significantly lower manufacturing costs for
this product line, with annual savings estimated at $1.5 million. Competitive
pressure and unanticipated warranty claims resulted in lower gross profit in
the product recovery product line. As a result, management has sought to reduce
warranty claims by enhancing the integration of sales and engineering teams
throughout the project design, quotation, production and installation process,
and sought to address competitive pressures by pursuing higher margin
value-added business and reducing personnel at its product recovery facilities
in the United States and France.

Selling, general and administrative expense. Selling, general and
administrative expense remained generally unchanged in fiscal 1997 and in
fiscal 1996. This is primarily the result of the favorable impact of changes in
foreign currency exchange rates offset by the inclusion of Kreuter GmbH and Ter
Braak B.V. for a full fiscal year.

Operating income. Fiscal 1997 operating income of $14.6 million
represented an increase of $2.3 million (or 18.7%) over fiscal 1996 operating
income of $12.3 million, due primarily to the factors discussed above.

Interest expense. Interest expense, net, decreased by approximately 8.2%,
from $6.1 million in fiscal 1996 to $5.6 million in fiscal 1997 primarily as a
result of lower interest rates achieved by refinancing a portion of the
Company's short-term debt in fiscal 1996. In February 1996, the Company
refinanced 38.0 million German marks ($25.8 million) in short-term German
borrowings carrying an average interest rate of 9.0%, with a long-term facility
provided by three German banks at an average interest rate of 5.4%. This
resulted in annual interest savings of approximately $0.9 million. The average
interest rate for all debt of the Company decreased from 6.5% to 6.0%,
representing a decrease of 7.7%, on average debt outstanding for fiscal 1997 of
approximately $104.8 million.

Tax rates. The Company's effective tax rate of 48.4% in fiscal 1997
represented a decrease from the 51.1% rate in fiscal 1996. The effective tax
rates largely reflect that the Company's German income is subject to full
taxation and that only minor amounts of significant tax loss carry forwards
available to offset tax due on income earned in the United States and the
Netherlands were utilized in fiscal 1997 while none were utilized in fiscal
1996.

Net income. Net income for 1997 was $4.3 million compared to $2.8 million
in 1996. This increase is primarily the result of the improvement in the gross
margin, lower selling, general and administrative expense, and a lower interest
expense.

1996 Compared to 1995

Net sales. Net sales of $371.7 million in fiscal 1996 represented an
increase of $32.7 million or 9.6% compared to fiscal 1995 net sales of $339.0
million. The increase was primarily attributable to an increase in sales over
all product lines and was also attributable to net sales from the two companies
acquired in fiscal 1996 described above.

Gross profit. Gross profit increased to $112.4 million, or $10.3 million
over gross profit of $102.1 million in fiscal 1995. Fiscal 1996 gross margin of
30.2% was essentially even with fiscal 1995 gross margin of 30.1%. While the
confectionery product line showed a dramatic improvement due to higher sales
volume from the acquisition of Ter Braak B.V. and Kreuter GmbH described above,
competitive pressures at the powder and particle processing product line eroded
margins slightly. The product recovery product line showed an improvement as a
result of resolving manufacturing issues arising from relocation of the filter
media operations to Trenton, South Carolina, United States.

Selling, general and administrative expense. Selling, general and
administrative expense in fiscal 1996 of $85.7 million represented an increase
of $2.7 million, from $83.0 million during the prior year. The increase

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primarily reflected the selling, general and administrative expense associated
with the companies acquired in fiscal 1996 partially offset by the one-time
benefit in 1996 on the termination of the Bepex Defined Benefit Retirement Plan
which was achieved at a cost significantly less than the amount reserved.
However, as a percentage of sales, selling, general and administrative expense
declined from 24.5% in fiscal 1995 to 23.1% in fiscal 1996 as selling, general
and administrative expense did not grow as fast as sales.

Research and development. Research and development expense increased in
fiscal 1996 by $1.6 million, from $11.0 million to $12.6 million. The increase
was primarily the result of a corporate initiative to increase research and
development efforts for longer-term projects. The Company established the
Advanced Technology Committee ("ATC"), comprised of its key researchers, whose
mission is to develop future-oriented products and technologies, and to
introduce new product applications which can open new markets for the Company's
products worldwide. See "Business--Research and Development."

Operating income. Operating income increased by $2.4 million, from $9.9
million to $12.3 million as a result of the above-mentioned factors. Excluding
the impact of the restructuring charge reversals in fiscal 1995, operating
income increased from $6.7 million in fiscal 1995 to $12.3 million in fiscal
1996, or $5.6 million. As described above in "--Overview", the Company
established restructuring reserves in fiscal 1993 totaling approximately $20.1
million. The restructuring was substantially completed by the end of fiscal
1995. Since the actual costs associated with the restructuring were less than
originally provided for in fiscal 1993, such amount was reversed into income in
fiscal 1995.

Interest expense. Interest expense, net, decreased by approximately 8.9%,
from $6.7 million in fiscal 1995 to $6.1 million in fiscal 1996 primarily as a
result of lower interest rates achieved by refinancing the short-term German
borrowings described above, which reduced interest expense by $0.5 million in
the seven months from the date of refinancing. The average interest rate for
all debt of the Company decreased from 6.9% to 6.5%, representing a decrease of
5.8%, on average debt outstanding for fiscal 1996 of approximately $102.5
million.

Other expense (income). Other expense (income) net, increased from income
of $3.4 million in fiscal 1995 to expense of $0.4 million in fiscal 1996. The
increase is attributable to the divestiture of the Company's interest in fiscal
1995 of a majority owned finance subsidiary, as a result of this transaction,
the Company realized a $1.7 million gain. In addition, an exchange gain of $1.8
million was recognized from favorable foreign currency movements on loans
receivable.

Tax rates. The Company's effective tax rate of 51.1% in fiscal 1996
compared with an effective tax rate of 27.7% in fiscal 1995. The increase in
the effective tax rate for fiscal 1996 resulted from the inability of the
Company to utilize net operating loss carryforwards while the Company lowered
its effective tax rate in fiscal 1995 by utilizing net operating loss
carryforwards in the United States to apply against the net proceeds of the
stock redemption in fiscal 1995 referred to above.

Net income. Net income in 1996 was $2.8 million compared to $4.8 million
in 1995. The results in 1995 included a number of nonrecurring benefits as
discussed above, including the reversal of a restructuring reserve of $3.2
million, a gain on the divestiture of a majority owned subsidiary of $1.7
million and an exchange gain of $1.8 million.

Liquidity and Capital Resources

Historically, the Company has financed its business operations, including
paying dividends, primarily through short-term borrowings from banks and a
commercial paper program, and has funded acquisitions with short-term bank
financing which on occasion has been converted into long-term bank debt. The
Company plans to use the proceeds of the Offering to reduce its short-term
borrowings from banks and indebtedness incurred under the commercial paper
program. See "Use of Proceeds." The commercial paper program and certain of
such indebtedness is summarized below.

Commercial Paper Program

In December 1991, the Company entered into a $75.0 million commercial
paper program under a letter of credit agreement (the "Letter of Credit
Agreement") supported by an irrevocable direct-draw letter of credit ("Letter
of Credit") provided by Bank of Tokyo-Mitsubishi, Limited, New York Branch (the
"Bank"). Under the program, which extends through December 16, 1998, the
Company issues Commercial Paper Notes (the "Notes") with

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<PAGE>

maturities of up to 270 days. The Notes are sold on a discount basis only in an
aggregate face amount not to exceed $75.0 million outstanding at any one time.

The discount rate on the Notes is mutually agreed upon at the time of
issuance between the Company and Merrill Lynch Money Markets Inc., the parties
to the commercial paper dealer agreement. In fiscal 1997, the implied interest
rate averaged 5.6%.

As consideration to the Bank for issuing the Letter of Credit, the Company
pays the Bank a fee of 0.375% per annum of the average face amount of the Notes
outstanding during the calendar quarter immediately preceeding the date the fee
is due. HMC issued an irrevocable and unconditional guaranty (the "Guaranty")
for any and all liabilities of the Company to the Bank arising under the Letter
of Credit Agreement and the Letter of Credit.

The Letter of Credit Agreement contains a number of significant customary
covenants that, among other things, require consent from the Bank if the
Company changes its capitalization, liquidates, dissolves, issues or redeems
any of its capital stock, or merges or disposes of all or any material portion
of its assets.

There are several customary events that trigger an event of default under
the Letter of Credit Agreement including, among others, the failure to pay any
amount due under any Note or under the Letter of Credit Agreement, breach of a
representation or warranty made by the Company, failure to perform any term,
covenant, or agreement contained in the Letter of Credit Agreement or the
depositary agreement, failure of the guarantor to perform under the Guaranty,
attachment or execution issued or levied against the Company or property of the
Company involving a liability in excess of $5.0 million or $25.0 million
against the guarantor, and failure of the Company to pay any amount due with
respect to any other indebtedness for borrowed money in an aggregate amount
equal to not less than $1.0 million or by the Guarantor for not less than $5.0
million.

As of March 31, 1998, approximately $49.3 million was outstanding under
the commercial paper program.

Other Indebtedness

The Company and its subsidiaries have other outstanding long-term loans
with various banks in Europe which as of March 31, 1998 totals approximately
$15.2 million, which bear interest rates ranging from 5.3% to 5.4% and which
have maturity dates ranging from the year 2000 to 2001. The Company and its
subsidiaries have other outstanding short-term loans with other banks in the
United States and Europe which as of March 31, 1998 totals approximately $34.1
million, which bear interest rates ranging from 4.5% to 6.9% and which have
maturity dates ranging from 30 days to 120 days from the date of incurrence of
such debt. The Company has historically renewed some of these short-term loans,
with substantially the same terms and conditions at interest rates negotiated
between the respective bank and the Company at the time of such renewal.

One of the short-term loans in the United States is secured by the assets
of the borrower and such loan and several of the other short-term and long-term
loans contain provisions requiring the borrower to satisfy customary covenants
and certain financial ratio tests and provide for events of default in the
event the borrower fails to satisfy such requirements or upon the occurrence of
certain other specified events affecting the borrower or any guarantor of the
borrower's obligation. In addition, with respect to a portion of such
short-term loans, HMC and in certain instance where the borrower is a
subsidiary of the Company, the Company, have agreed to guarantee the borrower's
obligations, including in the event of an occurence of an event of default by
the borrower.

The Company's subsidiaries also maintain additional lines of credit with
various banks primarily to support outstanding letters of credit and, to a
lesser extent, to finance their operations.

Net Cash and Working Capital

Operating activities. Net cash provided by operating activities for the
six months ended March 31, 1998 was $2.5 million, compared to net cash used in
operating activities of $6.4 million for the six month period ended March 31,
1997. The increase in net cash provided by operating activities was primarily
driven by an increase in receivables and unbilled receivables of $13.2 million,
offset by increases in accounts payable and contract advances of $7.8 million,
a reduction in inventory of $1.6 million and non-cash items, principally
depreciation of $5.7 million. Net cash used in operating activities in fiscal
1997 resulted primarily from a reduction in accounts payable and contract
advances. Net cash provided by operating activities in fiscal 1996 was $13.8
million, compared to $1.9 million of net cash used in operating activities in
fiscal 1995. The net cash provided by operating activities in fiscal 1996
resulted primarily from better management of receivables and higher contract
advances and the net cash used

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<PAGE>

in operating activities in fiscal 1995 resulted primarily from a significant
increase in the level of receivables partially offset by an increase in
payables.

Investing activities. Net cash used in investing activities for the six
month period ended March 31, 1998, was $5.1 million, compared to net cash used
in investing activities of $3.4 million for the six month period ended March
31, 1997. The increase in net cash used in investing activities was due to the
investment in the new facility in Summit, NJ and an extension to facilities in
the United Kingdom. Net cash used in investing activities in fiscal 1997 was
$9.4 million, compared to net cash used in investing activities of $13.1
million in fiscal 1996. The decrease in net cash used in investing activities
was due primarily to the inclusion in fiscal 1996 of the purchase of Ter Braak
B.V. for $3.1 million in cash. Net cash used in investing activities in fiscal
1996 was $13.1 million, as compared to $9.6 million used in investing
activities in fiscal 1995. The increase in net cash used in investing
activities was due to the inclusion in fiscal 1996 of such purchase.

Financing activities. Net cash used in financing activities for the six
months ended March 31, 1998 was $1.3 million, compared to net cash provided by
financing activities of $7.4 million for the six month period ended March 31,
1997. The decrease in net cash provided by financing activities was due to
improved cash from operations which reduced the need for borrowings. Net cash
used in financing activities in fiscal 1997 was $2.1 million, compared to net
cash provided by financing activities of $1.9 million in fiscal 1996. Net cash
used in financing activities in fiscal 1997 was primarily due to the payment of
dividends on preferred stock and net cash provided by financing activities in
fiscal 1996 was due primarily to borrowings used to fund the acquisition of Ter
Braak B.V. in fiscal 1996. Net cash provided by financing activities in fiscal
1996 was $1.9 million, compared to net cash used in financing activities of
$7.4 million in fiscal 1995. Net cash used in financing activities in fiscal
1995 was due to the reduction in fiscal 1995 of short-term debt utilizing
available cash.

Working capital. Negative working capital at March 31, 1998 was $49.3
million, compared to negative working capital of $54.4 million at March 31,
1997. The increase in working capital was due primarily to a reduction in the
level of bank borrowings and related party loans. Negative working capital at
September 30, 1996 was $53.6 million, compared to negative working capital of
$70.5 million at September 30, 1995. The increase in working capital was due to
primarily the refinancing of certain short-term debt in Germany in fiscal 1996.
Working capital is negative throughout such periods due to the existence of
average short-term borrowings of approximately $86.4 million which were used to
finance a number of acquisitions.

The Company believes that its existing credit facilities and cash expected
to be generated from operations are sufficient to finance its current level of
operations and currently contemplated capital expenditures.

In the event the Company makes any significant acquisitions, it may be
required to raise additional funds, through the issuance of additional debt or
equity securities. There can be no assurance that such funds, if required,
would be available on terms acceptable to the Company.

Inflation

Management does not believe inflation had a material adverse effect on the
financial statements for the periods presented.

Effect of Recently Issued Accounting Standards

The Financial Accounting Standards Board recently issued three new
accounting standards that will have an impact on the Company's financial
statements when adopted in a future period.

Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
Reporting Comprehensive Income, establishes standards for reporting and display
of comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures,
SFAS No. 130 requires that all items that are required to be recognized under
current accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as other
financial statements.

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<PAGE>

services, geographic areas and major customers. SFAS No. 131 defines operating
segments as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and for
deciding how to allocate resources to segments.

Statement of Accounting Standards No. 132 ("SFAS No. 132"), Employers
Disclosures about Pensions and Other Post Retirement Benefits. SFAS No. 132
revises employers' disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plans.

All of these new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Results of operations and financial position
will be unaffected by implementation of these new standards.

Risk Management

Concentration of credit risk with respect to trade accounts receivable are
limited due to the large number of entities comprising the Company's customer
base, the diverse industries served and the international nature of the
Company's business. As of March 31, 1998, the Company had no significant
concentrations of credit risk. The Company is not dependent on any one supplier
of raw materials, components or subsystems, although it does obtain certain
components and subsystems from a limited number of sources.

The Company considers its investment in international subsidiaries to be
both long-term and strategic. As a result, the Company does not hedge the
long-term translation exposure to its balance sheet. While the Company's
results of operations have fluctuated materially both annually and quarterly
due to, among other things, changes in the exchange rate of the U.S. dollar
against other currencies, in particular the German mark and the Dutch guilder,
the cumulative foreign currency translation adjustments as of March 31, 1998
have not been material.

Operating Loss Carryforwards

At March 31, 1998, the Company had United States and Dutch net operating
loss carryforwards of approximately $23.1 million and $23.1 million,
respectively, of which approximately $1.8 million is subject to restricted
utilization rules. The United States net operating loss carryforwards expire
between 2002 and 2011 and the Dutch net operating loss carryforwards do not
expire. The Company also had other foreign net operating loss carryforwards
amounting to approximately $3.1 million available for local tax purposes, a
significant portion of which is not subject to expiration. Certain events,
including any sales by the Company of shares of its stock, including pursuant
to this Offering, transfers of a substantial number of shares of Common Stock
by the current stockholders, and/or the discontinuance of certain product lines
in the United Kingdom, may partially restrict the ability of the Company to
utilize its net operating loss carryforwards or could result in the loss of
such net operating loss carryforwards in the United Kingdom.

Year 2000 Compliance

The Company is modifying its computer systems to be year 2000 compliant.
The Company does not expect that the cost of modifying such systems will be
material. The Company believes it will achieve Year 2000 compliance in advance
of the year 2000, and does not anticipate any material disruption in its
operations as the result of any failure by the Company to be in compliance. The
Company does not have any information concerning the Year 2000 compliance
status of its suppliers and customers. The Company guarantees to an increasing
number of its customers that its equipment and systems are Year 2000 compliant.

Euro Currency

Beginning in January 1999, the European Monetary Union will enter into a
three-year transition phase during which a common currency called the EURO will
be introduced in participating countries. Initially, this new currency will be
used for financial transactions, and progressively, it will replace the old
national currencies that will be withdrawn by July 2002. Uncertainty exists as
to the effects, if any, the EURO currency will have on the marketplace. The
Company is not in a position to assess the possible effect of the EURO currency
on its business, and has initiated an internal analysis with a view to planning
for the currency change. The Company believes that the introduction of the EURO
will require some modifications to the Company's information and accounting
systems; however, the Company currently believes that the costs of such
modifications will not be material.

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BUSINESS

General

The Company is a global leader in designing, engineering and manufacturing
powder and particle, plastics and confectionery processing equipment and
systems and product recovery equipment and systems. Through its extensive array
of brandname products and industry expertise, the Company provides
custom-designed technological solutions to its customers' specific requirements
covering a broad range of industrial and consumer products. The Company's
customers include a diverse group of leading multinational industrial,
chemical, pharmaceutical, film extrusion and plastics, minerals, metals and
food companies such as Bayer, Novartis, Degussa, BASF, Hoechst, W.R. Grace, Dow
Chemical, Dupont, Hershey, Nestle, Procter & Gamble, Mannesmann, Shell and
Xerox. The Company's products and systems components are manufactured, marketed
and sold to customers on six continents through its own sales personnel and
independent sales representatives. In the fiscal year ended September 30, 1997,
approximately 33.0% of the Company's sales were in the United States,
approximately 44.2% were in Europe and approximately 22.8% were in the rest of
the world. The Company's brand names such as Alpine, Stott, Mikro,
Vrieco-Nauta, Bepex, Micron (licensed from HMC), Rietz, Schugi, Ter Braak,
Kreuter, Hutt, Menardi-Criswell, MikroPul, K-G and Filtex are recognized
globally for their broad product lines, advanced technologies and quality in
the industries the Company serves.

The Company's broad product offerings coupled with the diverse end-markets
served enhances the Company's financial performance by limiting the effects of
any single operating unit or end-market on the Company. The Company believes
that its diverse customer base, geographic markets served and product lines
have contributed to consistent sales and operating profit growth over the last
three years. Between the fiscal year ended September 30, 1994 and the fiscal
year ended September 30, 1997, the Company's net sales increased at a 9.8%
compound annual growth rate ("CAGR"), from $272.2 million to $360.5 million,
and its operating profit increased at a 25.0% CAGR, from $7.5 million to $14.6
million.

The Company provides its equipment and systems through the following four
product lines:

Powder and Particle Processing Product Line--This product line designs,
engineers, manufactures and installs pulverizers, separators, mixers, dryers,
agglomeration, hygienic filling, weighing and discharge systems, compacting
equipment and systems and thermal processing systems used in applications where
precise particle size and structure are critical. The powder and particle
processing product line services a broad range of different industries
including pharmaceutical, chemical, food, minerals and metals. For the fiscal
year ended September 30, 1997, the powder and particle processing product
line's net sales and percentage contribution to the Company's total net sales
was $168.5 million and 46.7%, respectively.

Plastics Processing Product Line--This product line designs, engineers,
manufactures and installs plastic film blowing and extrusion equipment and
systems for the manufacture of single- and multi-layer plastic films used
primarily in the packaging and bag-making industries. For the fiscal year ended
September 30, 1997, the plastics processing product line's net sales percentage
contribution to the Company's total net sales was $66.6 million and 18.5%,
respectively.

Confectionery Processing Product Line--This product line designs,
engineers, manufactures and installs a full line of mass preparation,
preheating, cooking, aerating, cooling, extrusion, forming, cutting, coating
and tempering equipment and systems for the confectionery and convenience snack
food industries including equipment and systems for the production of hard,
soft and chewy candies, granola, health and candy bars and convenience foods
and breakfast bars. The confectionery processing product line markets its
products and systems to major international manufacturers of confectionery and
food products. For the fiscal year ended September 30, 1997, the confectionery
product line's net sales and percentage contribution to the Company's total net
sales was $25.5 million and 7.1%, respectively.

Product Recovery Product Line--This product line designs, engineers,
manufactures, installs and services product recovery and dust collection
equipment and systems and scrubbing systems used in a broad range of industrial
applications and also manufactures a wide range of filter media. The product
recovery product line serves a broad range of industries including the
pharmaceutical, chemical, plastic, mineral and metal (including carbon black
and titanium dioxide), detergent, paint, cement, petrochemical and food
companies. For the fiscal year ended September 30, 1997, the product recovery
product lines's net sales and percentage contribution to the Company's total
net sales was $99.9 million and 27.7%, respectively.

31
<PAGE>

Business Strategies

Hosokawa's goal is to be the primary supplier of highly-engineered,
state-of-the-art process technology systems to the industries it serves. In
order to achieve this goal, Hosokawa has adopted business strategies that may
be grouped into the following three categories: continuing growth, increasing
margins and enhancing customer satisfaction. The principal elements of the
Company's business strategies are described below:

Continuing Growth

o Research and Development. Research and development, a significant source
of growth for the Company, focuses on product innovation, new product
development and advanced research leading to breakthrough technologies
and their subsequent commercialization. The Company has over 35 products
currently under development, 10 of which have been introduced in the
first six months of the fiscal year ending September 30, 1998. Such
research also allows Hosokawa to constantly upgrade and service existing
customer systems. In addition, the Company's Technical Centers engage in
original research and development work, analysis and testing of a
customer's materials, process simulation of the customer's production
process, process design configuration, and demonstrations of the
Company's products, equipment and systems. See "--Research and
Development." Management believes that research and development will
continue to be a significant source of growth for the Company.

o Acquisitions. Hosokawa participates in a fragmented industry which
management believes provides many strategic acquisition opportunities.
In the last ten years Hosokawa has successfully purchased and integrated
seven acquisitions and such acquisitions have played a significant role
in its evolution into a supplier of integrated processing and product
recovery technology solutions. For example, in 1996 Hosokawa acquired
Ter Braak B.V. and certain assets of Kreuter GmbH whose confectionery
equipment and systems, when combined with the Company's existing Hutt
line of confectionery operations, gave Hosokawa the ability to provide
totally integrated single-source processing solutions for confectionery
producers. This ability has resulted in several orders that management
believes might have otherwise gone to competitors. This type of
integration and turnkey focus is a core component of management's
strategic plan going forward. For the fiscal year ended September 30,
1997, 54.8% of net sales were attributable to acquisitions completed
since fiscal year 1988. Hosokawa expects to continue growing through
strategic acquisitions that can provide complementary operations or
acquiring specific companies whose operations, products and capabilities
are superior in a particular area. See "--Acquisitions."

o Penetrating New Markets. Hosokawa also believes there is substantial
opportunity to grow by increasing its presence in new markets, including
emerging markets. Management believes that as developing countries in
South America, Asia, Africa and Eastern Europe evolve into manufacturing
and consumption-oriented societies and Hosokawa's customers expand into
these regions, Hosokawa will grow as its customers develop additional
manufacturing facilities. This strategy enables the Company to enter new
geographic markets with an established customer base and book of
business and should reduce the risks normally associated with entering
new markets. Independent of its existing customers, the Company also
anticipates developing additional business with local companies in new
markets. Between the fiscal year ended September 30, 1994 and the fiscal
year ended September 30, 1997, the Company's net sales in new markets
increased at a 13.5% CAGR, from $34.1 million to $49.9 million.

Increasing Margins

o Product Integration. Hosokawa will continue integrating existing
products into flexible systems specifically designed to solve a
customer's processing and product recovery needs. For example, the
Company was able to design a system to manufacture expanded glass using
existing products from a number of the Company's operating subsidiaries.
This enabled the Company to secure the order and increase its gross
margin on the existing products for such order. The Company believes
that this strategy will continue to increase margins.

o Product Repositioning. Hosokawa will continue to focus on broadening the
applications of its existing products, with minimal modifications, for
expansion into new applications in markets that the Company believes may
have higher margins. For example, a potential application for the
Company's Alpine Film Extruder, used currently for the extrusion of
packaging film, is barrier film extrusion for food and medical

32
<PAGE>

applications. In addition, the Company's Bepex Compactor, currently used
for compaction and forming powder in the chemical industry, has
potential application for the production of medicinal chewing gums for
the pharmaceutical industry; the Company's Vrieco-Nauta Mixer, currently
used to mix powders, may be used to sterilize bulk materials; and its
Mikro ACM Mill, currently used for size reduction, may be used to
control the length and diameter of fibrous materials.

o Technological Leadership; Product Offering Range and Quality; Global
Recognition. Hosokawa believes that the continuing development of its
technological advantage, its wide range of product offerings, the
quality of its equipment and systems and its globally-recognized brand
names will enable it to increase margins by better managing pricing on
its products and systems.

Enhancing Customer Satisfaction

The Company's goal is to provide seamless customer service from concept
development, sales, equipment and system production and installation to
after-market service. To achieve this goal:

o Hosokawa has developed a customer-focused program designed to reach the
top management of its clients. Key management personnel at Hosokawa have
been assigned to each core client and are responsible for maintaining
the relationship with the client.

o In partnership with its customers, Hosokawa has developed cost-saving
service programs to increase customers' profitability. Additionally, the
Company continuously provides its employees with training to reinforce
the importance of responsiveness to customer needs.

o The Company continues to manufacture, assemble, install and service its
products and systems in various regions around the world, thereby
enhancing customer service.

Products and Technologies

The Powder and Particle and Plastics Processing Product Lines

Powder and particle processing technologies are used to manufacture
pharmaceuticals, chemicals, foods, polymers, paper coatings, cosmetics and
paint. Powder and particle processing is the modification of a material to
produce the optimum particle form for its intended use. This is achieved
through the following process steps which are applied sequentially or in
combination depending on the respective material and the customer's
specifications: size reduction, disintegration, classification (sorting),
drying, crystallization, separating, mixing and size enlargement (agglomeration
or compaction). Powder technologies play a key role in a number of
technologically-advanced industries, including microelectronics, fine ceramics,
toner for paper copiers, products for the delivery of micro-capsules and
fine-powdered aerosols and energy sources for thermal-generated electric power.
The Company's brand names in powder and particle processing include Alpine,
Bepex, Micron (licensed from HMC), Vrieco-Nauta, Schugi, Stott, Mikro, Rietz,
Strong-Scott and K-G.

Plastics processing technology transforms a raw material such as
polyolefines from a granular form into films with specific mechanical and
physical properties which result in an intermediate or final product such as
plastic film for food packaging. The Company's brand name in plastics
processing is Alpine.

The technologies and equipment offered by Hosokawa's powder and particle
and plastics processing product lines include:

o Mixing Equipment and Systems. Hosokawa produces equipment and systems
for powder mixing applications and processes to ensure the proper
consistency and uniformity of products. Applications include:
penicillin, antacids, vitamin supplements, spices and dry soup mixes.

o Drying Equipment and Systems. Hosokawa's equipment and systems allow
food and chemical manufacturers to achieve exact moisture content
specifications for the materials they process and produce. Applications
include: aspartame, coffee and pigments.

33
<PAGE>

o Size Reduction and Separating Equipment and Systems. Hosokawa's
equipment and systems can produce particle size as fine as 5 microns.
For example, an average human hair is 80 to 100 microns in diameter.
Fine particles are required to manufacture, among other products,
pharmaceuticals, fillers and fine-grade chemicals. Hosokawa also
develops and manufactures separating systems for fine particles which
permit the user to attain exact particle size specifications. Particle
size distributions of such precision are required for the manufacture of
pharmaceuticals, toner, powder paint, fine ceramic powders, chemicals,
mineral fillers and resins.

o Compaction Equipment and Systems. Hosokawa's equipment and systems are
used in the high pressure production of briquettes, pellets and flakes.
Through the use of compaction equipment, product enhancement
characteristics can be imparted to the processed material. Such product
enhancements include modification of density, flow characteristics, time
release properties, particle size and composition uniformity. The result
is a final product or an intermediate product ready for further
processing to produce end products in the form of tablets, briquettes,
or ingredients for capsules used in a variety of applications including:
pharmaceuticals, chemicals, food and minerals.

o Agglomeration Equipment and Systems. Hosokawa's equipment and systems
are used for the continuous mixing and binding of powders with one or
more liquids. The results are homogenous granules consistent in grain
size, solubility, moisture levels and bulk density. The agglomeration
process takes place as powders are introduced in a turbulent air stream
to which one or more liquids of varying viscosity is added. Applications
include: milk substitutes, detergents and instant drink mixes.

o Hygienic Filling, Weighing and Discharge Systems. Hosokawa's equipment
and systems permit dust free, hygienic packaging for powders and are
primarily used in the pharmaceutical, chemical and food processing
industries.

o Thermal Processing Systems. Hosokawa's systems use heat and mechanical
action to effect a chemical change in solids, removing the need for
melting or vaporizing the solid. Principal customers for thermal
processing equipment and systems are in the plastics and food processing
industries. Hosokawa has developed and marketed thermal processing
systems for Solid Phase Polymerization ("SPP"). SPP is the process of
treating polymers to improve their physical qualities at temperatures
below their melting points, to achieve stronger and more durable
materials and finished goods. Applications include: resins for the
production of plastic bottles, industrial fibers, tire cord and
specialty starches.

o Plastics Film Blowing and Extrusion Equipment and Systems. Hosokawa's
equipment and systems produce both mono- and multi-layer plastic blown
film from pelletized polymers. Multi-layer structures contain different
resins to impart various qualities such as tensile strength, tear
resistance, improved barrier properties and the ability to produce these
materials with a thinner gauge. Applications for these technologies
range from the production of retail carry out bags, trash can liners,
lawn and leaf bags, to plastic film for packaging meats, produce, and
microwave products as well as for medical packaging.

Confectionery Processing Product Line

Hosokawa's confectionery processing technologies and equipment assist the
confectionery and convenience snack food (processed or baked bar) industries
worldwide from the recipe formulation up to packaging. The Company's
confectionery brand names Hutt, Kreuter and Ter Braak are known worldwide in
these industries. The integration of these brand names into the recently formed
confectionery processing product line makes Hosokawa a single-source provider
to this market. Major products and systems include:

o Mass Preparation and Processing of Confectionery Products. The Company's
Ter Braak products are used for the mass preparation, cooking and
processing of candy products such as hard, soft and soft chew-aerated
and gelatin based products or products known as hard candy, caramels,
nougats and gummi bears. The Company specializes in providing pre-mix
preparation equipment for weighing and mixing of raw materials used in a
variety of confectionery products and equipment for preheating,
dissolving, cooking, mixing, aerating and cooling of sugar confectionery
syrups and masses.

o Extrusion, Forming, Cooling and Cutting Systems. The Hutt line offers
sophisticated systems for extruding, forming, cooling and cutting
operations. The Company's technologies assure weight and shape accuracy
for its clients' food products such as candy, granola, health and
breakfast bars.

34
<PAGE>

o Cooling Tunnels, Coating and Tempering Machines. The Company's Kreuter
products and systems provide the confectionery and specialized food
industries with cooling tunnels, coating (chocolate, compound or
caramel) and tempering machines. Auxiliary equipment for coating lines
is also available from the Company.

Product Recovery Product Line

The Company's product recovery product line evolved in response to
industry's needs to capture the fine particles produced from powder and
particle processing equipment and systems. Hosokawa developed the first
patented pulse jet dust collector used for this process in 1956. Since then,
Hosokawa has enjoyed a leading position as a provider of product recovery and
dust collection equipment and systems. Hosokawa's installed base of over
175,000 systems demonstrates the widespread acceptance and application of the
Company's technology.

The Company's product recovery systems allow processors of high-value
materials to collect product from primary processing equipment and material
transport and handling systems. Product recovery technologies play a key role
in the pharmaceuticals, chemicals, food, detergents, polymers and plastics,
pigments, carbon black, metals and minerals industries.

The Company's product recovery equipment, systems, filtration products and
aftermarket services are marketed globally under the Filtex, MikroPul and
Menardi-Criswell brand names which have strong brand recognition throughout the
world. Major product lines include:

o Clean In-Place Filter Collectors. These product collectors permit rapid
production changeovers, allowing a single manufacturing line the
flexibility to produce many different materials. Applications include:
pharmaceuticals, pigments, food products and drink mixes.

o Sanitary Filter Collectors. These product collectors are designed to
prevent product contamination, eliminate bacterial growth and protect
human and animal health. Applications include: dry milk, whey, and egg
products.

o High Pressure Design Collectors. These product collectors are engineered
to withstand high process pressures and/or to prevent explosions.
Applications include: plastic resins and petrochemicals and coal and
coke combustion processes.

o High-Temperature Filter Collectors. These product collectors are
temperature-resistant filters used in special ultra-high temperature
filter applications. Applications include: catalyst recovery, carbon
black and titanium dioxide.

o Filter Media. Hosokawa supplies a broad range of liquid and dry filter
media for process industries. Hosokawa is recognized for its
state-of-the-art high temperature filter media products. Hosokawa
develops media and advanced media treatments used for dust collection
and management believes that it is the only vertically integrated
manufacturer with operations for applying chemical finishes to the
filter material. The Company also offers complete field services
including: retrofits, process optimization analyses and baghouse
upgrades. Applications include: food and beverage, alumina refining,
mineral and mining and pharmaceutical and chemical processing.

o Nuisance Dust and Dust Collector Systems. These dust collection systems
are utilized for a wide variety of applications in product recovery,
fugitive dust collection and pollution abatement. Applications include:
starch, fertilizers, cocoa, spices, cement, grains, metal powders and
waste incineration.

o Wet and Dry Scrubbing Systems. Hosokawa's wet and dry scrubbing systems
are used to remove the corrosive pollutant gases exhausted from various
production and combustion processes. These systems are designed to use
the plant's raw materials to reclaim chemicals used in the scrubbing
process and to minimize waste disposal while operating at up to 99.9%
collection efficiency. Applications include: aluminum production and
metallurgical processes.

35
<PAGE>

The following table sets forth the Company's net sales and percentages
attributable to its powder and particle processing, plastics processing,
confectionery processing and product recovery equipment and systems product
lines, respectively:

<TABLE>
<CAPTION>
Net Sales
(Dollars in millions, except percentages)
Six Months
Year Ended September 30, Ended March 31,
------------------------------------------------------------- ---------------
1995 1996 1997 1998
--------------- --------------- ------------------ ---------------

Product Lines $ % $ % $ % $ %
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Powder and Particle ......... $180.1 53.1% $188.1 50.6% $168.5(1) 46.7% $ 85.4 47.7%
Plastics .................... 53.3 15.7 59.6 16.0 66.6 18.5 26.3 14.7
Confectionery ............... 7.5 2.3 18.9 5.1 25.5 7.1 15.3 8.5
Product Recovery ............ 98.1 28.9 105.1 28.3 99.9 27.7 51.9 29.1
------ ----- ------ ----- -------- ----- ------ -----
Total ...................... $339.0 100.0% $371.7 100.0% $360.5 100.0% $178.9 100.0%
====== ===== ====== ===== ======== ===== ====== =====
</TABLE>

- ----------------
(1) The decline in sales in this product line resulted primarily from foreign
currency translations (approximately $15.0 million).

Industry Background and Competition

In the powder and particle processing product line, the competition is
fragmented and the Company is not aware of any other company that offers the
range of products and technologies provided by the Company for this product
line. The competitors in this product line compete primarily on the basis of
product performance and price. The Company's principal competitors in certain
technologies are: Condux-Netsch (air classifier mills), Pallman (impact mills),
Krauss Maffei (mixers and dryers), Koppern (compaction equipment), and Buhler
(SPP systems). However, there are many smaller companies that compete within
this product line with respect to certain products. Additionally, there exists
a large supply of used equipment which can result in price competition for
certain older products (pulverizers).

The Company has relatively few competitors in the confectionary product
line and the Company competes with them on the basis of product performance and
service. The Company believes that its ability to provide systems capabilities
is a competitive advantage in serving this market. The Company's recent
acquisitions of Ter Braak B.V. and certain assets of Kreuter GmbH have
positioned the Company for additional growth by expanding its systems'
capabilities. The Company's principal competitors are Sollich, Robert Bosch,
APV Baker and Klockner-Haensel.

There are numerous competitors in the product recovery product line. The
Company believes that one of its competitive strengths lies in its extensive
application experience. Additionally, the Company believes there is a
competitive advantage to being both provider of equipment and systems and a
manufacturer of filter media. The Company is not aware of any other company
that is a totally integrated provider of equipment, systems and filter media.
There are about 10 to 15 major companies, including BHA Holdings, Inc, AAF
International, ABB Environmental Systems Division and Wheelabrator Air
Pollution Control, that compete in this product line. The competition is
intense in the product recovery product line with a number of small companies
that compete on price (e.g., nuisance collectors).

The manufacture of filtration media within the product recovery product
line can be further divided into three product offerings. In membrane laminate
technologies, the Company competes primarily with W.L. Gore and Associates,
Inc. and BHA Holdings, Inc. In its core filtration business, the Company
encounters competition from MFRI, Inc., BHA and a number of regionalized
competitors. In its liquid filtration product line, the Company competes with
National Filter Media Corporation, SCAPA Filtration, and CROS-IBLE, Inc..

Management of the Company believes that the sales of approximately twenty
companies (including the Company) represent 80.0 to 90.0% of the total sales in
the plastics processing product line. Each of the major companies have
strengths in one or more particular extrusion technologies, and the competition
varies depending on the products and technologies and is based primarily upon
product performance, reliability and technology. Major competitors include:
Battenfield Gloucester Engineering Co., Inc, Davis Standard, Brampton
Engineering, Kiefel, Inc., and Macchi S.r.l.

36
<PAGE>

Research and Development

Company Research and Development

Hosokawa recognizes that maintaining its leadership role in advanced
processing and product recovery technologies is essential to sustaining growth.
Research and development at Hosokawa focuses on product innovation, new product
development and advanced research leading to breakthrough technologies and
their subsequent commercialization. The general research and development
philosophy of Hosokawa is to continuously improve existing products and
technologies to meet market requirements and to aggressively develop new
equipment and technologies to meet future market requirements. Guiding
parameters for all research and development are to reduce both the Company's
and the customer's operating costs, to facilitate the customer's development of
new processes while complying with applicable regulatory laws and to
standardize product design for global markets.

Hosokawa has two separate and distinct research and development programs.
The first program is traditional research and development of new products and
processes and is funded at the operating company level. A second and distinct
research and development program is funded at the corporate level by Hosokawa.
This corporate program is overseen and carried out by the Advanced Technology
Committee ("ATC"), which is comprised of the Company's key researchers, whose
mission is to develop future-oriented products and technologies, to introduce
new product applications and to open new markets for the Company's products
worldwide. While most of the technologies being developed by the ATC are
several years away from commercial use, the Company believes that the
principles learned from and breakthroughs achieved by this advanced research
will assist the Company to remain a leading manufacturer of powder and
particle, plastics and confectionery processing equipment and systems and
product recovery equipment and systems. The Company has in place management
policies which cover the initiation, approval and monitoring of research and
development projects both at the operating unit level and the ATC level. Among
the criteria for review are cost-benefit and market analysis and whether
established milestones are attained.

Hosokawa maintains 17 Technical Centers in seven countries, including the
United States, Germany and the Netherlands. Each has fully operational pilot
and/or production lines that are able to produce sample batches of product and
to perform limited contract manufacturing. These Technical Centers are equipped
and operated for a variety of functions which can include conducting original
research work, demonstrating various processing systems, on-site testing of
end-product, analysis and testing of a customer's materials, process simulation
of a customer's production process, process design configuration and
custom-processing of the customer's product. The Technical Centers and Pharma
Lab provide customers with a demonstration of the Company's processing systems
using the customer's raw materials followed by on-site testing of the
characteristics of the end-product deemed essential by the customer, e.g.,
physical properties of powders such as particle size, density, dryness and
flowability. The Company also has a wide range of rental equipment to be used
for field trials in cases where actual operating conditions cannot be
reproduced in the Technical Centers.

The Hosokawa Pharma Tech Center in Summit, New Jersey, United States
opened on May 19, 1998. This facility is designed to meet the needs of the
pharmaceutical industry. The Company's management anticipates that this
facility will be validated as a "current Good Manufacturing Practices" ("cGMP")
facility for pilot testing and analysis, contract processing, milling and
micronization, compacting and agglomeration, classification and pharmaceutical
product development. This capability is also an important aspect of the
Company's marketing efforts directed at the pharmaceutical industry. See
"--Sales and Marketing."

The Company's PolyQuest Polymer Development Center in Minneapolis,
Minnesota, United States, which allows customers to take theoretical
information about polymer processing from concept development to pilot testing,
for the design of full-scale polymer processing plants. The PolyQuest
Development Center provides customers with the ability to design production
plants using the most flexible flow designs available worldwide, with up to 96
combinations of process flow variations for test configurations. The PolyQuest
Development Center is equipped with one of the most advanced analytical
laboratories available and includes a scanning electron microscope,
thermogravimetric analyzer, "fines" content analyzer and other devices.

For the fiscal year ended September 30, 1997, research and development
expenditures were approximately 3.4% of sales. Total research and development
expenditures for the fiscal years ended September 30, 1997, 1996 and 1995 were
$12.2 million, $12.6 million and $11.0 million, respectively, and the fiscal
year 1998 research and

37
<PAGE>

development budget is approximately $14.0 million. Research and development
expenditures for fiscal year ended September 30, 1997 were allocated as
follows: 37.0% to operating unit research and development, 54.0% to the
Technical Center research and development, and 9.0% to the Advanced Technology
Committee (ATC).

Examples of principal research and development projects which were
undertaken in the past and now account for significant sales are set forth in
the table below:

<TABLE>
<CAPTION>
Year Fiscal 1997 Sales
Products Introduce Needs/Benefits (Dollars in millions)
- ------------------------------------------- ---------- ------------------------------------------------- ---------------------
<S> <C> <C> <C>
Powder and Particle Processing Product Line
Fluidised Bed Opposed Jet 1995 Easy clean, advanced system controls, modular $ 7.4
Mill (sanitary design) design, bed level control
Ultra-fine particle separators 1995 Ultrafine separation in combination with 3.1
high capacity
Plastics Processing Product Line
Plate Dies 1996 Coextrusion of plastics of more than three layers 1.8
High-performance extruders 1995 High quality film at high output rates 3.7

Confectionery Processing Product Line
Flexible production system 1995 Production of white caramel 0.7
Electronically-controlled 1995 Increased reliability, lower maintenance, more 1.9
forming and cutting devices precise cutting

Product Recovery Product Line
SDF (Surface Densified 1997 Advanced finishing technology to achieve 0.5
Finish) improved efficiencies
MikroTex 1996 High efficiency membrane technology to reduce 2.2
(Glass/Liquid/Specialty operating expense
Substrates)
</TABLE>

Examples of principal research and development projects currently underway
are set forth in the table below:

<TABLE>
<CAPTION>
Initiative Objective Timing
- ----------------------- --------------------------------------------------- --------------------------------
<S> <C> <C>
Rapid expansion of Particle formation through high pressure, Early stage. Tests for
supercritical supersaturation and decompression to produce customers expected in 1998,
solutions ultra-fine, high-purity particles. Nano-fine commercialization expected
additions are more efficient and react more in 1999.
quickly. Targeted markets are pharmaceutical,
food and agriculture industries.

MikroTemp brand of Wet chemical method to produce new materials Research for ceramic coating
ceramic coating and nano-sized particles. Fields of application of filter media completed.
are ceramic coating on filter media to increase Market introduction expected
temperature and chemical resistance and ceramic in 1998, including potential
coating and protection of metal surfaces to sale of technology to a third
improve corrosion resistance. party with a license for use of
technology on filter media.

Flame synthesis with Create particles from gas phase and charge Pilot line operating.
electrical charging electrically to better control size, distribution Cooperative agreements with
(bi-polar technology) and morphology. Technology helps to upgrade customers concluded with
quality of flame reacted metal oxides such as options for licenses. Market
silicon dioxide and carbon black, and also introduction expected in 1999.
allows production of ceramic powders in the
low nano-size range.
</TABLE>

38
<PAGE>

<TABLE>
<CAPTION>
Initiative Objective Timing
- --------------------- ----------------------------------------------- ----------------------------------
<S> <C> <C>
Unique classifier Specific applications with maximum Concepts completed and
classification efficiency and yield. design initiated, customer
testing expected in late 1998,
commercialization expected
in 1999.

Mill and Classifier Low-energy mill for a wide range of Trials with first prototype
applications. started, customer testing
expected in late 1998,
commercialization expected
in 1999.

Long gap mill Development of a high-speed fine impact mill. Prototype completed, customer
testing expected in late
1998, commercialization
expected in 1999.

Barrier Film System Produce multilayer film with application Technology ready for market
specific properties. introduction in United States
in 1998. Pilot line in operation.
Cooperative agreements with
one customer concluded and
others under discussion.
</TABLE>

Research Partnerships

Hosokawa often provides its powder processing and product recovery
equipment to universities in exchange for Hosokawa-sponsored research and
development work. This has resulted in the formation of research partnerships
with a number of universities. These research partnerships, among other things,
have led to the development of new products and processes which incorporate
Hosokawa's products such as a new type of Wet Electrostatic Precipitator,
electro cyclone, bi-polar technology for nano powders, fermentation process,
ceramic fabric coating process, and inline particle size measurement products.
These partnerships increase the Company's name recognition in the research
community as well as in the industries the Company serves. Partnership
universities are set forth in the table below:

Europe: Germany Netherlands
University of Cottbus University of Delft
University of Karlsruhe University of Wageningen
University of Munich
University of Saarbrucken

U.S.: New Jersey Institute of Technology
Pennsylvania State University
State University of New York (Stony Brook)
University of Arkansas
University of Florida

Hosokawa also provides a forum for publication and discussion of the most
up-to-date research in its field by funding, along with HMC, the Hosokawa
Powder Technology Foundation, which publishes a journal entitled "KONA Powder
and Particle" (KONA is Japanese for "powder"). KONA's mission is to publish
research findings and papers covering a broad spectrum of powder sciences and
technology, discussing both fundamental principles and practical applications.
All research papers published in KONA are reviewed by its Editorial Committee
prior to publication. The KONA Editorial Committee is comprised of over 30
prominent researchers from world leading universities in particle and science
technology. Through these initiatives, the Company accomplishes the following:
(i) establishes and maintains Hosokawa's relationship with these leading
academicians which contributes to attracting noted research partners for the
Company's advanced technical development programs; (ii) reinforces its
reputation as a leader in the field of particle science research, and (iii)
informs the Company of new developments in the academic arena.

39
<PAGE>

Acquisitions

Hosokawa participates in a fragmented industry which management believes
provides many strategic acquisition opportunities. In the past, the Company
grew through strategic acquisitions and mergers with companies whose businesses
were related to the Company's businesses. See "--History of the Company." This
acquisition strategy helped the Company to evolve into a primary supplier of
highly engineered, state of the art integrated processing and product recovery
technology solutions. Hosokawa expects to continue growing through strategic
acquisitions that can provide complementary operations or acquiring specific
companies whose operations, products and capabilities are superior in a
particular area. Hosokawa has purchased seven companies and selected assets of
another company since fiscal 1988. The following acquisitions contributed 54.8%
to the Company's net sales in fiscal 1997, as set forth in the table below:

<TABLE>
<CAPTION>
Fiscal
Year (Dollars
Acquired Company Product Lines Countries in millions)
- ---------- ------------------ ------------------------------------ --------------------- -------------
<S> <C> <C> <C> <C>
1988 Alpine AG powder and particle processing, US, UK, France, $115.4
plastics processing Germany, Italy
1989 Filter Tubes product recovery France 9.7
E.u.r.l.
1990 Omal srl plastics processing Italy (subsequently N.A.
discontinued)
1992 Bepex powder and particle processing and US, UK, Germany, 51.5
Corporation confectionery processing Netherlands
1995 Procequipo S.A. powder and particle processing Mexico 0.1
de C.V. (distribution)
1996 Ter Braak B.V. confectionery processing Netherlands 8.5
1996 Kreuter GmbH confectionery processing Germany 8.8
(selected assets)
1997 L.E. Stott Ltd. powder and particle processing UK 3.7
------
$197.7
======
</TABLE>

The Company's acquisition in 1996 of Ter Braak B.V. and certain assets of
Kreuter GmbH, for example, allowed the Company to combine the confectionery
equipment and systems of those two companies with the Company's existing Hutt
line of confectionery operations which gave the Company the ability to provide
totally integrated processing solutions for confectionery producers. This
capability has resulted in several orders that management believes might have
otherwise gone to competitors. The Company's acquisition in 1997 of L.E. Stott
Ltd. gave the Company sophisticated hygenic packaging technology which
complemented the Company's powder and particle processing product line with a
significant presence in the pharmaceutical industry.

The Company has entered into an agreement to acquire certain assets with a
book value of approximately $2.0 million and to assume certain liabilities of
approximately $1.0 million of Polymer Systems, Inc. ("Polymer"), a privately
held company, located in Berlin, Connecticut for a purchase price of
approximately $2.7 million. Polymer is engaged in the design, manufacture and
sale of particle size reduction equipment. The Company also signed a letter of
intent on July 9, 1998 with respect to the acquisition of all of the stock of a
UK company, located near Manchester, England for approximately $1.6 million. The
Company is privately held and is engaged in the design, assembly and sale of
airflow booths used by the pharmaceutical, fine chemical and food industries in
the packaging and movement of product. The Company has assets with a book value
of approximately $1.3 million and liabilities of approximately $0.6 million. It
is expected that both acquisitions will close in the Summer of 1998 and that a
portion of the available credit resulting from the repayment of short-term
indebtedness with the proceeds of this Offering will be used for the
acquisitions.

Customers

Hosokawa's core customers include many industrial and consumer products
companies in the chemical, pharmaceutical, film extrusion and plastics,
minerals, metals and food industries, most of which have a global presence.
Management believes that, as developing countries in Asia, Africa, South
America and Eastern Europe evolve into manufacturing and consumption-oriented
societies and Hosokawa's customers expand into these regions, Hosokawa will
grow as its customers develop additional manufacturing facilities and thus have
increased need for the Company's equipment. The top twenty-five customers by
sales accounted for 17.0% of the Company's total net sales for the fiscal year
ended September 30, 1997. In fiscal 1997, no single customer accounted for more
than 2.0% of the Company's net sales. The table below sets forth a
representative list of Hosokawa's customers, grouped by industry:

40
<PAGE>

<TABLE>
<S> <C>
Chemicals: Industrial and Other:
Agfa Gaevert Cabot
BASF Exxon
Degussa Kerr-McGee
Dow Chemical Shell
DuPont Sonoco Products
PPG Xerox
W.R. Grace
Minerals and Metals:
Consumer Products: Alcoa (Aluminum Company of America)
Kingsford ECC (English China Clay)
Procter & Gamble Hoogovens
Huber
Food: Mannesmann Demag
Hershey
Kellogg's Pharmaceuticals:
Nestle Bayer
G.D. Searle
Hoechst AG
Merck
Novartis
Zeneca
</TABLE>

Intellectual Property

Patents and other proprietary rights are important to the Company's
business. It is the Company's policy to seek patent protection for its
inventions, and also to rely upon trade secrets, know-how, continuing
technological innovations, and licensing opportunities to develop and maintain
its competitive position. For example, the Company has entered into an
exclusive licensing arrangement with the University of Karlsruhe for the
manufacture and sale of electrocyclones with spray electrodes for separating
fine particles from a stream of gas. Additionally, the Company has entered into
an exclusive licensing arrangement with the Technology Licensing Bureau (TLB)
of the Higher Education Institutions in Baden Wurttemberg and others for
bi-polar technology, specifically flame synthesis with electrical charging.

The Company owns over 50 United States and foreign patents and presently
has over 20 patent applications pending. These patents expire at various times
over the next 15-17 years. While these patents and patent applications are
important in the aggregate to the Company's competitive position, no single
patent or patent application is material to the Company. The Company has also
developed a number of proprietary components that form part of its delivered
equipment and systems. Hosokawa Micron and the Hosokawa Micron logo are
registered trademarks of HMC and are licensed to the Company for an annual fee
of $50,000. Alpine, Bepex, MikroPul, MikroPulverizer, Rotoplex, MikroCut, PEAC,
Rietz, MikroACM, Solidaire, Pharmapaktor, Schugi, Kreuter, Kompaktor, Stott,
Vrieco-Nauta, Mikro, MikroPulsaire, Mikrotex and Pop-Top, are among the over
150 trademarks or registered trademarks of the Company and affiliated
companies. "PolyQuest" is a registered service mark of Hosokawa Bepex
Corporation. "Process Technologies For Tomorrow" and "Hosokawa Pharma-Tech
Center" are service marks of the Company. See "Certain Transactions."

History of the Company

The Company is a 98.0%-owned subsidiary of HMC, a publicly-traded Japanese
corporation headquartered in Osaka, Japan and listed on the Osaka and Tokyo
stock exchanges. HMC was founded in Osaka, Japan in 1916 under the name
Hosokawa Iron Works. In 1960, Hosokawa Iron Works established its first
overseas sales office in the United Kingdom, began licensing arrangements with
Pulverizing Machinery Co. in the United States in 1962 and opened offices in
Cologne, Germany in 1970. In 1980, Hosokawa Iron Works changed its name to
Hosokawa Micron Corporation.

In 1982 to 1983, HMC acquired Nauta, Vrieco and Isem in Holland and in
1985 acquired US Filter Systems, Inc. and its worldwide subsidiaries, which
included Pulverizing Machinery Co. In 1986, the Company was incorporated in
Delaware and HMC reorganized all of its non-Japanese operations under the
umbrella of Hosokawa.

41
<PAGE>

Since fiscal year 1987, the Company has acquired seven companies and the
selected assets of another company. See "--Acquisitions."

HMC currently engages in generally the same businesses as the Company
except for the plastics and confectionery processing product lines. For the
fiscal year ended September 30, 1997, HMC had net sales of $484.5, of which
$357.1 were attributable to net sales of the Company (excluding intercompany
sales). For a description of certain transactions between the Company and HMC,
see "Certain Transactions."

HMC, after completion of the Offering, will own 70.4% of the outstanding
Common Stock (67.5%, if the Underwriters' over-allotment option is exercised in
full) and continue to exert substantial control over the affairs of the
Company. See "Risk Factors--Control of the Company." In addition, four members
of the board of directors of the Company are members of HMC's senior management
and one member of the Company's board of directors is on HMC's board of
directors. See "Management--Directors and Executive Officers."

Manufacturing and Other Facilities

The Company achieves high-quality manufacturing through increasing levels
of automation, continuous improvement in production processes and employee
training. The Company operates 17 manufacturing facilities and 17 Technical
Centers. Nine of the Company's major manufacturing and engineering units have
achieved the International Standards Organization's ISO 9001 or 9002
certification and others are in the process of securing such certification. The
ISO series is an internationally recognized quality system which addresses all
areas of quality assurance, including sales, technical support, operations and
management.

The following table indicates the location, activity and size, and whether
it is owned or leased, of each of the Company's principal facilities:

<TABLE>
<CAPTION>
Own or Lease
Location Activity(1) Lease Square Feet Expiration
- -------------------------------------------- ----------------- -------- ------------- -----------
<S> <C> <C> <C> <C>
Minneapolis, Minnesota, USA SM, TC, E, A Owned 48,600
New York, New York, USA A Leased 6,900 2001
Santa Rosa, California, USA M, E, A Owned 139,500
Trenton, South Carolina, USA M, SM, TC, E, A Leased 96,000 2008
Natick, Massachusetts, USA SM, TC, E, A Owned 27,000
Summit, New Jersey, USA SM, TC, E, A Owned 158,100
Brampton, Ontario, Canada M, SM, TC, E, A Leased 18,490 2001
Augsburg, Germany M, SM, TC, E, A Owned 285,000
Cologne, Germany M, SM, TC, E, A Owned 204,275
Leingarten-Heilbronn, Germany M, SM, TC, E, A Owned 72,350
Hamburg, Germany M, SM, E, A Leased 49,400 2004
Rotterdam, Netherlands M, SM, TC, E, A Owned 21,500
Doetinchem, Netherlands M, SM, TC, E, A Owned 339,800
Runcorn, England M, SM, TC, E, A Owned 20,800
Bacup, England M, SM, E, A Leased 10,600 2001
Pontcharra, France M, A Owned 24,100
Wetherill Park, New South Wales, Australia SM, E, TC, Owned 10,200
</TABLE>

- ----------------
(1) M is manufacturing and assembly; SM is sales and marketing; TC is Technical
Center; E is engineering; and A is administrative and corporate.

The Company's stand-alone equipment and components for its systems are
either wholly manufactured at one of the Company's manufacturing facilities or
supplied by third-party vendors and made to the Company's specifications. The
determination of whether components of the Company's systems are manufactured
by the

42
<PAGE>

Company or by subcontractors is determined on a case-by-case basis, based
largely on the size and complexity of the equipment or systems ordered by the
customer, and whether or not it contains proprietary technology of the Company.
With respect to product recovery systems only, such determination is based
largely on the region where the customer's order will be delivered and whether
or not the customer has specified sole source suppliers for components of the
Company's custom-designed systems. In addition, certain components which are
used in the Company's manufacture and assembly of product recovery equipment
and systems such as diagnostic equipment and valves are made to the Company's
specifications by unaffiliated vendors and suppliers.

The principal raw materials, components and subsystems used in the
manufacturing of the Company's equipment and systems include stainless and
carbon steel, electronic components, pumps, compressors, motors, fans,
programmable logic controls, hydraulic components, visual and mechanical
sensors, bearings, lasers, plastic film rolling equipment ("winders"),
conveyers and gearboxes. The Company is not dependent on any one supplier of
raw materials, components or subsystems, although it does obtain certain
components and subsystems from a limited number of sources. See "Risk
Factors--Dependence on Component Availability, Subcontractor Performance and
Key Suppliers." Although the Company does not, in most areas, maintain a
substantial inventory of raw materials, components or subsystems, it believes
that there are adequate alternative sources of supply of sufficient quality and
quantity. In addition, equipment manufactured at several of the Company's
facilities is often used by another operating subsidiary as a component in the
assembly of its systems such as the manufacture of classifiers and mills in the
Company's Doetinchem, Netherlands facility for sale by certain European
operations.

A number of processes are undertaken at the Company's manufacturing
facilities depending upon the equipment and systems being produced such as:
forming of sheet metal, computer numeric control ("CNC") machining, turning and
milling and the plasma arc cutting of steel used in the construction of
vessels, augers and metal housings. The Company also engages in the heat
treating of certain materials to increase their durability. The interface
between the Company's computer aided design and CNC operations assures
accuracy, precision manufacturing and increased production. Additionally, the
Company employs advanced techniques such as robotic welding technology for
increased fabrication efficiency.

Sales and Marketing

General

The Company markets and sells its equipment and systems directly to
customers in the industries it serves and to engineering firms which provide
entire systems to end-users. The Company's powder and particle processing,
plastics processing and product recovery equipment and systems are sold through
the Company's direct sales force and sales representatives. The Company's
confectionery equipment is sold primarily through sales representatives. In
addition, the Company has assigned in-house technical sales engineers to the
confectionery product line who have responsibility for support of confectionery
sales in each territory.

Contracting

The Company does business with its customers through a number of
contractual arrangements, although most of the Company's sales are governed by
individual purchase orders. The Company generally requires an advance payment
of approximately 20.0% of the total order purchase price for all orders except
with regard to filter media and spare parts and thereafter receives periodic
progress payments from the customer during the completion phase of the product
or system. This generally results either in the Company receiving about 90.0%
of the order purchase price by the time of shipment or the Company having a
letter of credit to secure payment of the balance of the purchase price. For
all other orders, the Company bills the customer when the equipment is shipped.
The Company also sells its products under confirmed letters of credit on export
sales which secure up to 100% of the purchase price. The Company's contracts
generally contain performance guarantees for one year.

The Company promotes and sells its products and systems by emphasizing its
expertise, through advertising and promotion and through its Technical Centers,
including the Hosokawa Pharma Tech Center and the PolyQuest Polymer Development
Center, as follows:

Expertise

Sales of the Company's equipment and systems require the Company's sales
personnel to have a high degree of technical expertise and extensive knowledge
of the industries served. Almost all of the Company's sales personnel are
trained in engineering, including a large proportion with mechanical or
chemical engineering degrees.

43
<PAGE>

Furthermore, because the Company markets its products in large part through
direct contact with its customers, the Company's sales personnel have extensive
knowledge of their customer's needs and processing requirements.

Advertising and Promotion

The Company employs a number of strategies to maintain its strong brand
name recognition and to market its products. In addition to advertising in
industry trade journals and directories, the Company relies heavily on direct
contact with its customers in each market through face-to-face meetings with
customers, seminars, trade shows, industry conferences, and targeted direct
mail. For instance, the Company conducts in-house seminars for its customers
with invited industry speakers, members of academia and in-house product
specialists. In face-to-face meetings with its customers, the Company promotes
its products and systems generally by emphasizing product quality, potential
reduction of customers' costs, process know-how, ease of maintenance, and the
timely completion and installation of systems. In connection with the Company's
highly engineered systems, in particular, the Company's sales personnel are
often in direct contact with its customers' more senior production and
management personnel due to the sophisticated specifications required of such
systems and the relatively large costs involved.

The Company regularly participates in the largest trade shows around the
world including: National Plastics Exhibition (NPE), ACHEMA, Powder and Bulks
Solids Exhibition, AAPS, Interphex, International Baking Industry Exposition
(IBIE), Internationale Susswaren Messe (ISM), POWTECH, the K-Show, and the
Chemical Processing Industry Exposition where the Company updates its customers
about new product introductions, product innovations and new or improved
technologies. Additionally, the Company participates in smaller trade shows and
conferences structured for regionalized markets.

The Company also promotes its products and systems by emphasizing its
ability to manufacture, assemble, install and service them in various regions
around the world. In particular, the Company's global presence has provided a
competitive advantage with the ability to serve customers from regional
locations.

Additionally, the Company's personnel present technical papers regarding
the Company's products and technologies in recognized industry conferences such
as the Imaging Materials Seminar hosted by the Diamond Research Corporation.
The awareness of the Company's technical leadership is enhanced through the
publication of technical articles in trade journals. The Company partners with
leading universities such as Penn State and the University of Florida for the
purpose of co-sponsoring international symposiums on powder sciences and
technologies. See "-- Research and Development."

Technical Centers, Hosokawa Pharma Tech Center and PolyQuest Polymer
Development Center

The Company also promotes its products and systems through its Technical
Centers located in a number of countries including the United States, Germany,
and the Netherlands, and through the Hosokawa Pharma Tech Center in Summit, New
Jersey, United States and the PolyQuest Polymer Development Center in
Minneapolis, Minnesota, United States. See "-- Research and Development" and
"-- Manufacturing and Other Facilities." These Technical Centers and the Pharma
Tech Center are equipped and operated for the purpose of conducting original
research work, demonstrating various processing systems, on-site testing of
end-product and custom processing of customers' products. The Technical Centers
and Pharma Tech Center provide customers with a demonstration of the Company's
processing systems using the customer's raw materials followed by on-site
testing of the characteristics of the end-product deemed essential by the
customer, e.g., physical properties of powders such as particle size, density,
dryness and flowability. Successful testing also allows the Company to provide
certain guarantees for the end product. Finally, the Technical Centers provide
technical support for customers' development of new products and their
manufacture. In addition to providing a source of revenue to the Company, the
Technical Centers are an important component of the Company's marketing
efforts.

Backlog

The Company's backlog was as follows as of the dates indicated (dollars in
millions):

<TABLE>
<CAPTION>
March 31, 1997 March 31, 1998
---------------- ---------------
<S> <C>
$ 130.4 $ 129.0
</TABLE>

The Company expects that approximately 7.0% of the Company's backlog as of
March 31, 1998 will not be filled before the end of the Company's 1998 fiscal
year.

44
<PAGE>

Health, Safety and Environmental Requirements

The Company is subject to various federal, state, local and foreign laws
and regulations governing health, safety and the environment. These laws and
regulations, generally administered by the United States Environmental
Protection Agency, the Occupational Safety and Health Administration and
various other federal, foreign, state and local environmental and health and
safety agencies, impose requirements on the Company's manufacturing operations,
including standards governing worker health and safety, hazardous materials
storage and management, hazardous waste generation, handling and disposal, and
air and water emissions. Based on the Company's periodic review of its
environmental management policies and practices, the Company believes that it
is currently in material compliance with the applicable health, safety and
environmental laws and regulations. Notwithstanding such compliance, if damage
to persons or contamination of the environment has been or is caused in the
conduct of the Company's business or by hazardous substances or wastes used in,
generated or disposed of by the Company, the Company may be held liable for
such damages and be required to pay the cost of investigation and remediation
of such contamination. Moreover, changes in federal, foreign or state laws or
regulations or the discovery of unknown environmental conditions could require
additional expenditures by the Company. There can be no assurances that any
such contamination or evolving environmental requirements will not require the
Company to make material expenditures in the future.

Product Liability; Insurance

The manufacturing and sale of the Company's products involve a risk of
product liability claims. The Company is currently subject to three product
liability claims, all but one of which relate to a discontinued product line of
the Company. Pursuant to the Company's various insurance policies, the Company
is self-insured up to the first $0.2 million of claims for each policy year and
$1.0 million in the aggregate. For the discontinued product line, the Company
is self-insured up to the first $1.0 million of claims for each policy year and
$1.0 million in the aggregate. Although no assurance can be given, the Company
believes that its product liability insurance is adequate. Product liability
insurance, however, could cease to be available or could cease to be available
on acceptable terms, either as a function of the market for product liability
insurance for companies like the Company or the Company's own claims
experience. See "Risk Factors--Risk of Product Liability Claims; No Assurance
of Adequate Insurance."

Employees

At March 31, 1998, the Company had approximately 2,000 employees, of which
900 were engaged in manufacturing, 300 were engaged in engineering, 200 were
engaged in administration, finance and human resources, 100 were engaged in
research and product development, and 500 were engaged in sales and marketing
(including 240 of which are engineers). The employees of the facility in Santa
Rosa, California are represented by a union. Employees in each of the European
facilities are represented by a worker's counsel and are members of a national
union which negotiates not with the Company directly, but with the appropriate
national industry association, for resolution of issues that affect the
employees. The Company as a member of the national industry association is
bound by the results of the negotiations between the national industry
association and the national union. The Company has not experienced a work
stoppage in the last five years. Management believes its relationship with its
employees is good.

Legal Proceedings

The Company is a defendant in several product liability cases typical for
a company in the powder and particle, confectionery and plastics processing
equipment and product recovery equipment industries. The Company also is
involved in other proceedings and claims of various types, including Equal
Employment Opportunity Commission investigations relating to claims of alleged
discrimination and reverse discrimination and claims asserting trademark
infringement. The Company also is plaintiff in a copyright infringement
proceeding in the United Kingdom. Management believes the disposition of these
matters will not have a material adverse effect on the Company's financial
position. See "Certain Risks--Risks Related to Intellectual Property
Protection."

45
<PAGE>

MANAGEMENT

Directors and Executive Officers

The following table sets forth information regarding the executive
officers, directors and other key employees of the Company.

<TABLE>
<CAPTION>
Name Age Positions
- ------------------------------------ ----- ---------------------------------------------------
<S> <C> <C>
Masuo Hosokawa ..................... 73 Chairman of the Board of Directors and Director
Yoshio Hosokawa .................... 46 Vice Chairman of the Board of Directors
and Director
Isao Sato(3) ....................... 55 President and Chief Executive Officer and Director
William J. Brennan(3)(4) ........... 57 Executive Vice President, Chief Financial Officer
and Director
Dietmar Mayerhauser(3) ............. 58 Vice President and President--
Powder and Particle Processing
Gordon E. Ettie(3) ................. 59 Vice President and President--Product Recovery
Dieter Hummel ...................... 59 Vice President and President--Confectionery
Achim Vogel ........................ 57 Vice President and President--Plastics Processing
Gerhard Kappeler(3) ................ 65 Vice President--Technology
Simon H. Baker(3)(4) ............... 54 Vice President--Taxes, General Counsel and
Secretary
Yoshizo Yamanokuchi ................ 59 Director
Fumio Sawamura ..................... 50 Director
Yoshiyuki Kawashima(1)(2) .......... 62 Director
David J.W. Grant(2) ................ 61 Director
Paul J. Powers(1)(2) ............... 63 Director
</TABLE>

- ----------------
(1) Member of the Audit Committee.

(2) Member of the Compensation Committee.

(3) Member of the Executive Committee.

(4) Member of the Retirement Plans Committee.

Masuo Hosokawa is Chairman of the Board of Directors and a Director of the
Company. He has held such positions since the Company was founded in 1986. He
was also President of the Company from 1986 to 1990. Mr. Hosokawa is Chairman
of the Board of Directors of HMC and also Chairman of the Board of Toho Sangyo
K.K. Ltd., a Japanese corporation which is a substantial stockholder of HMC
("Toho Sangyo"). See "Principal Stockholders and Selling Stockholder." Mr.
Hosokawa is the father of Yoshio Hosokawa and the father-in-law of Fumio
Sawamura.

Yoshio Hosokawa is Vice Chairman of the Board of Directors and a Director
of the Company. He has been a Director since 1986 and Vice Chairman since 1996.
Mr. Hosokawa has held the positions of Representative Director and President of
HMC since December, 1995. Mr. Hosokawa was Executive Vice President of the
Company from 1992 to 1996. Mr. Yoshio Hosokawa is the son of Mr. Masuo Hosokawa
and the brother-in-law of Mr. Fumio Sawamura.

Isao Sato is President and Chief Executive Officer of the Company. He
became President in 1990 and was elected Chief Executive Officer of the Company
in 1996. Mr. Sato was President of the European Block of the Company from the
establishment of the Company's European operations to 1995. He has been a
Director of the Company since 1986 and is a Director of HMC. Mr. Sato graduated
from the Osaka Institute of Technology with a B.A. in Mechanical Engineering.

William J. Brennan is Executive Vice President and Chief Financial Officer
of the Company. Mr. Brennan previously served in several executive positions
and was promoted to his current position in 1997. He has served as a Director
of the Company since 1990. Mr. Brennan graduated from Bryant College with a
BSBA.

Dietmar Mayerhauser is a Vice-President of the Company and was elected
President of Powder and Particle Processing on January 1, 1998. Mr. Mayerhauser
joined the Company in 1964 and held various management positions at the
Company's Hosokawa Alpine AG subsidiary, becoming President in 1992. He served
as President

46
<PAGE>

of the Company's European operations from 1995 to 1997. Mr. Mayerhauser
graduated from the Technical University of Munich in 1964 with a degree in
engineering.

Gordon E. Ettie is a Vice-President of the Company and was elected
President of Product Recovery January 1, 1998. Mr. Ettie joined the Company in
1994, and was elected a President of the Company's Hosokawa Bepex Corporation
subsidiary. In 1996, he was appointed President of the Americas Powder and
Particle Processing operations. From December 1992 to December 1993 he was
President and CEO of Aqua Air, Inc. Mr. Ettie is a graduate of the University of
Florida with a Bachelor's Degree in Chemical Engineering. He has also
participated in the Tuck Executive Program at Dartmouth College and is a member
of the Process Equipment Manufacturers Association.

Yoshiyuki Kawashima was elected a Director of the Company in 1997. Mr.
Kawashima retired from Mitsui & Co. (USA), Inc. ("Mitsui") in 1997, after 37
years. He served on the Board of Bioproducts Inc., United Grain Corporation and
Intermodal Terminal, Inc., subsidiaries of Mitsui and currently is an advisor
to Mitsui's Chemical Division. Mr. Kawashima is also a member of the Board of
Directors of various civic organizations including the Mitsui USA Foundation,
the Keimei Fund, Walter Hoving Home, the External Board of Texas A&M University
and the International Advisory Board of the University of Houston. A graduate
of Tokyo University, Mr. Kawashima holds a B.A. in Law. He also attended
Columbia University in New York and participated in the Advanced Management
Program at Harvard School of Business in Boston.

David J.W. Grant was elected a Director of the Company on April 15, 1998.
Dr. Grant is a Professor of Pharmaceutics, College of Pharmacy, University of
Minnesota, Minneapolis. He graduated from Oxford University in the UK with a
B.A. in Chemistry in 1960 and a D. Phil. in Physical Chemistry in 1963. He
received an M.A. from Keble College in 1963, and D.Sc. for recognized published
research on the physical chemistry of pharmaceutical systems in 1990. Dr. Grant
was appointed to the Endowed Chair in Pharmaceutics, University of Minnesota in
1988. In January 1994, he became an Associate Editor of the Journal of
Pharmaceutical Sciences and is author or coauthor of over 120 scientific
articles and reviews. Dr. Grant is a Fellow of AAPS and the Royal Society of
Chemistry, and a member of AACP, ACA, ACS AIChE and APhA.

Paul J. Powers was elected a Director of the Company on April 15, 1998.
Mr. Powers is the Chairman of the Board and Chief Executive Officer of
Commercial Intertech. He joined Commercial Intertech in 1984 as President,
Chief Operating Officer and Director. Mr. Powers serves on the Board of
Directors of First Energy Corporation, Twin Disc Incorporated, Global Marine
Inc. and serves as the Chairman of CUNO Inc. Mr. Powers holds a B.A. in
Economics from Merrimack College in North Andover, Massachusetts and an M.A. in
Business Administration from George Washington University in Washington, D.C.

Dieter Hummel was elected a Vice-President and President of Confectionery
Processing on January 1, 1998. Mr. Hummel joined the Company in 1964 and has
held a number of management positions in both American and European operations.
Mr. Hummel graduated from the State Engineering School of Machine Design in
Germany with a degree in mechanical engineering. He is a member of VDMA (an
association of German machinery and systems manufacturers) and VMI (an
association of the German metal industry).

Achim Vogel was elected a Vice-President and President of Plastics
Processing on January 1, 1998. Mr. Vogel joined the Company in 1968 and he held
various management positions within Hosokawa Alpine AG including the position
of General Manager of the Technical Division from 1985 to 1992. He was
Executive Vice President and a Member of the Management Board from 1992 to 1995
before becoming President in 1995. Mr. Vogel graduated from the University of
Karlsruhe with an engineering degree in Mechanical and Chemical Processing
Technology.

Gerhard Kappeler was appointed Vice President of Technology of the Company
in 1994. He previously held the position of Managing Director of Hosokawa
MikroPul GmbH. Mr. Kappeler joined the Company in 1961. A member of the German
Engineering Association, he graduated in 1956 from the University of Stuttgart
with a degree in mechanical engineering.

Simon H. Baker was appointed Vice President-Taxes and General Counsel of
the Company in 1997. He previously held the position of Vice President Tax and
Legal Affairs. Mr. Baker joined the Company in 1989. He is a graduate of
Brooklyn College where he received a B.A. in Economics, Syracuse University
College of Law where he attained a JD degree and of New York University School
of Law where he received a Masters of Law in Taxation (LLM). Mr. Baker is also
Secretary of the Company.

Yoshizo Yamanokuchi has served as a Director of the Company since 1994.
Mr. Yamanokuchi held the position of President of certain of the Asian and
Australian operations of the Company from 1994 to 1996. He is a Managing

47
<PAGE>

Director of HMC, which he joined in 1990, after over 25 years of service with
The Sanwa Bank Ltd., where from 1987 to 1990, he held the position of President
of The Canada Sanwa Bank Ltd.

Fumio Sawamura served as Vice Chairman of the Company from 1992 to 1996.
He held various executive positions with the Company since its founding in
1986. Mr. Sawamura is a Senior Managing Director of HMC and has served as a
Director of the Company since 1986 and is also a Director of Toho Sangyo. Mr.
Fumio Sawamura is the son-in-law of Mr. Masuo Hosokawa and the brother-in-law
of Mr. Yoshio Hosokawa.

Board of Directors

The Company's certificate of incorporation divides the board of directors
into three classes, with each class holding office for staggered three-year
terms. The terms of Masuo Hosokawa, Yoshiyuki Kawashima and Paul J. Powers are
scheduled to expire at the annual meeting of stockholders in 1999; the terms of
Isao Sato, Fumio Sawamura and William J. Brennan are scheduled to expire at the
annual meeting of stockholders in 2000; and the terms of Yoshio Hosokawa,
Yoshizo Yamanokuchi and David J.W. Grant are scheduled to expire at the annual
meeting of stockholders in 2001. At each annual election, the successors to the
class of directors whose term expires at that time will be elected to hold
office for a term of three years to succeed those directors whose term expires,
so that the term of one class of directors will expire each year. The
classification of directors has the effect of making it more difficult to
change the composition of the Board of Directors in a relatively short period.
In addition, the classified board provision could discourage a third party from
attempting to obtain control of the Company, even though such an attempt might
be beneficial to the Company and its stockholders or could delay, defer or
prevent a change in control of the Company.

The Company's officers are elected by the Board of Directors for one-year
terms and serve at the discretion of the Board of Directors. The Company's
independent directors are compensated at the rate of $15,000 per year plus
$1,000 per meeting of the Board of Directors or any committee thereof plus
reimbursement of reasonable expenses incurred in attending such meetings. See
"Principal Stockholders and Selling Stockholder," "Risk Factors--Control of the
Company," "--Anti-Takeover Provisions" and "Description of Capital Stock."

Committees of the Board of Directors

The Board of Directors of the Company has an Audit Committee, an Executive
Committee, a Retirement Plans Committee and a Compensation Committee.

The Company's Board of Directors has appointed at least two directors who
are "non-employee" directors to the Audit Committee. The functions of the Audit
Committee are to meet with the independent public accountants of the Company,
to review the audit plan for the Company, to review the annual audit of the
Company with the accountants, together with any other reports or
recommendations made by the accountants, to recommend whether the auditors
should be continued as auditors for the Company and if other auditors are to be
selected, to recommend the auditors to be selected, to meet with the internal
auditors for the Company and to review with them and the auditors for the
Company the adequacy of the Company's internal controls, and to perform such
other duties as shall be delegated to the Audit Committee by the Board of
Directors, including review and approval of the arrangements between the
Company and HMC and its affiliates.

The functions of the Executive Committee are to exercise all the authority
of the Board of Directors whenever the Board of Directors shall not be meeting
except for those functions assigned to other committees of the Board, provided,
however, that the Executive Committee does not have the power to amend or
repeal any resolution of the Board of Directors that by its terms is not
subject to amendment or repeal by the Executive Committee, and the Executive
Committee does not have the authority of the Board of Directors in reference to
any action which, by the statutes governing corporations of the Company's state
of incorporation, may be taken only by the Board of Directors or the
shareholders.

The functions of the Retirement Plans Committee are to administer all
pension, profit-sharing and other tax-qualified retirement plans for the
Company and its U.S. subsidiaries, including establishment of investment
policies, the review of investment managers, the recommendation on the
appointment of investment managers and trustees to the Board of Directors, the
appointment of plan administrators and other service providers to the plans and
the overall review and administration of plan benefits. The Retirement Plans
Committee is to be the named fiduciary for all of the Company's and its U.S.
subsidiaries' tax-qualified retirement plans and programs.

The Company's Board of Directors has appointed a Compensation Committee
which is required to be comprised of two or more directors all of whom are
intended to qualify as "outside directors" under Section 162(m) of the Internal

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<PAGE>

Revenue Code of 1986, as amended (the "Code"), and "non-employee" directors
under Rule 16b-3 of the Exchange Act. The functions of the Compensation
Committee are to recommend to the Board of Directors policies and plans
concerning salaries, bonuses and other compensation arrangements for the
Company; recommend bonuses and other forms of additional compensation;
establish and review policies regarding management prerequisites; award and
administer salaries, bonuses and other forms of additional compensation for the
Company, including senior executives; to administer any supplemental executive
retirement programs; and to carry out all acts permitted or required to be
performed under terms of any and all stock incentive and stock option plans
including the granting of options to eligible persons.

Limitations on Liability

The Company's Restated Certificate of Incorporation contains a provision
that, subject to certain exceptions, limits the personal liability of the
Company's directors for monetary damages to the Company and its stockholders
for breaches of fiduciary duty owed to the Company or its stockholders.

In addition, the Company expects to enter into agreements with its
directors and officers providing for indemnification of those individuals under
certain circumstances.

The Company has obtained director and officer liability insurance that
insures the Company's directors and officers against certain liabilities.

Executive Compensation

The following table sets forth certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer and each of the Company's remaining executive officers
(the "Named Executive Officers") for the fiscal year ended September 30, 1997.

Summary Compensation Table

<TABLE>
<CAPTION>
Long-Term
Compensation
-------------
Annual Compensation(1) Awards
------------------------------------------- -------------
Other Annual Securities
Compensation Underlying All Other
Name and Principal Position Salary ($) Bonus ($) ($) Options Compensation ($)
- ----------------------------------------- ------------ ----------- -------------- ------------- --------------------
<S> <C> <C> <C> <C> <C>
Isao Sato, President &
Chief Executive Officer ................ 270,000 120,000 23,974 8,990 8,242(2)(3)

William J. Brennan,
Executive Vice President &
Chief Financial Officer ................ 248,004 100,000 6,433 6,743 10,500(2)(4)

Dietmar Mayerhauser,
Vice President & President--
Powder & Particle Processing ........... 233,533 84,130 19,107 6,743 62,129(5)

Dieter Hummel, Vice President &
President--Confectionery ............... 248,498 50,458 4,456 0 54,607(5)

Gordon E. Ettie, Vice President &
President--Product Recovery ............ 190,046 90,000 1,561 6,743 10,650(2)(4)

Achim Vogel, Vice President &
President--Plastics Processing ......... 232,326 79,526 8,252 1,798 63,490(5)
</TABLE>

- ----------------
(1) The compensation described in this table does not include medical, group
life insurance or other benefits available generally to all salaried
employees of the Company, as well as certain perquisites and other
personal benefits, the value of which does not exceed the lesser of
$50,000 or 10.0% of the named executive officer's total salary and bonus
reported in this table.

(2) Includes premiums on $300,000 of life insurance provided to each executive
under the Company's Executive Group Term Life Insurance Plan. The Company
provides Messrs. Sato, Brennan and Ettie with executive life

49
<PAGE>

insurance which is paid by the Company. This coverage equals
two-and-one-half times annual base salary to a maximum of $300,000 for
corporate officers and unit managers.

(3) Represents the amount of contributions by HMC to the governmental Social
Welfare Pension on behalf of the executive.

(4) Company contributions to the Company's Section 401(k) Savings and
Retirement Plan.

(5) Company contributions to the retirement plans maintained by the Company's
European subsidiaries which are generally available to the employees of
such subsidiaries and to retirement programs maintained by these
subsidiaries for the benefit of the Named Executive Officer.

50
<PAGE>

Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Value at
Assumed Annual Rates
of Stock
Price Appreciation
Individual Grants for Option Term
-------------------------------------------------------------------- -------------------
Number of % of Total
Securities Options Granted Exercise
Underlying Options to Employees in price per
Name Granted (#) 1997 (%) share ($) Expiration Date 5% ($) 10% ($)
- ----------------------------- -------------------- ----------------- ----------- ----------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Isao Sato ................... 8,990 10.3 9.89 2007 55,918 141,682
William Brennan ............. 6,743 7.7 9.89 2007 41,941 106,270
Dieter Hummel ............... 0 0 -- -- 0 0
Dietmar Mayerhauser ......... 6,743 7.7 9.89 2007 41,941 106,270
Achim Vogel ................. 1,798 2.1 9.89 2007 11,184 28,336
Gordon Ettie ................ 6,743 7.7 9.89 2007 41,941 106,270
</TABLE>

Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying
Unexercised at Fiscal Value of Unexercised In-the-Money
Year-End Options at Fiscal Year-End
----------------------------- --------------------------------
Shares Acquired Value Realized Exercisable Unexercisable Unexercisable
Name on Exercise (#) ($) (#) (#) Exercisable ($) ($)
- ----------------------------- ----------------- ---------------- ------------- --------------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Iaso Sato ................... 0 0 0 8,990 0 0
William Brennan ............. 0 0 0 6,743 0 0
Dieter Hummel ............... 0 0 0 0 0 0
Dietmar Mayerhauser ......... 0 0 0 6,743 0 0
Achim Vogel ................. 0 0 0 1,798 0 0
Gordon Ettie ................ 0 0 0 6,743 0 0
</TABLE>

Employment Agreements

The Company has entered into several senior executive employment
agreements dated April 15, 1998 pursuant to which Isao Sato serves as President
and Chief Executive Officer; William J. Brennan serves as Executive Vice
President and Chief Financial Officer; Gordon E. Ettie serves as Vice President
and President--Product Recovery; and Simon H. Baker serves as Vice
President--Taxes, General Counsel and Secretary. Under the agreements, Mr. Sato
receives $290,000, Mr. Brennan receives $265,000, Mr. Ettie receives $215,000
and Mr. Baker receives $205,000 as base annual salary that may be increased
annually, commencing on October 1, 1998, by an amount to be determined by the
Company, in its sole discretion. Those executives are entitled to incentive
compensation pursuant to the terms of the Company's Management Incentive Plan.
The executives are also entitled to participate in all benefit, pension,
retirement, savings, welfare and other employee benefit plans and policies in
which members of the Company's senior management are entitled to participate.
In addition, the Company provides these executives with the use of an
automobile and payments of related expenses, life insurance, long term
disability coverage, medical and dental insurance and other benefits. In the
event of the death of the executive, the Company will have no obligations
except to pay to the estate of the executive any unpaid base salary for the
period prior the executive's death, any awarded but unpaid incentive
compensation, and any other employee benefits under other employee benefit
fringe benefit or incentive plans in accordance with their respective terms.

Each agreement has an initial term of four years commencing on April 15,
1998 and terminating on April 14, 2002. The employment term is automatically
renewed for successive two-year terms unless notice of non-renewal is given by
the Company at least six months prior to the end of the then current term or by
the executive 120 days prior to the effective date of such termination. The
agreements provide for payment in the event of termination by the executive for
good reason or by the Company without cause or non-renewal of the agreement by
the Company. Good reason for termination by the executive includes a Change in
Control of the Company as defined in Section 9.2 of the Company's 1997 Stock
Option Plan, a material demotion, a requirement to perform services outside the
employment site or a breach of the agreement by the Company not cured after 30
days written notice. The severance payments made are equal to the greater of
two times salary plus bonus or the executive's ending compensation for the
remainder of the employment term. No severance payments are made in the event
of termination (i) for cause, (ii) by the executive without good reason or
(iii) after notice, if the executive becomes incapable of performing his
material duties for a period of not less than 180 days.

51
<PAGE>

The agreements also require that no later than five years after the date
the Company's common stock is listed on a United States stock exchange, at all
times during the executive's employment by the Company, the executive must own,
directly or beneficially, the common stock of the Company with an aggregate
fair market value equal to (i) one times his base salary; or (ii) such greater
amount as is required under the current ownership guidelines, if any, as
established by the Board of Directors, but in either case no more than three
times the executive's base salary. The Company may assist the executive in
obtaining financing to effectuate the purchases of common stock.

Hosokawa Alpine Aktiengesellschaft ("Alpine"), a wholly owned subsidiary
of the Company, entered into employment agreements with Achim Vogel dated June
19, 1995 and Dietmar Mayerhauser dated July 1, 1995, pursuant to which they
both serve as Co-Chairman of the Management Board of Alpine. Under these
agreements, the term of Mr. Vogel's appointment commenced on June 19, 1995 and
terminates on November 7, 2000 and Mr. Mayerhauser's appointment was renewed on
March 30, 1995 and terminates on June 30, 2000, unless with three months
notice, such employee's appointment as a member of the Management Board is
rescinded by the Supervisory Board of Alpine for any valid reason. If the
agreement is canceled, a severance equal to twice his annual salary (including
Christmas pay, vacation pay and bonus payments), based on the preceding
calendar year, will be paid. Severance will not be paid if (i) cancellation is
the result of actions of a criminal nature, (ii) cancellation is after such
employee has reached 65, or (iii) if he takes early retirement, resigns or does
not renew the agreement. The severance will be paid at the termination of the
agreement if it is not renewed by Alpine. In the event that such employee
should become permanently unable to perform his duties during the period of the
agreement, the agreement will end on the calendar quarter during which the
permanent disability was determined and he will be entitled to his salary for
12 months thereafter, and in the event such employee becomes temporarily unable
to perform his duties, he will be entitled to his salary for the lesser of 12
months or the remaining term of the agreement. In the event of the death of
such employee, his widow and/or minor children will receive his salary for the
month in which the death occurs and for the lesser of 3 months thereafter and
the remaining term of the agreement. Extension of the agreement must occur no
later than three months prior to its expiration by written agreement between
such employee and Alpine. Under the agreements, Mr. Vogel receives a fixed
salary of 23,000 German marks ($12,443) per month and Mr. Mayerhauser receives
a fixed salary of 24,310 German marks ($13,152) per month, in each case subject
to an annual review and appraisal by the Supervisory Board. A bonus may be paid
at the discretion of the presidential committee of the Supervisory Board,
taking into account the financial results of Alpine and the contribution of
such employee. Such employee is also covered by Alpine's pension plan for
members of the Management Board. Alpine also pays the premium on Alpine's
portion of a government pension plan. Alpine also provides certain insurance
and automobile benefits to each such employee.

Mr. Mayerhauser also entered into an employment agreement with Hosokawa
Micron International B.V., a wholly owned subsidiary of the Company in the
Netherlands ("HMI BV"), dated July 1, 1996, to serve as the Managing
Director--European Block. Under the agreement, the term of Mr. Mayerhauser
commenced June 1, 1996 and continues indefinitely except that both HMI BV and
Mr. Mayerhauser have the right to terminate the agreement in accordance with
Dutch law on 2 months' prior notice. Mr. Mayerhauser's salary, bonus, benefits
and other employment arrangements are governed by his employment agreement with
Alpine as described above, and any salary paid, benefits provided and other
arrangements provided by HMI BV under its agreement reduce such amounts to be
paid to Mr. Mayerhauser under the agreement with Alpine, except that all
pension obligations to Mr. Mayerhauser are paid by Alpine and reimbursed to
Alpine by HMI BV based on the portion of Mr. Mayerhauser's salary paid by HMI
BV.

Stock Option Plan

Background; Purpose; Eligibility. On July 11, 1997, the Board of Directors
of the Company approved the establishment of the Company's 1997 Stock Option
Plan (the "Stock Option Plan"), which was approved by the stockholders of the
Company on July 29, 1997. The following description of the Stock Option Plan is
intended only as a summary and is qualified in its entirety by reference to the
Stock Option Plan. The purpose of the Stock Option Plan is to enhance the
profitability and value of the Company and its affiliates for the benefit of
their stockholders by enabling the Company to grant stock options to purchase
shares of Common Stock to employees of the Company and its affiliates and to
non-employee directors thereby attracting, retaining and rewarding such
individuals and strengthening the mutuality of interests between such
individuals and the Company's stockholders.

Administration. The Stock Option Plan is administered by the Compensation
Committee, except that with respect to awards to non-employee directors and
except if there is no Compensation Committee, the Stock Option

52
<PAGE>

Plan is administered by the Board of Directors. If for any reason the appointed
Compensation Committee does not meet the requirements of Rule 16b-3 of the
Exchange Act and if such rule is applicable, the validity of the awards,
grants, interpretation or other actions of the Compensation Committee will not
be affected. The Compensation Committee will have full authority to select
those individuals eligible to receive stock options. Terms and conditions of
each stock option will be set forth in written grant agreements, the terms of
which will be consistent with the terms of the Stock Option Plan. Awards under
the Stock Option Plan may not be made on or after the tenth anniversary of the
date of its adoption, but awards granted prior to such date may extend beyond
that date.

Types of Awards under the Plan. Options granted under the Stock Option
Plan are not intended to be incentive stock options. The Compensation Committee
(or the Board of Directors in the case of stock options granted to non-employee
directors) will, with regard to each stock option, determine the number of
shares subject to the option, the term of the option (which shall not exceed
ten years), the exercise price per share of stock subject to the option, the
vesting schedule, and the other material terms of the option. Each stock option
will initially become exercisable six months from the date of grant (but only
in the absence of any provision by the Compensation Committee with respect to
stock options other than stock options granted to non-employee directors). No
stock option may have an exercise price less than the fair market value (as
defined in the Stock Option Plan) of the Common Stock at the time of grant.

The exercise price upon exercise may be paid such form, or such other
arrangement for the satisfaction of the purchase price, as determined by the
Compensation Committee (or the Board of Directors in the case of stock options
granted to non-employee directors) at or after the time of grant (including,
without limitation, cash or shares of Common Stock owned by the participant for
at least six months and for which the participant has good title free and clear
of any liens or encumbrances). The Compensation Committee (or the Board of
Directors in the case of stock options granted to non-employee directors) may
modify, extend or renew outstanding stock options granted under the Stock
Option Plan without changing the original exercise price of the stock options.

Amendment and Termination. The Stock Option Plan provides that it may be
amended, in whole or in part, suspended or terminated by the Board of
Directors, except that no such amendment, suspension or termination, without
stockholder approval to the extent such approval is required by applicable
state law and the provisions of Rule 16b-3 of the Exchange Act, may increase
the aggregate number of shares of Common Stock reserved for awards, change the
classification of employees and non-employee directors eligible to receive
awards, decrease the minimum exercise price of any stock option, extend the
maximum option period under the Stock Option Plan, change any rights under the
Stock Option Plan with regard to non-employee directors, or to make any other
amendment that would require stockholder approval under Rule 16b-3 of the
Exchange Act or the rules of any exchange or system on which the Company's
securities are listed or traded.

Share Limitations. A maximum of 89,905 shares of Common Stock may be
issued pursuant to the Stock Option Plan, subject to adjustment upon the
occurrence of certain corporate events. In general, upon the termination,
cancellation or expiration of an award, the unissued shares of Common Stock
subject to such awards will again be available for awards under the Stock
Option Plan.

On August 12, 1997, the Compensation Committee granted options to purchase
87,657 shares under the Stock Option Plan at an exercise price of $9.89 per
share. These options become vested on the earlier of (i) August 12, 1998 and
(ii) the effective date of an initial public offering of the Common Stock of
the Company.

Change in Control. Unless determined otherwise by the Compensation
Committee at the time of grant, upon a Change in Control (as defined in the
Stock Option Plan), any unvested awards will automatically become 100% vested.
However, unless otherwise determined by the Compensation Committee at the time
of grant or thereafter, no acceleration of exercisability shall occur with
regard to certain stock options that the Compensation Committee reasonably
determines in good faith prior to a Change in Control will be honored or
assumed or new rights substituted therefor by a participant's employer
immediately following the Change in Control. The Compensation Committee may
also, in its sole discretion, provide for accelerated vesting of an award at
any time.

Stock Incentive Plan

Background; Purpose; Eligibility. On March 19, 1998, the Board of
Directors of the Company approved the establishment of the Company's Stock
Incentive Plan (the "Stock Incentive Plan"), which was approved by the
stockholders of the Company on the same date. The Board of Directors by
unanimous written consent approved

53
<PAGE>

an amendment to the Stock Incentive Plan on May 22, 1998. The following
description of the Stock Incentive Plan, as amended, is intended only as a
summary and is qualified in its entirety by reference to the Stock Incentive
Plan. The purpose of the Stock Incentive Plan is to enhance the profitability
and value of the Company and its affiliates for the benefit of their
stockholders by enabling the Company to offer employees of the Company and its
affiliates, stock based incentives and other equity interests in the Company
and to make equity based awards to non-employee directors of the Company in
order to attract, retain and reward such individuals and strengthen the
mutuality of interests between such individuals and the Company's stockholders.

Administration. The Stock Incentive Plan is administered by the
Compensation Committee (or the Board of Directors in the case of stock options
granted to non-employee directors). If for any reason the appointed
Compensation Committee does not meet the requirements of Rule 16b-3 of the
Exchange Act or Section 162(m) of the Code, the validity of the awards, grants,
interpretation or other actions of the Compensation Committee will not be
affected. Except with regard to non-employee directors, the Compensation
Committee will have full authority to select those individuals eligible to
receive awards and the amount and type of awards. With regard to grants to
non-employee directors, the Board of Directors will administer and interpret
the Stock Incentive Plan. Terms and conditions of awards will be set forth in
written grant agreements, the terms of which will be consistent with the terms
of the Stock Incentive Plan. Awards under the Stock Incentive Plan may not be
made on or after the tenth anniversary of the date of its adoption, but awards
granted prior to such date may extend beyond that date.

Stock Options. Except with regard to non-employee directors, options may
be in the form of incentive stock options or non-qualified stock options.
Options granted to non-employee directors of the Company may only be
non-qualified stock options and are automatic as described below. The
Compensation Committee will, with regard to each stock option (other than stock
granted to non-employee directors), determine the number of shares subject to
the option, the term of the option (which shall not exceed ten years, provided,
however, that the term of an incentive stock option granted to a 10%
stockholder of the Company shall not exceed five years), the exercise price per
share of stock subject to the option, the vesting schedule, and the other
material terms of the option. Each stock option will initially become
exercisable six months from the date of grant (but only in the absence of any
provision by the Compensation Committee with respect to options other than
options granted to non-employee directors). No stock option may have an
exercise price less than the fair market value (as defined in the Stock
Incentive Plan) of the Common Stock at the time of grant (or, in the case of an
incentive stock option granted to a 10% stockholder of the Company, 110% of the
fair market value of the Common Stock).

The exercise price upon exercise may be paid in such form, or such other
arrangement for the satisfaction of the purchase price, as determined by the
Compensation Committee (or the Board of Directors in the case of stock options
granted to non-employee directors of the Company) at or after the time of grant
(including, without limitation, cash, shares of Common Stock owned by the
participant for at least six months and for which the participant has good
title free and clear of any liens or encumbrances or, if the Common Stock is
traded on a national securities exchange, through the delivery of irrevocable
instructions to a broker to deliver to the Company an amount equal to the
exercise price). The Compensation Committee (or the Board of Directors in the
case of stock options granted to non-employee directors) may modify, extend or
renew outstanding stock options granted under the Stock Incentive Plan without
changing the original exercise price of the stock option. Except with regard to
stock options granted to non-employee directors of the Company, the
Compensation Committee may also provide, at the time of grant, that the shares
to be issued upon the exercise of a stock option be in the form of restricted
stock or may, in the stock option agreement, reserve a right to do so after the
time of grant.

Non-Employee Director Stock Options. Each non-employee director
automatically granted stock options to purchase 5,000 shares of Common Stock as
of the date the non-employee director begins service as a non-employee director
of the Company and to purchase 2,000 shares of Common Stock at each annual
anniversary of his or her becoming a non-employee director of the Company,
provided he or she has not, as of such annual anniversary ceased to be a
director of the Company. Non-employee directors are not eligible to receive any
other awards under the Stock Incentive Plan other than the automatic grants of
stock options.

Stock Appreciation Rights ("SARs"). The Stock Incentive Plan authorizes
the Compensation Committee to grant to eligible employees SARs with a stock
option. A SAR is a right to receive a payment either in cash or Common Stock as
the Compensation Committee may determine, equal in value to the excess of the
fair market value of a share of Common Stock on the date of exercise over the
reference price per share of Common Stock established in connection with the
grant of the SAR. The reference price per share covered by a SAR will be the
per share exercise price of the related option.

54
<PAGE>

A SAR may be granted at the time of the grant of the related stock option
or, if the related stock option is a non-qualified stock option, at any time
thereafter during the term of the stock option. A SAR may be exercised only
upon a Change in Control (as defined in the Stock Incentive Plan). A SAR is
exercised by surrendering the same portion of the related stock option. A SAR
expires upon the termination or exercise of the related stock option.

Restricted Stock. The Stock Incentive Plan authorizes the Compensation
Committee to award shares of restricted stock to eligible employees. A
recipient of restricted stock may be required to pay the par value of such
shares to receive such restricted stock. Upon the award of restricted stock,
the recipient has all rights of a stockholder with respect to the shares,
including, without limitation, the right to receive dividends, the right to
vote such shares and, subject to and conditioned upon the full vesting of the
shares of restricted stock, the right to tender such shares. Unless otherwise
determined by the Compensation Committee at grant, the payment of dividends, if
any, shall be deferred until the date that the relevant share of restricted
stock vests.

Recipients of restricted stock are required to enter into a restricted
stock award agreement with the Company which states that the restrictions to
which the shares are subject and the criteria or date or dates on which such
restrictions will lapse. Within these limits, based on service, attainment of
performance goals, and such other factors as the Compensation Committee may
determine in its sole discretion, or a combination thereof, the Compensation
Committee may provide for the lapse of such restrictions in installments in
whole or in part or may accelerate or waive such restrictions at any time.

If the lapse of the relevant restriction is based on the attainment of
performance goals, the Compensation Committee shall establish the goals,
formulae or standards and the applicable vesting percentage for the restricted
stock awards applicable to participants. These performance goals shall be based
on one or more of the following criteria with respect to the Company, a
subsidiary, division or other operational unit of the Company: (i) after-tax or
pre-tax profits; (ii) operational cash flow; (iii) level of, reduction of, or
other specified objectives with regard to the Company's bank debt or other
long-term or short-term public or private debt or other similar financial
obligations; (iv) earnings per share or earnings per share from continuing
operations; (v) revenues, net income, earnings before income tax, earnings
before interest, taxes, depreciation and amortization; (vi) return on invested
capital, return on investment return on assets or return on total capital;
(vii) after-tax or pre-tax return on stockholders' equity; (viii) level of or a
reduction in, selling, general and administrative expense; (ix) economic value
added targets; (x) fair market value of the shares of Common Stock; and (xi)
the growth in the value of an investment in the Common Stock assuming the
reinvestment of dividends. In addition, such performance goals may be based
upon the attainment of specified levels of Company (or subsidiary, division or
other operational unit of the Company) performance under one or more of the
measures described above relative to the performance of other corporations. To
the extent permitted under the Code, the Compensation Committee may: (i)
designate additional business criteria on which the performance goals may be
based; or (ii) adjust, modify or amend the aforementioned business criteria.

Performance Units and Performance Shares. Under the Stock Incentive Plan,
the Compensation Committee may grant performance shares to eligible employees
entitling them to receive share certificates (including, without limitation,
restricted stock) and/or the cash equivalent value thereof, as determined by
the Compensation Committee, based on a specified performance period. Unless
otherwise determined by the Compensation Committee at the time of any award of
performance shares, amounts equal to any dividends declared during the
performance period with respect to the number of shares of Common Stock covered
by the performance shares will not be paid.

The Compensation Committee may also grant performance units to eligible
employees entitling them to receive a value payable in cash and/or share
certificates (including, without limitation, restricted stock) of an equivalent
value, as determined by the Compensation Committee, for a specified performance
cycle.

The Compensation Committee may condition the grant or vesting of any
performance share or performance unit upon the attainment of specified
performance goals (from among those set forth above with regard to restricted
stock) or such other factors or criteria as determined by the Compensation
Committee. The Compensation Committee may also, at or after grant, accelerate
the vesting of all or any part of any performance shares or performance units
and/or waive the deferral limitations for all or any part of any award.

Amendment and Termination. The Stock Incentive Plan provides that it may
be amended, in whole or in part, suspended or terminated by the Board of
Directors, except that no such amendment, suspension or termination, without
stockholder approval to the extent such approval is required by applicable
state law, the applicable provisions of Rule 16b-3 of the Exchange Act or for
the exception for performance-based compensation under

55
<PAGE>

Section 162(m) of the Code or to the extent applicable to incentive stock
options, Section 422 of the Code, may increase the aggregate number of shares
of Common Stock reserved for awards or the maximum individual limits, change
the classification of employees eligible to receive awards, decrease the
minimum exercise price of any stock option, extend the maximum option period
under the Stock Incentive Plan or to make any other amendment that would
require stockholder approval under the Code, Rule 16b-3 of the Exchange Act or
the rules of any exchange or system on which the Company's securities are
listed or traded.

Share and Other Limitations. A maximum of 809,144 shares of Common Stock
may be issued or used for reference purposes pursuant to the Stock Incentive
Plan and a maximum of 80,914 shares of Common Stock may be issued as restricted
stock pursuant to the Stock Incentive Plan. In general, upon the termination,
cancellation or expiration of an award, the unissued shares of Common Stock
subject to such awards will again be available for awards under the Stock
Incentive Plan, but will still count against any specified individual limits.

The maximum number of shares of Common Stock subject to stock options or
stock appreciation right that may be granted to any individual under the Stock
Incentive Plan shall be 53,943 for any fiscal year of the Company during the
term of the Stock Incentive Plan. A stock appreciation right granted in tandem
with a stock option shall apply against the individual limits for both stock
options and stock appreciation rights, but only once against the maximum number
of shares available under the Stock Incentive Plan.

The maximum number of shares of restricted stock for which the lapse of
restrictions is subject to the attainment of performance goals which may be
granted under this Stock Incentive Plan to any individual shall be 44,952
shares during any fiscal year of the Company. There are no annual individual
participant limitations on restricted stock for which the lapse of the relevant
restrictions is not subject to attainment of preestablished performance goals.

The maximum value at grant of performance units which may be awarded under
the Stock Incentive Plan to any individual shall be $100,000 during any fiscal
year of the Company. Growth in performance units shall be based on the growth
in the referenced Common Stock, each unit being referenced to one share of
Common Stock. A performance unit shall be charged against available shares
under the Stock Incentive Plan at the time the unit dollar value measurement is
converted to a referenced number of shares of Common Stock.

The maximum number of performance shares which may be awarded under the
Stock Incentive Plan to any individual shall be 44,952 during any fiscal year
of the Company.

On May 22, 1998, the Board of Directors of the Company granted
non-qualified options to purchase 392,500 shares under the Stock Incentive Plan
at an exercise price equal to the price to the public in this Offering. These
options become exercisable in three equal installments on the date six months,
18 months and 30 months after the consummation of this Offering.

Change in Control. Unless determined otherwise by the Compensation
Committee at the time of grant, upon a Change in Control (as defined in the
Stock Incentive Plan), all vesting and forfeiture conditions, restrictions and
limitations in effect with respect to any outstanding award will immediately
lapse and any unvested awards will automatically become 100% vested. However,
unless otherwise determined by the Compensation Committee at the time of grant
or thereafter, no acceleration of exercisability shall occur with regard to
certain stock options that the Compensation Committee reasonably determines in
good faith prior to a Change in Control will be honored or assumed or new
rights substituted therefor by a participant's employer immediately following
the Change in Control. The Compensation Committee may also, in its sole
discretion, provide for accelerated vesting of an award at any time.

Certain Other Employee Benefit Plans

The Supplemental Executive Retirement Plan of the Company ("SERP")
provides certain executive officers of the Company annually, upon retirement,
48.0% of final average salary for the three highest consecutive years in the
last ten years of the executive's credited service. Early retirement benefits
may be elected prior to the participants' attainment of age 61. The
participant's early retirement benefit will be the actuarial equivalent of the
normal retirement benefit. Normal retirement benefits commence when the
participant reaches age 65. These vested benefits are payable on termination of
employment subject to a graded 15 year vesting schedule. The estimated credited
years of service for each of the Named Executive Officers is as follows: Mr.
Sato 50.0, Mr. Brennan 18.0, Mr. Baker 19.0, and Mr. Ettie 9.9. Messrs.
Mayerhauser, Hummel and Vogel do not participate in the SERP. The anticipated
cost to the Company will be approximately $700,000 per year.

56
<PAGE>

<TABLE>
<CAPTION>
Completed Years of Service
----------------------------------------------------
Assumed Final
Average Salary* Less than 5 5 10 15+
- ----------------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
$ 100,000 $0 $12,000 $24,000 $ 48,000
150,000 0 18,000 36,000 72,000
200,000 0 24,000 48,000 98,000
250,000 0 30,000 60,000 120,000
300,000 0 36,000 72,000 144,000
</TABLE>

- ----------------
* Average of a participant's salary received in any three consecutive calendar
years in the last ten full calendar years before the participants' last day
of service that produce the highest average.

The Company has agreements with Dieter Hummel, Dietmar Mayerhauser and
Achim Vogel, which will provide them with certain retirement benefits. The
agreement with D. Hummel provides for a retirement benefit based on the average
of Mr. Hummel's five highest consecutive years' base compensation, and
specifically excluding bonus, with service from January 1, 1969, and with a
maximum number of years of service set at 35. Normal retirement is the month
after Mr. Hummel reaches age 65, with the following reductions for early
retirement at age 59, 22%; at age 60, 15%; at age 61, 10%; at age 62, 5%; at
age 63, 3%; and at age 64, 1%. The agreement provides that his monthly pension
will be calculated at 1.2% of base compensation up to the social security
maximum and 1.7% of the base compensation above the social security maximum
less the annuity provided for under the terminated Bepex Corporation Pension
Plan of $14,130 per year.

It is estimated that Mr. Hummel will have 35 years of service at normal
retirement age. Assuming final average salary of $215,000, $225,000 and
$255,000, and 29, 32 and 35 years of service, his estimated annual retirement
benefit is estimated at approximately $63,192, $84,012 and $118,212,
respectively.

The agreements with D. Mayerhauser and A. Vogel provide that the Company
will make annual contributions into annuity contracts held by an insurance
carrier at a rate of $42,135 per year for Mr. Mayerhauser and at a rate of
$34,545 per year for Mr. Vogel, in each case increased by 4.0% each year. These
are defined contribution arrangements. At retirement, these individuals may
elect to receive monthly retirement benefits or a lump sum. These individuals
are 100% vested in the contributions made by the Company. Normal retirement is
the month after each reaches age 65; however, an individual may elect to
receive benefits at age 60, if he leaves the Company.

Isao Sato, Masuo Hosokawa, Yoshio Hosokawa and Fumio Sawamura are members
of the supervisory board of a subsidiary of the Company and receive annually
$14,405, $10,804, $7,803 and $7,803, respectively, for their services as
members of such board.

57
<PAGE>

CERTAIN TRANSACTIONS

Preferred Stock Exchange with HMC

In December 1992, the Company issued 240,000 shares of previously
authorized 5.5% Cumulative Subordinated Preferred Stock (the "5.5% Preferred
Stock") to HMC at $200 per share. Annual dividends were $11.00 per share,
payable semiannually. In fiscal year 1992, the Company issued 200,000 shares of
4.44% Cumulative Preferred Stock (the "4.44% Preferred Stock") to HMC at $150
per share. Annual dividends were $6.66 per share payable semiannually. Current
year dividends on both issues of stock were made on a semiannual basis and were
payable on issued shares up to the effective date of exchange. In fiscal years
1997 and 1996, the Company paid preferred dividends of $3,683,000 and
$3,972,000, respectively, to HMC. Effective September 3, 1997, all of the
issued shares for both classes of preferred stock were exchanged for Common
Stock using an exchange ratio based on a price per share of Common Stock of
$9.89, as follows:

(A) All 240,000 shares of 5.5% Preferred Stock were exchanged at the rate
of 20.2261 shares of Common Stock for each share of 5.5% Preferred
Stock, for a total of 4,854,259 shares of Common Stock.

(B) All 200,000 shares of 4.44% Preferred Stock were exchanged at the rate
of 15.1695 shares of Common Stock for each share of 4.44% Preferred
Stock, for a total of 3,033,912 shares of Common Stock.

Licensing Agreements, Cost Sharing Agreement, Asian Marketing Agreements,
Management Service Contract, Intercompany Sales and Guarantees with HMC and its
Affiliates

Licensing and Cost Sharing Agreements

Beginning in October 1986, the Company or one of its subsidiaries and HMC
entered into licensing agreements, with the Company or its subsidiary as
licensor or licensee depending on the agreement, for the manufacture, sale and
service by the licensee of numerous products throughout the world and the grant
to the licensee of exclusive and non-exclusive rights to use such products and
the associated patents, trademarks and related know-how. The agreements were
effective for terms of three, five, ten or fifteen years with automatic
renewals for additional one or five year terms. In fiscal years 1997 and 1996,
royalty income of $0.3 million and $0.4 million, respectively, were received
from HMC while royalty payments of $0.1 million and $0.1 million respectively,
were paid to HMC under such licensing agreements.

In 1996, in an effort to standardize its licensing agreements, the Company
entered into a series of new licensing agreements redefining the licensed
products, territory and royalty rates providing for the manufacture, use and
sale of the licensed products.

Generally, if the licensed product has been on the market for less than
four years, the royalty rate is 4.0% of net sales and if the licensed product
has been on the market for more than four years, the royalty rate is 2.5% of
net sales. Except for a few products from the product recovery product line,
the licensed products are primarily from the powder and particle processing
product line. The licensor grants to the licensee rights to the licensed
product on an exclusive or non-exclusive basis for a particular country. In
agreements with HMC as licensor and the Company as licensee, exclusive
territory includes North, Central and South America with no non-exclusive
territory. In agreements with HMC as licensor and a European or Australian
subsidiary of the Company as licensee, the country of the licensee is exclusive
territory and all other European countries, Africa, the Middle East, India, and
all Asian countries west of India are non-exclusive territories. In agreements
with a subsidiary of the Company as licensor and HMC as licensee, Japan is the
exclusive territory and all other Asian countries including the countries which
comprised the former U.S.S.R., but excluding India and all countries west of
India and Australia and New Zealand are non-exclusive territories.

The licensing agreements are effective from October 1, 1997 to September
30, 1998, and are automatically renewed and continued from year to year, unless
and until notice is given by either party of its intention to terminate the
agreement at the expiration of any term, except that the agreement between
Hosokawa Alpine Aktiengesellschaft, as licensor, and HMC, as licensee, is
effective March 31, 1998. In all the agreements, if either party fails,
neglects, or refuses to perform any obligation under the agreement, if any
warranty or representation made by either party proves to be false or
misleading, the other party may terminate the agreement with prior written
notice. Additionally, the licensor may terminate by giving written notice in
the event the licensee is liquidated or put in receivership or if there is a
change of control with respect to the licensee. The licensees under each
agreement may enter into sublicenses of the licensed products provided that the
terms of such agreements are at least as restrictive on the

58
<PAGE>

sublicensee as the terms of the original licensing agreement upon which the
sublicense is based and provided that the sublicensee shall not have the right
to sublicense. Governing law under each licensing agreement is the law of
jurisdiction where the licensee resides.

Effective October 1, 1996, the Company licensed to HMC approximately ten
"Mikropul" products in a trademark licensing agreement on substantially similar
terms to the licensing agreements. The trademark royalty in this agreement
ranges from 0.3% to 1.0%. Also effective October 1, 1997, HMC licensed to the
Company in a trademark licensing agreement exclusive use of the Hosokawa Micron
name and logo in the Western Hemisphere for an annual fixed fee of $50,000 plus
the cost of maintaining such trademarks in the licensed territories. The term
of the agreement is for three years and is automatically renewed and continued
from year to year, unless and until notice is given by either party of its
intention to terminate the agreement at the expiration of any term. In both
trademark licensing agreements, the licensee may not sublicense without prior
consent of the licensor.

In addition to the licensing agreements, on September 30, 1987, the
Company, as licensor, entered into a sublicense agreement with HMC, as
licensee, to manufacture, use or sell the E-SPART (as described in United
States Patent No. 4,633,714), along with the patent rights and proprietary
information relating to the above patent in Japan, Australia, New Zealand, the
countries that comprise the former Soviet Union, all Asian and Middle Eastern
countries. The sublicense agreement runs for a term of fifteen years which
terminates under certain conditions if prior notice is given. In the sublicense
agreement, the licensee pays to the licensor a royalty of 5.0% of net sales of
the licensed product.

For the first six months of fiscal 1998, royalty income of $0.2 million
was received from HMC while royalty payments of $0.1 million were paid to HMC in
the same period.

The Company and HMC have entered into a cost sharing agreement effective
January 1, 1998 which provides that the parties will share the risks and
rewards for research and development on new powder and particle product line
products ("Program"). The agreement runs for a term of five years or for so
long as a research project designated in the exhibits to the agreement is in
existence, whichever is later. HMC and the Company are each responsible for its
proportional share of the costs of each research project as determined by
taking the net sales of each party for the powder and particle products line
for the preceding fiscal year divided by the combined net sales for the powder
and particle products line of the Company and HMC, respectively, in the same
fiscal year. The agreement provides that HMC will have the exclusive right to
use, license and assign intangible property developed under the Program for
manufacturing, marketing and other purposes for Japan, and the Company will
have the same exclusive rights for North, Central and South America, Europe,
South Africa, the Middle East, Australia, New Zealand, India and all Asian
countries west of India. The agreement provides that the Company and HMC must
agree annually on the Program including establishing guidelines on when
individual projects under the Program will be started, reviewed, completed or
terminated. There has been no activity under this agreement through the period
ended March 31, 1998.

The Company is the exclusive worldwide licensee of bi-polar technology
from a German university and certain researchers. A Japanese chemical company
has expressed interest in further development of a particular field of use and
is working exclusively with HMC. If the development program moves forward, the
Company may sublicense to HMC such field of use for the bi-polar technology.
Bi-polar technology is a patented process for producing nano-sized particles
with a defined structure or shape by treating gas-borne particles with the
influence of an electrically charged field in a flame reactor.

The Company also has certain other arrangements with HMC, including
marketing agreements, guarantees and other agreements, which are described
below.

Asian Marketing Agreements

On October 1, 1994, the Company, HMC and Hosokawa Micron International
B.V. ("HMI BV"), a wholly owned subsidiary of the Company, entered into an
Asian marketing agreement in which HMC made available to the Company and to HMI
BV its international sales department (the "ISD") and provided approximately
30.0% of its facilities and capacity for the promotion of the Company's and HMI
BV's products in Asia. Asia was defined in the agreement to include all
countries east of India, including China and the new republics of the former
U.S.S.R., but excluding Japan, Australia, and New Zealand. The Company and HMI
BV engaged in the marketing and sale of its products in Asia, utilizing the ISD
without obtaining any approvals or consents from HMC. In consideration for such
services and for the suspension of all of HMC's rights in Asia, the Company and
HMI BV paid 30.0%

59
<PAGE>

of HMC's fiscal year costs for the ISD operation, not to exceed $0.6 million.
This agreement was terminated effective October 1, 1997 and effective the same
date, the Company and HMI BV entered into a substantially similar agreement,
except that in consideration for HMC's provision of its ISD, the Company and
HMI BV will pay to HMC commissions based upon actual sales into Asia as defined
above. The Company and HMI BV will pay a 5.0% commission to HMC on sales into
the particular countries in Asia, as defined above, where neither the Company
nor HMI BV has a sales representative or agent. The commission will be 3.0% on
sales into the countries in Asia where the Company or HMI BV has a sales
representative or agent operating on non-exclusive basis and will be 1.0% in
all other situations.

On April 1, 1995, HMC, and three of the Company's wholly owned
subsidiaries, HMI Unternehmens-Holding GmbH, Hosokawa Alpine AG and Hosokawa
Bepex GmbH ("German Subsidiaries"), entered into another Asian marketing
agreement on substantially similar terms except that the ISD will provide
approximately 20.0% of its facilities and capacity for the promotion of the
subsidiaries' products and the subsidiaries will pay 20.0% of HMC's fiscal year
costs for the ISD operation, not to exceed $0.4 million.

For the fiscal years ending September 30, 1997 and 1996, the Company and
its subsidiaries paid to HMC $1.0 million under these Asian marketing
agreements. For the current outstanding Asian marketing agreement with the
Company and HMI BV, the Company and HMI BV paid $0.1 to HMC under such
agreement for the six months ended March 31, 1998. For the current outstanding
Asian marketing agreement with the German Subsidiaries, such subsidiaries paid
$0.2 million to HMC under such agreement for the six months ended March 31,
1998.

Management Service Contract

The Company also had a management service contract with HMC entered into
in March 1986, amended in October 1986, and terminated effective October 1,
1997. Under the contract, HMC provided the Company with managerial services,
including but not limited to, consulting, advisory, administrative, financial
and accounting services. The annual fee of $0.4 million was paid to HMC under
the contract for each of the years ended September 30, 1997 and 1996.

Intercompany Sales

Guarantees

HMC has guaranteed certain obligations of the Company with respect to the
commercial paper program. Guarantee fees paid to HMC were $0.1 million for the
years ending September 30, 1997 and 1996 and for the six months ended March 31,
1998. Effective October 1, 1997, the Company and HMC have entered into a new
fee arrangement with respect to such guaranty. Under this arrangement, the
Company pays HMC an annual fee equal to 37.5 basis points on the average
outstanding balance under the commercial paper program and 18.75 basis points
on the unused portion of such commercial paper program. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
- --Liquidity and Capital Resources--Commercial Paper Program."

HMC also provides guarantees for the Company and a wholly owned subsidiary
in connection with their short-term loans with certain other banks and also
agreements to provide guarantees upon the happening of certain specified
events. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources--Other Indebtedness."

Other

Effective from December 31, 1997, HMC acquired two Japanese patents owned
by Hosokawa Stott Ltd., a United Kingdom subsidiary of the Company. The
purchase price was approximately $0.2 million.

The Company participates in the excess umbrella liability insurance
program issued to HMC by a Japanese insurance carrier. This program provides
the Company with excess general liability insurance coverage for amounts over
$5.0 million. The Company reimburses HMC for the premiums paid for such
coverage. In fiscal 1996, the Company paid HMC $0.2 million, and in fiscal
1997, the Company paid HMC $0.1 million. For the first six months ended March
31, 1998, the Company paid HMC $0.1 million for this excess general liability
coverage.

60
<PAGE>

The Company's Hosokawa Alpine AG--Japan Branch ("Branch") leases 3,700
square feet of space at HMC's facility in Hirakata, Japan for sales and
marketing, technical center, engineering and administrative offices. The Branch
paid HMC $0.1 million in both fiscal 1996 and fiscal 1997 for the lease of
these premises. For the period ended March 31, 1998, the Branch paid HMC $0.1
million for the lease of these premises.

Future Transactions

In May 1998, the Company's Board of Directors adopted a policy that any
future material transactions between the Company and HMC and HMC's affiliates,
including any future material modifications of the arrangements described
above, be subject to review and approval by the Company's Audit Committee which
shall determine, among other matters, whether the terms of such proposed
material transaction or modification are no less favorable to the Company than
could be obtained from an unaffiliated third party.

61
<PAGE>

PRINCIPAL STOCKHOLDERS AND SELLING STOCKHOLDER

The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of March 31, 1998,
immediately prior to and immediately after the Offering by (i) each person (or
affiliated group of persons) known by the Company to own beneficially more than
5.0% of the Company's Common Stock, (ii) each director of the Company,
(iii) each of the Named Executive Officers, (iv) all directors and executive
officers of the Company as a group and (v) the Selling Stockholder.

<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior Shares of Common After
to the Offering(2)(3) Stock to be Offered the Offering(2)(4)
----------------------- --------------------- ----------------------
Beneficial Owner(1) Number Percent Number Percent
- ------------------------------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Hosokawa Micron Corporation ........ 9,308,667 98.03% 750,000 8,558,667 70.4%
5-14, 2-chome, Kawaramachi
Chuo-ku, Osaka 541, Japan(5)(6)
Isao Sato(7) ....................... 11,688 * -- 11,688 *
William Brennan(7) ................. 6,743 * -- 6,743 *
Dieter Hummel(7) ................... -- -- -- --
Dietmar Mayerhauser(7) ............. 6,743 * -- 6,743 *
Achim Vogel(7) ..................... 1,798 * -- 1,798 *
Gordon Ettie(7) .................... 6,743 * -- 6,743 *
Yoshio Hosokawa .................... 9,799 * -- 9,799 *
Directors and Executive Officers
as Group (11 persons)(7)(8) ....... 78,576 * 78,576 *
</TABLE>

- ----------------
* Denotes less than 1.0%.

(1) Unless otherwise indicated, the address for each person is c/o Hosokawa
Micron International Inc., 780 Third Avenue, New York, New York 10017.

(2) The persons and entities named in the table have sole voting and investment
powers with respect to all of the Common Stock shown as beneficially owned
by them, except as noted below.

(3) The 9,583,174 shares of Common Stock deemed outstanding prior to the
Offering includes:

(a) 9,495,517 shares of Common Stock outstanding; and

(b) 87,657 shares of Common Stock issuable pursuant to the exercise of
options held by the respective person or group, which may be exercised
within 60 days after the date of this Prospectus.

(4) The number of shares of Common Stock deemed outstanding after the Offering
includes:

(a) an additional 2,670,000 shares of Common Stock which are being offered
for sale by the Company in the Offering and assumes no exercise of the
over-allotment option; and

(b) 87,657 shares of Common Stock issuable pursuant to the exercise of
options held by the respective person or group, which may be exercised
within 60 days after the date of this Prospectus.

(5) Masuo Hosokawa, Chairman of the Board and a director of the Company, is the
Chairman of the Board of HMC and is the beneficial owner of 4,061,822
shares or 15.0% of the total outstanding voting stock of HMC. Yoshio
Hosokawa, Vice Chairman and a director of the Company, is Masuo Hosokawa's
son and President of HMC and beneficially owns 991,541 shares or 3.7% of
the total outstanding voting stock of HMC. Isao Sato, President and Chief
Executive Officer of the Company, and a director of HMC, is the beneficial
owner of 10,937 shares or less than 1.0% of the total outstanding voting
stock of HMC, and Yoshizo Yamanokuchi, a director of the Company and a
Managing Director of HMC, is the beneficial owner of 3,300 shares or less
than 1.0% of the total outstanding voting stock of HMC. Fukiko Sawamura,
who is a daughter of Masuo

62
<PAGE>

Hosokawa and married to Fumio Sawamura, a director of the Company and a
Senior Managing Director of HMC, beneficially owns 461,596 shares or 1.7%
of the total outstanding voting stock of HMC. Fumio Sawamura beneficially
owns 135,233 shares or 0.5% of the oustanding voting stock of HMC. Fumio
Sawamura disclaims beneficial ownership of the shares of HMC owned by
Fukiko Sawamura. The directors and executive officers of the Company as a
group therefore beneficially owns a total of 5,664,429 shares or 21.0% of
the total outstanding voting stock of HMC. The information set forth above
is as of March 31, 1998.

(6) Toho Sangyo K.K., a Japanese corporation ("Toho Sangyo"), is the beneficial
owner of 5,111,216 shares or 18.8% of the total outstanding voting stock of
HMC. Masuo Hosokawa, the Chairman of the Board and a director of the
Company and Chairman of the Board of HMC, is Chairman of the Board of Toho
Sangyo and beneficially owns 16,000 shares or 20.0% of the total
outstanding voting stock of Toho Sangyo. Yoshio Hosokawa, Vice Chairman and
a director of the Company and President of HMC and a son of Masuo Hosokawa,
beneficially owns 10,000 shares or 12.5% of the total outstanding voting
stock of Toho Sangyo. Fukiko Sawamura, who is a daughter of Masuo Hosokawa,
beneficially owns 10,000 shares or 12.5% of the total outstanding voting
stock of Toho Sangyo, and is married to Fumio Sawamura who is a director of
Toho Sangyo and beneficially owns 5,000 shares or 6.3% of the outstanding
voting stock of Toho Sangyo and who is a Senior Managing Director of HMC
and a director of the Company. Fumio Sawamura disclaims beneficial
ownership of the shares of Toho Sangyo owned by Fukiko Sawamura. The
directors and executive officers of the Company as a group as described
above therefore beneficially owns a total of 41,000 shares or 51.3% of the
total outstanding voting stock of Toho Sangyo. The information set forth
above is as of March 31, 1998.

(7) Except for 2,697 shares of Common Stock owned by Isao Sato, includes shares
of Common Stock issuable pursuant to the exercise of options held by the
respective person or group, which may be exercised within 60 days after the
date of this Prospectus.

(8) Does not include the shares of Common Stock beneficially owned by HMC. See
footnotes (5) and (6) for a description of the beneficial ownership of the
voting stock of HMC by certain executive officers and directors of the
Company.

63
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have outstanding
12,165,517 shares of Common Stock and 899,049 shares of Common Stock reserved
for issuance upon the exercise of employee stock options pursuant to the Stock
Option Plan and the Stock Incentive Plan. The 2,670,000 shares of Common Stock
sold by the Company in the Offering will be immediately freely tradeable
without restriction under the Securities Act, except for any shares purchased
by an "affiliate" of the Company (as that term is defined under the rules and
regulations of the Securities Act), which will be subject to the resale
limitations of Rule 144 under the Securities Act. The remaining 8,745,517
outstanding shares of Common Stock, which were issued by the Company in private
transactions not involving a public offering (and any shares issued upon
exercise of employee stock options granted pursuant to the Stock Option Plan),
are "Restricted Securities" for purposes of Rule 144 and may not be resold in a
public distribution, except in compliance with the registration requirements of
the Securities Act or pursuant to Rule 144. The share numbers in this section
assume the Underwriters' over-allotment options are not exercised.

Prior to the Offering, there has been no public market for the Common
Stock. The Company cannot predict the effect, if any, sales of shares of Common
Stock or the availability of shares for sale will have on the market price from
time to time. Nevertheless, sales of substantial amounts of Common Stock in the
public market could adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of its equity securities.

The Company, Isao Sato, HMC and certain other minority stockholders, who
immediately following the Offering will in the aggregate hold 8,718,696
outstanding shares of Common Stock, have agreed, among other things, subject to
certain limited exceptions, not, directly or indirectly, to offer, sell, assign,
transfer, encumber, contract to sell or otherwise dispose of any outstanding
shares held by them for a period of 180 days after the date of the Offering
without the prior written consent (which consent may be given without notice to
the Company's shareholders or other public announcement) of Credit Suisse First
Boston Corporation. Credit Suisse First Boston Corporation has advised the
Company that it has no present intention of releasing any of the Company's
shareholders from such lock-up agreements (the "Lock-up Agreements") until the
expiration of such 180-day period.

Pursuant to the Stock Incentive Plan, 809,144 shares of Common Stock are
available for grant, of which the Company granted options to purchase 392,500
shares of Common Stock effective upon consummation of the Offering. See
"Management--Stock Incentive Plan."

Rule 701 under the Securities Act provides that the shares of Common Stock
acquired upon the exercise of outstanding options may be resold by persons
other than affiliates beginning 90 days after the date of this Prospectus,
subject only to the manner of sale provisions of Rule 144, and by affiliates
under Rule 144 without compliance with its one-year minimum holding period,
subject to certain limitations. The Company intends to file one or more
registration statements on Form S-8 under the Securities Act to register all
shares of Common Stock subject to outstanding stock options and Common Stock
issuable pursuant to the Stock Option Plan and the Stock Incentive Plan which
do not qualify for an exemption under Rule 701 from the registration
requirements of the Securities Act. The Company expects to file these
registration statements after the closing of the Offering, and such
registration statements are expected to become effective upon filing. Shares of
Common Stock covered by these registration statements will thereupon be
eligible for sale in the public markets, subject to the Lock-up Agreements, if
applicable.

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, par value $.01 per share and 440,000 shares of Preferred
Stock, par value $.01 per share (the "Preferred Stock"). Immediately prior to
the Offering, there were 9,495,517 shares of Common Stock outstanding held of
record by 16 stockholders.

The holders of shares of Common Stock are (i) entitled to one vote per
share on all matters to be voted on by stockholders; (ii) not entitled to
cumulate their votes in elections for directors, which means holders of more
than half the outstanding shares of Common Stock can elect all the directors of
the Company; and (iii) entitled to receive such dividends as may be declared
from time to time by the Board of Directors in its discretion from any assets
legally available for that purpose, after payment of dividends (subject to
restrictions imposed by terms of indebtedness) required to be paid on
outstanding shares of Preferred Stock, if any. In the event of the dissolution
of the Company, whether voluntary or involuntary, if any, after distribution to
the holders of Preferred Stock, if any, of amounts to which they may be
preferentially entitled, the holders of Common Stock are entitled to share

64
<PAGE>

ratably in the assets of the Company legally available for distribution to its
stockholders. The holders of Common Stock have no preemptive, subscription,
conversion or redemption rights, and are not subject to further calls or
assessments, or rights of redemption, by the Company. The Common Stock
currently outstanding, and the Common Stock issued in the Offering, is and will
be validly issued, fully paid and non-assessable. See "Dividend Policy."

Preferred Stock

The Board of Directors of the Company is authorized, without further
stockholder action, to divide any or all shares of the authorized Preferred
Stock into one or more classes or series and to fix and determine the
designations, preferences and relative, participating, optional or other
special rights and qualifications, limitations or restrictions thereon, of any
classes or series so established, including voting powers, dividend rights,
liquidation preferences, redemption rights and conversion privileges. Although
the Company has no present intention to issue shares of Preferred Stock, the
issuance of shares of Preferred Stock or the issuance of rights to purchase
such shares may have the effect of delaying, deferring or preventing a change
in control of the Company or an unsolicited acquisition proposal. For instance,
the issuance of a series of Preferred Stock might impede a business combination
by including class voting rights that would enable the holder to block such a
transaction. In addition, under certain circumstances, the issuance of
Preferred Stock could adversely affect the voting power of the holders of the
Common Stock. Although the Board of Directors is required to make any
determination to issue such stock based on its judgment as to the best
interests of the stockholders of the Company, the Board of Directors could act
in a manner that would discourage an acquisition attempt or other transaction
that some, or a majority, of the stockholders might believe to be in their best
interests or in which stockholders might receive a premium for their stock over
the then market price of the stock. The Board of Directors does not intend to
seek stockholder approval prior to any issuance of currently authorized
Preferred Stock, unless otherwise required by law.

The Delaware Business Combination Act

The Company is incorporated under the Delaware GCL. Section 203 of the
Delaware GCL (the "Delaware Business Combination Act") imposes a three-year
moratorium on business combinations between a Delaware corporation and an
"interested stockholder" (in general, a stockholder owning 15% or more of a
corporation's outstanding voting stock) or an affiliate or associate of an
interested stockholder, unless (i) prior to an interested stockholder becoming
an interested stockholder, the board of directors of the corporation approved
either the business combination or the transaction resulting in the interested
stockholder becoming an interested stockholder; (ii) upon consummation of the
transaction resulting in an interested stockholder becoming an interested
stockholder, the interested stockholder owned 85% or more of the voting stock
outstanding at the time the transaction commenced (excluding, from the
calculation of outstanding shares, shares beneficially owned by directors who
are also officers and certain employee stock plans); or (iii) on or after an
interested stockholder became an interested stockholder, the business
combination is approved by (A) the board of directors and (B) holders of at
least 66-2/3% of the outstanding shares (other than those shares beneficially
owned by the interested stockholder) at a meeting of stockholders.

The Delaware Business Combination Act applies to certain corporations
incorporated in Delaware, unless, among other things, the corporation expressly
elects not to be governed by the legislation and sets forth that election in an
amendment to the corporation's certificate of incorporation or by-laws as
approved by (in addition to any other vote required by law) a majority of the
shares entitled to vote (however, the amendment would not be effective until 12
months after the date of its adoption and would not apply to any business
combination between the corporation and any person who became an interested
stockholder on or prior to the adoption of the amendment). The Company has not
made such an election and, upon completion of the Offering, will be subject to
the Delaware Business Combination Act.

The Delaware Business Combination Act may discourage other persons from
making a tender offer for or acquisitions of substantial amounts of the Common
Stock. This could have the incidental effect of inhibiting changes in management
and may also prevent temporary fluctuations in the market price of the Common
Stock that often result from actual or rumored takeover attempts. In addition,
the limited liability provisions in the Company's Restated Certificate of
Incorporation with respect to directors and the indemnification provisions in
the Company's by-laws may discourage stockholders from bringing a lawsuit
against directors for breach of their fiduciary duty and may also have the
effect of reducing the likelihood of derivative litigation against directors and
officers, even though such an action, if successful, might otherwise have
benefited the Company and its stockholders. Furthermore, a stockholder's
investment in the Company may be adversely affected to the extent the Company
pays

65
<PAGE>

the costs of settlement and damage awards against the Company's directors and
officers pursuant to the indemnification provisions in the Company's by-laws.

Antitakeover Effect of Provisions of the Restated Certificate of Incorporation
and By-Laws

Certain provisions of the Restated Certificate of Incorporation and
by-laws could discourage potential acquisition proposals and could delay or
prevent a change in control of the Company. These provisions are intended to
enhance the likelihood of continuity and stability in the composition of the
Board of Directors and in the policies formulated by the Board of Directors and
to discourage certain types of transactions that may involve an actual or
threatened change of control of the Company, such as an unsolicited acquisition
proposal. Because these provisions could have the effect of discouraging
potential acquisition proposals, they may inhibit fluctuations in the market
price of shares of Common Stock that could otherwise result from actual or
rumored takeover attempts. These provisions also may have the effect of
preventing changes in the management of the Company.

The Restated Certificate of Incorporation of the Company provides that the
Board of Directors is divided into three classes of directors with each class
holding office for staggered three-year terms. The classification of directors
will have the effect of making it more difficult to change the composition of
the Board of Directors, because at least two annual meetings of stockholders,
instead of one, generally will be required to effect a change in the majority
of the Board of Directors. Under Delaware law, unless the certificate of
incorporation otherwise provides, a director on a classified board may be
removed by the stockholders only with cause. The Restated Certificate of
Incorporation of the Company provides that a director of the Company may be
removed with cause at any time by the vote of at least a majority of the
outstanding shares of the Company. See "Management--Board of Directors."

The Restated Certificate of Incorporation also provides that a vacancy in
the Board of Directors occurring from an increase in the number of directors or
otherwise may be filled by the vote of a majority of the directors then in
office.

The provisions of Delaware law and the Restated Certificate of
Incorporation and by-laws of the Company relating to the removal of directors
and the filling of vacancies on the Board of Directors preclude a third party
from removing incumbent directors without cause and simultaneously gaining
control of the Board of Directors by filling, with its own nominees, the
vacancies created by removal. These provisions also reduce the power of
stockholders generally, even those with a majority of the voting power in the
Company, to remove incumbent directors and to fill vacancies on the Board of
Directors without the support of the incumbent directors.

In addition, the Restated Certificate of Incorporation provides that no
action required to be taken at any annual or special meeting of stockholders
may be taken by written consent without a meeting except by a consent signed by
all the stockholders entitled to vote. This effectively limits the ability of
the Company's stockholders to conduct any form of consent solicitation
requiring less than unanimous consent. The Restated Certificate of
Incorporation and by-laws of the Company also do not permit stockholders of the
Company to call special meetings of stockholders. See "Principal Stockholders
and Selling Stockholder."

The Company's Restated Certificate of Incorporation also provides that the
Company shall not enter into any Transaction (as hereinafter defined) with or
benefitting any Interested Stockholder (as hereinafter defined) unless (a) the
Transaction has been approved by the affirmative vote of not less than 80% of
the aggregate voting power of the outstanding stock or (b) the Continuing
Directors (as hereinafter defined) by a two-thirds vote thereof have expressly
approved the Transaction. For these purposes:

(1) The term "Continuing Director" means a director who is not
affiliated with an Interested Stockholder and either (i) was a member of
the Board of Directors of the Company immediately prior to the time that
the Interested Stockholder, if any, became an Interested Stockholder or
(ii) was elected by or recommended for election by a majority of the then
Continuing Directors in office at the time such director was elected or
nominated for election.

(2) The term "Interested Stockholder" shall mean any person or group
(other than a trustee of an employee benefit plan of the Company or of an
employee benefit plan of an affiliate of the Company and other than a
person owning beneficially more than ten percent of the stock of the
Company on January 1, 1989) who is the beneficial owner of more than ten
percent of the voting power of the Company (those of the foregoing terms
which are defined in the rules under Section 13 of the Securities Exchange
Act of 1934 shall have the same meanings as set forth in such rules).

66
<PAGE>

(3) The term "Transaction," when used in reference to the Company and
any Interested Stockholder, means: (i) any merger or consolidation of the
Company or any direct or indirect majority-owned subsidiary of the Company
(A) with the Interested Stockholder or (B) with any other corporation if
the merger or consolidation is caused by the Interested Stockholder; (ii)
any sale, lease, exchange, mortgage, pledge, transfer or other disposition
(in one transaction or a series of transactions) except proportionately as
a stockholder of the company, to or with the Interested Stockholder,
whether as part of a dissolution or otherwise, of assets of the Company or
of any direct or indirect majority-owned subsidiary of the Company which
assets have an aggregate market value equal to ten percent or more of
either the aggregate market value of all the assets of the Company
determined on a consolidated basis or the aggregate market value of all the
outstanding stock of the Company; (iii) any transaction involving the
Company or any direct or indirect majority-owned subsidiary of the Company
which has the effect, directly or indirectly, of increasing the
proportionate share of the stock of any class or series, or securities
convertible into stock of any class or series, of the Company or of any
such subsidiary which is owned by the Interested Stockholder, with certain
exceptions; or (iv) any receipt by the Interested Stockholder of the
benefit, directly or indirectly, of any loans, advances, guarantees,
pledges or other financial benefits (other than those expressly permitted
in subparagraph (iii) above) provided by or through the Company or any
direct or indirect majority-owned subsidiary.

Transfer Agent and Registrar

The transfer agent and registrar for the Common Stock is The Bank of New
York.

67
<PAGE>

UNDERWRITING

Under the terms and subject to the conditions contained in an Underwriting
Agreement, dated [ ], 1998 (the "U.S. Underwriting Agreement"), the
underwriters named below (the "U.S. Underwriters"), for whom Credit Suisse
First Boston Corporation and PaineWebber Incorporated are acting as
representatives (the "Representatives"), have severally but not jointly agreed
to purchase from the Company and the Selling Stockholder the following
respective numbers of U.S. Shares (as defined below):

<TABLE>
<CAPTION>
Number of
Underwriter U.S. Shares
- -------------------------------------------------------- ------------
<S> <C>
Credit Suisse First Boston Corporation ......... [ ]
PaineWebber Incorporated ....................... [ ]

Total ....................................... [ ]
============
</TABLE>

Of the 3,420,000 shares of common stock being offered, 2,736,000 shares (the
"U.S. Shares") are initially being offered by the U.S. Underwriters in the
United States and Canada (the "U.S. Offering") and 684,000 shares (the
"International Shares") are initially being concurrently offered by the
Managers (the "Managers") outside the United States and Canada (the
"International Offering").

The U.S. Underwriting Agreement provides that the obligations of the U.S.
Underwriters are subject to certain conditions precedent and that the U.S.
Underwriters will be obligated to purchase all the U.S. Shares offered hereby
(other than those shares covered by the over-allotment option described below)
if any are purchased. The U.S. Underwriting Agreement provides that, in the
event of a default by a U.S. Underwriter, in certain circumstances the purchase
commitments of non-defaulting U.S. Underwriters may be increased or the U.S.
Underwriting Agreement may be terminated.

The Company and the Selling Stockholder have entered into a Subscription
Agreement (the "Subscription Agreement") with the Managers of the International
Offering providing for the concurrent offer and sale of the International
Shares outside the United States and Canada. The closing of the U.S. Offering
is a condition to the closing of the International Offering and vice versa.

The Company has granted to the U.S. Underwriters and the Managers an
option, exercisable by Credit Suisse First Boston Corporation, expiring at the
close of business on the 30th day after the date of this Prospectus, to
purchase up to 513,000 additional shares at the initial public offering price,
less the underwriting discounts and commissions, all as set forth on the cover
page of this Prospectus. Such option may be exercised only to cover
over-allotments, if any, in the sale of the shares of Common Stock offered
hereby. To the extent that this option to purchase is exercised, each U.S.
Underwriter and each Manager will become obligated, subject to certain
conditions, to purchase approximately the same percentage of additional shares
being sold to the U.S. Underwriters and the Managers as the number of U.S.
Shares set forth next to such U.S. Underwriter's name in the preceding table
and as the number set forth next to such Manager's name in the corresponding
table in the prospectus relating to the International Offering bears to the sum
of the total number of shares in such tables.

The Company and the Selling Stockholder have been advised by the
Representatives that the U.S. Underwriters propose to offer the U.S. Shares in
the United States to the public, and in Canada on a private placement basis,
initially at the offering price set forth on the cover page of this Prospectus
and, through the Representatives, to certain dealers at such price less a
concession of $ per share, and the U.S. Underwriters and such dealers may
allow a discount of $ per share on sales to certain other dealers. After the
initial public offering, the public offering price and concession and discount
to dealers may be changed by the Representatives.

The public offering price, the aggregate underwriting discounts and
commissions per share and the per share concession and discount to dealers for
the U.S. Offering and the concurrent International Offering will be identical.
Pursuant to an Agreement between the U.S. Underwriters and the Managers (the
"Intersyndicate Agreement") relating to the Offering, changes in the public
offering price, the aggregate underwriting discounts and commissions per share
and the per share concession and discount to dealers will be made only upon the
mutual agreement of Credit Suisse First Boston Corporation, on behalf of the
U.S. Underwriters, and Credit Suisse First Boston (Europe) Limited ("CSFBL"),
on behalf of the Managers.

Pursuant to the Intersyndicate Agreement, each of the U.S. Underwriters
has agreed that, as part of the distribution of the U.S. Shares and subject to
certain exceptions, it has not offered or sold, and will not offer or

68
<PAGE>

sell, directly or indirectly, any shares of Common Stock or distribute any
prospectus relating to the Common Stock to any person outside the United States
or Canada or to any other dealer who does not so agree. Each of the Managers
has agreed or will agree that, as part of the distribution of the International
Shares and subject to certain exceptions, it has not offered or sold, and will
not offer or sell, directly or indirectly, any shares of Common Stock or
distribute any prospectus relating to the Common Stock in the United States or
Canada or to any other dealer who does not so agree. The foregoing limitations
do not apply to stabilization transactions or to transactions between the U.S.
Underwriters and the Managers pursuant to the Intersyndicate Agreement. As used
herein, "United States" means the United States of America (including the
States and the District of Columbia), its territories, possessions and other
areas subject to its jurisdiction. "Canada" means Canada, its provinces,
territories, possessions and other areas subject to its jurisdiction, and an
offer or sale shall be in the United States or Canada if it is made to (i) any
individual resident in the United States or Canada; or (ii) any corporation,
partnership, pension, profit-sharing or other trust or other entity (including
any such entity acting as an investment adviser with discretionary authority)
whose office most directly involved with the purchase is located in the United
States or Canada.

Pursuant to the Intersyndicate Agreement, sales may be made between the
U.S. Underwriters and the Managers of such number of shares of Common Stock as
may be mutually agreed upon. The price of any shares so sold will be the public
offering price, less such amount as may be mutually agreed upon by Credit
Suisse First Boston Corporation, on behalf of the U.S. Underwriters, and CSFBL,
on behalf of the Managers, but not exceeding the selling concession applicable
to such shares. To the extent there are sales between the U.S. Underwriters and
the Managers pursuant to the Intersyndicate Agreement, the number of shares of
Common Stock initially available for sale by the U.S. Underwriters or by the
Managers may be more or less than the amount appearing on the cover page of
this Prospectus. Neither the U.S. Underwriters nor the Managers are obligated
to purchase from the other any unsold shares of Common Stock.

The Company, Isao Sato, HMC and certain other minority stockholders have
agreed that they will not offer, sell, contract to sell, announce an intention
to sell, pledge or otherwise dispose of, directly or indirectly, and the Company
has agreed that it will not file or cause to be filed with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any additional shares of the Company's common stock or securities or other
rights convertible into or exchangeable or exercisable for any shares of the
Company's common stock, or disclose the intention to make any such offer, sale,
pledge, disposal or filing, without the prior written consent of Credit Suisse
First Boston Corporation, until 180 days after the date of the Offering. With
respect to the Company, such agreement excepts grants of employee stock options
pursuant to the terms of a plan in effect as of the date of the U.S.
Underwriting Agreement, issuance of shares pursuant to the exercise of such
options or the exercise of any other employee stock options outstanding as of
the date of the U.S. Underwriting Agreement.

The Company and the Selling Stockholder have agreed to indemnify the U.S.
Underwriters and the Managers against certain liabilities, including civil
liabilities under the Securities Act, or to contribute to payments that the
U.S. Underwriters and the Managers may be required to make in respect thereof.

The Representatives and the Managers have informed the Company and the
Selling Stockholder that they do not expect discretionary sales by the U.S.
Underwriters and the Managers to exceed 5% of the number of shares offered
hereby.

Prior to the Offering, there has been no public market for the shares. The
initial public offering price for the shares will be determined by negotiations
among the Company, the Selling Stockholder and the Representatives. In
determining such price, consideration will be given to various factors,
including market conditions for initial public offerings, the history of and
prospects for the Company's business, the past and present operations of the
Company, the past and present earnings and current financial position of the
Company, an assessment of the Company's management, the market for securities
of companies in businesses similar to those of the Company, the general
condition of the securities markets and other relevant factors. There can be no
assurance that the initial public offering price will correspond to the price
at which the shares will trade in the public market subsequent to the Offering
or that an active trading market for the shares will develop and continue after
the Offering.

The Representatives, on behalf of the U.S. Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934, as amended. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long

69
<PAGE>

as the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the shares in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the Representatives to reclaim a selling concession from a
syndicate member when the shares originally sold by such syndicate member are
purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the shares to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the New York Stock Exchange or otherwise and, if commenced, may be
discontinued at any time.

70
<PAGE>

NOTICE TO CANADIAN RESIDENTS

Resale Restrictions

The distribution of the Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that the Company and the
Selling Stockholder prepare and file a prospectus with the securities
regulatory authorities in each province where trades of Common Stock are
effected. Accordingly, any resale of the Common Stock in Canada must be made in
accordance with applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made in accordance
with available statutory exemptions or pursuant to a discretionary exemption
granted by the applicable Canadian securities regulatory authority. Purchasers
are advised to seek legal advice prior to any resale of the Common Stock.

Representations of Purchasers

Each purchaser of Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company and, the Selling
Stockholder and the dealer from whom such purchase confirmation is received
that (i) such purchaser is entitled under applicable provincial securities laws
to purchase such Common Stock without the benefit of a prospectus qualified
under such securities laws, (ii) where required by law, that such purchaser is
purchasing as principal and not as agent, and (iii) such purchaser has reviewed
the text above under "Resale Restrictions".

Rights of Action (Ontario Purchasers)

The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.

Enforcement of Legal Rights

All of the issuer's directors and officers as well as the experts named
herein and the Selling Stockholder may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or a substantial
portion of the assets of the issuer and such persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
the issuer or such persons in Canada or to enforce a judgment obtained in
Canadian courts against such issuer or persons outside of Canada.

Notice to British Columbia Residents

A purchaser of Common Stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Common Stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from the Company. Only one
such report must be filed in respect of Common Stock acquired on the same date
and under the same prospectus exemption.

Taxation and Eligibility for Investment

Canadian purchasers of Common Stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the Common
Stock in their particular circumstances and with respect to the eligibility of
the Common Stock for investment by the purchaser under relevant Canadian
Legislation.

71
<PAGE>

LEGAL MATTERS

The validity of the shares of Common Stock being sold in the Offering is
being passed upon for the Company by Proskauer Rose LLP, New York, New York.
Certain legal matters in connection with the Offering will be passed upon for
the Underwriters by Winthrop, Stimson, Putnam & Roberts, New York, New York.

EXPERTS

The consolidated financial statements and schedule of Hosokawa Micron
International Inc. and subsidiaries as of September 30, 1997 and 1996, and for
each of the years in the three-year period ended September 30, 1997 have been
included herein and in the Registration Statement in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in auditing
and accounting.

72
<PAGE>

INDEX TO FINANCIAL STATEMENTS

HOSOKAWA MICRON INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Financial Statements

<TABLE>
<S> <C>
Independent Auditors' Report ............................................................. F-2
Consolidated Balance Sheets as of September 30, 1996, September 30, 1997 ................. F-3
Consolidated Statements of Income for each of the fiscal years ended September 30, 1995,
1996 and 1997 ........................................................................... F-5
Consolidated Statements of Stockholders' Equity for each of the fiscal years ended
September 30, 1995, 1996 and 1997 ....................................................... F-6
Consolidated Statements of Cash Flows for each of the fiscal years ended
September 30, 1995, 1996 and 1997 ....................................................... F-7
Notes to Consolidated Financial Statements ............................................... F-9
Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1997
and March 31, 1998 (Unaudited) .......................................................... F-25
Condensed Consolidated Statement of Income for the six month periods ended
March 31, 1997 (Unaudited) and March 31, 1998 (Unaudited) ............................... F-27
Condensed Consolidated Statement of Cash Flows for the six month periods ended
March 31, 1997 (Unaudited) and March 31, 1998 (Unaudited) ............................... F-28
Notes to Unaudited Condensed Consolidated Financial Statements ........................... F-30
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders of
Hosokawa Micron International Inc.:

We have audited the accompanying consolidated balance sheets of Hosokawa
Micron International Inc. (a majority owned subsidiary of Hosokawa Micron
Corporation) and subsidiaries as of September 30, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three-year period ended September 30, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Hosokawa
Micron International Inc. and subsidiaries as of September 30, 1997 and 1996,
and the results of their operations and their cash flows for each of the years
in the three-year period ended September 30, 1997 in conformity with generally
accepted accounting principles.

KPMG PEAT MARWICK LLP

NEW YORK, NEW YORK
November 3, 1997,
except for note 22,
which is as of April 16, 1998

F-2
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC. (A Majority Owned Subsidiary of Hosokawa
Micron Corporation)
AND SUBSIDIARIES

Consolidated Balance Sheets
(Amounts in thousands)

<TABLE>
<CAPTION>
September 30, September 30,
1996 1997
ASSETS --------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................ $ 12,405 $ 13,455
Marketable securities ................................ 332 303
Accounts and notes receivable, less
allowance for doubtful accounts of
$3,210 and $2,898 in 1996 and
1997, respectively ................................. 57,307 59,341
Due from parent and affiliates ....................... 998 1,035
Costs and estimated earnings in excess of
billings on uncompleted contracts .................. 12,490 6,897
Inventories .......................................... 49,359 42,198
Prepaid expenses and other assets .................... 5,562 5,285
-------- --------
Total current assets ............................ 138,453 128,514
Property, plant and equipment, net ................... 85,977 77,921
Cost in excess of net assets acquired, less
accumulated amortization of $13,837 and $15,078 in
1996 and 1997, respectively ........................ 78,313 72,818
Other assets ......................................... 4,887 4,637
-------- --------
Total assets .................................... $307,630 $283,890
======== ========
(continued)
</TABLE>
F-3
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC. (A Majority Owned Subsidiary of Hosokawa
Micron Corporation)
AND SUBSIDIARIES

Consolidated Balance Sheets
(Amounts in thousands)

<TABLE>
<CAPTION>
September 30, September 30,
1996 1997
LIABILITIES AND STOCKHOLDERS' EQUITY --------------- --------------
<S> <C> <C>
Current liabilities:
Notes payable to banks ............................... $ 32,460 $ 35,535
Commercial paper ..................................... 42,636 42,387
Accounts payable ..................................... 38,415 37,329
Current taxes payable ................................ 3,619 3,250
Deferred income taxes ................................ 2,479 1,886
Contract advances .................................... 19,176 14,371
Accrued liabilities .................................. 44,697 37,954
Pension liabilities .................................. 945 --
Due to parent and affiliates ......................... 7,609 7,489
--------- ---------
Total current liabilities ....................... 192,036 180,201
Notes payable to banks--long term .................... 23,786 17,546
Pension liabilities .................................. 16,338 14,722
Other long-term liabilities .......................... 550 564
Deferred income taxes ................................ 13,951 12,169
--------- ---------
Total liabilities ............................... 246,661 225,202
--------- ---------
Commitments and contingencies
Minority interest ..................................... 11 --
Stockholders' equity:
Preferred stock:
5.5% cumulative subordinated preferred
stock ($.01 par value, 240,000 shares
authorized at September 30, 1996 and 1997) ......... 2 --
4.44% cumulative preferred stock ($.01 par
value, 200,000 shares authorized at
September 30, 1996 and 1997) ....................... 2 --
Common stock ($.01 par value, 3,800,000
and 12,500,000 shares authorized at
September 30, 1996 and 1997, respectively;
issued and outstanding: 1,607,346 and
9,495,517 at September 30, 1996 and 1997,
respectively) ...................................... 16 95
Additional paid-in capital ........................... 103,740 103,665
Accumulated deficit .................................. (47,785) (47,215)
Unrealized loss in marketable securities ............. -- (28)
Cumulative translation adjustment .................... 4,983 2,171
--------- ---------
Total stockholders' equity ........................... 60,958 58,688
--------- ---------
Total liabilities and stockholders' equity ........... $ 307,630 $ 283,890
========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC. (A Majority Owned Subsidiary of Hosokawa
Micron Corporation)
AND SUBSIDIARIES

Consolidated Statements of Income
(In thousands except per share data)

<TABLE>
<CAPTION>
Years Ended
----------------------------------------
September September September
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Sales to third parties ......................................... $334,573 $364,683 $357,076
Related party sales ............................................ 4,475 7,027 3,396
-------- -------- --------
Net sales ...................................................... 339,048 371,710 360,472
Cost of sales .................................................. 236,904 259,316 247,022
-------- -------- --------
Gross profit ................................................... 102,144 112,394 113,450
Selling, general and administrative expenses ................... 82,989 85,690 85,355
Research and development expenses .............................. 11,019 12,610 12,152
Amortization of intangibles .................................... 2,281 2,336 2,228
Restructuring .................................................. (3,239) 0 247
Other income ................................................... (763) (493) (1,110)
-------- -------- --------
Operating income ............................................... 9,857 12,251 14,578
Interest expense, net .......................................... 6,656 6,100 5,573
Other (income) expense ......................................... (3,393) 416 756
-------- -------- --------
Income before provision for income taxes ....................... 6,594 5,735 8,249
Provision for income taxes ..................................... 1,828 2,931 3,996
-------- -------- --------
Net income ..................................................... 4,766 2,804 4,253
Preferred dividends paid ....................................... 3,972 3,972 3,683
-------- -------- --------
Net income (loss) available to common stockholders ............. $ 794 $ (1,168) $ 570
======== ======== ========
Earnings (loss) per common share:
Basic .......................................................... $ 0.49 $ (0.73) $ 0.25
Diluted ........................................................ 0.49 (0.73) 0.25
Shares applicable in computing earnings (loss) per common share:
Basic .......................................................... 1,607 1,607 2,265
Diluted ........................................................ 1,624 1,624 2,281
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC. (A Majority Owned Subsidiary of Hosokawa
Micron Corporation)
AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity
Years ended September 30, 1995, 1996 and 1997
(In thousands, except number of shares)

<TABLE>
<CAPTION>
Cumulative Preferred Stock
---------------------------------------------
4.44% 5.50% Common stock
---------------------- ---------------------- --------------------
Shares Amount Shares Amount Shares Amount
------------- -------- ------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at
September 30, 1994 200,000 $ 2 240,000 $ 2 1,607,346 $16
Net income -- -- -- -- -- --
Dividends paid:
Preferred -- -- -- -- -- --
Ordinary -- -- -- -- -- --
Translation adjustment -- -- -- -- -- --
------- ---- ------- --- --------- ---
Balance at
September 30, 1995 200,000 2 240,000 2 1,607,346 16
Net income -- -- -- -- -- --
Dividends paid--Preferred -- -- -- -- -- --
Translation adjustment -- -- -- -- -- --
------- ---- ------- --- --------- ---
Balance at
September 30, 1996 200,000 2 240,000 2 1,607,346 16
Shares (exchanged) issued (200,000) (2) (240,000) (2) 7,888,171 79
Unrealized loss on
marketable securities -- -- -- -- -- --
Net income -- -- -- -- -- --
Dividends paid--Preferred -- -- -- -- -- --
Translation adjustment -- -- -- -- -- --
-------- ------ -------- ----- --------- ---
Balance at
September 30, 1997 -- -- -- -- 9,495,517 $95
======== ====== ======== ===== ========= ===

<CAPTION>
Unrealized
Additional Loss on Cumulative
Paid-in Accumulated Marketable translation
capital Deficit securities adjustment Total
------------ ------------- ------------ ------------ -----------
<S> <C> <C> <C <C> <C>
Balance at
September 30, 1994 $ 103,740 $ (46,875) -- $ 6,470 $ 63,355
Net income -- 4,766 -- -- 4,766
Dividends paid:
Preferred -- 3,972 -- -- 3,972
Ordinary -- 536 -- -- 536
Translation adjustment -- -- -- (223) (223)
--------- ---------- -- -------- --------
Balance at
September 30, 1995 103,740 (46,617) -- 6,247 63,390
Net income -- 2,804 -- -- 2,804
Dividends paid--Preferred -- (3,972) -- -- (3,972)
Translation adjustment -- -- -- (1,264) (1,264)
--------- ---------- -- -------- --------
Balance at
September 30, 1996 103,740 (47,785) -- 4,983 60,958
Shares (exchanged) issued (75) -- -- -- --
Unrealized loss on
marketable securities -- -- (28) -- (28)
Net income -- 4,253 -- -- 4,253
Dividends paid--Preferred -- (3,683) -- -- (3,683)
Translation adjustment -- -- -- (2,812) (2,812)
--------- ---------- --- -------- --------
Balance at
September 30, 1997 $ 103,665 $ (47,215) $ (28) $ 2,171 $ 58,688
========= ========== ===== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC. (A Majority Owned Subsidiary of Hosokawa
Micron Corporation)
AND SUBSIDIARIES

Consolidated Statements of Cash Flows
(Amounts in thousands)

<TABLE>
<CAPTION>
September 30,
---------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ................................................... $ 4,766 $ 2,804 $ 4,253
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ............................... 11,134 12,243 12,453
Deferred income taxes ....................................... (334) (934) (1,232)
Net loss on marketable securities ........................... 65 83 --
Unrealized exchange (gain) loss on loan ..................... (3,094) 1,468 2,129
Provision for doubtful accounts receivable .................. 1,184 (233) 87
Gain from disposal of property, plant and equipment ......... (285) (87) (516)
Reserve for liquidated business ............................. (1,671) -- --
Change in assets and liabilities, net of effects from
purchased businesses:
Accounts and notes receivable .............................. (15,769) 5,588 (4,869)
Costs and estimated earnings in excess of billings
on uncompleted contracts ................................. (1,867) (2,121) 4,324
Inventories ................................................ (3,930) (4,689) 3,505
Prepaid expenses and other assets .......................... 698 1,611 576
Accounts payable ........................................... 10,210 (343) 1,019
Contract advances .......................................... 210 2,561 (3,301)
Accrued liabilities ........................................ (4,365) (3,516) (5,279)
Current taxes payable ...................................... (437) 1,029 (34)
Due to parent and affiliates ............................... 1,288 (557) 224
Pension liabilities ........................................ (40) (734) (369)
Minority interest and other ................................ 355 (342) 87
--------- --------- ---------
Net cash (used) provided by
operating activities .................................... (1,882) 13,831 13,057
--------- --------- ---------
Cash flows from investing activities:
Payment for acquisitions ..................................... (686) (3,138) (1,018)
Additions to property, plant and equipment ................... (9,222) (11,215) (10,092)
Proceeds from disposal of property, plant and
equipment .................................................. 2,725 1,410 1,910
Other ........................................................ (2,445) (161) (159)
--------- --------- ---------
Net cash used in investing activities ..................... (9,628) (13,104) (9,359)
--------- --------- ---------
(Continued)
</TABLE>

F-7
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC. (A Majority Owned Subsidiary of Hosokawa
Micron Corporation)
AND SUBSIDIARIES

Consolidated Statements of Cash Flows
(Amounts in thousands)

<TABLE>
<CAPTION>
September 30,
---------------------------------------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from bank borrowings .......................... $ 200,447 $ 200,370 $ 202,386
Repayments of bank borrowings .......................... (212,816) (197,478) (200,590)
Proceeds from issuance of commercial paper ............. 393,974 427,000 232,000
Repayments of commercial paper ......................... (384,499) (424,000) (232,249)
Dividends paid ......................................... (4,508) (3,972) (3,683)
---------- ---------- ----------
Net cash (used in) provided by
financing activities ............................. (7,402) 1,920 (2,136)
---------- ---------- ----------
Effect of exchange rate changes on cash ................ 1,229 (387) (512)
Net increase (decrease) in cash .................... (17,683) 2,260 1,050
Cash and cash equivalents at beginning of year ......... 27,828 10,145 12,405
---------- ---------- ----------
Cash and cash equivalents at end of year ............... $ 10,145 $ 12,405 $ 13,455
========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ........................................... $ 7,543 $ 8,901 $ 6,292
========== ========== ==========
Income taxes ....................................... $ 1,794 $ 2,450 $ 4,841
========== ========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-8
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC.
(A Majority Owned Subsidiary of Hosokawa Micron Corporation)
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(1) Summary of Significant Accounting Policies

The Company and Principles of Consolidation
Hosokawa Micron International Inc. and subsidiaries (the "Company") is a
major supplier of powder processing systems and equipment, product recovery,
confectionery and plastics systems and equipment. The Company's products
provide custom-designed technical solutions to its customers' specific
processing and product recovery requirements used in manufacturing and
processing a broad range of industrial and consumer products. The Company is a
majority owned subsidiary of Hosokawa Micron Corporation (the "Parent") based
in Japan.

The Company conducts its operations primarily in two geographic regions,
namely the United States and Europe (See Geographic Information, Note 20). All
of the Company's operations are conducted in the processing equipment industry.

The Company had negative working capital at September 30, 1997 amounting
to $51,687,000. This includes short term bank and commercial paper borrowings
of $77,922,000. These borrowings have been renewed on an annual basis over the
past several years and management believes they will continue to be renewed on
an ongoing basis. In addition, the Company had unused lines of credit amounting
to $89,424,000 at September 30, 1997.

The accompanying consolidated financial statements include the accounts of
the Company and all its subsidiaries. All significant intercompany amounts and
transactions have been eliminated in the consolidation of these financial
statements.

Cash and cash equivalents
Cash and cash equivalents include certificates of deposit with maturities
of less than 3 months.

Marketable Securities
Marketable securities include equity securities that are classified as
available-for-sale. Accordingly, the marketable securities are valued at
market. Net unrealized losses on these investments are recorded in
shareholders' equity. As of September 30, 1996 and 1997, cost amounted to
$490,327.

In calculating gain or loss on sales of securities, cost is determined by
specific identification.

Accounts and Notes Receivable
Included in accounts and notes receivable are amounts held under retention
clauses in a number of sales contracts. This amounted to $3,102,000 and
$825,000 for fiscal years ended September 30, 1996 and 1997, respectively.
These amounts are all due within a one year period.

Inventories
Inventories are stated at the lower of cost or market. Cost is determined
by either the specific identification or average cost method.

F-9
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC.
(A Majority Owned Subsidiary of Hosokawa Micron Corporation)
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Property, Plant and Equipment
Depreciation and amortization of property, plant and equipment are
provided primarily on a straight-line basis over the estimated useful lives of
the assets as follows:

<TABLE>
<S> <C>
Machinery and equipment 4-10 years
Buildings and improvements 15-50 years
Office furniture and equipment 4-10 years
Vehicles 4-5 years
Leasehold improvements 4-10 years or life of lease
(whichever is shorter)
</TABLE>

Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

The Company has not provided for U.S. income taxes on unremitted earnings
for certain of its foreign subsidiaries as such earnings have been or are
expected to be permanently reinvested in the foreign operations. The cumulative
amount of unremitted foreign earnings for which the Company has not provided
U.S. income taxes amounted to approximately $20,142,000, $22,658,000 and
$24,172,000 at September 30, 1995, 1996 and 1997, respectively. Calculation of
the unrecognized deferred tax liability for temporary differences related to
undistributed earnings of foreign subsidiaries is not practicable.

Foreign Currency
Assets and liabilities of operations denominated in foreign currencies are
translated into U.S. dollars using exchange rates in effect at the end of the
period, while revenues and expenses are translated at average exchange rates.
Translation gains and losses are recorded as a separate component of
stockholders' equity and are not included in net income.

Realized and unrealized gains and losses from foreign currency
transactions are included in net income for the period. Net transaction gains
(losses) were $1,968,000, $329,000 and ($112,000) for the three years ended
September 30, 1995, 1996 and 1997, respectively. These are included in other
(income) expense, in the accompanying consolidated statements of operations.

Accounting for Contracts
Earnings on significant long-term contracts are generally recognized on
the percentage-of-completion method in the ratio that costs incurred to date
bear to total estimated costs at completion. In all other cases, the completed
contract method is used. Revenues and costs on contracts are subject to
revision throughout the terms of the contracts and any required adjustments are
made in the periods in which revisions are determinable. Provisions are made
for any anticipated losses in the periods in which they are first determinable.

Costs and estimated earnings in excess of billings on uncompleted
contracts consist of revenues recognized on contracts for which billings have
not been presented to the customer at the consolidated balance sheet date. Such
revenues are expected to be billed and collected generally within one year.
Billings in excess of costs and estimated earnings on uncompleted contracts are
included in contract advances.

F-10
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC.
(A Majority Owned Subsidiary of Hosokawa Micron Corporation)
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Cost in Excess of Net Assets Acquired
Cost in excess of net assets acquired (goodwill) is being amortized on a
straight line basis over a 40-year period.

The Company continually evaluates whether events or circumstances have
occurred which may impact the Company's assessment of the appropriateness of
the remaining estimated useful life of goodwill. The Company compares its
estimate of the acquired business' undiscounted future cash flow to the
carrying value of goodwill to determine if an impairment write-off is
necessary.

Other Assets
Other assets include intangible assets, which are being amortized on a
straight-line basis over the estimated useful lives of the assets as follows:

<TABLE>
<S> <C>
Patents 5-15 years
Trademarks 5 years
Manufacturing drawings 10-12 years
License rights 5 years
</TABLE>

Product Warranty
The Company currently provides for the estimated cost to repair or replace
products sold under warranties. Such warranties generally cover a twelve-month
period.

Advertising Expenses
Costs of advertising are expensed in the year that they are incurred.
Advertising costs amounted to $3,263,000, $4,145,000 and $4,205,000 in fiscal
years 1995, 1996 and 1997, respectively.

Earnings (Loss) per Common Share
Effective for periods beginning after December 15, 1997, Financial
Accounting Standard No. 128 ("SFAS No. 128") "Earning Per Share" requires dual
presentation of earnings per share--basic and diluted. As SFAS No. 128 requires
retroactive restatement of financial data, accordingly, all prior period
earnings per share data has been restated to conform with the provisions of
this pronouncement. Basic earnings per common share has been computed by
dividing net income, less preferred stock dividends in fiscal years 1995, 1996
and 1997 of $3,972,000, $3,972,000 and $3,683,000, respectively, by the
weighted average number of common shares outstanding of 1,607,000 in 1995,
1,607,000 in 1996 and 2,265,000 in 1997. Diluted earnings (loss) per share have
been computed by dividing net income, less preferred stock dividends, by the
weighted average number of common shares outstanding, including the effects of
additional shares relating to stock options of 16,413 for the years ending
1995, 1996 and 1997, respectively. The amount of (loss) earnings and number of
shares used in the calculation of basic and diluted (loss) earnings per common
share were the same for the loss period presented. Diluted loss per share does
not include any incremental shares that would have been outstanding assuming
the exercise of any stock options because those shares would have been
anti-dilutive.

Due to the exchange in fiscal 1997 of both classes of preferred stock for
Common Stock, historical earnings per share are not indicative of future
earnings per share.

Foreign Exchange Agreements/Derivatives
The Company enters into foreign exchange contracts to hedge firm foreign
currency commitments only. The Company does not hold or issue derivative
financial instruments for trading or speculative purposes. Gains and losses on
foreign exchange contracts that are hedges of foreign currency commitments are
recognized as part of the specific transactions hedged.

Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.

F-11
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC.
(A Majority Owned Subsidiary of Hosokawa Micron Corporation)
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Stock Compensation
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation." As permitted under
SFAS No. 123, the Company elected not to adopt the fair value-based method of
accounting for its stock-based compensation plans, but will account for such
compensation under the provisions of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. The Company has, however, complied with the disclosure
requirements of SFAS No. 123.

New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board recently issued
three new accounting standards that will have an impact on the Company's
financial statements when adopted in a future period.

Statement of Accounting Standards No. 131 ("SFAS No. 131"), Disclosures
about Segments of an Enterprise and Related Information, establishes standards
for the way that public enterprises report information about operating segments
in annual financial statements and requires reporting of selected information
about operating segments in interim financial statements issued to the public.
It also establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS No. 131 defines operating segments
as components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. Generally,
financial information is required to be reported on the basis that it is used
internally for evaluating segment performance and for deciding how to allocate
resources to segments.

Statement of Accounting Standards No. 132 ("SFAS No. 132"), Employers
Disclosures About Pensions and Other Postretirement Benefits. SFAS No. 132
revises employers' disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plans.

(2) Acquisitions
In February 1996, the Company acquired all of the outstanding shares of
Ter Braak B.V., for cash of approximately $3,100,000. The acquisition was
accounted for under the purchase method of accounting. Cost in excess of the
net assets acquired is being amortized over a period of 40 years. The purchase
was funded primarily through bank borrowings.

In March 1996, the Company acquired for a nominal amount, assets with a
value of approximately $2,000,000, and established liabilities totaling
approximately $3,550,000 with respect to Kreuter GmbH.

Both Ter Braak B.V. and Kreuter GmbH are engaged in the business of
manufacturing equipment for the confectionery industry.

In December 1996, the Company acquired all of the outstanding shares of
L.E. Stott Limited for $1,018,000. The acquisition was accounted for under the
purchase method of accounting. The purchase price was allocated to

F-12
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC.
(A Majority Owned Subsidiary of Hosokawa Micron Corporation)
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

acquire tangible assets and liabilities. There was no excess over such values.
L.E. Stott Ltd. is engaged in the design and manufacture of weighing and
filling equipment used primarily in the pharmaceutical industry.

The accompanying consolidated financial statements include the results of
these companies from the dates of acquisition. The results of these operations
are not material to the consolidated results.

(3) Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts

<TABLE>
<CAPTION>
September 30,
-----------------------------
1996 1997
------------- -------------
(Amounts in thousands)
<S> <C> <C>
Costs and estimated earnings recognized
on uncompleted contracts .............................. $ 27,686 $ 24,606
Less billings to date:
Percentage-of-completion method ......................... (16,871) (20,293)
Completed contract method ............................... (17,501) (11,787)
Billings in excess of costs and estimated earnings
on uncompleted contracts .............................. $ (6,686) $ (7,474)
========= =========
Included in the accompanying consolidated balance sheets:
Costs and estimated earnings in excess of billings
on uncompleted contracts .............................. 12,490 6,897
--------- ---------
Billings in excess of costs and estimated earnings
on uncompleted contracts .............................. (1,675) (2,584)
Contract advances on contracts using completed
contract method ....................................... (17,501) (11,787)
--------- ---------
Contract advances ....................................... $ (19,176) $ (14,371)
--------- ---------
$ (6,686) $ (7,474)
========= =========
</TABLE>

(4) Inventories
Inventories consists of the following:

<TABLE>
<CAPTION>
September 30,
-----------------------
1996 1997
---------- ----------
(Amounts in thousands)
<S> <C> <C>
Raw Materials ........... $12,300 $12,294
Work in process ......... 23,463 19,946
Finished goods .......... 13,596 9,958
------- -------
$49,359 $42,198
======= =======
</TABLE>

F-13
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC.
(A Majority Owned Subsidiary of Hosokawa Micron Corporation)
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(5) Property, Plant and Equipment
Property, plant and equipment, at cost, less accumulated depreciation and
amortization consist of:

<TABLE>
<CAPTION>
September 30,
-----------------------
1996 1997
---------- ----------
(Amounts in thousands)
<S> <C> <C>
Machinery and equipment ....................... $ 59,027 $ 57,927
Land, building and improvements ............... 70,314 65,176
Office furniture and equipment ................ 12,991 14,044
Vehicles ...................................... 1,729 1,660
Leasehold improvements ........................ 624 741
-------- --------
144,685 139,548
Less accumulated depreciation and
amortization ................................ 58,708 61,627
-------- --------
85,977 77,921
======== ========
Depreciation and amortization expense ......... $ 9,026 $ 9,345
======== ========
</TABLE>

(6) Other Assets
Other assets consist of the following:

<TABLE>
<CAPTION>
September 30,
-----------------------
1996 1997
---------- ----------
(Amounts in thousands)
<S> <C> <C>
Patents and trademarks, less accumulated
amortization of $6,560 and $6,317 in 1996
and 1997, respectively ................................. $ 2,069 $ 2,126
Manufacturing drawings, less accumulated
amortization of $2,465 and $2,318 in 1996
and 1997, respectively ................................. 1,877 1,354
License rights, less accumulated amortization
of $315 and $510 in 1996 and 1997, respectively......... 212 205
Other .................................................... 729 952
------- -------
$ 4,887 $ 4,637
======= =======
</TABLE>

(7) Notes Payable to Banks
Notes payable to banks consist primarily of unsecured notes payable with
an average interest rate of 5.7% and 6.1% in 1996 and 1997, respectively.
Borrowings are on a short-term basis and are typically renewed as they become
due. Included in short term borrowings is the current portion of long term
debt, amounting to $3,094,000.

The Company has unused lines of credit with various banks totaling
approximately $89,424,000 at September 30, 1997.

(8) Commercial Paper

The company has a $75 million commercial paper program supported by an
irrevocable direct-pay letter of credit provided by a major international bank,
for which the Company pays a fee. Under the program, which extends through
December 16, 1997, the Company issues Commercial Paper Notes (the "Notes") with
maturities of up to 270 days. The Notes, which bears credit ratings of A-1 +
/P-1, are sold on a discount basis only and in an aggregate

F-14
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC.
(A Majority Owned Subsidiary of Hosokawa Micron Corporation)
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

face amount not to exceed $75 million outstanding at any one time. Interest on
the Notes, which averaged 5.6% in fiscal 1997, is determined at the time of
issue based on the dealer agreement. The Company is required to pay a fee of
3/8% of the average balance outstanding each quarter for the letter of credit.

(9) Notes Payable to Banks--Long Term
Notes payable to banks--long term include a loan received in fiscal 1996,
payable in Deutsche marks, in the amount of $15,628,000 (DM27,500,000) with an
interest rate of 5.35%. The Company is required to pay $2,387,000 (DM4,200,000)
per annum over the next four years. At the end of this period, the Company has
the option to extend the repayment of the remaining loan balance for a further
five years.

At September 30, 1997, a wholly owned subsidiary of the Company maintained
several loans payable in Dutch guilders in the amount of $3,710,000
(Dfl7,350,000) with an average interest rate of 4.42%. Approximately $1,918,000
of these loans are due in the year 1999 and beyond and, accordingly, have been
classified as notes payable to banks--long term. The agreement stipulates that
$3,224,000 of these loans will be secured by accounts receivable of the Company
if certain covenants are not complied with. At September 30, 1997, such
covenants have been complied with.

The current schedule of principal payments on long-term debt is as
follows:

<TABLE>
<CAPTION>
At September 30, Amount
- ------------------------- ---------------
(in thousands)
<S> <C>
1998 $ 3,094
1999 3,094
2000 3,094
2001 10,790
2002 568
--------
20,640
Less--current portion (3,094)
--------
$ 17,546
========
</TABLE>

(10) Income Taxes
Income tax expense (benefit) consists of the following:

<TABLE>
<CAPTION>
September 30, September 30, September 30,
1995 1996 1997
--------------- --------------- --------------
(Amounts in thousands)
<S> <C> <C> <C>
Current:
State and local .......... $ 216 $ -- $ 76
Foreign .................. 1,946 3,865 5,152
------ -------- --------
Total current .......... 2,162 3,865 5,228
------ -------- --------
Deferred:
Federal .................. 324 374 (16)
Foreign .................. (658) (1,308) (1,216)
------ -------- --------
Total deferred ......... (334) (934) (1,232)
------ -------- --------
Total .................. $1,828 $ 2,931 $ 3,996
====== ======== ========
</TABLE>

F-15
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC.
(A Majority Owned Subsidiary of Hosokawa Micron Corporation)
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

The components of the temporary differences that gave rise to significant
portions of the deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
September 30, September 30,
1996 1997
--------------- --------------
(Amounts in thousands)
<S> <C> <C>
Net operating losses ......................................... $ 20,523 $ 21,142
Foreign tax credits .......................................... 7,223 7,495
Pension accrual .............................................. 4,175 3,789
Reserves, primarily warranty and inventory ................... 4,537 6,768
--------- ---------
Gross deferred tax assets .................................. 36,458 39,194
Valuation allowance .......................................... (28,964) (29,451)
--------- ---------
Net deferred tax assets .................................... 7,494 9,743
Accumulated depreciation ..................................... 19,092 18,824
Percentage of completion ..................................... 1,009 701
Reserves, primarily for unremitted Pre-Acquisition earnings of
foreign subsidiaries ....................................... 3,823 4,273
--------- ---------
Gross deferred tax liabilities ............................. 23,924 23,798
--------- ---------
Net deferred tax liability ................................. $ 16,430 $ 14,055
========= =========
</TABLE>

Total net deferred tax liabilities shown above included current and
noncurrent portions.

The valuation allowance for deferred tax assets as of October 1, 1995 and
1996 was $22,187,000 and $28,964,000, respectively. The net change in the total
valuation allowance for the years ended September 30, 1996 and 1997 was an
increase of approximately $6,777,000 and $487,000, respectively. In assessing
the realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies in
making the assessment. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income in the periods in which
those temporary differences become deductible. Based upon projections for
future taxable income, management believes it is more likely than not the
company will realize the benefits of these deferred tax assets.

U.S. operating loss carryforwards of $344,000 were utilized for the fiscal
year ended September 30, 1997. No operating loss carryforwards were utilized in
the fiscal year ended September 30, 1995 or 1996. Such carryforwards resulted
in no tax benefits in 1995 and 1996 and a tax benefit of $141,000 in 1997 which
is included as a reduction of income tax expense. Foreign operating loss
carryforwards of $1,138,000, $1,104,000 and $663,000 were utilized for the
fiscal years ended September 30, 1995, 1996 and 1997, respectively. At
September 30, 1997, the Company had domestic net operating loss carryforwards
available of approximately $23,062,000, of which $1,782,000 is subject to
restricted utilization rules and will expire in 2002. The balance of the
domestic net operating loss carryforwards will expire in 2008 ($5,155,000),
2009 ($7,416,000), 2010 ($6,861,000) and 2011 ($1,848,000). The Company also
had foreign net operating loss carryforwards amounting to $26,262,000 available
for local tax purposes (principally in The Netherlands, Spain and the United
Kingdom), a significant portion of which is not subject to expiration.

In addition to the operating loss carryforwards, the Company has foreign
tax credit carryovers of approximately $7,495,000 that will expire from 1998 to
2002.

The major elements contributing to the differences between the U.S.
Federal statutory tax and the effective tax are a result of the following
factors:

F-16
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC.
(A Majority Owned Subsidiary of Hosokawa Micron Corporation)
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

<TABLE>
<CAPTION>
September 30, September 30, September 30,
1995 1996 1997
-------------- --------------- ---------------
(Amounts in thousands)
<S> <C> <C> <C>
Domestic operations .............................. $ (1,001) $ 259 $ 514
Foreign operations ............................... 7,595 5,476 7,735
-------- ------ ------
Income before income taxes ....................... $ 6,594 $5,735 $8,249
======== ====== ======
Federal statutory tax ............................ $ 2,242 $1,950 $2,805
Foreign tax rate differential .................... (1,670) 488 1,121
Change in beginning-of-year-U.S.
valuation allowance for
deferred tax assets allocated to
income tax expense ............................. 1,582 104 (416)
Disposal of foreign ownership interest ........... (973) -- --
State and local income taxes, net of
Federal tax benefit ............................ 216 -- 76
Permanent differences including goodwill ......... 55 183 225
Foreign withholding tax .......................... 376 206 185
-------- ------ ------
Income tax provision ............................. $ 1,828 $2,931 $3,996
======== ====== ======
</TABLE>

(11) Stockholders' Equity

In fiscal year 1992, the Company issued 200,000 shares of 4.44% Cumulative
Preferred Stock to the Parent at $150 per share. Annual dividends were $6.66
per share payable quarterly, semiannually or annually at the discretion of the
Board of Directors. The liquidation preference of this series over the common
stock and over the 5.50% Cumulative Subordinated Preferred Stock issued in
December 1992 was $150 per share plus accrued dividends.

In December, 1992, the Company issued 240,000 shares of previously
authorized 5.50% Cumulative Subordinated Preferred Stock to the Parent at $200
per share. Annual dividends were $11.00 per share, payable quarterly,
semiannually or annually at the discretion of the Board of Directors. The
liquidation preference of this series was preferred over common stock but was
subordinate to the 4.44% Cumulative Preferred Stock stockholders, at $200 per
share plus accrued dividends.

On August 1, 1997, the authorized common stock was increased to 12,500,000
shares.

Effective September 3, 1997, all of the issued shares for both classes of
preferred stock were exchanged for common stock as follows:

(A) 240,000 shares of 5.50% Cumulative Subordinated Preferred Stock were
exchanged at the rate of 20.2261 shares of common stock for each
share of preferred stock, for a total of 4,854,259 common shares.

(B) 200,000 shares of 4.44% Cumulative Preferred Stock were exchange at
the rate of 15.1695 shares of common stock for each share of
preferred stock, for a total of 3,033,912 common shares.

(C) Current year dividends were made on a semiannual basis and were
payable on issued shares up to the effective date of exchange. In
fiscal years 1995, 1996 and 1997, the Company paid preferred
dividends of $3,972,000, $3,972,000 and $3,683,000, respectively. In
addition, a common stock dividend of $536,000 was paid in fiscal
1995.

F-17
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC.
(A Majority Owned Subsidiary of Hosokawa Micron Corporation)
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(12) Related Party Transactions

The Company, in the normal course of business, transacts business with the
Parent and various other affiliated companies of the Parent. The accompanying
consolidated financial statements include the following transactions:

(a) Management Services Contract, Royalty, Marketing and Guarantee
Agreements

The Company has a management services contract and operates under
various license agreements with the Parent. Management fees of $400,000
were paid under the agreements for each of the years ended September 30,
1995, 1996, and 1997, and are included in other (income) expense in the
accompanying consolidated statements of operations.
Royalty income of approximately $393,000, $398,000 and $345,000 was
received from the Parent in fiscal years 1995, 1996 and 1997, respectively.
Royalty expense paid to the parent was $65,000, $75,000 and $65,000 for the
fiscal years ended 1995, 1996 and 1997, respectively.
Total fees paid under marketing agreements with the Parent, whereby all
of the Company's subsidiaries and divisions can avail themselves of the
Parent's Asian sales and marketing network, was $800,000 for the year ended
September 30, 1995 and $1,000,000 for the years ending September 30, 1996
and 1997.
The Parent company has guaranteed certain obligations of the Company
with respect to the commercial paper program. Guarantee fees paid to the
Parent were $100,000 for each of the three years ended September 30, 1997.
These fees are included within other, net in the accompanying consolidated
financial statements.
The Company leases space from one of the Parent's facilities in Japan.
The Company has paid approximately $110,000, $96,000, and $86,000 in 1995,
1996, and 1997, respectively, related to the lease.

(b) Due to/from Affiliates

Included in due to/from affiliates are trade receivables and payables
that represent normal business transactions with the Parent or its
affiliates.
Included in due to affiliates at September 30, 1997 and 1996 is a loan
denominated in Dutch Guilders of approximately $3,941,000 and $3,950,000,
respectively, payable to an affiliate with an average interest rate of
5.0%. Interest expense on this loan amounted to approximately $774,000,
$167,000 and $167,000 for each of the years ended September 30, 1995, 1996
and 1997, respectively.

The Company participates in the excess umbrella liability insurance
program issued to its Parent by a Japanese insurance carrier. The Company
reimburses its Parent for the premiums made for such coverage. Amounts
reimbursed to the Parent were $173,000, $166,000 and $148,000 in 1995, 1996
and 1997, respectively.

(d) Divestiture

During fiscal 1995, the Company divested its 84% ownership interest in
Hosokawa Finance International B.V. to the Parent. The Company recorded a
gain of $1,711,000 on the divestiture including $1,626,000 in foreign
translation gains, which is recorded in other (income) expense.

(13) Retirement Plans

The Company has several pension and 401(k) plans covering substantially
all of its employees. Pension expense amounted to approximately $4,757,000,
$4,553,000 and $5,194,000 for the years ended September 30, 1995, 1996 and
1997, respectively.

U.S. Plans
The Company had one tax qualified noncontributory defined pension plan
during fiscal year 1996, which covered certain nonunion employees at a wholly
owned subsidiary.

F-18
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC.
(A Majority Owned Subsidiary of Hosokawa Micron Corporation)
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

In December 1995, the Board of Directors of the subsidiary authorized the
termination of the pension plan. Termination was effective on December 31,
1995, and all participants became fully vested in the plan. The Company
recognized a curtailment gain of approximately $919,000 in fiscal 1996 as a
result of the plan termination. The pension plan was settled during fiscal 1997
with the payment of lump sums and the purchase of an annuity contract for all
eligible employees.

Prior to the plan termination, pension benefits were based on years of
service and participants compensation, and the Company's policy was to
contribute such amounts recommended by the Company's consulting actuaries to
satisfy the funding requirements under the Employee Retirement Income Security
Act of 1974 ("ERISA").

Net periodic pension cost for the domestic defined benefit pension plan
was comprised of the following:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
(Amounts in thousands)
<S> <C> <C>
Service cost .......................... $ 284 $ 73
Interest cost ......................... 378 315
Actual return on assets ............... (731) (250)
Net amortization and deferral ......... 434 (74)
------ ------
$ 365 $ 64
====== ======
</TABLE>

The domestic defined benefit plan was funded to accumulate sufficient
assets to provide for all accrued benefits. Pension plan benefits were based
primarily on participants' compensation and years of credited service. The
funded status of the Company's domestic defined benefit pension plans was as
follows:

<TABLE>
<CAPTION>
1996
------------
(Amounts in
thousands)
<S> <C>
Accumulated benefit obligation:
Vested .............................................................. $ (4,175)
Nonvested ........................................................... --
--------
Accumulated benefit obligation ....................................... $ (4,175)
========
Projected benefit obligation ......................................... (4,175)
Fair value of plan assets, primarily equity and bond commingled funds 4,131
--------
Assets less than projected benefit obligation ........................ (44)
Unrecognized net gain ................................................ (901)
--------
Accrued pension costs recognized in the consolidated balance sheet in
pension liabilities ................................................ $ (945)
========
</TABLE>

The Company has three defined contribution plans, which are structured as
Section 401(k) type plans under the Internal Revenue Code, covering
substantially all employees in the U.S. For two of the plans, Company
contributions are based on employee contributions or compensation. The other
plan does not require Company contributions.

The aggregate amounts provided under the foregoing defined contribution
plans were $719,000, $805,000 and $848,000 for the years ended September 30,
1995, 1996 and 1997, respectively.

Foreign Plans
Certain of the Company's foreign subsidiaries have noncontributory,
defined benefit pension agreements covering substantially all employees with
varying terms and amounts dependent upon salary levels and length of service.

Pension plans of the Company's international operations are influenced
principally by social legislation of the countries in which these operations
are located.

F-19
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC.
(A Majority Owned Subsidiary of Hosokawa Micron Corporation)
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Net periodic pension cost for the foreign defined benefit pension plans
consisted of the following:

<TABLE>
<CAPTION>
1995 1996 1997
-------- ---------- ---------
(Amounts in thousands)
<S> <C> <C> <C>
Service cost .......................... $ 523 $ 608 $ 493
Interest cost ......................... 1,287 1,322 1,122
Net amortization and deferral ......... 37 (46) (276)
------ ------ ------
$1,847 $1,884 $1,339
====== ====== ======
</TABLE>

Pension plan benefits are based primarily on participants' compensation
and years of credited service. The funded status of the Company's foreign
defined benefit pension plans is as follows:

<TABLE>
<CAPTION>
1996 1997
------------- -------------
(Amounts in thousands)
<S> <C> <C>
Accumulated benefit obligation:
Vested .......................................................... $ (15,268) $ (13,557)
Nonvested ....................................................... (4,385) (2,104)
--------- ---------
Accumulated benefit obligation ................................... $ (19,653) $ (15,661)
========= =========
Projected benefit obligation ..................................... (20,507) (17,328)
Fair value of plan assets, primarily insurance contracts ......... 5,222 4,058
--------- ---------
Assets less than projected benefit obligation .................... (15,285) (13,270)
Unrecognized net gain ............................................ (630) (1,131)
Unrecognized net transition asset at October 1, 1989
being amortized over a period of 15 years ...................... (423) (321)
--------- ---------
Accrued pension costs recognized in the
accompanying consolidated balance sheets in
pension liabilities ............................................ $ (16,338) $ (14,722)
========= =========
The assumptions are as follows:
1996 1997
--------- ---------
Discount rate .................................................... 7.0% 7.0%
Expected return on assets ........................................ 7.0% 7.0%
Average salary increase .......................................... 3.0% 4.0%
</TABLE>

(14) Employee Stock Plan

On July 29, 1997, the stockholders approved the establishment of the
Hosokawa Micron International Inc. 1997 Stock Option Plan (the "Plan") to
attract and retain key employees and directors. The Plan provides for the grant
of options to purchase up to 89,905 shares of the Company's common stock at the
fair market value at the date of the grant. On August 12, 1997, the Company
granted 87,657 options at an exercise price of $9.89 per share, which is equal
to the fair market value at the date of the grant. Fair market value was
determined by applying a Price Earnings Multiple, for a similar industry, as
discounted for a private company, to projected earnings for the Company in the
year the options were granted. These options become vested to the employees on
the earlier of (i) the twelve-month anniversary of the grant of the option or
(ii) the effective date of an initial public offering. These options may be
exercised the earlier of the effective date of an initial public offering or
from August 12, 1998 to August 11, 2007. During the year ended September 30,
1997, no shares were exercised.

F-20
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC.
(A Majority Owned Subsidiary of Hosokawa Micron Corporation)
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

The fair value of each option granted in 1997 has been estimated at the
date of the grant using the Black Scholes option pricing model (excluding a
volatility assumption) with the following assumptions
<TABLE>
<CAPTION>

<S> <C>
Expected life 10 years
Risk free interest rate 6.39%
Dividend yield 4.50%
</TABLE>

The Company applies APB No. 25 and related interpretations in accounting
for its stock-based compensation plan. Accordingly, as the exercise price at
the date of grant equaled the estimated fair value of a common share, no
compensation cost has been recognized in connection with the Plan. The Company
has adopted the disclosure-only option under SFAS No. 123. If the accounting
provisions of SFAS No. 123 had been adopted, the Company's net income for the
year ended September 30, 1997 would have been decreased on a pro forma basis to
$4,197,000 or by $0.02 per share. The effects of applying this statement for
either recognizing compensation cost or pro-forma disclosures may not be
representative of the effects on reported net income for future years.

(15) Interest Expense, Net

Interest expense net consists of the following:

<TABLE>
<CAPTION>
September 30,
---------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Interest Expense .............. $7,570 $6,703 $6,238
Interest Income ............... (914) (603) (665)
------ ------ ------
Interest Expense, Net ......... $6,656 $6,100 $5,573
====== ====== ======
</TABLE>

(16) Commitments and Contingencies

Leases
The Company leases various facilities and equipment under operating lease
arrangements. Many leases contain renewal options and some contain escalation
clauses. Rental commitments under noncancellable operating leases, as of
September 30, 1997, are as follows:

<TABLE>
<CAPTION>
Year ending September 30 Amount
-------------------------------- ---------------
(in thousands)
<S> <C>
1998 $ 2,546
1999 2,172
2000 1,874
2001 1,427
2002 1,033
Beyond 3,237
--------
Total minimum payments $ 12,289
========
</TABLE>

Rental expense for the years ended September 30, 1995, 1996 and 1997 was
approximately $1,947,000, $2,375,000 and $2,650,000, respectively.

Contingencies
Various suits and claims are pending against the Company and its
subsidiaries, including several product liability suits. Although the outcome
of such suits and claims cannot be predicted with certainty, the disposition
thereof will not, in the opinion of the management of the Company, result in a
material adverse effect on the consolidated financial position of the Company,
its operating results or cash flows.

F-21
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC.
(A Majority Owned Subsidiary of Hosokawa Micron Corporation)
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

At September 30, 1997, the Company has letters of credit and guaranty
outstanding totaling $23,124,000.

(17) Financial Instruments

The Company enters into forward exchange contracts to hedge foreign
currency transactions for periods consistent with its committed exposures. The
Company's foreign exchange contracts are designed to offset exchange rate
movements on the assets, liabilities and transactions being hedged.

At September 30, 1997, the Company had $19,439,000 of forward foreign
exchange contracts outstanding to hedge against currency fluctuations. The
Company's risk that counterparties to these contracts may be unable to perform
is minimized by limiting the counterparties to major international banks. The
Company does not expect any losses as a result of counterparty default.

(18) Restructuring Costs

During the years ended September 30, 1995, 1996 and 1997, the Company
utilized $2,775,000, $1,902,000 and $485,000, respectively, relating to its
1993 restructuring program. In addition, the Company credited $3,239,000 and
$506,000 to the income statement in 1995 and 1997, respectively, which remained
from completed restructuring activities. A severance reserve of $843,000 was
recorded in September 1997 to cover the costs of eliminating 25 positions
(actual terminations) throughout the Company resulting from the rationalization
of certain manufacturing operations in the United States and France. These
amounts are included in selling, general and administrative expenses ($753,000)
and in cost of sales ($90,000) in the accompanying consolidated financial
statements. As of September 30, 1996 and 1997, the Company had a remaining
liability of $1,321,000 and $1,173,000, respectively.

The remaining liability at September 30, 1997 primarily consists of the
$843,000 severance reserve recorded in 1997 and is expected to be substantially
utilized in fiscal 1998.

(19) Disclosures about the Fair Value of Financial Instruments

Marketable securities are stated at market value. The carrying amount of
accounts and notes receivable, notes payable, accounts payable, due to/from
affiliates, current taxes payable, contract advances and accrued liabilities
approximates fair value because of their short maturities.

At September 30, 1997, the estimated fair value of long-term debt was
approximately equal to the carrying amount of such debt on the consolidated
balance sheet, as the current market rates available to the company for similar
debt approximates the rates on these loans.

(20) Geographic Financial Information

<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
(Amounts in thousands)
<S> <C> <C> <C>
Sales to Unaffiliated Customers
United States ................. $119,341 $126,680 $118,787
Germany ....................... 61,377 55,810 50,568
The Netherlands ............... 13,802 17,516 11,640
Other Europe .................. 89,380 102,854 97,257
Other ......................... 50,673 61,823 78,824
-------- -------- --------
$334,573 $364,683 $357,076
======== ======== ========
</TABLE>

F-22
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC.
(A Majority Owned Subsidiary of Hosokawa Micron Corporation)
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

<TABLE>
<CAPTION>
1995 1996 1997
-------------- ----------- ---------------
(Amounts in thousands)
<S> <C> <C> <C>
Inter Area Sales
United States ............... $ 3,972 $ 7,292 $ 7,661
Germany ..................... 8,026 7,533 5,211
The Netherlands ............. 7,439 8,058 4,855
Other Europe ................ 54,659 66,234 64,473
Other ....................... 36,957 43,356 48,446
--------- -------- --------
$111,053 $132,473 $130,646
========= ======== ========
Operating Income
United States ............... $ (2,024) $ 3,461 $ 4,098(2)
Germany ..................... 9,021(1) 8,171 7,442
The Netherlands ............. (9) 48 (716)
Other Europe ................ 2,165(1) 366 2,560(2)
Other ....................... 704 205 1,248
---------- -------- ----------
$ 9,857 $ 12,251 $ 14,578
========== ======== ==========
Total Assets
United States ............... $122,010 $115,742 $120,328
Germany ..................... 124,330 127,658 100,787
The Netherlands ............. 30,853 41,346 36,533
Other Europe ................ 16,500 13,107 15,796
Other ....................... 8,510 9,777 10,447
---------- -------- ----------
$302,203 $307,630 $283,890
========== ======== ==========
Depreciation and Amortization
United States ............... $ 4,010 $ 4,326 $ 4,610
Germany ..................... 5,473 5,817 5,447
The Netherlands ............. 928 1,297 1,241
Other Europe ................ 401 433 645
Other ....................... 322 370 510
---------- -------- ----------
$ 11,134 $ 12,243 $ 12,453
========== ======== ==========
Capital Spending
United States ............... $ 3,229 $ 4,633 $ 2,451
Germany ..................... 4,221 3,889 5,518
The Netherlands ............. 742 852 540
Other Europe ................ 542 642 1,070
Other ....................... 488 1,199 513
---------- -------- ----------
$ 9,222 $ 11,215 $ 10,092
========== ======== ==========
</TABLE>

- ----------------
(1) Includes reversal of restructuring reserve of $2,100,000 in Germany and
$1,139,000 in Other Europe.
(2) Includes the reversal of a restructuring reserve of $506,000 in Other
Europe and the impact of restructuring charges totaling $300,000 in the
United States and $543,000 in Other Europe.

F-23
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC.
(A Majority Owned Subsidiary of Hosokawa Micron Corporation)
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(21) Concentrations of Credit Risk

Concentrations of credit risk with respect to the trade accounts
receivable are limited due to the large number of entities comprising the
Company's customer base and their dispersion across many different industries
and countries. As of September 30, 1997, the Company had no significant
concentrations of credit risk. The Company's production materials are readily
available, and the Company is not dependent on a single supplier or only a few
suppliers.

(22) Subsequent Event

On April 16, 1998, the board of directors authorized and the Parent
approved a 0.89904874 for 1.0 reverse stock split of the Company's common stock,
to be effective July 16, 1998. In connection with the reverse split, par value
of the common stock remains at $0.01 per share as a result of transferring
$10,662 from common stock to additional paid-in capital, representing the
aggregate par value of the shares issued under the reverse stock split. All
references throughout the consolidated financial statements to number of shares,
per share amounts, and stock option data of the Company's common stock have been
restated.

F-24
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC.
(A Majority Owned Subsidiary of Hosokawa Micron Corporation)
AND SUBSIDIARIES

Condensed Consolidated Balance Sheets
(Amounts in thousands)

<TABLE>
<CAPTION>
September 30, March 31,
1997 1998
ASSETS --------------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ..................................... $ 13,455 $ 9,442
Marketable securities ......................................... 303 222
Accounts and notes receivable, less
allowance for doubtful accounts of
$2,898 and $2,636 in 1997 and 1998, respectively............. 59,341 64,725
Due from parent and affiliates ................................ 1,035 2,568
Costs and estimated earnings in excess of
billings on uncompleted contracts ........................... 6,897 12,801
Inventories ................................................... 42,198 39,553
Prepaid expenses and other assets ............................. 5,285 6,106
-------- --------
Total current assets ......................................... 128,514 135,417

Property, plant and equipment, net ............................ 77,921 76,469
Cost in excess of net assets acquired, less
accumulated amortization of $15,078 and $15,826 in 1997 and
1998, respectively .......................................... 72,818 70,521
Other assets .................................................. 4,637 4,413
-------- --------
Total assets ................................................. $283,890 $286,820
======== ========

(continued)
</TABLE>
F-25
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC.
(A Majority Owned Subsidiary of Hosokawa Micron Corporation)
AND SUBSIDIARIES

<TABLE>
<CAPTION>
September 30, March 31,
1997 1998
LIABILITIES AND STOCKHOLDERS' EQUITY --------------- ------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Notes payable to banks ................................. $ 35,535 $ 34,111
Commercial paper ....................................... 42,387 49,250
Accounts payable ....................................... 37,329 40,505
Current taxes payable .................................. 3,250 2,272
Deferred income taxes .................................. 1,886 1,948
Contract advances ...................................... 14,371 17,344
Accrued liabilities .................................... 37,954 36,016
Due to parent and affiliates ........................... 7,489 3,236
--------- ---------
Total current liabilities .......................... 180,201 184,682
Notes payable to banks--long term ....................... 17,546 15,229
Pension liabilities ..................................... 14,722 14,426
Other long-term liabilities ............................. 564 1,136
Deferred income taxes ................................... 12,169 12,291
--------- ---------
Total liabilities .................................. 225,202 227,764
--------- ---------
Commitments and contingencies
Stockholders' equity
Common stock ($.01 par value, 12,500,000
shares authorized at September 30, 1997, and
March 31, 1998, respectively, issued and
outstanding 9,495,517) ............................... 95 95
Additional paid-in capital ............................. 103,665 103,665
Accumulated deficit .................................... (47,215) (45,746)
Unrealized loss in marketable securities ............... (28) (110)
Cumulative translation adjustment ...................... 2,171 1,152
--------- ---------
Total stockholders' equity ......................... 58,688 59,056
--------- ---------
Total liabilities and stockholders' equity ......... $ 283,890 $ 286,820
========= =========
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements.

F-26
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC.
(A Majority Owned Subsidiary of Hosokawa Micron Corporation)
AND SUBSIDIARIES

Condensed Consolidated Statement of Income
(In thousands except per share data)

<TABLE>
<CAPTION>
Six Months Ended March,
-------------------------
1997 1998
----------- -----------
(Unaudited)
<S> <C> <C>
Sales to third parties ......................................... $181,793 $175,267
Related party sales ............................................ 1,957 3,589
-------- --------
Net sales ...................................................... 183,750 178,856
Cost of sales .................................................. 126,945 122,469
-------- --------
Gross profit ................................................... 56,805 56,387
Selling, general and administrative expenses ................... 44,337 41,344
Research and development expenses .............................. 6,256 6,023
Amortization of intangibles .................................... 1,136 1,092
Other income ................................................... (645) (384)
-------- --------
Operating income ............................................... 5,721 8,312
Interest expense, net .......................................... 2,756 2,686
Other expense .................................................. 718 407
-------- --------
Income before provision for income taxes ....................... 2,247 5,219
Provision for income taxes ..................................... 1,088 1,743
-------- --------
Net income ..................................................... 1,159 3,476
Preferred dividends paid ....................................... 1,986 --
-------- --------
Net (loss) income available to common stockholders ............. $ (827) $ 3,476
======== ========
(Loss) earnings per common share:
Basic .......................................................... $ (0.51) $ 0.37
Diluted ........................................................ (0.51) 0.37
Shares applicable in computing (loss) earnings per common share:
Basic .......................................................... 1,607 9,496
Diluted ........................................................ 1,624 9,512
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements.

F-27
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC.
(A Majority Owned Subsidiary of Hosokawa Micron Corporation)
AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows
Six months ended March 31, 1997 and 1998
(Amounts in thousands)

<TABLE>
<CAPTION>
Six Months Ended
March 31,
-------------------------
1997 1998
----------- -----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income ..................................................... $ 1,159 $ 3,476
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization .................................. 6,205 5,718
Unrealized exchange loss on loan ............................... 1,501 762
Provision for doubtful accounts receivable ..................... (95) (183)
Gain from disposal of property, plant and equipment ............ (532) (195)
Change in assets and liabilities, net of effects from purchased
businesses:
Accounts and notes receivable ................................ (4,238) (6,747)
Costs and estimated earnings in excess of billings on
uncompleted contracts ...................................... 3,681 (6,411)
Inventories .................................................. 102 1,596
Prepaid expenses and other assets ............................ (1,051) (1,904)
Accounts payable ............................................. (5,803) 4,403
Contract advances ............................................ (1,451) 3,357
Accrued liabilities .......................................... (3,651) (650)
Current taxes payable ........................................ 215 (795)
Due to parent and affiliates ................................. (755) (1,888)
Pension liabilities .......................................... (148) 293
Other ........................................................ (1,533) 1,678
-------- --------
Net cash (used in) provided by operating activities ......... (6,394) 2,510
-------- --------

(continued)
</TABLE>
F-28
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC.
(A Majority Owned Subsidiary of Hosokawa Micron Corporation)
AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows
Six months ended March 31, 1997 and 1998
(Amounts in thousands)

<TABLE>
<CAPTION>
Six Months Ended March 31,
----------------------------
1997 1998
------------ -------------
(Unaudited)
<S> <C> <C>
Cash flows from investing activities:
Payment for acquisitions .................................... $ (1,018) $ --
Additions to property, plant and equipment .................. (3,729) (5,486)
Proceeds from disposal of property, plant and
equipment ................................................. 1,369 433
---------- ----------
Net cash used in investing activities ..................... (3,378) (5,053)
---------- ----------
Cash flows from financing activities:
Proceeds from bank borrowings ............................... 85,868 112,414
Repayments of bank borrowings ............................... (78,248) (114,801)
Proceeds from issuance of commercial paper .................. 129,808 103,766
Repayments of commercial paper .............................. (128,000) (96,903)
Intercompany loan ........................................... -- (3,782)
Dividends paid .............................................. (1,986) (2,007)
---------- ----------
Net cash provided by (used in) financing activities ......... 7,442 (1,313)
---------- ----------
Effect of exchange rate changes on cash ...................... (341) (157)
Net (decrease) increase in cash ............................. (2,671) 4,013
Cash and cash equivalents at beginning of year ............... 12,405 13,455
---------- ----------
Cash and cash equivalents at end of period ................... $ 9,734 $ 9,442
========== ==========
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements.

F-29
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC.
(A Majority Owned Subsidiary of Hosokawa Micron Corporation)
AND SUBSIDIARIES

Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
include the accounts of Hosokawa Micron International, Inc. and its
wholly-owned subsidiaries (the "Company"). All significant intercompany
balances and transactions have been eliminated in consolidation.

The consolidated balance sheet as of March 31, 1998 and the consolidated
statements of operations and cash flows for the six months ended March 31, 1997
and March 31, 1998 have been prepared by the Company and have not been audited.
In the opinion of management, all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the financial
position of the Company, the results of its operations and cash flows have been
made.

Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Consolidated Financial Statements for the year ended September 30,
1997.

The results of operations for the six months ended March 31, 1998 are not
necessarily indicative of the operating results for the full fiscal year.

Effective for periods beginning after December 15, 1997, Financial
Accounting Standard No. 128 ("SFAS No. 128") "Earning Per Share" requires dual
presentation of earnings per share--basic and diluted. As SFAS No. 128 requires
retroactive restatement of financial data, accordingly, all prior period
earnings per share data has been restated to conform with the provisions of
this pronouncement.

Inventories
Inventories consist of the following:

<TABLE>
<CAPTION>
September 30, March 31,
1997 1998
--------------- ----------
(Amounts in thousands)
<S> <C> <C>
Raw materials ........... $12,294 $13,018
Work in process ......... 19,946 17,123
Finished goods .......... 9,958 9,412
------- -------
$42,198 $39,553
======= =======
</TABLE>

Cumulative Translation Adjustments
The impact of foreign currency translation adjustments are not recognized
in the results of operations. The change in the cumulative translation
adjustments are as follows:

<TABLE>
<CAPTION>
1997 1998
----------- -----------
(Amounts in thousands)
<S> <C> <C>
Balance at September 30, .......... $ 4,983 $ 2,171
Translation adjustments ........... (1,643) (1,019)
-------- --------
Balance at March 31, .............. $ 3,340 $ 1,152
======== ========
</TABLE>

Interim Dividend
On March 19, 1998, the Board of Directors declared a dividend of $0.21 per
share, payable to holders of record of Common Stock on March 31, 1998. The
total dividend amounted to $2,007,000.

F-30
<PAGE>

HOSOKAWA MICRON INTERNATIONAL INC.
(A Majority Owned Subsidiary of Hosokawa Micron Corporation)
AND SUBSIDIARIES

Subsequent Events

On April 16, 1998, the Board of Directors authorized and the Parent
approved a 0.89904874 for 1.0 reverse stock split of the Company's common stock,
to be effective July 16, 1998. In connection with the reverse split, par value
of the common stock remains at $0.01 per share as a result of transferring
$10,662 from common stock to additional paid-in capital, representing the
aggregate par value of the shares issued under the reverse stock split. All
references throughout the consolidated financial statements to number of shares,
per share amounts, and stock option data of the Company's common stock have been
restated.

On April 14, 1998, the Company adopted a Supplemental Executive Retirement
Plan which provides certain executives of the Company annually, upon
retirement, 48% of final average salary for the three highest consecutive years
in the last ten years of the executive's credited service. The anticipated cost
to the Company will be approximately $700,000 per year.

On May 22, 1998 the Board of Directors approved a grant of options to
purchase 392,500 shares under the Stock Incentive Plan. The grant will be
effective upon consummation of a proposed initial public offering ("IPO"). The
options are exerciseable in equal installments at 6 months, 18 months and 30
months after the effective date of the IPO. All of the options are
non-qualified. These options were granted with an exercise price equal to the
price to the public in the IPO.

On June 12, 1998, the Board of Directors declared a dividend of $0.105 per
share, payable to holders of record of Common Stock on June 15, 1998. The total
dividend amounted to $1,003,500.

F-31
<PAGE>

- --------------------------------------------------------------------------------

No dealer, salesperson, or other person has been authorized to give any
to make any representation not contained in this Prospectus and, if given or
made, such information or representation must not be relied upon as having been
authorized by the Company, the Selling Stockholder or any Underwriter. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy any of the securities to which it relates in any jurisdiction to any
person to whom it is unlawful to make such offer or solicitation in such
jurisdiction. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information herein is correct as of any time subsequent to the date hereof or
that there has been no change in the affairs of the Company since such date.

--------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----------
<S> <C>
Prospectus Summary ............................ 3
Risk Factors .................................. 8
Use of Proceeds ............................... 15
Dividend Policy ............................... 15
Capitalization ................................ 16
Dilution ...................................... 17
Selected Consolidated Financial Data .......... 18
Unaudited Pro Forma Condensed
Consolidated Financial Statements .......... 20
Management's Discussion and Analysis
of Financial Condition and
Results of Operations ...................... 24
Business ...................................... 31
Management .................................... 46
Certain Transactions .......................... 58
Principal Stockholders and
Selling Stockholder ........................ 62
Shares Eligible For Future Sale ............... 64
Description of Capital Stock .................. 64
Underwriting .................................. 68
Notice to Canadian Residents .................. 71
Legal Matters ................................. 72
Experts ....................................... 72
Index to Financial Statements ................. F-1
</TABLE>

--------------------------

Until , 1998 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Common Stock, whether or not participating in
this distribution, may be required to deliver a Prospectus. This is in addition
to the obligation of dealers to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.

- --------------------------------------------------------------------------------

[GRAPHIC OMITTED] HOSOKAWA MICRON INTERNATIONAL INC.

3,420,000 Shares
Common Stock
($.01 par value)

PROSPECTUS

Credit Suisse First Boston

PaineWebber Incorporated
<PAGE>

SUBJECT TO COMPLETION DATED JULY 22, 1998

3,420,000 Shares

[GRAPHIC OMITTED] HOSOKAWA MICRON INTERNATIONAL INC.

Common Stock
($.01 par value)
------------

Of the 3,420,000 shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby, 2,670,000 shares are being sold by Hosokawa Micron
International Inc. ("Hosokawa" or the "Company") and 750,000 shares are being
sold by Hosokawa Micron Corporation ("HMC" or the "Selling Stockholder"). See
"Principal Stockholders and Selling Stockholder." Upon closing of the Offering
(as defined below), the Selling Stockholder will own 70.4% of the outstanding
Common Stock (67.5%, if the over-allotment option is exercised in full). The
Company will not receive any proceeds from the sale of the shares by the Selling
Stockholder.

Of the 3,420,000 shares of Common Stock being offered, 684,000 shares (the
"International Shares") are initially being offered outside the United States
and Canada by the Managers (the "International Offering") and 2,736,000 shares
(the "U.S. Shares") are being concurrently offered in the United States and
Canada by the U.S. Underwriters (the "U.S. Offering" and, together with the
International Offering, the "Offering"). The offering price and underwriting
discounts and commissions of the International Offering and the U.S. Offering
are identical.

Prior to the Offering, there has been no public market for the Common Stock of
the Company. It is currently anticipated that the initial public offering price
will be between $13.00 and $15.00 per share. See "Subscription and Sale" for a
discussion of the factors to be considered in determining the initial public
offering price.

The Common Stock has been approved for listing on the New York Stock Exchange
under the symbol "HOS."

The Common Stock Offered Hereby Involves a High Degree of Risk. See "Risk
Factors" Beginning on Page 8 of this Prospectus.

- ----------------
(1) Before deducting expenses of the Offering payable by the Company and by the
Selling Stockholder estimated to be $1,130,456 and $317,544, respectively.

(2) The Company has granted the Managers and the U.S. Underwriters an option,
exercisable by Credit Suisse First Boston Corporation within 30 days of
the date hereof, to purchase up to a maximum of 513,000 additional shares
to cover over-allotments, if any. If all such additional shares are
purchased, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and $ ,
respectively. See "Subscription and Sale."

The International Shares are offered by the several Managers when, as and
if delivered to and accepted by the Managers, and subject to their right to
reject orders in whole or in part. It is expected that the International Shares
will be ready for delivery on or about , 1998, against payment in
immediately available funds.

Credit Suisse First Boston PaineWebber International

Prospectus dated , 1998

Information contained herein is subject to completion or amendment. This
prospectus shall not constitute an offer to sell or the solicitation of an
offer to buy nor shall there be any sale of these securities in any
jurisdiction in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such
jurisdiction.
<PAGE>

No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company, the Selling Stockholder or any Manager.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful to make such an offer in such jurisdiction.
Neither the delivery of this Prospectus nor any sale made hereunder shall,
under any circumstances, create any implication that the information herein is
correct as of any time subsequent to the date hereof or that there has been no
change in the affairs of the Company since such date.

In this Prospectus, references to "dollars" and "$" are to United States
dollars.

There are restrictions on the offer and sale of the Common Stock in the
United Kingdom. All applicable provisions of the Financial Services Act of 1986
and the Public Offers of Securities Regulations 1995 with respect to anything
done by any person in relation to the Common Stock, in, from or otherwise
involving the United Kingdom must be complied with. See "Subscription and
Sale."

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "SUBSCRIPTION AND SALE."

----------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
-----
<S> <C>
PROSPECTUS SUMMARY ............................ 3
RISK FACTORS .................................. 8
USE OF PROCEEDS ............................... 15
DIVIDEND POLICY ............................... 15
CAPITALIZATION ................................ 16
DILUTION ...................................... 17
SELECTED CONSOLIDATED FINANCIAL DATA .......... 18
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS .......... 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ................................. 24
</TABLE>

<TABLE>
<CAPTION>
Page
-----
<S> <C>
BUSINESS ...................................... 31
MANAGEMENT .................................... 46
CERTAIN TRANSACTIONS .......................... 58
PRINCIPAL STOCKHOLDERS AND SELLING
STOCKHOLDER ................................ 62
SHARES ELIGIBLE FOR FUTURE SALE ............... 64
DESCRIPTION OF CAPITAL STOCK .................. 64
SUBSCRIPTION AND SALE ......................... 68
LEGAL MATTERS.................................. 71
EXPERTS ....................................... 71
INDEX TO FINANCIAL STATEMENTS ................. F-1
</TABLE>

----------------
<PAGE>

---------------
Alpine, Bepex, Vrieco-Nauta, Schugi, Stott, Mikro, Strong-Scott, K-G,
Hutt, Kreuter, Ter Braak, Filtex, MikroPul, Menardi-Criswell, MikroPulverizer,
Rotoplex, MikroCut, PEAC, Rietz, MikroACM, Solidaire, Pharmapaktor, Kompaktor,
MikroPulsaire, Mikrotex and Pop-Top are trademarks or registered trademarks of
the Company and affiliated companies.

Micron, Hosokawa Micron and the Hosokawa Micron logo are registered
trademarks of HMC and Hosokawa Micron B.V., a wholly owned Dutch subsidiary of
the Company.

A
<PAGE>

Stock will be determined by negotiations among the Company, the Selling
Stockholder and the representatives of the Underwriters. The stock market,
including the New York Stock Exchange, on which the Common Stock has been
approved for listing, has from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. In addition, the market price of the Common Stock, like
the stock prices of many publicly traded companies, may be highly volatile.
Announcements of new systems or products by the Company or its competitors and
economic and other external factors, as well as period-to-period fluctuations
in financial results, among other factors, may significantly influence the
market price of the Common Stock. See "Subscription and Sale."

Control of the Company

Related Party Transactions

Anti-Takeover Provisions

12A
<PAGE>

Shares Eligible for Future Sale

In addition to the 3,420,000 shares offered hereby, approximately
8,745,517 shares of Common Stock constituting 71.9% of the shares outstanding
after completion of the Offering will be eligible for sale in the public market
pursuant to Rule 144 under the Securities Act immediately after the Offering.
The sale of any substantial number of shares of Common Stock may have an
adverse effect on the market price for the Common Stock and could impair the
Company's ability to raise capital through an offering of its equity
securities. However, holders of 8,718,696 shares of Common Stock have entered
into lock-up agreements in which such holders have agreed not to offer or sell
publicly or otherwise dispose of such shares without the consent of Credit
Suisse First Boston Corporation for 180 days after the date of the Offering.
See "Principal Stockholders and Selling Stockholder," "Shares Eligible for
Future Sale" and "Subscription and Sale."

Dilution

The public offering price is substantially higher than the net tangible
book value per share of Common Stock. Investors purchasing shares of Common
Stock in the Offering will therefore incur immediate, substantial dilution
estimated to be $12.54 per share (based on an estimated offering price of
$14.00 per share, the midpoint of the estimated range, and after deducting
underwriting discounts and offering expenses). See "Dilution."

Broad Discretion in Use of Proceeds

All of the net proceeds to be received by the Company in connection with
this Offering will be used to reduce existing short-term indebtedness, including
under promissory notes issued to various banks and a commercial paper program.
Accordingly, management of the Company will be able to incur additional
indebtedness by issuing additional promissory notes or increasing borrowings
under the commercial paper program and will have broad discretion with respect
to the expenditure of the funds resulting from such additional indebtedness. In
particular, the Company could use a portion of these funds for the acquisition
of complementary businesses, products and technologies. The Company has entered
into an agreement to acquire certain assets with a book value of approximately
$2.0 million and to assume certain liabilities of approximately $1.0 million of
Polymer Systems, Inc. ("Polymer"), a privately held company located in Berlin,
Connecticut for a purchase price of approximately $2.7 million. Polymer is
engaged in the design, manufacture and sale of particle size reduction
equipment. The Company also signed a letter of intent on July 9, 1998 with
respect to the acquisition of all of the stock of a UK company, located near
Manchester, England for approximately $1.6 million. The Company is privately
held and is engaged in the design, assembly and sale of airflow booths used by
the pharmaceutical, fine chemical and food industries in the packaging and
movement of product. The Company has assets with a book value of approximately
$1.3 million and liabilities of approximately $0.6 million. It is expected that
both acquisitions will close in the Summer of 1998 and that a portion of the
available credit resulting from the repayment of short-term indebtedness with
the proceeds of this Offering will be used for the acquisitions. There can be no
assurance that the Company will successfully deploy these proceeds in a manner
that enhances shareholder value. See "-- Risks Associated with Potential
Acquisitions" and "Use of Proceeds."

Restrictions on the Payment of Dividends

13A
<PAGE>

SUBSCRIPTION AND SALE

Under the terms and subject to the conditions contained in a Subscription
Agreement, dated [ ], 1998 (the "Subscription Agreement"), the institutions
named below (the "Managers") have severally but not jointly agreed to purchase
from the Company and the Selling Stockholder the following respective numbers
of International Shares (as defined below):

<TABLE>
<CAPTION>
Number of
Manager International Shares
- -------------------------------------------------------- ---------------------
<S> <C>
Credit Suisse First Boston (Europe) Limited ......... [ ]
PaineWebber International (U.K.) Ltd ................ [ ]
---------------------
Total .............................................. [ ]
=====================
</TABLE>

Of the 3,420,000 shares of Common Stock being offered, 684,000 shares (the
"International Shares") are initially being offered by the Managers outside the
United States and Canada (the "International Offering") and 2,736,000 shares
(the "U.S. Shares") are initially being concurrently offered by the U.S.
Underwriters (the "U.S. Underwriters"), for whom Credit Suisse First Boston
Corporation and PaineWebber Incorporated are acting as representatives (the
"Representatives"), in the United States and Canada (the "U.S. Offering").

The Subscription Agreement provides that the obligations of the Managers
are subject to certain conditions precedent and that the Managers will be
obligated to purchase all the International Shares offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased. The Subscription Agreement provides that, in the event of a default
by a Manager, in certain circumstances the purchase commitments of
non-defaulting Managers may be increased or the Subscription Agreement may be
terminated.

The Company and the Selling Stockholder have entered into an Underwriting
Agreement with the U.S. Underwriters providing for the concurrent offer and
sale of the U.S. Shares in the United States and Canada. The closing of the
U.S. Offering is a condition to the closing of the International Offering and
vice versa.

The Company has granted to the Managers and the U.S. Underwriters an
option, exercisable by Credit Suisse First Boston Corporation, on behalf of the
U.S. Underwriters, expiring at the close of business on the 30th day after the
date of this Prospectus, to purchase up to 513,000 additional shares at the
initial public offering price, less the underwriting discounts and commissions,
all as set forth on the cover page of this Prospectus. Such option may be
exercised only to cover over-allotments, if any, in the sale of the shares
offered hereby. To the extent that this option to purchase is exercised, each
Manager and each U.S. Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of additional shares
being sold to the Managers and the U.S. Underwriters as the number of
International Shares set forth next to such Manager's name in the preceding
table and as the number set forth next to such U.S. Underwriter's name in the
corresponding table in the Prospectus relating to the U.S. Offering bears to
the sum of the total number of shares of Common Stock in such tables.

The Company and the Selling Stockholder have been advised by Credit Suisse
First Boston (Europe) Limited, on behalf of the Managers, that the Managers
propose to offer the International Shares outside the United States and Canada
initially at the public offering price set forth on the cover page of this
Prospectus and, through the Managers, to certain dealers at such price less a
concession of $ per share, and the Managers and such dealers may reallow a
commission of $ per share on sales to certain other dealers. After the
initial public offering, the public offering price and commission and
re-allowance to dealers may be changed by the Managers.

The public offering price and the aggregate underwriting discounts and
commissions per share and per share to dealers for the International Offering
and the concurrent U.S. Offering will be identical. Pursuant to an Agreement
between the U.S. Underwriters and Managers (the "Intersyndicate Agreement")
relating to the Common Stock Offering, changes in the public offering price and
the aggregate underwriting discounts and commissions per share and the per
share to dealers will be made only upon the mutual agreement of Credit Suisse
First Boston (Europe) Limited, on behalf of the Managers, and Credit Suisse
First Boston Corporation, on behalf of the U.S. Underwriters.

Pursuant to the Intersyndicate Agreement, each of the Managers has agreed
that, as part of the distribution of the International Shares and subject to
certain exceptions, it has not offered or sold, and will not offer or sell,
directly or indirectly, any shares of Common Stock or distribute any prospectus
relating to the Common Stock in the United States or Canada or to any other
dealer who does not so agree. Each of the U.S. Underwriters has agreed that, as
part of the distribution of the U.S. Shares and subject to certain exceptions,
it has not offered or sold, and

68A
<PAGE>

will not offer or sell, directly or indirectly, any shares of Common Stock or
distribute any prospectus relating to the Common Stock in the United States or
Canada or to any other dealer who does not so agree. The foregoing limitations
do not apply to stabilization transactions or to transactions between the
Managers and the U.S. Underwriters pursuant to the Intersyndicate Agreement. As
used herein, "United States" means the United States of America (including the
States and the District of Columbia), its territories, possessions and other
areas subject to its jurisdiction. "Canada" means Canada, its provinces,
territories, possessions and other areas subject to its jurisdiction, and an
offer or sale shall be in the United States or Canada if it is made to (i) any
individual resident in the United States or Canada; or (ii) any corporation,
partnership, pension, profit-sharing or other trust or other entity (including
any such entity acting as an investment adviser with discretionary authority)
whose office most directly involved with the purchase is located in the United
States or Canada.

Pursuant to the Intersyndicate Agreement, sales may be made between the
Managers and the U.S. Underwriters of such number of shares of Common Stock as
may be mutually agreed upon. The price of any shares so sold will be the public
offering price, less such amount as may be mutually agreed upon by Credit
Suisse First Boston (Europe) Limited, on behalf of the Managers, and Credit
Suisse First Boston Corporation, on behalf of the U.S. Underwriters, but not
exceeding the selling concession applicable to such shares. To the extent there
are sales between the Managers and the U.S. Underwriters pursuant to the
Intersyndicate Agreement, the number of shares of Common Stock initially
available for sale by the Managers or by the U.S. Underwriters may be more or
less than the amount appearing on the cover page of this Prospectus. Neither
the Managers nor the U.S. Underwriters are obligated to purchase from the other
any unsold shares of Common Stock.

Each of the Managers and the U.S. Underwriters severally represents and
agrees that: (1) it has not offered or sold and prior to the date six months
after the date of issue of the Common Stock will not offer or sell any shares
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act of 1986 with respect to
anything done by it in relation to the shares in, from or otherwise involving
the United Kingdom; and (iii) it has only issued or passed on and will only
issue or pass on in the United Kingdom any document received by it in
connection with the issue of the shares to a person who is of a kind described
in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom such document may otherwise
lawfully be issued or passed on.

Purchasers of shares of common stock outside the United States may be
required to pay stamp taxes and other charges in accordance with the laws and
practices of the country of purchase in addition to the public offering price
set forth on the cover page of this Prospectus.

The Company, Isao Sato, HMC and certain other minority stockholders have
agreed that they will not offer, sell, contract to sell, announce an intention
to sell, pledge or otherwise dispose of, directly or indirectly, and the
Company has agreed that it will not file or cause to be filed with the
Securities and Exchange Commission a registration statement under the
Securities Act relating to, any additional shares of its Common Stock or
securities or other rights convertible into or exchangeable or exercisable for
any shares of the Company's Common Stock, without the prior written consent of
Credit Suisse First Boston Corporation, until 180 days after the date of the
Offering. With respect to the Company, such agreement excepts grants of
employee stock options pursuant to the terms of a plan in effect as of the date
of the Subscription Agreement, issuance of shares pursuant to the exercise of
such options or the exercise of any other employee stock options outstanding as
of the date of the Subscription Agreement.

The Company and the Selling Stockholder have agreed to indemnify the
Managers and the U.S. Underwriters against certain liabilities, or to
contribute to payments that the Managers and the U.S. Underwriters may be
required to make in respect thereof.

The Managers and the Representatives have informed the Company and the
Selling Stockholder that they do not expect discretionary sales by the Managers
and the U.S. Underwriters to exceed 5.0% of the number of shares offered
hereby.

69A
<PAGE>

Boston Corporation, on behalf of the U.S. Underwriters, and Credit Suisse First
Boston Limited, on behalf of the Managers. In determining such price,
consideration will be given to various factors, including market conditions for
initial public offerings, the history of and prospects for the Company's
business, the past and present operations of the Company, the past and present
earnings and current financial position of the Company, an assessment of the
Company's management, the market for securities of companies in businesses
similar to those of the Company, the general condition of the securities
markets and other relevant factors. There can be no assurance that the initial
public offering price will correspond to the price at which the shares will
trade in the public market subsequent to the Offering or that an active trading
market for the shares will develop and continue after the Offering.

70A
<PAGE>

LEGAL MATTERS

The validity of the shares of Common Stock being sold in the Offering is
being passed upon for the Company by Proskauer Rose LLP, New York , New York.
Certain legal matters in connection with the Offering will be passed upon for
the Managers by Winthrop, Stimson, Putnam & Roberts, New York, New York.

EXPERTS

71A
<PAGE>

Part II
INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth the estimated expenses and costs (other than
underwriting discounts and commissions) expected to be incurred by the Company
in connection with the issuance and distribution of the securities being
registered under this registration statement. Except for the SEC and NYSE filing
fees, all expenses have been estimated and are subject to future contingencies.
The amount of the estimated expenses to be borne by the Selling Stockholder is
approximately $317,544. The estimated annual premium to be paid by the Company
or the Selling Stockholder on an insurance policy obtained in connection with
the offering and sale of the Common Stock which insures or indemnifies directors
or officers of the Company against any liabilities they may incur in connection
with the registration, offering, or sale of such securities is approximately
$0.1 million.

<TABLE>
<CAPTION>
<S> <C>
SEC registration fee ................................... $ 17,985.00
NYSE fee ...............................................
Legal fees and expenses ................................
Federal and State taxes ................................
NYSE Entry Fee .........................................
Printing and engraving expenses ........................
Accounting fees and expenses ...........................
Transfer agent and registrar fees and expenses .........
Miscellaneous .......................................... -----------
Total .................................................. $
===========
</TABLE>

Item 14. Indemnification of Directors and Officers

Article 5.03 of the Company's By-laws provides that the Company shall
indemnify and hold harmless, to the fullest extent authorized by the Delaware
General Corporation Law, its officers and directors against all expenses,
liability and loss actually and reasonably incurred in connection with any
civil, criminal, administrative or investigative action, suit or proceeding.
The By-laws also extend indemnification to those serving at the request of the
Company as directors, officers, employees or agents of other enterprises.

In addition, Article SIXTH of the Company's Restated Certificate of
Incorporation provides that no director shall be personally liable for monetary
damages for any breach of fiduciary duty as director. Article SIXTH does not
eliminate a director's liability (i) for a breach of his or her duty of loyalty
to the Company or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of the
law, (iii) under Section 174 of the Delaware General Corporation Law or (iv)
for any transactions from which the director derived an improper personal
benefit.

Section 145 of the General Corporation Law of the State of Delaware
permits a corporation to indemnify its directors and officers against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlements
actually and reasonably incurred by them in connection with any action, suit or
proceeding brought by third parties, if such directors or officers acted in
good faith and in a manner they reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action
or proceeding, had no reason to believe their conduct was unlawful. In a
derivative action, i.e., one by or in the right of the corporation,
indemnification may be made only for expenses (including attorneys' fees)
actually and reasonably incurred by directors and officers in connection with
the defense or settlement of an action or suit, and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interest of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent
that the court in which the action or suit was brought shall determine upon
application that the defendant officers or directors are reasonably entitled to
indemnity for such expenses despite such adjudication of liability.

Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a corporation may eliminate or limit the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of

II-1
<PAGE>

a director (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the General Corporation Law of the State of Delaware, or
(iv) for any transaction from which the director derived an improper personal
benefit. No such provision shall eliminate or limit the liability of a director
for any act or omission occurring prior to the date when such provision becomes
effective.

The Underwriting Agreement and Subscription Agreement provide for
indemnification of directors and officers of the Company by the Underwriters
and the Managers against certain liabilities.

Pursuant to Section 145 of the DGCL and the Restated Certificate of
Incorporation and the By-laws of the Company, the Company maintains directors'
and officers' liability insurance coverage.

Item 15. Recent Sales of Unregistered Securities

Pursuant to Section 4(2) of the Securities Act of 1933, in December 1992,
the Company issued 240,000 shares of previously authorized 5.5% Cumulative
Subordinated Preferred Stock (the "5.5% Preferred Stock") to Hosokawa Micron
Corporation ("HMC"), a 98.0% shareholder of the Company, at $200 per share. In
fiscal year 1992, the Company issued 200,000 shares of 4.44% Cumulative
Preferred Stock (the "4.44% Preferred Stock") to HMC at $150 per share.
Effective September 3, 1997, all of the issued shares for both classes of
preferred stock were exchanged for Common Stock as follows:

(A) All 240,000 shares of 5.5% Preferred Stock were exchanged at the rate
of 20.2261 shares of Common Stock for each share of 5.5% Preferred
Stock, for a total of 4.8 million shares of Common Stock.

(B) All 200,00 shares of 4.44% Preferred Stock were exchanged at the rate
of 15.1695 shares of Common Stock for each share of 4.44% Preferred
Stock, for a total of 3.0 million shares of Common Stock.

Item 16. Exhibits

<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement**
1.2 Form of Subscription Agreement**
3.1 Restated Certificate of Incorporation of the Company (including all
amendments)**
3.2 By-Laws of the Company**
5 Opinion of Proskauer Rose LLP re: validity of securities*
10.1 Employment Agreement between Hosokawa Alpine AG and Achim Vogel**
10.2 Employment Agreements between Dietmar Mayerhauser and Hosokawa Alpine
AG and Hosokawa Micron International B.V.**
10.3 Consulting Services Agreement between the Company and Gerhard
Kappeler**
10.4 Senior Executive Employment Agreement between the Company and Isao Sato
dated April 15, 1998**
10.5 Senior Executive Employment Agreement between the Company and William
Brennan**
10.6 Senior Executive Employment Agreement between the Company and Gordon
Ettie**
10.7 Senior Executive Employment Agreement between the Company and Simon H.
Baker**
10.8 Benefits Plan for Achim Vogel and Dietmar Mayerhauser with
Colonia-Unterstutzungskasse dated July 11, 1994; and Manager Employment
Agreement ("Manager Employment Agreement") between Bepex Corporation
and Dieter A.W. Hummel dated July 9, 1985, with respect to Section 8
for retirement benefits only, and provisions of Bepex Division of
Berwind Corporation Pension Plan incorporated by Section 8 of the
Manager Employment Agreement**
10.9 1997 Stock Option Plan**
10.10 Stock Incentive Plan**
10.11 Licensing Agreements between the Company or its subsidiaries and HMC**
10.12 Asian Marketing Agreements between the Company or its subsidiaries and
HMC**
10.13 Commercial Paper Program dated December 16, 1991, among The Mitsubishi
Bank, Limited, New York Branch et. al. and the Company, including the
Letter of Credit Agreement, Depositary Agreement, Commercial Paper
Dealer Agreement, Commercial Paper Master Note, Direct Draw Letter of
Credit, Commercial Paper Certificate Agreement, Eleventh Amendment to
the Letter of Credit Agreement (previous amendments not filed), and
Guaranty**
- ----------------
* To be filed by amendment
** Filed previously
*** Filed herewith
</TABLE>

II-2
<PAGE>

<TABLE>
<S> <C>
10.14 Lease Agreement, dated June 23, 1993, for the Trenton, South
Carolina, USA property between the Company and South Carolina Real
Estate Development Company, Inc.**
10.15 Lease Agreement, dated April 30, 1980, for the Brampton, Canada
property between Hosokawa Micron Limited and Bramalea Limited (as
amended 4/11/91)**
10.16 Lease Agreement, dated February 16, 1996, for the Hamburg, Germany
property between Hosokawa Kreuter GmbH and Verwatungsgesellschaft
Kreuter mbH (as amended December 9, 1997) (English summary
translation)**
10.16.1 Officer's Certificate for Hosokawa Micron International Inc.
certifying to German translation of Exhibit 10.16 previously
filed**
10.17 Form of Indemnification Agreement between the Company and directors
of the Company**
10.18 Cost Sharing Agreement between HMC and the Company dated January 1,
1998**
10.19 Collective Bargaining Agreement between Hosokawa Bepex Corporation
and International Association of Machinists and Aerospace Workers,
AFL-CIO District Lodge #190 effective October 1, 1995**
10.20 Supplemental Executive Retirement Plan of the Company effective as
of April 14, 1998**
10.21 Patent Assignment Agreement between Hosokawa Stott Limited and
Hosokawa Micron Corporation dated May, 1998**
10.22 Company 401(k) Retirement Plan**
10.23 Company Management Incentive Plan**
21.1 Subsidiaries of the Registrant**
23.1 Consent of KPMG Peat Marwick LLP***
23.2 Consent of Proskauer Rose LLP (contained in opinion to be filed as
Exhibit 5)*
24.1 Power of Attorney (set forth on page II-4)**
27.1 Financial Data Schedule**
</TABLE>

- ----------------
* To be filed by amendment
** Filed previously
*** Filed herewith

Item 17. Undertakings

The Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement (filed herewith as Exhibit 1.1)
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described in Item 14, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.

II-3
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
undersigned registrant certifies that it has duly caused this Amendment No. 3
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of New York, State of New York, on the 22nd day of July, 1998.

Hosokawa Micron International Inc.

By: /s/ Isao Sato
------------------------------------------------
Isao Sato, President and Chief Executive Officer

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 3 has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature Title Date
- ------------------------ ------------------------------------ -------------
<S> <C> <C>
/s/ Isao Sato President, Chief Executive July 22, 1998
- ------------------------ Officer and Director
Isao Sato (Principal Executive Officer)

/s/ William J. Brennan Executive Vice President, Chief July 22, 1998
- ------------------------ Financial Officer and Director
William J. Brennan (Principal Financial Officer)

/s/ James Keane Controller (Controller or Principal July 22, 1998
- ------------------------ Principal Accounting Officer)
James Keane

/s/ Masuo Hosokawa* Director July 22, 1998
- ------------------------
Masuo Hosokawa

/s/ Yoshio Hosokawa* Director July 22, 1998
- ------------------------
Yoshio Hosokawa

/s/ Fumio Sawamura* Director July 22, 1998
- ------------------------
Fumio Sawamura

/s/ Yoshizo Yamanokuchi* Director July 22, 1998
- ------------------------
Yoshizo Yamanokuchi

/s/ Yoshiyuki Kawashima* Director July 22, 1998
- ------------------------
Yoshiyuki Kawashima

/s/ David J.W. Grant* Director July 22, 1998
- ------------------------
David J.W. Grant

/s/ Paul J. Powers* Director July 22, 1998
- ------------------------
Paul J. Powers
</TABLE>

- ----------------
*By Isao Sato as attorney-in-fact.

II-4
<PAGE>

EXHIBIT INDEX

23.1 Consent of KPMG Peat Marwick LLP

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

The Board of Directors
Hosokawa Micron International Inc.

The audits referred to in our report dated November 3, 1997, except for note
22, which is as of April 16, 1998, included the related financial statement
schedule for each of the years in the three-year period ended September 30,
1997, included in the registration statement. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits. In
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.

We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.

KPMG PEAT MARWICK LLP

New York, New York
July 22, 1998