As filed with the Securities and Exchange Commission on May 28, 1998
Registration No. 333-50551
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO.1 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)
</TABLE>
780 Third Avenue
New York, New York 10017
(212) 826-3830
(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>
Amount of
Title of each class of Amount to be Proposed maximum Proposed maximum registration
securities to be registered registered(1) offering price per unit(2) aggregate offering price(2) fee
- ---------------------------------------- ------------------ ---------------------------- ----------------------------- -----------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share 3,933,000 shares $ 15.50 $60,961,500 $ 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 $.01
per share, of Hosokawa Micron International Inc. The U.S. Prospectus for the
offering in the United States and Canada follows immediately after this
Explanatory Note. After the U.S. Prospectus are the alternate pages for the
International Prospectus: a front cover page, a table of contents page and a
"Subscription and Sale" section. A copy of the complete U.S. Prospectus and
International Prospectus in the exact forms in which they are to be used after
effectiveness will be filed with the Securities and Exchange Commission
pursuant to Rule 424(b).
<PAGE>
SUBJECT TO COMPLETION DATED , 1998
3,420,000 Shares
[Hosokawa Micron Logo] HOSOKAWA MICRON INTERNATIONAL INC.
Common Stock
($.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 $13.50 and $15.50 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price.
Application has been made to list the Common Stock 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 upon consummation of the
Offering. 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 37.9% of the Company's sales were in North
America, approximately 44.2% were in Europe and approximately 17.9% 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:
[bullet] 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.
[bullet] 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.
[bullet] 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.
[bullet] 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.
[bullet] 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>
[bullet] 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).
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 to HMC and
its other affiliated companies and $0.5 million in net sales of HMC and its
other affiliated companies were to the Company. The Company also operates as
licensor and licensee under various license agreements with HMC. Under such
license agreements, the Company and HMC have allocated between them the rights
(in certain cases on an exclusive basis and in others on a non-exclusive basis)
to manufacture, sell and service certain products in certain geographic
regions. 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). 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 upon consummation of the Offering.
(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 ................ 1,767 3,972 3,972 3,972 3,683
Net (loss) income available to
common stockholders .................... $ (33,123) $ (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) ........... $ 3,585
Pro forma net income(4) ................. $ 6,013
Pro forma earnings per share(4):
Basic ................................... $ 0.47
Diluted ................................. $ 0.47
Shares used in computing pro forma
earnings per common share(4):
Basic ................................... 4,934,694
Diluted ................................. 4,951,107
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) ........... $ 1,762 $ 1,609
Pro forma net income(4) ................. $ 2,039 $ 4,439
Pro forma earnings per share(4):
Basic ................................... $ 0.01 $ 0.37
Diluted ................................. $ 0.01 $ 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
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) $ (14,708)
Total assets ............................ 286,820 286,820
Short-term debt including current
portion of long-term debt .............. 83,361 48,804
Long-term debt less current portion ..... 15,229 15,229
Stockholders' equity .................... 59,056 93,613
</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
$14.50 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."
(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
$14.50 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. 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 benefitted 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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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
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<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 $64.0 million, $48.8 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 Company is applying to list
the Common Stock, 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 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
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<PAGE>
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 8,610,812 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 effective date of this
Prospectus. 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 $12.94 per share (based on an estimated offering price of
$14.50 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 signed a letter of intent with respect to the acquisition of
certain assets with a book value of approximately $2.0 million and the
assumption of certain liabilities of approximately $1.0 million of a privately
held company located on the East Coast of the United States for a purchase
price of approximately $2.7 million. This company is engaged in the design,
manufacture and sale of particle size reduction equipment. It is expected that
this acquisition 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 acquisition. 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
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. Therefore, following completion of the Offering and subject to
the foregoing limitations, the two quarterly dividends 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 June 15, 1998 and September 15, 1998,
respectively. 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,
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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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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 $4.2 million, will be approximately $34.6 million,
assuming a public offering price of $14.50 per share (the midpoint of the
estimated range), ($41.5 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 $2.7 million
purchase price for an acquisition which is the subject of a letter of intent.
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. Therefore, following completion of the Offering and subject to
the foregoing limitations, the two quarterly dividends 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 June 15, 1998 and September 15, 1998,
respectively. 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. 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 $14.50 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 24,693
========= =========
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 ............................... 103,665 138,195
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 $ 93,613
--------- ---------
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 $14.50 (the midpoint of
the estimated range) per share and after deducting underwriting discounts and
commissions and estimated offering expenses of $4.2 million payable by the
Company, the pro forma consolidated net tangible book value of the Company as
of March 31, 1998 would have been $19.0 million, or $1.56 per share. This
represents an immediate increase in net tangible book value of $3.20 per share
to existing stockholders and an immediate dilution in net tangible book value
of $12.94 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 .......................... $ 14.50
Consolidated net tangible book value per share before the Offering ....... $ (1.64)
Increase per share attributable to new investors ......................... 3.20
----------
Pro forma consolidated net tangible book value per share after
the Offering ............................................................ 1.56
--------
Dilution per share to new investors ..................................... $ (12.94)
========
</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 $14.50 per share and
before deducting underwriting discounts and commissions and estimated offering
expenses of $4.2 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 72.8% $ 10.93
New investors ................. 2,670,000 21.9 38,715,000 27.2 14.50
----------- ----- ------------ -----
Total ........................ 12,165,517 100.0% 142,475,000 100.0%
============ ===== ============ =====
</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."
(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."
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
------------- ------------- ------------- ------------- -------------
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
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 ............................. 1,767 3,972 3,972 3,972 3,683
Net (loss) income available to
common stockholders ................................. $ (33,123) $ (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) ........................ $ 3,585
Pro forma net income(4) .............................. $ 6,013
Pro forma earnings per share(4):
Basic ................................................ $ 0.47
Diluted .............................................. $ 0.47
Shares used in computing pro forma earnings per
common share(4):
Basic ................................................ 4,934,694
Diluted .............................................. 4,951,107
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
Cash provided by (used in) operating activities ...... 11,204 12,012 (1,882) 13,831 13,057
Cash used in investing activities .................... (8,976) (3,263) (9,628) (13,104) (9,359)
Cash provided by (used in) financing activities ...... 1,336 3,781 (7,402) 1,920 (2,136)
<CAPTION>
(Dollars in thousands except
per share
data)
----------------------------
Six Months Ended
March 31,
----------------------------
1997 1998
------------- --------------
Statement of Operations Data: (unaudited)
<S> <C> <C>
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) ........................ $ 1,762 $ 1,609
Pro forma net income(4) .............................. $ 2,039 $ 4,439
Pro forma earnings per share(4):
Basic ................................................ $ 0.01 $ 0.37
Diluted .............................................. $ 0.01 $ 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
Other Data:
EBITDA(5) ............................................ $ 11,926 $ 14,030
Backlog .............................................. 130,407 129,019
Cash provided by (used in) operating activities ...... (6,394) 2,510
Cash used in investing activities .................... (3,378) (5,053)
Cash provided by (used in) financing activities ...... 7,442 (1,313)
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
(Dollars in thousands)
---------------------------------------------------------------------
Year Ended
September 30,
---------------------------------------------------------------------
1993 1994 1995 1996(1) 1997
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital ............................. $ (42,370) $ (37,568) $ (70,547) $ (53,583) $ (51,687)
Total assets ................................ 308,672 319,646 302,204 307,630 283,890
Short-term debt including current
portion of long-term debt .................. 58,914 66,998 92,471 75,096 77,922
Long-term debt less current portion ......... 24,872 26,166 0 23,786 17,546
Stockholders' equity ........................ 62,445 63,355 63,390 60,958 58,688
<CAPTION>
(Dollars in thousands)
---------------------------
Six Months Ended
March 31,
---------------------------
1997 1998
------------- -------------
<S> <C> <C>
Balance Sheet Data:
Working capital ............................. $ (54,447) $ (49,265)
Total assets ................................ 295,089 286,820
Short-term debt including current
portion of long-term debt .................. 87,255 83,361
Long-term debt less current portion ......... 17,671 15,229
Stockholders' equity ........................ 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.
(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
$14.50 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."
(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.
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 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 (24,557)(1) 24,693
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 (34,557) 150,125
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 (34,557) 193,207
Stockholders' equity:
Common stock ......................................... 95 27(2) 122
Additional paid-in capital ........................... 103,665 34,530(3) 138,195
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 34,557 93,613
--------- ---------
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 (1,077)(1) 1,609
Other (income) expense ............................... 407 (46)(5) 361
-------- --------
Income before provision for income taxes ............. 5,219 963 6,182
Provision for income taxes ........................... 1,743 1,743
-------- --------
Net income ........................................... $ 3,476 963 $ 4,439
======== ======== ========
</TABLE>
Six Months Ended March 31, 1997
<TABLE>
<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 (994)(1) 1,762
Other (income) expense ..................................... 718 (46)(5) 672
Income before provision for income taxes ................... 2,247 880 3,127
Provision for income taxes ................................. 1,088 1,088
-------- --------
Net income ................................................. 1,159 880 2,039
Preferred dividends paid ................................... 1,986 1,986(6) --
Net (loss) income available to common stockholders ......... $ (827) 2,866 $ 2,039
======== ======= ========
</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 (1,988)(1) 3,585
Other (income) expense ............................... 756 (92)(5) 664
Income before provision for income taxes ............. 8,249 1,760 10,009
Provision for income taxes ........................... 3,996 3,996
-------- -------- --------
Net income ........................................... 4,253 1,760 6,013
Preferred dividends paid ............................. 3,683 3,683(6) --
-------- -------- --------
Net income available to common stockholders .......... $ 570 5,443 $ 6,013
======== ======== ========
</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 $14.49 per share on the
issuance of 2,670,000 shares of common stock, less the total estimated
offering costs of $4,158,000.
(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. 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 37.9% of the Company's net sales were in
North America, approximately 44.2% were in Europe and approximately 17.9% 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. Because of the lack of earnings histories in the United States
and The Netherlands, the Company has not recognized a benefit for these tax
attributes. Accordingly, a valuation allowance was recorded for these tax
attributes.
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
foreign currency translation (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 foreign
currency translation 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 foreign currency translation. 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.
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
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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 foreign
currency translations 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
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,
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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 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%.
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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 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
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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.
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.
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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.
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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 37.9% of the Company's sales were in North America, approximately
44.2% were in Europe and approximately 17.9% 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
[bullet] 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.
[bullet] 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."
[bullet] 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
[bullet] 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.
[bullet] 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.
[bullet] 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.
[bullet] 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 of
materials, supplies and components and improved working capital
management.
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:
[bullet] Hosakawa 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.
[bullet] 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.
[bullet] 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:
[bullet] 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.
[bullet] 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>
[bullet] 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.
[bullet] 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.
[bullet] 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.
[bullet] 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.
[bullet] 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.
[bullet] 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:
[bullet] 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.
[bullet] 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>
[bullet] 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:
[bullet] 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.
[bullet] 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.
[bullet] 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.
[bullet] 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.
[bullet] 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.
[bullet] 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.
[bullet] 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
----------------------- ----------------------- --------------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Product Lines $ % $ % $ % $ %
- ----------------------------- --------- - --------- - --------- - ------ -
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 Introduced 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 mid-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 signed a letter of intent with respect to the acquisition
of certain assets with a book value of approximately $2.0 million and the
assumption of certain liabilities of approximately $1.0 million of a privately
held company located on the East Coast of the United States for a purchase
price of approximately $2.7 million. This company is engaged in the design,
manufacture and sale of particle size reduction equipment. It is expected that
this acquisition 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 acquisition.
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 five product
liability claims, all but two 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 ...................... 58 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. 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. 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 & Co. (USA), Inc., 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 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 with a
degree in mechanical engineering. He is a member of VDMA and VMI.
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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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.
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<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 (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
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<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.
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<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
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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 was 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
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 in net sales of the Company were to HMC and
its other affiliated companies and $0.5 million in net sales of HMC and its
other affiliated companies were to the Company. For the six months ended March
31, 1998, $3.6 million in net sales of the Company were to HMC and its other
affiliated companies and $0.2 million in net sales of HMC and its other
affiliated companies were made to the Company.
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.
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<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
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<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.
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<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 and HMC, who immediately following the Offering
will in the aggregate hold 8,561,364 outstanding shares of Common Stock, have
agreed, 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 this Prospectus without the prior written consent (which consent may be
given without notice to the Company's shareholders or other public
announcement) of the Representatives of the Underwriters. The Representatives
of the Underwriters have advised the Company that they have 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
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<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 662/3% 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 benefitted the Company and its stockholders. Furthermore, a
stockholder's investment in the Company may be adversely affected to the extent
the Company pays
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<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).
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<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 Bank of New York.
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<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
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<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 and HMC have agreed that they will not offer, sell,
contract to sell, announce an intention to sell, pledge or otherwise dispose
of, directly or indirectly, or 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
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<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.
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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.
VALIDITY OF SHARES
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.
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<PAGE>
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.
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<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
======== ========
</TABLE>
(continued)
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)
--------- --------- ---------
</TABLE>
(Continued)
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 North America 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 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.
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.
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.
(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.
(c) Insurance program
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
Expected life 10 years
Risk free interest rate 6.39%
Dividend yield 4.50%
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 upon consummation of a proposed initial public offering.
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
======== ========
</TABLE>
(continued)
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
-------- --------
</TABLE>
(continued)
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>
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.
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 upon consummation of a proposed initial public offering
("IPO"). 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
F-30
<PAGE>
HOSOKAWA MICRON INTERNATIONAL INC.
(A Majority Owned Subsidiary of Hosokawa Micron Corporation)
AND SUBSIDIARIES
years in the last ten years of the executive's credited service. The
anticipated cost to the Company will be approximately $700,000 per year.
On May 22, 1998 the Board of Directors approved a grant of options to
purchase 392,500 shares under the Stock Incentive Plan. The grant will be
effective upon consummation of the IPO. The options are exerciseable in equal
installments at 6 months, 18 months and 30 months after the effective date of
the IPO. All of the options are non-qualified. These options were granted with
an exercise price equal to the price to the public in the IPO.
F-31
<PAGE>
- -------------------------------------- --------------------------------------
No dealer, salesperson, or other
person has been authorized to give any
to make any representation not
contained in this Prospectus and, if
given or made, such information or
representation must not be relied upon
as having been authorized by the
Company, the Selling Stockholder or [HOSOKAWA LOGO]
any Underwriter. This Prospectus does
not constitute an offer to sell or a
solicitation of an offer to buy any of
the securities to which it relates in
any jurisdiction to any person to whom
it is unlawful to make such offer or
solicitation in such jurisdiction.
Neither the delivery of this
Prospectus nor any sale made hereunder
shall, under any circumstances, create
any implication that the information
herein is correct as of any time
subsequent to the date hereof or that
there has been no change in the 3,420,000 Shares
affairs of the Company since such Common Stock
date. ($.01 par value)
--------------------------
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 PROSPECTUS
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 Credit Suisse First Boston
Validity of Shares ............... 71
Experts .......................... 72 PaineWebber Incorporated
Index to Consolidated
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.
- -------------------------------------- --------------------------------------
<PAGE>
SUBJECT TO COMPLETION DATED , 1998
3,420,000 Shares
[HOSOKAWA LOGO]
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 $13.50 and $15.50 per share. See "Subscription and Sale"
for a discussion of the factors to be considered in determining
the initial public offering price.
Application has been made to list the Common Stock 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 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
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
Validity of Shares .................................................... 71
Experts ............................................................... 72
Index to Consolidated Financial Statements ............................ F-1
</TABLE>
----------------
<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
A-1
<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 and HMC 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.
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 Credit Suisse First
A-2
<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.
VALIDITY OF SHARES
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.
A-3
<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.
<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 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
II-1
<PAGE>
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. 1
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of New York, State of New York, on the 28th day of May, 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
Registration Statement 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 Officer May 28, 1998
Isao Sato and Director (Principal Executive Officer)
/s/ William J. Brennan Executive Vice President, Chief May 28, 1998
William J. Brennan Financial Officer and Director
(Principal Financial Officer)
/s/ James Keane Controller (Controller or Principal May 28, 1998
James Keane Accounting Officer)
/s/ Masuo Hosokawa* Director May 28, 1998
Masuo Hosokawa
/s/ Yoshio Hosokawa* Director May 28, 1998
Yoshio Hosokawa
/s/ Fumio Sawamura* Director May 28, 1998
Fumio Sawamura
/s/ Yoshizo Yamanokuchi* Director May 28, 1998
Yoshizo Yamanokuchi
/s/ Yoshiyuki Kawashima* Director May 28, 1998
Yoshiyuki Kawashima
/s/ David J.W. Grant* Director May 28, 1998
David J.W. Grant
/s/ Paul J. Powers* Director May 28, 1998
Paul J. Powers
</TABLE>
- ----------------
*By Isao Sato as attorney-in-fact.
II-4
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<S> <C>
SUBSIDIARY JURISDICTION OF INCORPORATION
- ------------------------------------------- ------------------------------
Hosokawa Bepex Corporation Delaware, USA
Hosokawa Americas Inc. Delaware, USA
Procequipo, S.A. de C.V. Mexico
Hosokawa Micron Ltd. (Canada) Canada
Hosokawa Micron do Brasil Ltda Brazil
Hosokawa Micron Chile Ltda Chile
Hosokawa Micron International B.V. Netherlands
Hosokawa Micron B.V. Netherlands
Hosokawa Schugi B.V. Netherlands
Menardi-Criswell B.V. Netherlands
Hosokawa Alpine Aktiengesellschaft (HAAG) Germany
Hosokawa MikroPul GmbH Germany
Hosokawa Bepex GmbH Germany
HMI Unternehmens-Holding GmbH Germany
Hosokawa Rietz Ltd. United Kingdom
Hosokawa France S.A. France
Hosokawa Kreuter GmbH Germany
Hosokawa Ter Braak B.V. Netherlands
Hosokawa Stott Ltd. United Kingdom
Recomix B.V. Netherlands
Hosokawa Micron Ltd. (UK) United Kingdom
Menardi-Criswell Ltd. United Kingdom
Hosokawa Micron Espana S.A. Spain
Hosokawa Micron Pty., Ltd. (South Africa) South Africa
Hosokawa Micron Australia Pty., Ltd. Australia
Hosokawa Micron Pvt. Ltd. (India) India
Hosokawa Management Ltd. Switzerland
</TABLE>
II-5
<PAGE>
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
May 27, 1998
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement*
1.2 Form of Subscription Agreement*
5 Opinion of Proskauer Rose LLP re: validity of securities*
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
10.16.1 Officer's Certificate for Hosokawa Micron International Inc. certifying
to German translation of Exhibit 10.16
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
10.23 Company Management Incentive Plan
21.1 Subsidiaries of the Registrant
23.1 Independent Auditors' Consent
23.2 Consent of Proskauer Rose LLP (contained in opinion to be filed as Exhibit 5)*
</TABLE>
- ----------------
* To be filed by amendment
SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
AGREEMENT made as of the 15th day of April, 1998, by and between HOSOKAWA MICRON
INTERNATIONAL INC., a Delaware corporation with its corporate offices at 780
Third Avenue, New York, New York 10017 (hereinafter called the "Company"), and
William J. Brennan, residing at 21 Shawnee Lane, Monroe, Connecticut 06468
(hereinafter called the "Executive").
WITNESSETH:
WHEREAS, the Executive has served the Company as its Executive Vice President
and Chief Financial Officer (CFO);
WHEREAS, the Company desires to continue to employ the Executive in such
capacity and the Executive is willing to continue to serve the Company in such
capacity;
WHEREAS, the Company and the Executive desire to set forth the terms and
conditions of such employment.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants
and agreements herein contained, the Company and the Executive agree as follows:
1. Employment. The Company hereby agrees to continue to employ the Executive,
and the Executive agrees to be employed by the Company, on the terms and
conditions herein contained.
2. Term. Except as otherwise provided in this Agreement, the Executive shall
be employed under this Agreement for an initial four-year term commencing
on the date hereof. The period during which the Executive is employed
hereunder is referred to as the "Employment Term." The Employment Term
shall be automatically renewed for successive two-year terms unless the
Company shall give the Executive written notice of non-renewal at least
six months prior to the end of the then current term. The Executive may,
at any time, terminate the Employment Term by giving the Company 120 days
prior written notice of the effective date of such termination. Upon the
effective date of a termination of the Employment Term per the preceding
sentence, the Company shall have no obligation to the Executive hereunder
other than to pay or provide the Entitlements.
3. Duties. The Executive shall serve as the Company's Executive Vice
President and CFO, and as such, will be responsible for the financial
plans, policies and controls, including audit and accounting operations,
for the Company and certain other
Page 1 of 8
<PAGE>
Corporate staff functions which may include human resources, corporate
marketing, information systems and communications and investor and public
relations. The Executive shall perform his duties hereunder at the Company's
facilities located at 780 Third Avenue, New York, NY USA (the "Employment Site")
and shall be available to travel, as may be required in connection with the
performance of his duties hereunder. In no event will the Executive be required
to undertake any duties or perform any tasks which are inconsistent with his
status in the Company. During the Employment Term, the Executive shall devote
substantially all of his business time, attention, skill and efforts to the
performance of his duties hereunder; provided, however, that the Executive may
serve as director of other corporations, if such service does not conflict in
any material respect with his duties hereunder or his fiduciary duty to the
Company, and provided the Executive has prior written approval from the Company.
Nothing herein shall prevent the Executive from managing his personal
investments and participating in charitable and civic endeavors, so long as such
activities do not materially interfere with the Executive's performance of his
duties hereunder.
4. Base Sala[y. During the Employment Term, the Company shall pay the
Executive, in accordance with its normal payroll practices and subject to
required withholding, a base salary which, shall be at the annual rate of
$265,000. The base salary may be increased annually, commencing on October
1, 1998, by an amount to be determined by the Company, in its sole
discretion. Once increased, the base salary hereunder may not be
decreased. The base salary, as increased from time to time, is hereinafter
referred to as the "Base Salary."
5. Incentive Compensation. During the Employment Term, the Executive shall be
entitled to incentive compensation ("Incentive Compensation") pursuant to
the terms of the Company's incentive compensation plan, a copy of which is
attached hereto as Exhibit A and any other annual programs or plans
hereafter adopted by the Company.
6. Certain Other Compensation and Benefits. During the Employment Term, the
Executive shall be entitled to:
(a) participation in all benefit, pension, retirement, savings, welfare and
other employee benefit plans and policies in which members of the
Company's senior management generally are entitled to participate
(collectively, the "Benefit Plans"), in accordance with their respective
terms as in effect from time to time and as listed in Exhibit B.
(b) vacation each year in accordance with the Company's policies for members
of senior management in effect from time to time, but in no event less
than twenty days paid vacation for each calendar year (twenty-five days
after fifteen years of employment with the Company and/or any of its
Affiliates) (for purposes of this Agreement, the term "Affiliate" means
an entity controlled by, in control of, or
Page 2 of 8
<PAGE>
under common control with, the Company);
(c) use of an automobile and the costs of fuel, maintenance, repairs and
insurance associated with such automobile pursuant to the terms of the
Company's policy concerning senior executives' automobiles, as such
policy is in effect from time to time, and in the absence of any such
policy, as such policy was last in effect.
(d) life insurance, in addition to any provided to employees of the Company
generally, on the life of the Executive for the benefit of the
Executive's designated beneficiaries as detailed in Exhibit C.
(e) long-term disability coverage for the Executive under the plan or policy
per Exhibit D.
(f) medical and dental insurance for the Executive, his spouse, and his
dependents as detailed in Exhibit E.
(g) such other benefits as the Executive is currently provided and noted in
Exhibit F.
7. Death Prior to Termination of Employment. If the Executive shall die
during the Employment Term, the Company shall have no liability or further
obligation except as follows:
(a) The Company shall pay the Executive's estate, when otherwise due, any
unpaid Base Salary for the period prior to the Executive's death, any
declared or awarded but unpaid Incentive Compensation and any other
unpaid amounts due the Executive under any other Benefit Plans
(collectively, the "Entitlements").
(b) The Executive's estate shall have such rights, if any, under employee
benefit, fringe benefit or incentive plans as may be provided in such
plans and any grants thereunder in accordance with their respective
terms.
8. Common Stock Ownership. No later than five (5) years after the date the
Company's Common Stock is listed on a United States stock exchange and at
all times thereafter during the Executive's employment by the Company, the
Executive must own, directly or beneficially, 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 may be established by the Board of
Directors of the Company, provided, however, that in no event shall the
Executive be required to own Common Stock having a value equal to more
than three (3) times his Base Salary. To the extent permitted under
applicable law and subject to agreement between the Executive and the
Company, the Company may assist the Executive in obtaining financing to
effectuate the purchases of Common Stock necessary to meet
Page 3 of 8
<PAGE>
the requirements of this section which may include Company guarantees and
adjustment of incentive and bonus programs to provide that up to fifty
percent (50%) of any awards may be paid in Common Stock to an Executive
who does not meet the requirements of this section.
9. Disability. If the Executive shall be physically or mentally incapable of
performing his material duties as provided in Section 3 of this Agreement
during a period of not less than one hundred eighty (180) consecutive
days, the Company may, at its election at any time thereafter while the
Executive remains incapable of performing his material duties hereunder,
terminate the Executive's employment hereunder, effective immediately, by
giving the Executive written notice of such termination. In such event,
the Company shall have no other obligation to the Executive or his
dependents hereunder other than the obligation to pay or provide the
Entitlements.
10. Cause. The Company may terminate the Executive's employment hereunder for
Cause by giving the Executive written notice of immediate termination. For
purposes of this Agreement, "Cause" shall mean (a) the Executive's
dishonesty, misappropriation, willful breach of fiduciary duty or fraud
with regard to the Company or any of its assets or businesses which has a
material adverse effect on the Company; (b) the Executive's conviction of
or pleading of nolo contendere with regard to a felony (other than traffic
violations) or any other crime involving moral turpitude; or (c) any other
breach by the Executive of a material provision of this Agreement that
remains uncured for thirty (30) days after written notice thereof is given
to the Executive. If the Executive's employment hereunder is terminated by
the Company for Cause, the Company shall have no other obligation to the
Executive hereunder other than the obligation to pay or provide the
Entitlements.
11. Good Reason. The Executive may terminate his employment hereunder for Good
Reason provided that there has first occurred a Change in Control of the
Company as defined in Section 9.2 of the Company's 1997 Stock Option Plan
and provided that the Executive provides written notice to the Company.
For purposes of this Agreement, "Good Reason" shall mean the occurrence or
failure to cause the occurrence of any of the following events without the
Executives express prior written consent after a Change in Control: (a)
any material demotion of the Executive, any material reduction of the
Executive's authority or responsibility or any other change in the terms
of the Executive's authority or responsibility or any other change in the
terms of the Executive's employment which is inconsistent with Section 3
hereof; (b) the Company requiring the Executive to perform services
hereunder at any location outside a 60-mile radius from the Employment
Site or the Company requiring the Executive to work in an office of
substantially inferior characteristics or without the personnel assistance
and support currently provided the Executive; or (c) any breach by the
Company of any provision of this Agreement which is not cured by the
Company within 30 days after notice thereof from the Executive. If the
Executive's
Page 4 of 8
<PAGE>
employment hereunder is terminated by the Executive without Good Reason,
the Company shall have no other obligation to the Executive hereunder
other than the obligation to pay or provide the Entitlements.
12. Termination of Employment by the Executive for Good Reason after a Change
in Control or by the COMDanv Without Cause: Non-renewal of Agreement. In
the event; (i) the Executive terminates his employment for Good Reason
pursuant to Section 11 hereof; or, (ii) the Company terminates the
Executive's employment other than for Cause or due to a disability
pursuant to Section 9 hereof; or, (iii) the Executive's employment
hereunder terminates due to the non-renewal hereof following notice of
such non-renewal given by the Company, then, in any such event, the
Company shall be deemed to have breached this Agreement, and the Executive
shall be entitled to the following:
(a) in a lump sum (to the extent such obligations are capable of being paid
in a lump sum under the terms of the plan with respect to which such
obligation arose) in cash within thirty business days after the date of
termination, and, otherwise, in accordance with the terms of the
applicable plan or applicable law, any and all Entitlements as of the
date of termination of employment; and
(b) as severance pay, within thirty business days after the date of
termination, a lump sum in an amount equal to the greater of (A) the
Executive's Ending Compensation, hereinafter defined, multiplied by the
number of years (including any fraction of a year) in the period from the
date of termination of employment to the date the Employment Term would
have otherwise expired pursuant to Section 2 hereof (the "Remaining
Term"); or (B) the Executive's Ending Compensation multiplied by two. For
purposes of this Agreement, the Executive's Ending Compensation means the
sum of (A) one year's Base Salary at the annual rate in effect
immediately prior to such termination of employment; and (B) the average
of the Incentive Compensation paid or payable to the Executive in respect
of the three full years preceding the date of termination of employment.
13. Non-Competition: Confidential Information.
(a) The Executive agrees that, if he terminates his employment hereunder
other than for Good Reason pursuant to Section 11 hereof, or if his
employment hereunder is terminated for Cause, he will not for a
period of two years after such termination of employment with the
Company, in any manner, directly or indirectly (or have a
substantial ownership in, manage, operate, or control any entity
which shall directly or indirectly) (i) perform, or cause to be
performed, or solicit or aid, in any manner, solicitation of, any
work of a type performed by the Company for any firm, corporation,
or other entity ("Customer") with which, at any time during
Page 5 of 8
<PAGE>
the twelve (12) month period prior to termination of the Employment Term,
the Company or any subsidiary conducted any business; or (ii) induce any
personnel to leave the service of the Company or of any subsidiary of the
Company. Within two weeks of a written request of the Executive following
termination of the Employment Term, the Company shall deliver to the
Executive a list of Customers and the Executive shall within two weeks
after such delivery on reasonable prior notice have the right during
normal business hours to examine such books and records of the Company as
shall be reasonably necessary to confirm that only the names of Customers
are set forth on the list.
(b) The Executive shall hold in a fiduciary capacity for the benefit of
the Company all secret or confidential information, knowledge or
data relating to the Company and its subsidiaries, and their
respective businesses, (i) obtained by the Executive during his
employment by the Company or any of its subsidiaries; and (ii) not
otherwise public knowledge or known within the Company's industry.
After termination of the Executive's employment with the Company,
the Executive shall not, without prior written consent of the
Company, unless compelled pursuant to a court order, communicate or
divulge any such information, knowledge or data to anyone other than
the Company and those designated by it.
(c) After termination of the Executive's employment with the Company,
the Executive shall refrain from disparaging, whether orally, in
writing or in other media, the Company, its subsidiaries and
Affiliates, the officers, directors and employees of each of them,
and the products and services of each of them.
(d) The Executive agrees that the remedy at law for any breach by him of
the foregoing shall be inadequate and that the Company shall be
entitled to injunctive relief. This Section constitutes an
independent and separable covenant that shall be enforceable
notwithstanding any right or remedy that the Company may have under
any other provision of this Agreement or otherwise.
14. No Mitigation; No Set-Off. The Company agrees that if the Executive's
employment with the Company is terminated for any reason whatsoever, the
Executive is not required to seek other employment or to attempt in any
way to reduce any amounts payable to the Executive by the Company pursuant
to this Agreement. Further, the amount of any payment or benefit provided
for in this Agreement shall not be reduced by any compensation earned by
the Executive or benefit provided to the Executive as the result of
employment by another employer or otherwise. Notwithstanding anything to
the contrary contained herein, the Company's obligation, if any, following
termination of the Executive's employment hereunder, to provide any
ongoing benefits of a type provided for in Sections 6(a), (d), (f), and
(g) hereof, shall be excused for so long as, and to the extent that, such
benefits are provided by a subsequent employer of the Executive.
Page 6 of 8
<PAGE>
15. Garnishment. The benefits payable under this Agreement shall not be
subject to garnishment, execution or levy of any kind, and any attempt to
cause any benefits to be so subjected shall not be recognized.
16. Notice. Any notice or other communication required or permitted hereunder
shall be in writing and shall be delivered personally, or sent by
certified mail, return receipt requested, by overnight delivery or courier
service, or by telecopy. Notice to the Executive shall be delivered to his
address set forth at the beginning of this Agreement, and notice to the
Company shall be sent to the address set forth at the beginning of the
Agreement to the Attention: General Counsel
Any notice given by certified mail shall be deemed given five days after
the time of certification thereof. Any notice given by other means
permitted by this Section 16 will be deemed given at the time of receipt
thereof.
Either party may, by notice given in accordance with this Section 18 to
the other party, designate another address or person for receipt of
notices hereunder.
17. Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without
reference to its conflicts of law provisions.
18. Binding Agreement. Notwithstanding anything herein to the contrary, this
Agreement may not be assigned by the Company without the prior written
consent of the Executive. This Agreement shall inure to the benefit of and
be enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. This Agreement is personal to the Executive and neither this
Agreement nor any rights hereunder may be assigned by the Executive.
19. Miscellaneous. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and such officer of the Company as may
be specifically designated. No waiver by either party hereto at any time
of any breach by the other party hereto of, or compliance with, any
condition or provision shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
This Agreement constitutes the entire Agreement between the parties hereto
pertaining to the subject matter hereof. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter
hereof have been made by either party which are not expressly set forth in
this Agreement.
20. Counterparts. This Agreement may be executed in several counterparts, each
of
Page 7 of 8
<PAGE>
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
21. Separability. If any provisions of this Agreement shall be declared to be
invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provision hereof which
shall remain in full force and effect.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed
and the Executive has hereunto set his hand as of the date first set forth
above.
HOSOKAWA MICRON INTERNATIONAL INC.
By: /s/ Isao Sato
-------------
Name: ISAO SATO
Title: President C.E.O.
WILLIAM J. BRENNAN
/s/ William J. Brennan
-------------------
Name:
Page 8 of 8
<PAGE>
EXHIBIT A TO THE SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
dated April 15, 1998
between
HOSOKAWA MICRON INTERNATIONAL INC. ("Company") and
William J. Brennan
("Executive")
Hosokawa Micron International Inc.
Management Incentive Plan
0bjectives
The purpose of a Management Incentive Plan (the "Plan") is to provide cash
rewards to key employees who contribute to the achievement of corporate-wide
goals established for the company overall and its business units.
Eligibility
Individuals with Corporate or Business Segment responsibilities at the Vice,
President level and above are eligible for participation in the Plan. In
addition, the President or Executive Vice President and General Manager of each
Operating Unit and salaried employees, at the Director level and above,
reporting directly to the President or Executive Vice President and General
Manager of each Operating Unit are eligible to be nominated for participation.
Participation below this level may be provided for on an exception basis. All
participants participation requires the annual approval of the Chief Executive
Officer.
Note: Participation in this Management Incentive Plan is restricted to those
Units that have a planned (budgeted) Pretax income which exceeds US $500,000.
Awards to individuals hired or promoted into eligible positions during the year
will be determined on a pro rata basis. Individuals hired or promoted on or
after July 1 will not be eligible for an award for that year.
<PAGE>
Awards
Each participant will be assigned a target award, expressed as a percentage of
base salary in effect at the beginning of the year. The target award will be
paid if business unit financial performance objectives at the target level
(e.g., 100% of Business Plan) and individual goals are achieved in full. If
financial performance objectives and individual goals are exceeded, awards will
increase up to pre-established maximum amounts. Target and maximum incentive
awards are shown below:
<TABLE>
<CAPTION>
Position Target Award Maximum Award
<S> <C> <C>
Corporate SVP's/Business 40% 80%
Segment Presidents and above
Corporate/Business Segment 30% 60%
VP's/BU President or GM
Unit VP or Directors 20% 40%
</TABLE>
Each business unit will establish an accrual equal to the sum of the Target
Awards of approved participants. The accrual is to be adjusted periodically
during the year based on the business unit's financial results. All financial
results (e.g., Pre-Tax Income and Cash Flow) will be measured after the full
cost of incentive awards are accrued.
Performance Weightings
As described, awards will be based on a combination of business unit financial
performance and individual performance. The performance factor weightings used
will vary by position to reflect each participants responsibilities and impact.
<PAGE>
If a participant's employment terminates for any reason other than death,
disability or retirement, before the end of the fiscal year, no award will be
made. If a participant's employment terminates because of death, disability or
retirement during the fiscal year, a pro rata award will be made.
Financial Objectives and Performance Measures
At the beginning of each year, financial objectives will be established for each
business unit, subject to the approval of the Chief Executive Officer, and
communicated to participants. The financial objectives will specify three levels
of achievement:
1. A Target performance that represents expected results for the business
unit for the year, i.e. Fiscal Year Plan;
2. A Maximum performance objective that represents outstanding performance
and is substantially greater than the target level; and,
3. A Threshold performance objective that is less than the target and
represents the minimum level of performance for which bonus will be paid.
Financial performance objectives will be measured against the Business Plan
(Budget) approved for the year. If actual financial performance for a business
unit is below 85% of the Business Plan, no award is earned.
Two performance measures will be used to establish business unit financial
performance objectives as compared to the approved Business Plan:
<PAGE>
The performance weightings are shown below:
<TABLE>
<CAPTION>
Performance Factor Weightings
-----------------------------
Business Business
Position Corporate Segment Unit Individual
- -------- --------- ------- ---- ----------
<S> <C> <C>
Corp. Staff 80% 20%
Bus. Segment 40% 40% 20%
Staff
Unit President/
General Manager 20% 20% 40% 20%
Other Unit Staff 20% 50% 30%
</TABLE>
For example, 80% of the award for participants with Corporate responsibilities
will be based on achievement of Corporate financial performance objectives and
20% of the award will be based on individual performance. For a business unit
President or General Manager, 20% of the award will be based on the achievement
of the Corporate financial performance objectives, 40% on achievement of
business unit financial performance objectives, 20% on Business Segment
financial performance objectives, and 20% on individual performance objectives.
Weightings may be adjusted by the Chief Executive Officer at the beginning of
the year. Any change in the performance factor will be communicated promptly to
participants.
<PAGE>
Financial Performance Objectives
The performance scale shown below identifies threshold, target and maximum
financial performance objectives that will apply to business unit (Corporate,
Business Segment and Business Unit) financial performance. The performance scale
also identifies the corresponding award payout levels, expressed as a percentage
of the target awards assigned to participants with business unit (Corporate,
Business Segment, and Business unit) responsibilities.
<TABLE>
<CAPTION>
Financial Performance Objectives
Percent of Award
Business Plan Payout
Performance Level Achieved Percentage
<S> <C> <C>
Maximum 200% 200%
150% 150%
Target 100% 100%
Threshold 85% 70%
Below Minimum Less than 85% 0%
</TABLE>
If actual results fall in between the Performance Levels specifically identified
on the scale, straight-line interpolation will be used to determine the
corresponding Award Payout Percentage. As the performance scale indicates, for
each 1% over the Business Plan for business unit Pre-Tax Income and Cash Flow,
the award Payout Percentage increases by 1%. Conversely, for each 1% decrease
below the Business Plan, the Award Payout Percentage decreases by 2%.
<PAGE>
At the end of the year, actual Pre-tax Income and Cash Flow of each business
unit will be compared to the performance objectives scale. Comparisons will be
made in local currency. The Award Payout Percentage will be determined
separately for each of these two performance measures. Each Award Payout
Percentage will be multiplied by the assigned weighting (70% weighting for
Pre-tax Income and 30% weighting for Cash Flow) with the result added together
to develop an overall Award Payout Percentage for the business unit.
When determining the overall Award Payout Percentage for a business unit, the
maximum Award Payout Percentage applied to a single performance measure is 200%.
If actual results on a single measure are less than 85% of Plan, zero credit
will be applied towards the overall Award Payout Percentage. If the overall
Award Payout Percentage for a business unit is less than 70%, no bonus payments
will be made to any participants in the business unit.
The Company reserves the right to adjust the business unit performance scales
in the beginning of each year on a case by case basis to reflect special
situations. Participants affected by any such adjustments will be notified
promptly. The Company reserves the right to change the performance scales in
future years.
Award Determination and Payment
The Chief Financial Officer will determine Award Payout Percentages for each
business unit within 15 days after final financial results are known for the
year. Award Payout Percentages will be communicated to each business unit
President or General Manager who will develop award recommendations for
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Pre-Tax Income 70%
Operating Cash Flow 30%
----
Financial Performance 100%
----
</TABLE>
Individual Performance
Each participant will establish individual goals that contribute to the
achievement of the business unit's financial objectives. Individual goals are to
be submitted in writing for approval, as described below, by October 15 of each
year.
a) Individual goals prepared by Business Segments Presidents will be approved
by the Chief Executive Officer.
b) Individual goals prepared by business unit Presidents or Executive Vice
Presidents and General Managers and business segment participants will be
approved by the Business Segment President.
c) Individual goals of other business unit participants will be approved by
the business unit President or Executive Vice President and General
Manager.
d) Individual goals of Corporate participants will be approved by the Chief
Executive Officer or his designee.
Note: All individual objectives are to be specific and measurable.
<PAGE>
each participant in the business unit based on the Award Payout Percentage and
individual performance ratings.
Individual performance ratings of participants may range from 0% to 200%.
The following guidelines should be used to establish individual ratings:
<TABLE>
<CAPTION>
<S> <C> <C>
Outstanding 150% to 200% Substantially exceeds all goals
Above Expectations 120% to 150% Substantially exceeds most
goals; meets all goals
Meets Expectations 80% to 120% Meets essentially all goals
in a fully satisfactory manner
Below Expectations 40% to 80% Does not meet majority of
goals in a satisfactory manner
Unsatisfactory 0% to 40% Substantially fails to achieve
individual goals
</TABLE>
Award recommendations for business unit participants are to be submitted to the
Chief Financial Officer, via the Business Segment Office. Award recommendations
for Corporate and Business Segment participants are to be submitted to the Chief
Financial Officer. The Chief Financial Officer will summarize all
recommendations and submit the recommendations to the Chief Executive Officer
for approval. Cash payments will be made as soon as is practical after financial
results for the year have been established. Payments will be reduced by all
withholding amounts required by federal, state or other taxing authorities.
<PAGE>
Examples
Here are several examples of how the Plan will work in an business unit:
Example 1
Assume a business unit has budgeted Pre-tax income of $2,000,000 and Cash Flow
of $2,600,000. Actual results for the year indicate Pre-tax income of $3,000,000
and Cash Flow of $3,250,000. The Award Payout Percentage for the business unit
is calculated as follows:
<TABLE>
<CAPTION>
<S> <C>
Actual PTI/Budgeted PTI $3,000,000/$2,000,000 = 150% x 70% = 105 %
Actual CF/Budgeted CF $3,250,000/$2,600,000 = 125% x 30% = 37.5%
Business Unit Award Payout Percentage=142.5%
</TABLE>
Since actual results are greater than 100% of budget, actual/budget equals the
Award Payout Percentage, no interpolation is required.
The business unit Award Payout Percentage will be used to determine 40% of the
business unit President's bonus. Corporate and Business Segment financial
performance and individual performance will each count for 20%. In this example,
assume that Business Segment and Corporate performance and individual
performance are each rated at 100%.
Operating Unit President
<TABLE>
<CAPTION>
<S> <C>
Salary $120,000
Target Award 30% or $36,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Percent of
Award Target
Performance Factor Payout Award
Weightings Percentage Earned
<S> <C> <C> <C>
Corporate 20% 100% 20%
Business Segment 20% 100% 20%
Business Unit 40% 142.5% 57%
Individual 20% 100% 20%
----
Total 117%
</TABLE>
The business unit President will receive a bonus of $42,120 (117% of the target
award).
Bonus awards to unit VP's will depend on business segment, business unit and
individual performance. Assume a unit VP earns a salary of $70,000. The bonus
award to the unit VP who fully meets his/her individual goals will equal $16,982
(121.3% of the target award).
Unit VP
Salary $70,000
Target Award 20% or S 14,000
<TABLE>
<CAPTION>
Percent of
Award Target
Performance Factor Payout Award
Weightings x Percentage Earned
<S> <C> <C> <C>
Bus Segment 20% 100% 20%
Business Unit 50% 142.5% 71.3%
Individual 30% 100% 30%
----
Total 121.3%
</TABLE>
<PAGE>
However, since the Award Payout Percentage for the individual component can vary
from 0% to 200%, the bonuses will normally vary. In this example, the Total
Award Payout Percentage could range from a minimum of 91.3% to a maximum of
151.3% of the target award. Actual bonuses could range from $12,782 to $21,182
depending on individual achievement.
Example 2
Assume again that a business unit budgeted Pre-tax Income of $2,000,000 and Cash
Flow of $2,600,000. Actual results for the year indicate Pre-tax Income of
$1,800,000 and Cash Flow of $2,340,000. The Award Payout for the business unit
is calculated as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Actual PTI/Budgeted PTI $1,800,000/$2,000,000 = 90%
PTI Award Payout Percentage=80% x 70% = 56%
Actual CF/Budgeted CF $2,340,000/$2,600,000 = 90%
CF Award Payout Percentage 30% x 30% = 24%
--
Business Unit Award Payout Percentage 80%
</TABLE>
Since actual results on both performance measures is less than 100% of Budget,
interpolation using the 1:2 factor, explained in the Performance Factor
Weightings section above, is used to determine the Award Payout Percentage. For
example, Since PTI is 10% below budget, the Award Payout Percentage is reduced
by 20% points and equals 80%.
<PAGE>
The business unit Award Payout Perceritacre will be used to determine 40% of the
business unit President's bonus. Corporate, Business Segment financial
performance and Individual performance will each account for 20%. In this
example, assume that both Business Segment and Individual performance are rated
at 100%.
Business Unit President
Salary $120,000
Target Award 30% or S36,000
<TABLE>
<CAPTION>
Percent of
Award Target
Performance Factor Payout Award
Weightings x Percentage = Earned
<S> <C> <C> <C>
Corporate 20% 100% 20%
Bus Segment 20% 100% 20%
Business Unit 40% 80% 32%
Individual 20% 100% 20%
----
Total 92%
</TABLE>
The business unit President will receive a bonus of $33,205 (92% of the Target
Award).
Bonus awards to other unit staff will depend on business unit and individual
performance. Assume a unit VP earns a salary of $70,000. The bonus award to the
unit VP who fully meets his individual goals will equal $12,600 (90% of the
Target Award).
<PAGE>
Unit VP
Salary $70,000
Target Award 20% or $14,000
<TABLE>
<CAPTION>
Percent of
Award Target
Performance Factor Payout Award
Weightings x Percentage = Earned
<S> <C> <C> <C>
Bus Segment 20% 100% 20%
Business Unit 50% 80% 40%
Individual 30% 100% 30%
----
Total 90%
</TABLE>
However, since the Award Payout Percentage for the Individual component can vary
from 0% to 200%, the bonuses will normally vary. In this example, the Total
Award Payout Percentage could range from a minimum of 60% to a maximum of 120%
of the Target Award. Actual bonuses could range from $8,400 for an individual
who achieves none of his/her individual goals to $16,800 for an individual who
makes an outstanding contribution.
Example 3
Assume again that a business unit has budgeted Pre-tax Income of $2,000,000 and
Cash Flow of $2,600,000. Actual results for the year indicate Pre-tax Income of
$1,600,000 and Cash Flow of $2,300,000. The Award Payout Percentage is
calculated as follows:
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Actual PTI/Budgeted PTI $1,600,000/$2,000,000 = 80% = 0%
Actual CF/Budgeted CF $2,300,000/$2,600,000 = 88.5
Cash Flow Award Payout Percentage 77.0% x 30% = 23.1%
-----
Business Unit Award Payout Percentage = 23.1%
</TABLE>
Since 80% is below the threshold level of performance set for Pre-tax Income
(85% of the Budget), the business unit receives no Pre-tax credit. Since the
overall Award Payout Percentage is below the 70% threshold, no bonus payments
are made to the business unit President or his staff.
Example 4
Assume again that a business unit has budgeted Pre-tax Income of $2,000,000 and
Cash Flow of $2,600,000. Actual results for the year indicate Pre-tax Income of
$3,800,000 and Cash Flow of $5,450,000. The Award Payout Percentage for the
business unit is calculated as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Actual PTI/Budgeted PTI $3,800,000/$2,000,000 = 190% x 70% = 133%
Actual CF/Budgeted CF $5,450,000/$2,600,000 = 210%
200% x 30% = 60%
----
Business Unit Award Payout Percentage 193%
</TABLE>
Since the maximum Award Payout Percentage is 200%, 200% rather 210% is used to
calculate the Award Payout Percentage for Cash Flow.
The business unit Award Payout Percentage will be used to determine 40% of the
business unit President's bonus. Corporate and Business Segment financial
performance and Individual
<PAGE>
performance will each count for 20%. In this example, assume that both Business
Segment performance and Individual performance are rated at 100%.
Business Unit President
Salary $120,000
Target Award 30% or $36,000
<TABLE>
<CAPTION>
Percent of
Award Target
Performance Factor Payout Award
Weightings x Percentage = Earned
<S> <C> <C> <C>
Corporate 20% 100% 20%
Bus Segment 20% 100% 20%
Business Unit 40% 193% 77.2%
Individual 20% 100% 20%
----
Total 137.2%
</TABLE>
The business unit President will receive a bonus of $49,392 (137.2% of the
Target Award).
Bonus awards to unit VP's will depend on business unit and individual
performance. Assume a unit VP earns a salary of $70,000. The bonus award to the
unit VP who fully meets his/her individual goals will equal $20,510 (146.5% of
the Target Award).
<PAGE>
Unit VP
<TABLE>
<CAPTION>
Percent of
Award Target
Performance Factor Payout Award
Weightings x Percentage = Earned
<S> <C> <C> <C>
Bus Segment 20% 100% 20%
Business Unit 50% 193% 96.5%
Individual 30% 100% 30%
----
Total 146.5%
</TABLE>
However, since the Award payout Percentage for the Individual component can vary
from 0% to 200%, the bonuses will normally vary. In this example, the Total
Award Payout Percentage could range from a minimum of 116.5% to a maximum of
176.5% of the Target Award. Actual Bonuses could range from $16,310 to $24,710.
General
Nothing contained in this Plan nor participation in or any action taken under
the Plan shall be construed or deemed an employment contract or give any
employee any right to be retained as an employee or guarantee of employment. In
addition, nothing contained in this Plan nor any action taken hereunder shall
be construed, deemed or implied to be a contract or agreement that any award
granted in one year will be granted in a subsequent year.
<PAGE>
Although the Company intends to continue the HMII Management Incentive Plan, the
Company reserves the right to amend or discontinue the Plan at any time for any
reason or no reason..
The Chief Executive Officer is responsible for the administration of the Plan
and shall interpret and administer the Plan and any rules and regulations
relating to it. The Chief Executive Officer may delegate the authority to
administer the Plan in whole or in part. However, any changes to the size of the
awards provided under the Plan or business unit financial performance objectives
require the approval of the Chief Executive Officer.
<PAGE>
EXHIBIT B TO THE SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
dated April 15,1998
between
HOSOKAWA MICRON INTERNATIONAL INC. ("Company") and
William J. Brennan
("Executive")
1. Pensions, Retirement, Savings-type Plans
Hosokawa Micron Investment Retirement Plan (401k)
General
The Plan is a defined contribution plan of the Company, subject to US
governmental rules, regulations and restrictions.
Contributions and Vesting
The Executive may contribute up to 16% of annual compensation subject to
annual governmental limits which, for 1998, is $10,000, and may invest in
any one or a combination of 10 mutual funds. The Executive is immediately
vested in his contributions and the earnings thereon.
The Company contributes an amount equal to 100% of the first 3% of total pay
contributed by the Executive. In addition, the Company contributes an amount
equal to 2% of the Executive's total pay for each plan year, provided that
the Executive was employed on the last day of that plan year. The 2% Company
contribution is made regardless of whether or not the Executive contributes
to the Plan. Total pay for which the Company can make the 2% contribution
and on which the Company can match contributions is limited by governmental
rules which, for 1998, limits contributions to the first $160,000 of total
compensation. Benefits from Company contributions made under the Plan vest
at 40% after two years of vesting service, and 20% per year thereafter, and
are fully vested after an Executive completes five years of vesting service.
Participant Accounts
Individual account balances are maintained for each participant whereby
contributions are allocated to any one or combination of 10 funds.
Participants may change their investment allocations on a daily basis.
Contributions are credited to participant accounts at the current market
value within each fund allocation on a daily basis.
2. Welfare-type Plans
Business Travel Accident
Company-paid coverage provides insurance for loss of life or catastrophic
disability resulting while traveling on Company business. The coverage
equals five times Base Salary up to a maximum of $500,000.
<PAGE>
EXHIBIT C TO THE SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
dated April 15, 1998
between
HOSOKAWA MICRON INTERNATIONAL INC. ("Company") and
William J. Brennan
("Executive")
Executive Life Insurance
Life insurance benefit equal to 2-1/2 times Base Salary to a maximum of
$300,000.
<PAGE>
EXHIBIT D TO THE SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
dated April 15,1998
between
HOSOKAWA MICRON INTERNATIONAL INC. ("Company") and
William J. Brennan
("Executive")
Salary Continuation and Long-Term Disability
Company-paid salary continuation for the first 90 days of a medical disability
absence due to sickness or accident. After 90 days, Executive must have elected
Optional Long-Term Disability Insurance which is paid for in total by the
Executive. Under this Company-sponsored program, the Executive will receive
monthly benefits equal to 60% of Base Salary to a maximum of $10,000 per month
for the period of eligible disability, as defined under terms of the plan
document. The premiums for this coverage are adjusted after negotiation with the
insurance carrier and is currently $.54 per $100 of Base Salary.
<PAGE>
EXHIBIT E TO THE SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
dated April 15,1998
between
HOSOKAWA MICRON INTERNATIONAL INC. ("Company") and
William J. Brennan
("Executive")
Medical Insurance
Comprehensive Medical Plan for Executives and eligible dependents (spouse and
children to the age of 18 or age of 23, if a full-time student in an accredited
school). Executive must satisfy a deductible of $250 for Executive and each
dependent or a maximum overall deductible of $500 per year. After deductibles
are satisfied, the Plan pays 100% of all eligible medical expenses thereafter
except for certain employee co-payments noted below.
Physician services are paid as follows: Inpatient, 100% after deductible; office
visits, 100% after $15 employee co-pay with no deductible. Preventive Care
Services are paid 100% after $15 employee co-pay up to $500/yr. with no
deductible.
Prescription drugs are paid as follows: 100% after $15 employee co-pay,
non-generic pharmaceuticals; $10 employee co-pay, generic and $10 employee
co-pay, mail order.
Pre-certification before all hospitalization is required in order to obtain
maximum benefits, otherwise reduced benefits will be paid.
Premiums for this coverage are paid 80% by the Company and 20% by the Executive.
Dental Insurance
The Dental Plan for Executive and their eligible dependents as defined above.
The Dental Plan provides scheduled reimbursements for covered services such as
preventive treatment, basic and major services. A deductible of $50 per
individual (maximum 3 per family) must be satisfied each year. No deductible is
required for preventive services.
For any calendar year, the Plan pays up to $1,000 maximum for covered expenses
incurred by a covered person after the deductible. Orthodontic services are
covered only for dependent children and are reimbursed at 50% of eligible
charges up to a lifetime maximum of $1,500 per dependent child.
Premiums for this coverage are paid 80% by the Company and 20% by the Executive.
<PAGE>
EXHIBIT F TO THE SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
dated April 15,1998
between
HOSOKAWA MICRON INTERNATIONAL INC. ("Company") and
William J. Brennan
("Executive")
-- None -
SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
AGREEMENT made as of the 15th day of April, 1998, by and between HOSOKAWA MICRON
INTERNATIONAL INC., a Delaware corporation with its corporate offices at 780
Third Avenue, New York, New York 10017 (hereinafter called the "Company"), and
Gordon E. Ettie, residing at 23 Goodwives River Road, Darien, Connecticut 06820
(hereinafter called the "Executive").
WITNESSETH:
-----------
WHEREAS, the Executive has served the Company as its Vice President and
President-Product Recovery product line;
WHEREAS, the Company desires to continue to employ the Executive in such
capacity and the Executive is willing to continue to serve the Company in such
capacity;
WHEREAS, the Company and the Executive desire to set forth the terms and
conditions of such employment.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants
and agreements herein contained, the Company and the Executive agree as follows:
1. Employment. The Company hereby agrees to continue to employ the Executive,
and the Executive agrees to be employed by the Company, on the terms and
conditions herein contained.
2. Term. Except as otherwise provided in this Agreement, the Executive shall
be employed under this Agreement for an initial four-year term commencing
on the date hereof. The period during which the Executive is employed
hereunder is referred to as the "Employment Term." The Employment Term
shall be automatically renewed for successive two-year terms unless the
Company shall give the Executive written notice of non-renewal at least
six months prior to the end of the then current term. The Executive may,
at any time, terminate the Employment Term by giving the Company 120 days
prior written notice of the effective date of such termination. Upon the
effective date of a termination of the Employment Term per the preceding
sentence, the Company shall have no obligation to the Executive hereunder
other than to pay or provide the Entitlements.
3. Duties. The Executive shall serve as the Company's Vice President and
President of the Product Recovery product line, and as such, will be
responsible for the overall operation and profitability of the Company's
Product Recovery product line, which shall
Page 1 of 8
<PAGE>
include, but not be limited to, developing, setting, implementing and
reviewing overall business strategies and plans. The Executive shall
perform his duties hereunder at the Company's facilities located at 780
Third Avenue, New York, NY USA (the "Employment Site") and shall be
available to travel, as may be required in connection with the performance
of his duties hereunder. In no event will the Executive be required to
undertake any duties or perform any tasks which are inconsistent with his
status in the Company. During the Employment Term, the Executive shall
devote substantially all of his business time, attention, skill and
efforts to the performance of his duties hereunder; provided, however,
that the Executive may serve as director of other corporations, if such
service does not conflict in any material respect with his duties
hereunder or his fiduciary duty to the Company, and provided the Executive
has prior written approval from the Company. Nothing herein shall prevent
the Executive from managing his personal investments and participating in
charitable and civic endeavors, so long as such activities do not
materially interfere with the Executive's performance of his duties
hereunder.
4. Base Salary. During the Employment Term, the Company shall pay the
Executive, in accordance with its normal payroll practices and subject to
required withholding, a base salary which, shall be at the annual rate of
$215,000. The base salary may be increased annually, commencing on October
1, 1998, by an amount to be determined by the Company, in its sole
discretion. Once increased, the base salary hereunder may not be
decreased. The base salary, as increased from time to time, is hereinafter
referred to as the "Base Salary."
5. Incentive Compensation. During the Employment Term, the Executive shall be
entitled to incentive compensation ("Incentive Compensation") pursuant to
the terms of the Company's incentive compensation plan, a copy of which is
attached hereto as Exhibit A and any other annual programs or plans
hereafter adopted by the Company.
6. Certain Other Compensation and Benefits. During the Employment Term, the
Executive shall be entitled to:
(a) participation in all benefit, pension, retirement, savings, welfare
and other employee benefit plans and policies in which members of
the Company's senior management generally are entitled to
participate (collectively, the "Benefit Plans"), in accordance with
their respective terms as in effect from time to time and as listed
in Exhibit B.
(b) vacation each year in accordance with the Company's policies for
members of senior management in effect from time to time, but in no
event less than twenty days paid vacation for each calendar year
(twenty-five days after fifteen years of employment with the Company
and/or any of its Affiliates) (for purposes of this Agreement, the
term "Affiliate" means an entity controlled by, in control of, or
Page 2 of 8
<PAGE>
under common control with, the Company);
(c) use of an automobile and the costs of fuel, maintenance, repairs and
insurance associated with such automobile pursuant to the terms of
the Company's policy concerning senior executives' automobiles, as
such policy is in effect from time to time, and in the absence of
any such policy, as such policy was last in effect.
(d) life insurance, in addition to any provided to employees of the
Company generally, on the life of the Executive for the benefit of
the Executive's designated beneficiaries as detailed in Exhibit C.
(e) long-term disability coverage for the Executive under the plan or
policy per Exhibit D.
(f) medical and dental insurance for the Executive, his spouse, and his
dependents as detailed in Exhibit E.
(g) such other benefits as the Executive is currently provided and noted
in Exhibit F.
7. Death Prior to Termination of Employment. If the Executive shall die
during the Employment Term, the Company shall have no liability or further
obligation except as follows:
(a) The Company shall pay the Executive's estate, when otherwise due,
any unpaid Base Salary for the period prior to the Executive's
death, any declared or awarded but unpaid Incentive Compensation and
any other unpaid amounts due the Executive under any other Benefit
Plans (collectively, the "Entitlements").
(b) The Executive's estate shall have such rights, if any, under
employee benefit, fringe benefit or incentive plans as may be
provided in such plans and any grants thereunder in accordance with
their respective terms.
8. Common Stock Ownership. No later than five (5) years after the date the
Company's Common Stock is listed on a United States stock exchange and at
all times thereafter during the Executive's employment by the Company, the
Executive must own, directly or beneficially, 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 may be established by the Board of
Directors of the Company, provided, however, that in no event shall the
Executive be required to own Common Stock having a value equal to more
than three (3) times his Base Salary. To the extent permitted under
applicable law and subject to agreement between the Executive and the
Company, the Company may assist the Executive in obtaining financing to
effectuate the purchases of Common Stock necessary to meet
Page 3 of 8
<PAGE>
the requirements of this section which may include Company guarantees and
adjustment of incentive and bonus programs to provide that up to fifty
percent (50%) of any awards may be paid in Common Stock to an Executive
who does not meet the requirements of this section.
9. Disability. If the Executive shall be physically or mentally incapable of
performing his material duties as provided in Section 3 of this Agreement
during a period of not less than one hundred eighty (180) consecutive
days, the Company may, at its election at any time thereafter while the
Executive remains incapable of performing his material duties hereunder,
terminate the Executive's employment hereunder, effective immediately, by
giving the Executive written notice of such termination. In such event,
the Company shall have no other obligation to the Executive or his
dependents hereunder other than the obligation to pay or provide the
Entitlements.
10. Cause. The Company may terminate the Executive's employment hereunder for
Cause by giving the Executive written notice of immediate termination. For
purposes of this Agreement, "Cause" shall mean (a) the Executive's
dishonesty, misappropriation, willful breach of fiduciary duty or fraud
with regard to the Company or any of its assets or businesses which has a
material adverse effect on the Company; (b) the Executive's conviction of
or pleading of nolo contendere with regard to a felony (other than traffic
violations) or any other crime involving moral turpitude; or (c) any other
breach by the Executive of a material provision of this Agreement that
remains uncured for thirty (30) days after written notice thereof is given
to the Executive. If the Executive's employment hereunder is terminated by
the Company for Cause, the Company shall have no other obligation to the
Executive hereunder other than the obligation to pay or provide the
Entitlements.
11. Good Reason. The Executive may terminate his employment hereunder for Good
Reason provided that there has first occurred a Change in Control of the
Company as defined in Section 9.2 of the Company's 1997 Stock Option Plan
and provided that the Executive provides written notice to the Company.
For purposes of this Agreement, "Good Reason" shall mean the occurrence or
failure to cause the occurrence of any of the following events without the
Executive's express prior written consent after a Change in Control: (a)
any material demotion of the Executive, any material reduction of the
Executive's authority or responsibility or any other change in the terms
terms of the Executive's employment which is inconsistent with Section 3
hereof; (b) the Company requiring the Executive to perform services
hereunder at any location outside a 60-mile radius from the Employment
Site or the Company requiring the Executive to work in an office of
substantially inferior characteristics or without the personnel assistance
and support currently provided the Executive; or (c) any breach by the
Company of any provision of this Agreement which is not cured by the
Company within 30 days after notice thereof from the Executive. If the
Executive's
Page 4 of 8
<PAGE>
employment hereunder is terminated by the Executive without Good Reason,
the Company shall have no other obligation to the Executive hereunder
other than the obligation to pay or provide the Entitlements.
12. Termination of Employment by the Executive for Good Reason after a Change
in Control or by the Company Without Cause: Non-renewal of Agreement. In
the event; (i) the Executive terminates his employment for Good Reason
pursuant to Section 11 hereof; or, (ii) the Company terminates the
Executive's employment other than for Cause or due to a disability
pursuant to Section 9 hereof; or, (iii) the Executive's employment
hereunder terminates due to the non-renewal hereof following notice of
such non-renewal given by the Company, then, in any such event, the
Company shall be deemed to have breached this Agreement, and the Executive
shall be entitled to the following:
(a) in a lump sum (to the extent such obligations are capable of being
paid in a lump sum under the terms of the plan with respect to which
such obligation arose) in cash within thirty business days after the
date of termination, and, otherwise, in accordance with the terms of
the applicable plan or applicable law, any and all Entitlements as
of the date of termination of employment; and
(b) as severance pay, within thirty business days after the date of
termination, a lump sum in an amount equal to the greater of (A) the
Executive's Ending Compensation, hereinafter defined, multiplied by
the number of years (including any fraction of a year) in the period
from the date of termination of employment to the date the
Employment Term would have otherwise expired pursuant to Section 2
hereof (the "Remaining Term"); or (B) the Executive's Ending
Compensation multiplied by two. For purposes of this Agreement, the
Executive's Ending Compensation means the sum of (A) one year's Base
Salary at the annual rate in effect immediately prior to such
termination of employment; and (B) the average of the Incentive
Compensation paid or payable to the Executive in respect of the
three full years preceding the date of termination of employment.
13. Non-Competition: Confidential Information.
(a) The Executive agrees that, if he terminates his employment hereunder
other than for Good Reason pursuant to Section 11 hereof, or if his
employment hereunder is terminated for Cause, he will not for a
period of two years after such termination of employment with the
Company, in any manner, directly or indirectly (or have a
substantial ownership in, manage, operate, or control any entity
which shall directly or indirectly) (i) perform, or cause to be
performed, or solicit or aid, in any manner, solicitation of, any
work of a type performed by the Company for any firm, corporation,
or other entity ("Customer") with which, at any time during
Page 5 of 8
<PAGE>
the twelve (12) month period prior to termination of the Employment
Term, the Company or any subsidiary conducted any business; or (ii)
induce any personnel to leave the service of the Company or of any
subsidiary of the Company. Within two weeks of a written request of
the Executive following termination of the Employment Term, the
Company shall deliver to the Executive a list of Customers and the
Executive shall within two weeks after such delivery on reasonable
prior notice have the right during normal business hours to examine
such books and records of the Company as shall be reasonably
necessary to confirm that only the names of Customers are set forth
on the list.
(b) The Executive shall hold in a fiduciary capacity for the benefit of
the Company all secret or confidential information, knowledge or
data relating to the Company and its subsidiaries, and their
respective businesses, (i) obtained by the Executive during his
employment by the Company or any of its subsidiaries; and (ii) not
otherwise public knowledge or known within the Company's industry.
After termination of the Executive's employment with the Company,
the Executive shall not, without prior written consent of the
Company, unless compelled pursuant to a court order, communicate or
divulge any such information, knowledge or data to anyone other than
the Company and those designated by it.
(c) After termination of the Executive's employment with the Company,
the Executive shall refrain from disparaging, whether orally, in
writing or in other media, the Company, its subsidiaries and
Affiliates, the officers, directors and employees of each of them,
and the products and services of each of them.
(d) The Executive agrees that the remedy at law for any breach by him of
the foregoing shall be inadequate and that the Company shall be
entitled to injunctive relief. This Section constitutes an
independent and separable covenant that shall be enforceable
notwithstanding any right or remedy that the Company may have under
any other provision of this Agreement or otherwise.
14. No Mitigation; No Set-Off. The Company agrees that if the Executive's
employment with the Company is terminated for any reason whatsoever, the
Executive is not required to seek other employment or to attempt in any
way to reduce any amounts payable to the Executive by the Company pursuant
to this Agreement. Further, the amount of any payment or benefit provided
for in this Agreement shall not be reduced by any compensation earned by
the Executive or benefit provided to the Executive as the result of
employment by another employer or otherwise. Notwithstanding anything to
the contrary contained herein, the Company's obligation, if any, following
termination of the Executive's employment hereunder, to provide any
ongoing benefits of a type provided for in Sections 6(a), (d), (f), and
(g) hereof, shall be excused for so long as, and to the extent that, such
benefits are provided by a subsequent employer of the Executive.
Page 6 of 8
<PAGE>
15. Garnishment. The benefits payable under this Agreement shall not be
subject to garnishment, execution or levy of any kind, and any attempt to
cause any benefits to be so subjected shall not be recognized.
16. Notice. Any notice or other communication required or permitted hereunder
shall be in writing and shall be delivered personally, or sent by
certified mail, return receipt requested, by overnight delivery or courier
service, or by telecopy. Notice to the Executive shall be delivered to his
address set forth at the beginning of this Agreement, and notice to the
Company shall be sent to the address set forth at the beginning of the
Agreement to the Attention: General Counsel
Any notice given by certified mail shall be deemed given five days after
the time of certification thereof. Any notice given by other means
permitted by this Section 16 will be deemed given at the time of receipt
thereof.
Either party may, by notice given in accordance with this Section 18 to
the other party, designate another address or person for receipt of
notices hereunder.
17. Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without
reference to its conflicts of law provisions.
18. Binding Agreement. Notwithstanding anything herein to the contrary, this
Agreement may not be assigned by the Company without the prior written
consent of the Executive. This Agreement shall inure to the benefit of and
be enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. This Agreement is personal to the Executive and neither this
Agreement nor any rights hereunder may be assigned by the Executive.
19. Miscellaneous. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and such officer of the Company as may
be specifically designated. No waiver by either party hereto at any time
of any breach by the other party hereto of, or compliance with, any
condition or provision shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
This Agreement constitutes the entire Agreement between the parties hereto
pertaining to the subject matter hereof. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter
hereof have been made by either party which are not expressly set forth in
this Agreement.
20. Counterparts. This Agreement may be executed in several Counterparts, each
of
Page 7 of 8
<PAGE>
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
21. Separability. If any provisions of this Agreement shall be declared to be
invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provision hereof which
shall remain in full force and effect.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed
and the Executive has hereunto set his hand as of the date first set forth
above.
HOSOKAWA MICRON INTERNATIONAL INC.
By: /s/ Isao Sato
------------------------------
Name: Isao Sato
Title: President C.E.O.
GORDON E. ETTIE
/s/ Gordon E. Ettie
-------------------
Name:
Page 8 of 8
<PAGE>
EXHIBIT A TO THE SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
dated April 15, 1998
between
HOSOKAWA MICRON INTERNATIONAL INC. ("Company") and
Gordon E. Ettie
("Executive")
Hosokawa Micron International Inc.
Management Incentive Plan
Objectives
The purpose of a Management Incentive Plan (the "Plan") is to provide cash
rewards to key employees who contribute to the achievement of corporate-wide
goals established for the company overall and its business units.
Eligibility
Individuals with Corporate or Business Segment responsibilities at the Vice
President level and above are eligible for participation in the Plan. In
addition, the President or Executive Vice President and General Manager of each
Operating Unit and salaried employees, at the Director level and above,
reporting directly to the President or Executive Vice President and General
Manager of each Operating Unit are eligible to be nominated for participation.
Participation below this level may be provided for on an exception basis. All
participants participation requires the annual approval of the Chief Executive
Officer.
Note: Participation in this Management Incentive Plan is restricted to those
Units that have a planned (budgeted) Pretax income which exceeds US $500,000.
Awards to individuals hired or promoted into eligible positions during the year
will be determined on a pro rata basis. Individuals hired or promoted on or
after July 1 will not be eligible for an award for that year.
<PAGE>
Awards
Each participant will be assigned a target award, expressed as a percentage of
base salary in effect at the beginning of the year. The target award will be
paid if business unit financial performance objectives at the target level
(e.g., 100% of Business Plan) and individual goals are achieved in full. If
financial performance objectives and individual goals are exceeded, awards will
increase up to pre-established maximum amounts. Target and maximum incentive
awards are shown below:
<TABLE>
<CAPTION>
Position Target Award Maximum Award
<S> <C> <C>
Corporate SVP's/Business 40% 80%
Segment Presidents and above
Corporate/Business Segment 30% 60%
VP's/BU President or GM
Unit VP or Directors 20% 40%
</TABLE>
Each business unit will establish an accrual equal to the sum of the Target
Awards of approved participants. The accrual is to be adjusted periodically
during the year based on the business unit's financial results. All financial
results (e.g., Pre-Tax Income and Cash Flow) will be measured after the full
cost of incentive awards are accrued.
Performance Weightings
As described, awards will be based on a combination of business unit financial
performance and individual performance. The performance factor weightings used
will vary by position to reflect each participants responsibilities and impact.
<PAGE>
If a participant's employment terminates for any reason other than death,
disability or retirement, before the end of the fiscal year, no award will be
made. If a participant's employment terminates because of death, disability or
retirement during the fiscal year, a pro rata award will be made.
Financial Objectives and Performance Measures
At the beginning of each year, financial objectives will be established for each
business unit, subject to the approval of the Chief Executive Officer, and
communicated to participants. The financial objectives will specify three levels
of achievement:
1. A Target performance that represents expected results for the business
unit for the year, i.e. Fiscal Year Plan;
2. A Maximum performance objective that represents outstanding performance
and is substantially greater than the target level; and,
3. A Threshold performance objective that is less than the target and
represents the minimum level of performance for which bonus will be paid.
Financial performance objectives will be measured against the Business Plan
(Budget) approved for the year. If actual financial performance for a business
unit is below 85% of the Business Plan, no award is earned.
Two performance measures will be used to establish business unit financial
performance objectives as compared to the approved Business Plan:
<PAGE>
The performance weightings are shown below:
<TABLE>
<CAPTION>
Performance Factor Weightings
Business Business
Position Corporate Segment Unit Individual
<S> <C> <C> <C> <C>
Corp. Staff 80% 20%
Bus. Segment Staff 40% 40% 20%
Unit President/
General Manager 20% 20% 40% 20%
Other Unit Staff 20% 50% 30%
</TABLE>
For example, 80% of the award for participants with Corporate responsibilities
will be based on achievement of Corporate financial performance objectives and
20% of the award will be based on individual performance. For a business unit
President or General Manager, 20% of the award will be based on the achievement
of the Corporate financial performance objectives, 40% on achievement of
business unit financial performance objectives, 20% on Business Segment
financial performance objectives, and 20% on individual performance objectives.
Weightings may be adjusted by the Chief Executive Officer at the beginning of
the year. Any change in the performance factor will be communicated promptly to
participants.
<PAGE>
Financial Performance Objectives
The performance scale shown below identifies threshold, target and maximum
financial performance objectives that will apply to business unit (Corporate,
Business Segment and Business Unit) financial performance. The performance scale
also identifies the corresponding award payout levels, expressed as a percentage
of the target awards assigned to participants with business unit (Corporate,
Business Segment, and Business unit) responsibilities.
<TABLE>
<CAPTION>
Financial Performance Objectives
Percent of Award
Business Plan Payout
Performance Level Achieved Percentage
<S> <C> <C>
Maximum 200% 200%
150% 150%
Target 100% 100%
Threshold 85% 70%
Below Minimum Less than 85% 0%
</TABLE>
If actual results fall in between the Performance Levels specifically identified
on the scale, straight-line interpolation will be used to determine the
corresponding Award Payout Percentage. As the performance scale indicates, for
each 1% over the Business Plan for business unit Pre-Tax Income and Cash Flow,
the award Payout Percentage increases by 1%. Conversely, for each 1% decrease
below the Business Plan, the Award Payout Percentage decreases by 2%.
<PAGE>
At the end of the year, actual Pre-tax Income and Cash Flow of each business
unit will be compared to the performance objectives scale. Comparisons will be
made in local currency. The Award Payout Percentage will be determined
separately for each of these two performance measures. Each Award Payout
Percentage will be multiplied by the assigned weighting (70% weighting for Pre-
tax Income and 30% weighting for Cash Flow) with the result added together to
develop an overall Award Payout Percentage for the business unit.
When determining the overall Award Payout Percentage for a business unit, the
maximum Award Payout Percentage applied to a single performance measure is 200%.
If actual results on a single measure are less than 85% of Plan, zero credit
will be applied towards the overall Award Payout Percentage. If the overall
Award Payout Percentage for a business unit is less than 70%, no bonus payments
will be made to any participants in the business unit.
The Company reserves the right to adjust the business unit performance scales in
the beginning of each year on a case by case basis to reflect special
situations. Participants affected by any such adjustments will be notified
promptly. The Company reserves the right to change the performance scales in
future years.
Award Determination and Payment
The Chief Financial Officer will determine Award Payout Percentages for each
business unit within 15 days after final financial results are known for the
year. Award Payout Percentages will be communicated to each business unit
President or General Manager who will develop award recommendations for
<PAGE>
each participant in the business unit based on the Award Payout Percentage and
individual performance ratings.
Individual performance ratings of participants may range from 0% to 200%.
The following guidelines should be used to establish individual ratings:
<TABLE>
<S> <C> <C>
Outstanding 150% to 200% Substantially exceeds all goals
Above Expectations 120% to 150% Substantially exceeds most
goals; meets all goals
Meets Expectations 80% to 120% Meets essentially all goals
in a fully satisfactory manner
Below Expectations 40% to 80% Does not meet majority of
goals in a satisfactory manner
Unsatisfactory 0% to 40% Substantially fails to achieve
individual goals
</TABLE>
Award recommendations for business unit participants are to be submitted to the
Chief Financial Officer, via the Business Segment Office. Award recommendations
for Corporate and Business Segment participants are to be submitted to the Chief
Financial Officer. The Chief Financial Officer will summarize all
recommendations and submit the recommendations to the Chief Executive Officer
for approval. Cash payments will be made as soon as is practical after financial
results for the year have been established. Payments will be reduced by all
withholding amounts required by federal, state or other taxing authorities.
<PAGE>
Pre-Tax Income 70%
Operating Cash Flow 30%
---
Financial Performance 100%
----
Individual Performance
Each participant will establish individual goals that contribute to the
achievement of the business unit's financial objectives. Individual goals are to
be submitted in writing for approval, as described below, by October 15 of each
year.
a) Individual goals prepared by Business Segments Presidents will be approved
by the Chief Executive Officer.
b) Individual goals prepared by business unit Presidents or Executive Vice
Presidents and General Managers and business segment participants will be
approved by the Business Segment President.
c) Individual goals of other business unit participants will be approved by
the business unit President or Executive Vice President and General
Manager.
d) Individual goals of Corporate participants will be approved by the Chief
Executive Officer or his designee.
Note: All individual objectives are to be specific and measurable.
<PAGE>
Examples
Here are several examples of how the Plan will work in any business unit:
Example 1
Assume a business unit has budgeted Pre-tax income of $2,000,000 and Cash Flow
of $2,600,000. Actual results for the year indicate Pre-tax income of $3,000,000
and Cash Flow of $3,250,000. The Award Payout Percentage for the business unit
is calculated as follows:
Actual PTI/Budgeted PTI $3,000,000/$2,000,000 = 150% x 70% = 105%
Actual CF/Budgeted CF $3,250,000/$2,600,000 = 125% x 30% = 37.5%
----
Business Unit Award Payout Percentage = 142.5%
Since actual results are greater than 100% of budget, actual/budget equals the
Award Payout Percentage, no interpolation is required.
The business unit Award Payout Percentage will be used to determine 40% of the
business unit President's bonus. Corporate and Business Segment financial
performance and individual performance will each count for 20%. In this example,
assume that Business Segment and Corporate performance and individual
performance are each rated at 100%.
Operating Unit President
Salary $120,000
Target Award 30% or $36,000
<PAGE>
<TABLE>
<CAPTION>
Percent of
Award Target
Performance Factor Payout Award
Weightings x Percentage = Earned
<S> <C> <C> <C>
Corporate 20% 100% 20%
Business Segment 20% 100% 20%
Business Unit 40% 142.5% 57%
Individual 20% 100% 20%
----
Total 117%
</TABLE>
The business unit President will receive a bonus of $42,120 (117% of the target
award).
Bonus awards to unit VP's will depend on business segment, business unit and
individual performance. Assume a unit VP earns a salary of $70,000. The bonus
award to the unit VP who fully meets his/her individual goals will equal $16,982
(121.3% of the target award).
Unit VP
Salary $70,000
Target Award 20% or $14,000
<TABLE>
<CAPTION>
Percent of
Award Target
Performance Factor Payout Award
Weightings x Percentage = Earned
<S> <C> <C> <C>
Bus Segment 20% 100% 20%
Business Unit 50% 142.5% 71.3%
Individual 30% 100% 30%
-----
Total 121.3%
</TABLE>
<PAGE>
However, since the Award Payout Percentage for the individual component can vary
from 0% to 200%, the bonuses will normally vary. In this example, the Total
Award Payout Percentage could range from a minimum of 91.3% to a maximum of
151.3% of the target award. Actual bonuses could range from $12,782 to $21,182
depending on individual achievement.
Example 2
Assume again that a business unit budgeted Pre-tax Income of $2,000,000 and Cash
Flow of $2,600,000. Actual results for the year indicate Pre-tax Income of
$1,800,000 and Cash Flow of $2,340,000. The Award Payout for the business unit
is calculated as follows:
<TABLE>
<S> <C>
Actual PTI/Budgeted PTI $1,800,000/$2,000,000 = 90%
PTI Award Payout Percentage = 80% x 70% = 56%
Actual CF/Budgeted CF $2,340,000/$2,600,000 = 90%
CF Award Payout Percentage = 80% x 30% = 24%
--
Business Unit Award Payout Percentage 80%
</TABLE>
Since actual results on both performance measures is less than 100% of Budget,
interpolation using the 1:2 factor, explained in the Performance Factor
Weightings section above, is used to determine the Award Payout Percentage. For
example, Since PTI is 10% below budget, the Award Payout Percentage is reduced
by 20% points and equals 80%.
<PAGE>
The business unit Award Payout Percentage will be used to determine 40% of the
business unit President's bonus. Corporate, Business Segment financial
performance and Individual performance will each account for 20%. In this
example, assume that both Business Segment and Individual performance are rated
at 100%.
Business Unit President
Salary $120,000
Target Award 30% or $36,000
<TABLE>
<CAPTION>
Percent of
Award Target
Performance Factor Payout Award
Weightings x Percentage = Earned
<S> <C> <C> <C>
Corporate 20% 100% 20%
Bus Segment 20% 100% 20%
Business Unit 40% 80% 32%
Individual 20% 100% 20%
--
Total 92%
</TABLE>
The business unit President will receive a bonus of $33,205 (92% of the Target
Award).
Bonus awards to other unit staff will depend on business unit and individual
performance. Assume a unit VP earns a salary of $70,000. The bonus award to the
unit VP who fully meets his individual goals will equal $12,600 (90% of the
Target Award).
<PAGE>
Unit VP
Salary $70,000
Target Award 20% or $14,000
<TABLE>
<CAPTION>
Percent of
Award Target
Performance Factor Payout Award
Weightings x Percentage = Earned
<S> <C> <C> <C>
Bus Segment 20% 100% 20%
Business Unit 50% 80% 40%
Individual 30% 100% 30%
----
Total 90%
</TABLE>
However, since the Award Payout Percentage for the Individual component can vary
from 0% to 200%, the bonuses will normally vary. In this example, the Total
Award Payout Percentage could range from a minimum of 60% to a maximum of 120%
of the Target Award. Actual bonuses could range from $8,400 for an individual
who achieves none of his/her individual goals to $16,800 for an individual who
makes an outstanding contribution.
Example 3
Assume again that a business unit has budgeted Pre-tax Income of $2,000,000 and
Cash Flow of $2,600,000. Actual results for the year indicate Pre-tax Income of
$1,600,000 and Cash Flow of $2,300,000. The Award Payout Percentage is
calculated as follows:
<PAGE>
Actual PTI/Budgeted PTI $1,600,000/$2,000,000 = 80% = 0%
Actual CF/Budgeted CF $2,300,000/$2,600,000 = 88.5
Cash Flow Award Payout Percentage 77.0% x 30% = 23.1%
----
Business Unit Award Payout Percentage = 23.1%
Since 80% is below the threshold level of performance set for Pre-tax Income
(85% of the Budget), the business unit receives no Pretax credit. Since the
overall Award Payout Percentage is below the 70% threshold, no bonus payments
are made to the business unit President or his staff.
Example 4
Assume again that a business unit has budgeted Pre-tax Income of $2,000,000 and
Cash Flow of $2,600,000. Actual results for the year indicate Pre-tax Income of
$3,800,000 and Cash Flow of $5,450,000. The Award Payout Percentage for the
business unit is calculated as follows:
Actual PTi/Budgeted PTI $3,800,000/$2,000,000 = 190% x 70% = 133%
Actual CF/Budgeted CF $5,450,000/$2,600,000 = 210%
200% x 30% = 60%
---
Business Unit Award Payout Percentage 193%
Since the maximum Award Payout Percentage is 200%, 200% rather 210% is used to
calculate the Award Payout Percentage for Cash Flow.
The business unit Award Payout Percentage will be used to determine 40% of the
business unit President's bonus. Corporate and Business Segment financial
performance and Individual
<PAGE>
performance will each count for 20%. In this example, assume that both Business
Segment performance and Individual performance are rated at 100%.
Business Unit President
Salary $120,000
Target Award 30% or $36,000
<TABLE>
<CAPTION>
Percent of
Award Target
Performance Factor Payout Award
Weightings x Percentage = Earned
<S> <C> <C> <C>
Corporate 20% 100% 20%
Bus Segment 20% 100% 20%
Business Unit 40% 193% 77.2%
Individual 20% 100% 20%
----
Total 137.2%
</TABLE>
The business unit President will receive a bonus of $49,392 (137.2% of the
Target Award).
Bonus awards to unit VP's will depend on business unit and individual
performance. Assume a unit VP earns a salary of $70,000. The bonus award to the
unit VP who fully meets his/her individual goals will equal $20,510 (146.5% of
the Target Award).
<PAGE>
Unit VP
<TABLE>
<CAPTION>
Percent of
Award Target
Performance Factor Payout Award
Weightings x Percentage = Earned
<S> <C> <C> <C>
Bus Segment 20% 100% 20%
Business Unit 50% 193% 96.5%
Individual 30% 100% 30%
----
Total 146.5%
</TABLE>
However, since the Award Payout Percentage for the Individual component can vary
from 0% to 200%, the bonuses will normally vary. In this example, the Total
Award Payout Percentage could range from a minimum of 116.5% to a maximum of
176.5% of the Target Award. Actual Bonuses could range from $16,310 to $
24,710.
General
Nothing contained in this Plan nor participation in or any action taken under
the Plan shall be construed or deemed an employment contract or give any
employee any right to be retained as an employee or guarantee of employment. In
addition, nothing contained in this Plan nor any action taken hereunder shall be
construed, deemed or implied to be a contract or agreement that any award
granted in one year will be granted in a subsequent year.
<PAGE>
Although the Company intends to continue the HMII Management Incentive Plan, the
Company reserves the right to amend or discontinue the Plan at any time for any
reason or no reason..
The Chief Executive Officer is responsible for the administration of the Plan
and shall interpret and administer the Plan and any rules and regulations
relating to it. The Chief Executive Officer may delegate the authority to
administer the Plan in whole or in part. However, any changes to the size of the
awards provided under the Plan or business unit financial performance objectives
require the approval of the Chief Executive Officer.
<PAGE>
EXHIBIT B TO THE SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
dated April 15, 1998
between
HOSOKAWA MICRON INTERNATIONAL INC. ("Company") and
Gordon E. Ettie
("Executive")
1. Pensions, Retirement, Savings-type Plans
Hosokawa Micron Investment Retirement Plan (401k)
General
The Plan is a defined contribution plan of the Company, subject to US
governmental rules, regulations and restrictions.
Contributions and Vesting
The Executive may contribute up to 16% of annual compensation subject to
annual governmental limits which, for 1998, is $10,000, and may invest in
any one or a combination of 10 mutual funds. The Executive is immediately
vested in his contributions and the earnings thereon.
The Company contributes an amount equal to 100% of the first 3% of total
pay contributed by the Executive. In addition, the Company contributes an
amount equal to 2% of the Executive's total pay for each plan year,
provided that the Executive was employed on the last day of that plan
year. The 2% Company contribution is made regardless of whether or not the
Executive contributes to the Plan. Total pay for which the Company can
make the 2% contribution and on which the Company can match contributions
is limited by governmental rules which, for 1998, limits contributions to
the first $160,000 of total compensation. Benefits from Company
contributions made under the Plan vest at 40% after two years of vesting
service, and 20% per year thereafter, and are fully vested after an
Executive completes five years of vesting service.
Participant Accounts
Individual account balances are maintained for each participant whereby
contributions are allocated to any one or combination of 10 funds.
Participants may change their investment allocations on a daily basis.
Contributions are credited to participant accounts at the current market
value within each fund allocation on a daily basis.
2. Welfare-type Plans
Business Travel Accident
Company-paid coverage provides insurance for loss of life or catastrophic
disability resulting while traveling on Company business. The coverage
equals five times Base Salary up to a maximum of $500,000.
<PAGE>
EXHIBIT C TO THE SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
dated April 15, 1998
between
HOSOKAWA MICRON INTERNATIONAL INC. ("Company") and
Gordon E. Ettie
("Executive")
Executive Life Insurance
Life insurance benefit equal to 2-1/2 times Base Salary to a maximum of
$300,000.
<PAGE>
EXHIBIT D TO THE SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
dated April 15, 1998
between
HOSOKAWA MICRON INTERNATIONAL INC. ("Company") and
Gordon E. Ettie
("Executive")
Salary Continuation and Long-Term Disability
Company-paid salary continuation for the first 90 days of a medical disability
absence due to sickness or accident. After 90 days, Executive must have elected
Optional Long-Term Disability Insurance which is paid for in total by the
Executive. Under this Company-sponsored program, the Executive will receive
monthly benefits equal to 60% of Base Salary to a maximum of $10,000 per month
for the period of eligible disability, as defined under terms of the plan
document. The premiums for this coverage are adjusted after negotiation with the
insurance carrier and is currently $.54 per $100 of Base Salary.
<PAGE>
EXHIBIT E TO THE SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
dated April 15, 1998
between
HOSOKAWA MICRON INTERNATIONAL INC. ("Company") and
Gordon E. Ettie
("Executive")
Medical Insurance
Comprehensive Medical Plan for Executives and eligible dependents (spouse and
children to the age of 18 or age of 23, if a full-time student in an accredited
school). Executive must satisfy a deductible of $250 for Executive and each
dependent or a maximum overall deductible of $500 per year. After deductibles
are satisfied, the Plan pays 100% of all eligible medical expenses thereafter
except for certain employee co-payments noted below.
Physician services are paid as follows: Inpatient, 100% after deductible; office
visits, 100% after $15 employee co-pay with no deductible. Preventive Care
Services are paid 100% after $15 employee co-pay up to $500/yr. with no
deductible.
Prescription drugs are paid as follows: 100% after $15 employee co-pay,
non-generic pharmaceuticals; $10 employee co-pay, generic and $10 employee
co-pay, mail order.
Pre-certification before all hospitalization is required in order to obtain
maximum benefits, otherwise reduced benefits will be paid.
Premiums for this coverage are paid 80% by the Company and 20% by the Executive.
Dental Insurance
The Dental Plan for Executive and their eligible dependents as defined above.
The Dental Plan provides scheduled reimbursements for covered services such as
preventive treatment, basic and major services. A deductible of $50 per
individual (maximum 3 per family) must be satisfied each year. No deductible is
required for preventive services.
For any calendar year, the Plan pays up to $1,000 maximum for covered expenses
incurred by a covered person after the deductible. Orthodontic services are
covered only for dependent children and are reimbursed at 50% of eligible
charges up to a lifetime maximum of $1,500 per dependent child.
Premiums for this coverage are paid 80% by the Company and 20% by the Executive.
<PAGE>
EXHIBIT F TO THE SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
dated April 15, 1998
between
HOSOKAWA MICRON INTERNATIONAL INC. ("Company") and
Gordon E. Ettie
("Executive")
-- None -
SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
AGREEMENT made as of the 15th day of April, 1998, by and between HOSOKAWA MICRON
INTERNATIONAL INC., a Delaware corporation with its corporate offices at 780
Third Avenue, New York, New York 10017 (hereinafter called the "Company"), and
Simon H. Baker, residing at 49 Ethelridge Road, White Plains, New York 10605
(hereinafter called the "Executive").
WITNESSETH:
WHEREAS, the Executive has served the Company as its Vice President Taxes and
General Counsel and Secretary;
WHEREAS, the Company desires to continue to employ the Executive in such
capacity and the Executive is willing to continue to serve the Company in such
capacity;
WHEREAS, the Company and the Executive desire to set forth the terms and
conditions of such employment.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants
and agreements herein contained, the Company and the Executive agree as follows:
1. Employment. The Company hereby agrees to continue to employ the Executive,
and the Executive agrees to be employed by the Company, on the terms and
conditions herein contained.
2. Term. Except as otherwise provided in this Agreement, the Executive shall
be employed under this Agreement for an initial four-year term commencing
on the date hereof. The period during which the Executive is employed
hereunder is referred to as the "Employment Term." The Employment Term
shall be automatically renewed for successive two-year terms unless the
Company shall give the Executive written notice of non-renewal at least six
months prior to the end of the then current term. The Executive may, at any
time, terminate the Employment Term by giving the Company 120 days prior
written notice of the effective date of such termination. Upon the
effective date of a termination of the Employment Term per the preceding
sentence, the Company shall have no obligation to the Executive hereunder
other than to pay or provide the Entitlements.
3. Duties. The Executive shall serve as the Company's Vice President Taxes and
General Counsel and Secretary, and as such, will serve as the chief
in-house legal advisor and counsel to the Company and counsel and advise
management on the
Page 1 of 8
<PAGE>
legal and tax implications of Company activities and on plans and proposed
activities, coordinate all legal work at the Company and its divisions and
subsidiaries, and supervise the tax compliance and planning functions and also
undertake all activities required or deemed customary for a corporate secretary.
The Executive shall perform his duties hereunder at the Company's facilities
located at 780 Third Avenue, New York, NY USA (the "Employment Site") and shall
be available to travel, as may be required in connection with the performance of
his duties hereunder. In no event will the Executive be required to undertake
any duties or perform any tasks which are inconsistent with his status in the
Company. During the Employment Term, the Executive shall devote substantially
all of his business time, attention, skill and efforts to the performance of his
duties hereunder; provided, however, that the Executive may serve as director of
other corporations, if such service does not conflict in any material respect
with his duties hereunder or his fiduciary duty to the Company, and provided the
Executive has prior written approval from the Company. Nothing herein shall
prevent the Executive from managing his personal investments and participating
in charitable and civic endeavors, so long as such activities do not materially
interfere with the Executive's performance of his duties hereunder.
4. Base Salary. During the Employment Term, the Company shall pay the
Executive, in accordance with its normal payroll practices and subject to
required withholding, a base salary which, shall be at the annual rate of
$205,000. The base salary may be increased annually, commencing on October
1, 1998, by an amount to be determined by the Company, in its sole
discretion. Once increased, the base salary hereunder may not be decreased.
The base salary, as increased from time to time, is hereinafter referred to
as the "Base Salary."
5. Incentive Compensation. During the Employment Term, the Executive shall be
entitled to incentive compensation ("Incentive Compensation") pursuant to
the terms of the Company's incentive compensation plan, a copy of which is
attached hereto as Exhibit A and any other annual programs or plans
hereafter adopted by the Company.
6. Certain Other Compensation and Benefits. During the Employment Term, the
Executive shall be entitled to:
(a) participation in all benefit, pension, retirement, savings, welfare
and other employee benefit plans and policies in which members of the
Company's senior management generally are entitled to participate
(collectively, the "Benefit Plans"), in accordance with their
respective terms as in effect from time to time and as listed in
Exhibit B.
(b) vacation each year in accordance with the Company's policies for
members of senior management in effect from time to time, but in no
event less than twenty days paid vacation for each calendar year
(twenty-five days after fifteen years of
Page 2 of 8
<PAGE>
employment with the Company and/or any of its Affiliates) (for
purposes of this Agreement, the term "Affiliate" means an entity
controlled by, in control of, or under common control with, the
Company);
(c) use of an automobile and the costs of fuel, maintenance, repairs and
insurance associated with such automobile pursuant to the terms of the
Company's policy concerning senior executives' automobiles, as such
policy is in effect from time to time, and in the absence of any such
policy, as such policy was last in effect.
(d) life insurance, in addition to any provided to employees of the
Company generally, on the life of the Executive for the benefit of the
Executive's designated beneficiaries as detailed in Exhibit C.
(e) long-term disability coverage for the Executive under the plan or
policy per Exhibit D.
(f) medical and dental insurance for the Executive, his spouse, and his
dependents as detailed in Exhibit E.
(g) such other benefits as the Executive is currently provided and noted
in Exhibit F.
7. Death Prior to Termination of Employment. If the Executive shall die during
the Employment Term, the Company shall have no liability or further
obligation except as follows:
(a) The Company shall pay the Executive's estate, when otherwise due, any
unpaid Base Salary for the period prior to the Executive's death, any
declared or awarded but unpaid Incentive Compensation and any other
unpaid amounts due the Executive under any other Benefit Plans
(collectively, the "Entitlements").
(b) The Executive's estate shall have such rights, if any, under employee
benefit, fringe benefit or incentive plans as may be provided in such
plans and any grants thereunder in accordance with their respective
terms.
8. Common Stock Ownership. No later than five (5) years after the date the
Company's Common Stock is listed on a United States stock exchange and at
all times thereafter during the Executive's employment by the Company, the
Executive must own, directly or beneficially, 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 may be established by the Board of Directors of the
Company, provided, however, that in no event shall the Executive be
required to own Common Stock having a value equal to more than three (3)
times his Base Salary. To the extent permitted under applicable law and
subject to agreement
Page 3 of 8
<PAGE>
between the Executive and the Company, the Company may assist the Executive
in obtaining financing to effectuate the purchases of Common Stock
necessary to meet the requirements of this section which may include
Company guarantees and adjustment of incentive and bonus programs to
provide that up to fifty percent (50%) of any awards may be paid in Common
Stock to an Executive who does not meet the requirements of this section.
9. Disability. If the Executive shall be physically or mentally incapable of
performing his material duties as provided in Section 3 of this Agreement
during a period of not less than one hundred eighty (180) consecutive days,
the Company may, at its election at any time thereafter while the Executive
remains incapable of performing his material duties hereunder, terminate
the Executive's employment hereunder, effective immediately, by giving the
Executive written notice of such termination. In such event, the Company
shall have no other obligation to the Executive or his dependents hereunder
other than the obligation to pay or provide the Entitlements.
10. Cause. The Company may terminate the Executive's employment hereunder for
Cause by giving the Executive written notice of immediate termination. For
purposes of this Agreement, "Cause" shall mean (a) the Executive's
dishonesty, misappropriation, willful breach of fiduciary duty or fraud
with regard to the Company or any of its assets or businesses which has a
material adverse effect on the Company; (b) the Executive's conviction of
or pleading of nolo contendere with regard to a felony (other than traffic
violations) or any other crime involving moral turpitude; or (c) any other
breach by the Executive of a material provision of this Agreement that
remains uncured for thirty (30) days after written notice thereof is given
to the Executive. If the Executive's employment hereunder is terminated by
the Company for Cause, the Company shall have no other obligation to the
Executive hereunder other than the obligation to pay or provide the
Entitlements.
11. Good Reason. The Executive may terminate his employment hereunder for Good
Reason provided that there has first occurred a Change in Control of the
Company as defined in Section 9.2 of the Company's 1997 Stock Option Plan
and provided that the Executive provides written notice to the Company. For
purposes of this Agreement, "Good Reason" shall mean the occurrence or
failure to cause the occurrence of any of the following events without the
Executives express prior written consent after a Change in Control: (a) any
material demotion of the Executive, any material reduction of the
Executive's authority or responsibility or any other change in the terms of
the Executive's authority or responsibility or any other change in the
terms of the Executive's employment which is inconsistent with Section 3
hereof; (b) the Company requiring the Executive to perform services
hereunder at any location outside a 60-mile radius from the Employment Site
or the Company requiring the Executive to work in an office of
substantially inferior characteristics or without the personnel assistance
and support currently provided the Executive; or (c) any breach
Page 4 of 8
<PAGE>
by the Company of any provision of this Agreement which is not cured by the
Company within 30 days after notice thereof from the Executive. If the
Executive's employment hereunder is terminated by the Executive without
Good Reason, the Company shall have no other obligation to the Executive
hereunder other than the obligation to pay or provide the Entitlements.
12. Termination of Employment by the Executive for Good Reason after a Change
in Control or by the Company Without Cause: Non-renewal of Agreement. In
the event; (i) the Executive terminates his employment for Good Reason
pursuant to Section 11 hereof; or, (ii) the Company terminates the
Executive's employment other than for Cause or due to a disability pursuant
to Section 9 hereof; or, (iii) the Executive's employment hereunder
terminates due to the non-renewal hereof following notice of such
non-renewal given by the Company, then, in any such event, the Company
shall be deemed to have breached this Agreement, and the Executive shall be
entitled to the following:
(a) in a lump sum (to the extent such obligations are capable of being
paid in a lump sum under the terms of the plan with respect to which
such obligation arose) in cash within thirty business days after the
date of termination, and, otherwise, in accordance with the terms of
the applicable plan or applicable law, any and all Entitlements as of
the date of termination of employment; and
(b) as severance pay, within thirty business days after the date of
termination, a lump sum in an amount equal to the greater of (A) the
Executive's Ending Compensation, hereinafter defined, multiplied by
the number of years (including any fraction of a year) in the period
from the date of termination of employment to the date the Employment
Term would have otherwise expired pursuant to Section 2 hereof (the
"Remaining Term"); or (B) the Executive's Ending Compensation
multiplied by two. For purposes of this Agreement, the Executive's
Ending Compensation means the sum of (A) one year's Base Salary at the
annual rate in effect immediately prior to such termination of
employment; and (B) the average of the Incentive Compensation paid or
payable to the Executive in respect of the three full years preceding
the date of termination of employment.
13. Non-Competition: Confidential Information.
(a) The Executive agrees that, if he terminates his employment hereunder
other than for Good Reason pursuant to Section 11 hereof, or if his
employment hereunder is terminated for Cause, he will not for a period
of two years after such termination of employment with the Company, in
any manner, directly or indirectly (or have a substantial ownership
in, manage, operate, or control any entity which shall directly or
indirectly) (i) perform, or cause to be performed, or solicit or aid,
Page 5 of 8
<PAGE>
in any manner, solicitation of, any work of a type performed by the
Company for any firm, corporation, or other entity ("Customer") with
which, at any time during the twelve (12) month period prior to
termination of the Employment Term, the Company or any subsidiary
conducted any business; or (ii) induce any personnel to leave the
service of the Company or of any subsidiary of the Company. Within two
weeks of a written request of the Executive following termination of
the Employment Term, the Company shall deliver to the Executive a list
of Customers and the Executive shall within two weeks after such
delivery on reasonable prior notice have the right during normal
business hours to examine such books and records of the Company as
shall be reasonably necessary to confirm that only the names of
Customers are set forth on the list.
(b) The Executive shall hold in a fiduciary capacity for the benefit of
the Company all secret or confidential information, knowledge or data
relating to the Company and its subsidiaries, and their respective
businesses, (i) obtained by the Executive during his employment by the
Company or any of its subsidiaries; and (ii) not otherwise public
knowledge or known within the Company's industry. After termination of
the Executive's employment with the Company, the Executive shall not,
without prior written consent of the Company, unless compelled
pursuant to a court order, communicate or divulge any such
information, knowledge or data to anyone other than the Company and
those designated by it.
(c) After termination of the Executive's employment with the Company, the
Executive shall refrain from disparaging, whether orally, in writing
or in other media, the Company, its subsidiaries and Affiliates, the
officers, directors and employees of each of them, and the products
and services of each of them.
(d) The Executive agrees that the remedy at law for any breach by him of
the foregoing shall be inadequate and that the Company shall be
entitled to injunctive relief. This Section constitutes an independent
and separable covenant that shall be enforceable notwithstanding any
right or remedy that the Company may have under any other provision of
this Agreement or otherwise.
14. No Mitigation; No Set-Off. The Company agrees that if the Executive's
employment with the Company is terminated for any reason whatsoever, the
Executive is not required to seek other employment or to attempt in any way
to reduce any amounts payable to the Executive by the Company pursuant to
this Agreement. Further, the amount of any payment or benefit provided for
in this Agreement shall not be reduced by any compensation earned by the
Executive or benefit provided to the Executive as the result of employment
by another employer or otherwise. Notwithstanding anything to the contrary
contained herein, the Company's obligation, if any, following termination
of the Executive's employment hereunder, to provide any ongoing benefits of
a type provided for in Sections 6(a), (d), (f), and (g) hereof, shall be
excused for so
Page 6 of 8
<PAGE>
long as, and to the extent that, such benefits are provided by a subsequent
employer of the Executive.
15. Garnishment. The benefits payable under this Agreement shall not be subject
to garnishment, execution or levy of any kind, and any attempt to cause any
benefits to be so subjected shall not be recognized.
16. Notice. Any notice or other communication required or permitted hereunder
shall be in writing and shall be delivered personally, or sent by certified
mail, return receipt requested, by overnight delivery or courier service,
or by telecopy. Notice to the Executive shall be delivered to his address
set forth at the beginning of this Agreement, and notice to the Company
shall be sent to the address set forth at the beginning of the Agreement to
the Attention: General Counsel
Any notice given by certified mail shall be deemed given five days after
the time of certification thereof. Any notice given by other means
permitted by this Section 16 will be deemed given at the time of receipt
thereof.
Either party may, by notice given in accordance with this Section 18 to the
other party, designate another address or person for receipt of notices
hereunder.
17. Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without
reference to its conflicts of law provisions.
18. Binding Agreement. Notwithstanding anything herein to the contrary, this
Agreement may not be assigned by the Company without the prior written
consent of the Executive. This Agreement shall inure to the benefit of and
be enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. This Agreement is personal to the Executive and neither this
Agreement nor any rights hereunder may be assigned by the Executive.
19. Miscellaneous. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and such officer of the Company as may
be specifically designated. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition
or provision shall be deemed a waiver of similar or dissimilar provisions
or conditions at the same or at any prior or subsequent time. This
Agreement constitutes the entire Agreement between the parties hereto
pertaining to the subject matter hereof. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject
Page 7 of 8
<PAGE>
matter hereof have been made by either party which are not expressly set
forth in this Agreement.
20. Counterparts. This Agreement may be executed in several counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
21. Separability. If any provisions of this Agreement shall be declared to be
invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provision hereof which
shall remain in full force and effect.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed
and the Executive has hereunto set his hand as of the date first set forth
above.
HOSOKAWA MICRON INTERNATIONAL INC.
By: /s/ Isao Sato
----------------------------------------
Name: Isao Sato
Title: President C.E.O.
SIMON H. BAKER
/s/ Simon H. Baker
----------------------------------------
Name: Simon H. Baker
Page 8 of 8
<PAGE>
EXHIBIT A TO THE SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
dated April 15, 1998
between
HOSOKAWA MICRON INTERNATIONAL INC. ("Company") and
Simon H. Baker
("Executive")
Hosokawa Micron International Inc.
Management Incentive Plan
Objectives
The purpose of a Management Incentive Plan (the "Plan") is to provide cash
rewards to key employees who contribute to the achievement of corporate-wide
goals established for the company overall and its business units.
Eligibility
Individuals with Corporate or Business Segment responsibilities at the Vice
President level and above are eligible for participation in the Plan. In
addition, the President or Executive Vice President and General Manager of each
Operating Unit and salaried employees, at the Director level and above,
reporting directly to the President or Executive Vice President and General
Manager of each Operating Unit are eligible to be nominated for participation.
Participation below this level may be provided for on an exception basis. All
participants participation requires the annual approval of the Chief Executive
Officer.
Note: Participation in this Management Incentive Plan is restricted to those
Units that have a planned (budgeted) Pretax income which exceeds US $500,000.
Awards to individuals hired or promoted into eligible positions during the
year will be determined on a pro rata basis. Individuals hired or promoted on
or after July 1 will not be eligible for an award for that year.
<PAGE>
Awards
Each participant will be assigned a target award, expressed as a percentage of
base salary in effect at the beginning of the year. The target award will be
paid if business unit financial performance objectives at the target level
(e.g., 100% of Business Plan) and individual goals are achieved in full. If
financial performance objectives and individual goals are exceeded, awards will
increase up to pre-established maximum amounts. Target and maximum incentive
awards are shown below:
<TABLE>
<CAPTION>
Position Target Award Maximum Award
<S> <C> <C>
Corporate SVP's/Business 40% 80%
Segment Presidents and above
Corporate/Business Segment 30% 60%
VP's/BU President or GM
Unit VP or Directors 20% 40%
</TABLE>
Each business unit will establish an accrual equal to the sum of the Target
Awards of approved participants. The accrual is to be adjusted periodically
during the year based on the business unit's financial results. All financial
results (e.g., Pre-Tax Income and Cash Flow) will be measured after the full
cost of incentive awards are accrued.
Performance Weightings
As described, awards will be based on a combination of business unit financial
performance and individual performance. The performance factor weightings used
will vary by position to reflect each participants responsibilities and impact.
<PAGE>
If a participant's employment terminates for any reason other than death,
disability or retirement, before the end of the fiscal year, no award will be
made. If a participant's employment terminates because of death, disability or
retirement during the fiscal year, a pro rata award will be made.
Financial Objectives and Performance Measures
At the beginning of each year, financial objectives will be established for each
business unit, subject to the approval of the Chief Executive Officer, and
communicated to participants. The financial objectives will specify three levels
of achievement:
1. A Target performance that represents expected results for the business unit
for the year, i.e. Fiscal Year Plan;
2. A Maximum performance objective that represents outstanding performance and
is substantially greater than the target level; and,
3. A Threshold performance objective that is less than the target and
represents the minimum level of performance for which bonus will be paid.
Financial performance objectives will be measured against the Business Plan
(Budget) approved for the year. If actual financial performance for a business
unit is below 85% of the Business Plan, no award is earned.
Two performance measures will be used to establish business unit financial
performance objectives as compared to the approved Business Plan:
<PAGE>
The performance weightings are shown below:
<TABLE>
<CAPTION>
Performance Factor Weightings
Business Business
Position Corporate Segment Unit Individual
<S> <C> <C> <C> <C>
Corp. Staff 80% 20%
Bus. Segment 40% 40% 20%
Staff
Unit President/
General Manager 20% 20% 40% 20%
Other Unit Staff 20% 50% 30%
</TABLE>
For example, 80% of the award for participants with Corporate responsibilities
will be based on achievement of Corporate financial performance objectives and
20% of the award will be based on individual performance. For a business unit
President or General Manager, 20% of the award will be based on the achievement
of the Corporate financial performance objectives, 40% on achievement of
business unit financial performance objectives, 20% on Business Segment
financial performance objectives, and 20% on individual performance objectives.
Weightings may be adjusted by the Chief Executive Officer at the beginning of
the year. Any change in the performance factor will be communicated promptly to
participants.
<PAGE>
Financial Performance Objectives
The performance scale shown below identifies threshold, target and maximum
financial performance objectives that will apply to business unit (Corporate,
Business Segment and Business Unit) financial performance. The performance
scale also identifies the corresponding award payout levels, expressed as a
percentage of the target awards assigned to participants with business unit
(Corporate, Business Segment, and Business unit) responsibilities.
<TABLE>
<CAPTION>
Financial Performance Objectives
Percent of Award
Business Plan Payout
Performance Level Achieved Percentage
<S> <C> <C>
Maximum 200% 200%
150% 150%
Target 100% 100%
Threshold 85% 70%
Below Minimum Less than 85% 0%
</TABLE>
If actual results fall in between the Performance Levels specifically identified
on the scale, straight-line interpolation will be used to determine the
corresponding Award Payout Percentage. As the performance scale indicates, for
each 1% over the Business Plan for business unit Pre-Tax Income and Cash Flow,
the award Payout Percentage increases by 1%. Conversely, for each 1% decrease
below the Business Plan, the Award Payout Percentage decreases by 2%.
<PAGE>
At the end of the year, actual Pre-tax Income and Cash Flow of each business
unit will be compared to the performance objectives scale. Comparisons will be
made in local currency. The. Award Payout Percentage will be determined
separately for each of these two performance measures. Each Award Payout
Percentage will be multiplied by the assigned weighting (70% weighting for
Pretax Income and 30% weighting for Cash Flow) with the result added together to
develop an overall Award Payout Percentage for the business unit.
When determiniing, the overall Award Payout Percentage for a business unit, the
maximum Award Payout Percentage applied to a single performance measure is 200%.
If actual results on a single measure are less than 85% of Plan, zero credit
will be applied towards the overall Award Payout Percentage. If the overall
Award Payout Percentage for a business unit is less than 70%, no bonus
payments will be made to any participants in the business unit.
The Company reserves the right to adjust the business unit performance scales in
the beginning of each year on a case by case basis to reflect special
situations. Participants affected by any such adjustments will be notified
promptly. The Company reserves the right to change the performance scales in
future years.
Award Determination and Payment
The Chief Financial Officer will determine Award Payout Percentages for each
business unit within 15 days after final financial results are known for the
year. Award Payout Percentages will be communicated to each business unit
President or General Manager who will develop award recommendations for
<PAGE>
<TABLE>
<S> <C>
Pre-Tax Income 70%
Operating Cash Flow 30%
---
Financial Performance 100%
---
</TABLE>
Individual Performance
Each participant will establish individual goals that contribute to the
achievement of the business unit's financial objectives. Individual goals are to
be submitted in writing for approval, as described below, by October 15 of each
year.
a) Individual goals prepared by Business Segments Presidents will be approved
by the Chief Executive Officer.
b) Individual goals prepared by business unit Presidents or Executive Vice
Presidents and General Managers and business segment participants will be
approved by the Business Segment President.
c) Individual goals of other business unit participants will be approved by
the business unit President or Executive Vice President and General
Manager.
d) Individual goals of Corporate participants will be approved by the Chief
Executive Officer or his designee.
Note: All individual objectives are to be specific and measurable.
<PAGE>
each participant in the business unit based on the Award Payout Percentage and
individual performance ratings.
Individual performance ratings of participants may range from 0% to 200%.
The following guidelines should be used to establish individual ratings:
<TABLE>
<S> <C> <C>
Outstanding 150% to 200% Substantially exceeds all goals
Above Expectations 120% to 150% Substantially exceeds most
goals; meets all goals
Meets Expectations 80% to 120% Meets essentially all goals
in a fully satisfactory manner
Below Expectations 40% to 80% Does not meet majority of
goals in a satisfactory
manner
Unsatisfactory 0% to 40% Substantially fails to achieve
individual goals
</TABLE>
Award recommendations for business unit participants are to be submitted to the
Chief Financial Officer, via the Business Segment Office. Award recommendations
for Corporate and Business Segment participants are to be submitted to the
Chief Financial Officer. The Chief Financial Officer will summarize all
recommendations and submit the recommendations to the Chief Executive Officer
for approval. Cash payments will be made as soon as is practical after financial
results for the year have been established. Payments will be reduced by all
withholding amounts required by federal, state or other taxing authorities.
<PAGE>
Examples
Here are several examples of how the Plan will work in an business unit:
Example 1
Assume a business unit has budgeted Pre-tax income of $2,000,000 and Cash Flow
of $2,600,000. Actual results for the year indicate Pre-tax income of
$3,000,000 and Cash Flow of $3,250,000. The Award Payout Percentage for the
business unit is calculated as follows:
<TABLE>
<S> <C>
Actual PTI/Budget PTI $3,000,000/$2,000,000 = 150% x 70% = 105%
Actual CF/Budgeted CF $3,250,000/$2,600,000 = 125% x 30% = 37.5%
----
Business Unit Award Payout Percentage = 142.5%
</TABLE>
Since actual results are greater than 100% of budget, actual/budget equals the
Award Payout Percentage, no interpolation is required.
The business unit Award Payout Percentage will be used to determine 40% of the
business unit President's bonus. Corporate and Business Segment financial
performance and individual performance will each count for 20%. In this example,
assume that Business Segment and Corporate performance and individual
performance are each rated at 100%.
Operating Unit President
<TABLE>
<S> <C>
Salary $120,000
Target Award $30% or $36,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Percentage Factor Payout Award
Weightings X Percentage = Earned
<S> <C> <C> <C>
Corporate 20% 100% 20%
Bus Segment 20% 100% 20%
Business Unit 40% 142.5% 57%
Individual 20% 100% 20%
----
Total 117%
</TABLE>
The business unit President will receive a bonus of $42,120 (117% of the target
award).
Bonus awards to unit VP's will depend on business segment, business unit and
individual performance. Assume a unit VP earns a salary of $70,000. The bonus
award to the unit VP who fully meets his/her individual goals will equal $16,982
(121.3% of the target award).
Unit VP
Salary $70,000
Target Award 20% or $14,000
<TABLE>
<CAPTION>
Percent of
Award Target
Percentage Factor Payout Award
Weightings X Percentage = Earned
<S> <C> <C> <C>
Bus Segment 20% 100% 20%
Business Unit 50% 142.5% 71.3%
</TABLE>
<PAGE>
Individual 30% 100% 30%
---
Total 121.3%
However, since the Award Payout Percentage for the individual component can vary
from 0% to 200%, the bonuses will normally vary. In this example, the Total
Award Payout Percentage could range from a minimum of 91.3% to a maximum of
151.3% of the target award. Actual bonuses could range from $12,782 to $21,182
depending on individual achievement.
EXAMPLE 2
Assume again that a business unit budgeted Pre-tax Income of $2,000,000 and Cash
Flow of $2,600,000. Actual results for the year indicate Pre-tax Income of
$1,800,000 and Cash Flow of $2,340,000. The Award Payout for the business unit
is calculated as follows:
Actual PTI/Budgeted PTI $1,800,000/$2,000,000=90%
PTI Award Payout Percentage=80%x70% = 56%
Actual CF/Budgeted CF $2,340,000/$2,600,000=90%
CF Award Payout Percentage=80%x30% = 24%
---
Business Unit Award Payout Percentage 80%
Since actual results on both performance measures is less than 100% of Budget,
interpolation using the 1:2 factor, explained in the Performance Factor
Weightings section above, is used to determine the Award Payout Percentage. For
example, Since PTI is 10% below budget, the Award Payout Percentage is reduced
by 20% points and equals 80%.
<PAGE>
The business unit Award Payout Percentage will be used to determine 40% of the
business unit President's bonus. Corporate, Business Segment financial
performance and Individual performance will each account for 20%. In this
example, assume that both Business Segment and Individual performance are rated
at 100%.
<TABLE>
Business Unit President
<S> <C>
Salary $120,000
Target Award 30% or $36,000
</TABLE>
<TABLE>
<CAPTION>
Percent of
Award Target
Percentage Factor Payout Award
Weightings X Percentage = Earned
<S> <C> <C> <C>
Corporate 20% 100% 20%
Bus Segment 20% 100% 20%
Business Unit 40% 80% 32%
Individual 20% 100% 20%
--
Total 92%
</TABLE>
The business unit President will receive a bonus of $33,205 (92% of the Target
Award).
Bonus awards to other unit staff will depend on business unit and individual
performance. Assume a unit VP earns a salary of $70,000. THe bonus award to the
unit VP who fully meets his individual goals will equal $12,600 (90% of the
Target Award).
<PAGE>
Unit VP
Salary $70,000
Target Award 20% or $14,000
<TABLE>
<CAPTION>
Percent of
Award Target
Percentage Factor Payout Award
Weightings X Percentage = Earned
<S> <C> <C> <C>
Corporate 20% 100% 20%
Business Unit 50% 80% 40%
Individual 30% 100% 30%
----
Total 90%
</TABLE>
However, since the Award Payout Percentage for the Individual component can vary
from 0% to 200%, the bonuses will normally vary. In this example, the Total
Award Payout Percentage could range from a minimum of 60% to a maximum of 120%
of the Target Award. Actual bonuses could range from $8,400 for an individual
who achieves none of his/her individual goals to $16,800 for an individual who
makes an outstanding contribution.
Example 3
Assume again that a business unit has budgeted Pre-tax Income of $2,000,000 and
Cash Flow of $2,600,000. Actual results for the year indicate Pre-tax Income of
$1,600,000 and Cash Flow of $2,300,000. The Award Payout Percentage is
calculated as follows:
<PAGE>
Actual PTI/Budgeted PTI $1,600,000/$2,000,000=80% = 0%
Actual CF/Budgeted CF $2,300,000/$2,600,000=88.5
Cash Flow Award Payout Percentage=77.0%x30% = 23.1%
----
Business Unit Award Payout Percentage = 23.1%
Since 80% is below the threshold level of performance set for Per- tax Income
(85% of the Budget), the business unit receives no Pre-tax credit. Since the
overall Award Payout Percentage is below the 70% threshold, no bonus payments
are made to the business unit President or his staff.
Example 4
Assume again that a business unit has budgeted Pre-tax Income of $2,000,000 and
Cash Flow of $2,600,000. Actual results for the year indicate Pre-tax Income of
$3,800,000 and Cash Flow of $5,450,000. The Award Payout Percentage for the
business unit is calculated as follows:
Actual PTI/Budgeted PTI $3,800,000/$2,000,000=190%X70%= 133%
Actual CF/Budgeted CF $5,450,000/$2,600,000=210%
200%X30%= 60%
----
Business Unit Award Payout Percentage = 193%
Since the maximum Award Payout Percentage is 200%, 200% rather 210% is used to
calculate the Award Payout Percentage for Cash Flow.
The business unit Award Payout Percentage will be used to determine 40% of the
business unit President's bonus. Corporate and Business Segment financial
performance and Individual
<PAGE>
performance will each count for 20%. In this example, assume that both Business
Segment performance and Individual performance are rated at 100%.
<TABLE>
Business Unit President
<S> <C>
Salary $120,000
Target Award 30% or $36,000
</TABLE>
<TABLE>
<CAPTION>
Percent of
Award Target
Percentage Factor Payout Award
Weightings X Percentage = Earned
<S> <C> <C> <C>
Corporate 20% 100% 20%
Bus Segment 20% 100% 20%
Business Unit 40% 193% 77.2%
Individual 20% 100% 20%
-----
Total 137.2%
</TABLE>
The business unit President will receive a bonus of $49,392 (137.2% of the
Target Award).
Bonus awards to unit VP's will depend on business unit and individual
performance. Assume a unit VP earns a salary of $70,000. The bonus award to the
unit VP who fully meets his/her individual goals will equal $20,510 (146.5% of
the Target Award).
<PAGE>
Unit VP
<TABLE>
<CAPTION>
Percent of
Award Target
Percentage Factor Payout Award
Weightings X Percentage = Earned
<S> <C> <C> <C>
Bus Segment 20% 100% 20%
Business Unit 50% 193% 96.5%
Individual 30% 100% 30%
----
Total 146.5%
</TABLE>
However, since the Award payout Percentage for the Individual component can vary
from 0% to 200%, the bonuses will normally vary. In this example, the Total
Award Payout Percentage could range from a minimum of 116.5% to a maximum of
176.5% of the Target Award. Actual Bonuses could range from $16,310 to $24,710.
General
Nothing contained in this Plan nor participation in or any action taken under
the Plan shall be construed or deemed an employment contract or give any
employee any right to be retained as an employee or guarantee of employment. In
addition, nothing contained in this Plan nor any action taken hereunder shall be
construed, deemed or implied to be a contract or agreement that any award
granted in one year will be granted in a subsequent year.
<PAGE>
Although the Company intends to continue the HMII Management Incentive Plan, the
Company reserves the right to amend or discontinue the Plan at any time for any
reason or no reason.
The Chief Executive Officer is responsible for the administration of the Plan
and shall interpret and administer the Plan and any rules and regulations
relating to it. The Chief Executive Officer may delegate the authority to
administer the Plan in whole or in part. However, any changes to the size of the
awards provided under the Plan or business unit financial performance objectives
require the approval of the Chief Executive Officer.
<PAGE>
EXHIBIT B TO THE SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
dated April 15, 1998
between
HOSOKAWA MICRON INTERNATIONAL INC. ("Company") and
Simon H. Baker
("Executive")
1. Pensions, Retirement, Savincis-type Plans
Hosokawa Micron Investment Retirement Plan (401k)
General
The Plan is a defined contribution plan of the Company, subject to US
governmental rules, regulations and restrictions.
Contributions and Vesting
The Executive may contribute up to 16% of annual compensation subject to annual
governmental limits which, for 1998, is $10,000, and may invest in any one or a
combination of 10 mutual funds. The Executive is immediately vested in his
contributions and the earnings thereon.
The Company contributes an amount equal to 100% of the first 3% of total pay
contributed by the Executive. In addition, the Company contributes an amount
equal to 2% of the Executive's total pay for each plan year, provided that the
Executive was employed on the last day of that plan year. The 2% Company
contribution is made regardless of whether or not the Executive contributes to
the Plan. Total pay for which the Company can make the 2% contribution and on
which the Company can match contributions is limited by governmental rules
which, for 1998, limits contributions to the first $160,000 of total
compensation. Benefits from Company contributions made under the Plan vest at
40% after two years of vesting service, and 20% per year thereafter, and are
fully vested after an Executive completes five years of vesting service.
Participant Accounts
Individual account balances are maintained for each participant whereby
contributions are allocated to any one or combination of 10 funds. Participants
may change their investment allocations on a daily basis. Contributions are
credited to participant accounts at the current market value within each fund
allocation on a daily basis.
2. Welfare-type Plans
Business Travel Accident
Company-paid coverage provides insurance for loss of life or catastrophic
disability resulting while traveling on Company business. The coverage equals
five times Base Salary up to a maximum of $500,000.
<PAGE>
EXHIBIT C TO THE SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
dated April 15, 1998
between
HOSOKAWA MICRON INTERNATIONAL INC. ("Company") and
Simon H. Baker
("Executive")
Executive Life Insurance
Life insurance benefit equal to 2-1/2 times Base Salary to a maximum of
$300,000.
<PAGE>
EXHIBIT D TO THE SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
dated April 15, 1998
between
HOSOKAWA MICRON INTERNATIONAL INC. ("Company") and
Simon H. Baker
("Executive")
Sala[y Continuation and Loncl-Term DisabLility
Company-paid salary continuation for the first 90 days of a medical disability
absence due to sickness or accident. After 90 days, Executive must have elected
Optional LongTerm Disability Insurance which is paid for in total by the
Executive. Under this Company-sponsored program, the Executive will receive
monthly benefits equal to 60% of Base Salary to a maximum of $10,000 per month
for the period of eligible disability, as defined under terms of the plan
document. The premiums for this coverage are adjusted after negotiation with the
insurance carrier and is currently $.54 per $100 of Base Salary.
<PAGE>
EXHIBIT E TO THE SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
dated April 15, 1998
between
HOSOKAWA MICRON INTERNATIONAL INC. ("Company") and
Simon H. Baker
("Executive")
Medical Insurance
Comprehensive Medical Plan for Executives and eligible dependents (spouse and
children to the age of 18 or age of 23, if a full-time student in an accredited
school). Executive must satisfy a deductible of $250 for Executive and each
dependent or a maximum overall deductible of $500 per year. After deductibles
are satisfied, the Plan pays 100% of all eligible medical expenses thereafter
except for certain employee copayments noted below.
Physician services are paid as follows: Inpatient, 100% after deductible; office
visits, 100% after $15 employee co-pay with no deductible. Preventive Care
Services are paid 100% after $15 employee co-pay up to $500/yr. with no
deductible.
Prescription drugs are paid as follows: 100% after $15 employee co-pay,
non-generic pharmaceuticals; $10 employee co-pay, generic and $10 employee
co-pay, mail order.
Pre-certification before all hospitalization is required in order to obtain
maximum benefits, otherwise reduced benefits will be paid.
Premiums for this coverage are paid 80% by the Company and 20% by the Executive.
Dental Insurance
The Dental Plan for Executive and their eligible dependents as defined above.
The Dental Plan provides scheduled reimbursements for covered services such as
preventive treatment, basic and major services. A deductible of $50 per
individual (maximum 3 per family) must be satisfied each year.
No deductible is required for preventive services.
For any calendar year, the Plan pays up to $1,000 maximum for covered expenses
incurred by a covered person after the'deductible. Orthodontic services are
covered only for dependent children and are reimbursed at 50% of eligible
charges up to a lifetime maximum of $1,500 per dependent child.
Premiums for this coverage are paid 80% by the Company and 20% by the Executive.
<PAGE>
EXHIBIT F TO THE SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
dated April 15, 1998
between
HOSOKAWA MICRON INTERNATIONAL INC. ("Company") and
Simon H. Baker
("Executive")
-- None --
[Letterhead of COLONIA]
Benefits Plan
of the Support Fund
Uberbetriebliche Unterstutzungskasse Colonia e.V.
(in the following abbreviated as Colonia-Unterstutzungskasse)
for the employer
Hosokawa Alpine AG
Peter-Dofler-Strasse 13-25
86199 Augsburg
<PAGE>
[Letterhead of COLONIA]
The supervisory board of the company Hosokawa Alpine AG (hereinafter abbreviated
to Alpine) has resolved to introduce a company retirement and survivors' pension
plan for its executive board members with effect from 01.10.1993 and to have
this handled by the company Colonia-Unterstutzungskasse. To this end, and in
accordance with the articles of incorporation of Colonia-Unterstutzungskasse,
the following benefits plan has been agreed upon:
1. Types of Benefits
Colonia-Unterstutzungskasse grants the members of the executive board of Alpine
0 a retirement pension, and
0 a widow(er)'s pension
provided that the executive board member has received corresponding confirmation
from Colonia-Unterstutzungskasse with respect to his/her participation in the
pension scheme as well as with respect to the type and extent of the benefits to
which he/she will he entitled (executive board member elegible to receive
pension payments), and that he/she has retired from Alpine upon reaching
pensionable age (see below).
2 Pension benefits
2.1 The pension shall be paid to the legitimate claimant as soon as he/she has
a) reached the age of 65 (fixed age limit), or
b) reached the age of 60 and withdrawn from the contractual
relationship with Alpine.
2.2 The basis for the amount of the pension is the contribution that Alpine
makes to Colonia-Unterstutzungskasse, who uses
2
<PAGE>
[Letterhead of COLONIA]
this to take out suitable pension insurance policies with a life assurance
company granting refund of premium in the case of death.
in accordance with resolutions taken by the supervisory board of Alpine,
the contributions for the executive board members who qualify for pension
benefits are to be determined individually. The contributions are
index-linked and will increase from the time they were originally
determined in proportion to increases in the cost of living index laid
down for a 4-person household with respect to civil servants or senior
employees in the upper salary bracket, notwithstanding this by at least
4% p.a. The contributions will be amended on the 1st October of each
year.
2.3 In the event that an executive board member eligible for pension dies
before he/she becomes entitled to claim the benefits in accordance with
Section 2.1, his/her spouse shall receive a lump-sum widow(er)'s allowance
which shall correspond to the contributions paid by Alpine to
Colonia-Unterstutzungskasse up to the time of death plus any returns on
investment which exceed the sum resulting from the re-insurance policy
taken out on the life of the executive board member by
Colonia-Unterstutzungskasse.
3. Mode of payment, payment commencement and termination
3.1 The pension shall be paid after deduction of any taxes or other charges at
the beginning of each calendar month for the first time in October of the
year that the "insured event" occurs.
3.2 Pension payments shall continue until the time of death - for the last
time in the month of death - notwithstanding this for a period of at least
5 years, indepent of whether
3
<PAGE>
[Letterhead of COLONIA]
or not the legitimate claimant dies before the 5 years has expired.
3.3 The benefits shall be suspended for as long and to the extent that Alpine
still pays renumeration or comparable benefits to the legitimate claimant
after the claim to benefits has become valid.
3.4 In exceptional cases and in agreement with the principal organisation and
the legitimate claimant, it can be arranged to have the payment paid out
in partial amounts or as a lump sum instead of in the form of the
designated pension payments.
The business policy currently in effect at the life asurance company with
whom the re-insurance policy is taken out forms the authoritative basis
for availment of this option as well as for the amount of such captital
payments.
4. Non-forfeitability
4.1 Should an executive board member with legitimate claim to pension benefits
leave Alpine before he/she becomes entitled to claim, pro-rata pension
benefits or a pro-rata widow(er)'s allocation shall be granted at a
later date provided that the other conditions specified in this benefit
scheme are fulfilled.
4.2 The amount of the pro-rata pension or widow(er)'s payment is governed by
ss. 2 BetrAVG.
4.3 Upon request, premature retirees shall receive written notice of whether
they have a non-forfeitable right to future pension payments, and if so,
to what extent.
4
<PAGE>
[Letterhead of COLONIA]
5. Pledge ban
Benefits arising from the Colonia-Unterstutzungskasse can neither be pledged or
assigned by the executive board member with legitimate claim to pension benefits
or his/her dependants. Pledges and assignments are not recognised as being valid
by Colonia-Unterstutzungskasse and Alpine. Should pledges or assignments
nevertheless be made, the right to benefits automatically becomes null and void.
6. Re-insurance policy
Colonia-Unterstutzungskasse reserves the right to take out insurances to cover
the obligations arising out of the benefits scheme with Colonia
Lebensversicherung AG; the premiums are paid by Colonia-Unterstutzungskasse,
and Colonia-Unterstutzungskasse has exclusive entitlement to the claims which
accrue therefrom.
7. Elimination of legal claims
Neither the recipient of benefits nor his/her dependants have any legal claim to
benefits from Colonia-Unterstutzungskasse or Alpine. Repeated or regular
granting of benefits does not constitute the acquisition of such a legal right.
Benefits can be changed at reasonable discretion, especially in the case of a
change to the legal and economic situation.
5
<PAGE>
[Letterhead of COLONIA]
8. Information
Colonia-Unterstutzungskasse will issue individual status reports detailing the
extent and amount of the company retirement and survivor's pension due to the
executive board member entitled to pension payments both at the time of entering
the pension scheme and after any changes are made to the accrued pension
benefits.
9. Validity
This pension plan takes effect from 01.10.1993.
Augsburg/New York, 22.07.1994
/s/ Isao Sato
-------------------------------------------------------------------
ISAO SATO (Chairman of the Supervisory Board of Hosokawa Alpine AG)
Cologne, 22.07.1994
[Illegible]
-------------------------------------------------------------------
Colonia-Unterstutzungskasse
6
<PAGE>
CONTRACT
Between
Bepex Corporation
5725 East River Road
Chicago, Illinois 60631
- in the following, the "Company" refers to Bepex GmbH
Daimlerstr. 9
7105 Leingarten
and Dieter A.W. Hummel
5109 Ridge Road
Edina MN 55436
- in the following, "Mr. Hummel"-
the following
MANAGER EMPLOYMENT AGREEMENT
is executed.
1. RESPONSIBILITIES
Mr. Hummel shall be employed for the Company as its sole General Manager
as of July 15, 1985.
Mr. Hummel represents the Company generally and in Court and he will have
the power to sign on behalf of the Company.
Mr. Hummel accepts the position of Mr. Krallinger or his successor as
generally not present confidant of the shareholders.
Mr. Hummel will have full responsibility for the Company - without Ter Braak
Rotterdam - as of July, 15, 1985.
As of September 15, 1986, Mr. Hummel, in addition to his duties as General
Manager of the Company, will assume full responsibility for the Company's
subsidiary Ter Braak in Rotterdam. Prior to this time, Mr. Hummel will share
the responsibility for Ter Braak with the service of Mr. Jaeckle.
<PAGE>
Provided this employment contract does not provide otherwise, the rights and
duties of the Manager are subject to the Articles of Association of the
Company in its current form and to the laws of the country, particularly to
the Law on Limited Liability Companies.
Mr. Hummel agrees to execute all general and specific directives of the
shareholders. He is entitled to request a decision by the shareholders at any
time.
Mr. Hummel will report to the President of Bepex Corporation, Chicago, U.S.A.
2. SIDE ACTIVITIES
Mr. Hummel agrees to devote his full knowledge and entire working capacity to
the Company and will try to maintain a harmonious climate among all
employees. He agrees to refrain from all side activities.
3. SECRECY
Mr. Hummel agrees to keep confidential any and all affairs of the Company to
the extent a disclosure is not warranted in the course of the execution of
management duties. This duty remains in force after termination of this
employment.
4. COMPENSATION
For his service, Mr. Hummel will receive a gross annual salary of DM 180,000
(in words: one hundred and eighty thousand) payable in twelve equal monthly
installments at the end of each month for the current month. An additional DM
55,000 (in words: fifty-five thousand) will be remunerated and reinvested in
equivalent U.S. currency payable in twelve equal monthly installments at the
end of each month for the current month.
The salary will be yearly adjusted according to the wage increase agreed upon
in the collective bargaining of the Metal Industry. The salary will further
be generally reviewed every two years after the commencement of employment.
In addition to the salary, Mr. Hummel will receive an annual bonus in
accordance with the Company's prevailing bonus plan. For 1985, the bonus will
be fixed at
2
<PAGE>
DM 70,000. Subsequent bonus will be determined on such factors as revenue
and profit growth, net profits and return on investment.
5. COMPANY CAR, EXPENSES
The Company furnishes to Mr. Hummel a company car in the Mercedes 280 SE
category for business and private use.
The Company shall reimburse Mr. Hummel for reasonable expenses incurred in
connection with his services for the Company in accordance with the Company's
respective policies and regulations.
6. RELOCATION
Mr. Hummel shall move to Heilbronn during 1985.
The Company agrees to grant Mr. Hummel an interest free loan in the amount of
reasonable transportation costs incurred and properly evidenced resulting
from his and his family's change of living quarters. This loan shall only be
repaid upon termination of this agreement by Mr. Hummel. The amount to be
repaid shall be reduced by 1/60 per every month of employment with the
Company. In addition, the Company agrees to pay Mr. Hummel real estate
broker's fees to establish living quarters.
7. SICK PAY
The Company will pay the contractual salary to Mr. Hummel in case of his
illness for a period of six months. If the period of illness will last more
than six months and is diagnosed as long-term, the Company will stop salary
payments and will be entitled to engage a new general manager of the
Company notwithstanding Paragraph 1 of this agreement.
8. PENSION PLAN, INSURANCES
Mr. Hummel shall be eligible to benefits of an individual special pension
plan which will be agreed upon independent of the State Social Insurance and
will cover the time of his employment as General Manager of the Company.
3
<PAGE>
The pension plan established for Mr. Hummel by the Company will be in
accordance with and have the same provisions as the existing Bepex
Corporation plan. The Company will remunerate the special plan in accordance
with funding required to meet the provision of the Bepex Corporation plan.
Mr. Hummel is vested and remains as such and his pension rights and years of
service are to continue without interruption. Service with both Bepex
Corporation and the Company will count toward the pension. Upon retirememt
Bepex Corporation will pay Mr. Hummel whatever pension he is entitled to
receive from its plan and the Company will pay the difference between the
Bepex Corporation pension and the full pension based upon his total service
and earnings. Respective plans will remunerate in the local currency.
The Company will contribute to the premiums for the state social insurance
(old age insurance, health insurance and unemployment insurance) according to
the prevailing statutory rules.
Mr. Hummel shall be included into the Company's accident insurance, which
will also cover private risks.
9. VACATION
The annual paid vacation of Mr. Hummel shall be 33 working days. Mr. Hummel
shall plan his vacation in coordination with the Company's management in a
way that it shall not affect the interest of the Company.
In case Mr. Hummel, because of compelling business reasons, cannot take his
vacation in total or in part he can only use up his vacation during the next
calendar year.
10. DURATION OF CONTRACT
The initial term of this contract is five years. The contract is renewed
automatically from time to time for five years if it is not terminated by
giving six months prior written notice.
4
<PAGE>
Either party may terminate the contract by giving six months written notice
to the end of the five year contract term.
For the event of termination notice, regardless of who has issued it, the
parties agree that the Company may renounce to the services of Mr. Hummel
until termination of the contract. Such renunciation does not affect the
obligation to pay the salary according to Paragraph 4.
11. PREMATURE CONTRACT TERMINATION
If Mr. Hummel and Bepex Corp. mutually determine during the term of the
contract that the employment of Mr. Hummel as General Manager of the Company
is not beneficial for both parties, Bepex Corporation agrees to provide Mr.
Hummel with a comparable position in the U.S. as held at the present time.
12. RETURN OF DOCUMENTS
Upon expiration of this contract Mr. Hummel shall remit all drafts, letters,
memoranda and documents as well as copies thereof to the Company without
further request. Mr. Hummel may not exercise for whatever reason a right of
retention against the Company in regard to the documents mentioned in
Sentence 1.
13. NON-COMPETITION
Mr. Hummel agrees for a term of two years from the end of this employment
with the Company and Bepex Corp. not to enter into services of any firm in
the Federal Republic of Germany or West-Berlin or in the U.S.A. which in any
way competes with the Company or Bepex Corp. and shall also not be engaged in
any other manner in competing activities, directly or indirectly, employed,
self-employed or as a consultant.
During the period of non-competition, the Company and Bepex Corp. agree to
pay to Mr. Hummel a compensation equalling 50% of the income under this
agreement according to the rules of ss. 74 ff Germany Commercial Code.
If Mr. Hummel, after the term of the contract, requests to return to the U.S.
as an employee of Bepex Corporation in a similar position and if Bepex
Corporation declines his request, Mr. Hummel will be relieved of any
non-competitive commitment stated above in the U.S.
5
<PAGE>
14. MISCELLANEOUS
This contract is governed by the laws of the United States of America. The
parties have not made any oral agreements or side-agreements.
Changes and amendments to this contract must be made in writing.
Date: July 9, 1985 Date: July 9, 1985
Place: Minneapolis Place: Minneapolis
/s/ Dieter Hummel /s/ William Efforts
- ----------------- --------------------
Dieter Hummel Bepex Corp.
6
<PAGE>
BEPEX DIVISION OF
BERWIND CORPORATION
PENSION PLAN
(As Amended and Restated Effective January 1, 1984)
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I. DEFINITIONS ......................................................................2
ARTICLE II. ELIGIBILITY FOR PARTICIPATION ...................................................10
ARTICLE III. RETIREMENT AND DEATH BENEFITS ...................................................11
ARTICLE IV. CONTRIBUTIONS BY PARTICIPATING COMPANIES ........................................18
ARTICLE V. VESTING .........................................................................18
ARTICLE VI. PAYMENT AND FORMS OF BENEFITS ...................................................19
ARTICLE VII. LIMITATIONS ON AMOUNT OF BENEFITS ...............................................23
ARTICLE VIII. PLAN ADMINISTRATION .............................................................29
ARTICLE IX. AMENDMENT AND TERMINATION .......................................................31
ARTICLE X. MISCELLANEOUS ...................................................................33
APPENDIX A. ACTUARIAL EQUIVALENT FACTORS
APPENDIX B. TOP-HEAVY PROVISIONS
</TABLE>
<PAGE>
BEPEX DIVISION OF
BERWIND CORPORATION
PENSION PLAN
(As Amended and Restated Effective January 1, 1984)
Berwind Corporation, a Pennsylvania corporation, hereby amends and
restates, effective January 1, 1984 (except as specified otherwise herein), the
following retirement plan for those employees of its Bepex Division who are
eligible to participate in the pension plan. The provisions that are to take
effect if the Plan becomes top-heavy, within the meaning of section 416(g) of
the Internal Revenue Code of 1954, as amended, are set forth in Appendix B.
BACKGROUND
1. On December 31, 1975 the Reitz Manufacturing Company, The
Strong-Scott Manufacturing Company and K-G Industries, Inc., subsidiaries
of Berwind Corporation, each became a division by merger into Bepex Corporation,
a Delaware corporation and a subsidiary of Berwind Corporation.
2. The Rietz Manufacturing Company Pension Plan was amended and
restated as of April 1, 1976 as the Bepex Corporation Pension Plan (the "Plan")
and, effective January 1, 1976, covered employees of the Rietz Division of Bepex
Corporation (formerly the Rietz Manufacturing Company) and employees of Bepex
Corporation not employed at a division other than Rietz Division. Employees of
the Strong-Scott Division of Bepex Corporation (formerly The Strong-Scott
Manufacturing Company) were covered under The Strong-Scott Division Pension
Plan. Employees of the K-G Division of Bepex Corporation (formerly K-G
Industries, Inc.) were covered by the Berwind Corporation Employees' Retirement
Plan.
3. Effective January 1, 1979, (a) The Strong-Scott Division Pension
Plan and the portion of the assets and liabilities of the Berwind Corporation
Employees' Retirement Plan attributable to the accrued benefits of employees of
the K-G Division of Bepex Corporation were merged into the Plan, and (b) the
Plan was amended and restated to provide benefits to all eligible employees,
namely the eligible employees of what was, as of January 1, 1979, Bepex
Corporation, and those of Rietz Division, Strong-Scott Division and K-G Division
of Bepex Corporation.
4. Effective October 2, 1982, Bepex Corporation became a division of
Berwind Corporation and Berwind Corporation became
<PAGE>
the Plan sponsor, as defined in section 3(16)(B) of the Employee Retirement
Income Security Act of 1974, as amended. No employees of any other division
Berwind Corporation are eligible to participate in the Plan unless specific
provision is made for their coverage pursuant to the terms of Section 1.25.
5. The benefit rights, if any, of an employee who was covered by the
Plan or by the Strong-Scott Division Pension Plan or by the Berwind Corporation
Employees' Retirement Plan and who terminated employment prior to January 1,
1979 shall be determined under the provisions of the applicable plan as of the
date of employment termination, provided that the accrued benefit of such
employee whose employment terminated after December 31, 1975 shall be calculated
under Section 3.1.1 or Section 3.1.2, as applicable.
6. The benefit rights of a Member of the Plan who retired or otherwise
terminated employment before the effective date of an applicable provision of
this amendment and restatement shall be governed by the terms of the Plan as in
effect at the time of such retirement or other termination of service.
ARTICLE I. DEFINITIONS.
The following words and phrases as used herein and in the Trust have
the following meanings unless a different meaning is plainly required by the
context:
1.1 "Accrued Pension Benefit" means the accrued benefit of a Member
expressed as a monthly annuity beginning at Normal Retirement Date determined
under Section 3.1 on the basis of the Member's Years of Service to the date as
of which the computation is made.
1.2 "Accumulated Contributions" means, with respect to a Member who
formerly participated in the Berwind Plan, the sum of a Member's contributions
made under that Plan before January 1, 1976, or repaid pursuant to Section 3.6,
and interest credited thereon. The rates of interest credited upon such
contributions shall be determined by the Retirement Board; provided that for
periods beginning after December 31, 1975, the rates of interest shall not be
less than 5%, compounded annually.
1.3 "Actuarial Equivalent" means the equivalent actuarial value of
the normal form of benefit for unmarried Members, as described in Section 6.3,
determined based upon the advice of the Plan's actuary using the factors and
assumptions set forth in Appendix A. For purposes of the lump sum payment
provisions of
2
<PAGE>
Section 6.4, the interest rate used in computing the lump sum amount shall not
be greater than the interest rate that would be used by the Pension Benefit
Guaranty corporation as of the date of the distribution in determining the
present value of a lump sum distribution upon plan termination.
1.4 "Annuity Starting Date" means for:
1.4.1 a Member electing an Early, Normal, or Late Retirement benefit
the first day of the first month for which the retiring Member receives an
annuity payment,
1.4.2 a surviving spouse of a deceased Member who prior to his death
had met the requirements for an Early, Normal or Late Retirement benefit but
had not reached his Annuity Starting Date, the first day of the month following
the date of the Member's death, or
1.4.3 a surviving spouse of a deceased Member who prior to his death
had not reached age 55 but who had a vested interest in his Accrued Pension
Benefit under Section 5.1, the first day of the month in which such a Member
would have reached age 55.
1.5 "Average Compensation" means, with respect to any Member, the
average of his Compensation for the five consecutive full calendar years of
his employment as an Employee that produces the hiqhest average. If an
individual completes fewer than five full consecutive calendar years of
employment as an Employee prior to his retirement date, death or other
termination of employment, as applicable, his Average Compensation shall be the
average of his Compensation for all full calendar years of employment as an
Employee. Notwithstanding the foregoing, if an Employee's Compensation for
the full or partial year of his retirement, death or other termination of
employment exceeds his Compensation for any of the full calendar years that
would otherwise be taken into account for purposes of this section, such greater
amount shall be substituted for the Compensation for the full calendar year that
is the least for him.
1.6 "Beneficiary" means:
1.6.1 the Member's spouse,
1.6.2 the person, persons or trust designated by the Member, with
the consent of the Member's spouse if the Member is married, as direct or
contingent beneficiary in a manner prescribed by the Retirement Board, or
3
<PAGE>
1.6.3 if the Member has no spouse and no effective beneficiary
designation the Member's heirs under the intestate law of the state of the
Member's domicile at his death.
A married Member may designate a person, persons or trust as Beneficiary other
than his spouse provided that such spouse consents to such designation in
writing in a manner prescribed by the Retirement Board. Any subsequent spouse of
the Member shall not be bound by any such consent.
1.7 "Berwind Plan" means the Berwind Corporation Employees' Retirement
Plan.
1.8 "Board of Directors" means the Board of Directors of Berwind
Corporation.
1.9 "Code" means the Internal Revenue Code of 1954, as amended.
1.10 "Compensation" means annual salary, commissions, overtime pay and
severance pay. Compensation shall not include bonuses, incentive pay and other
such special remuneration, contributions to or payments under this or any other
employee benefit plan to which an Employer contributes for the benefit of its
Employees, or amounts identified by an Employer as expense allowances or
reimbursements.
1.11 "Contract" means a group or individual life insurance or annuity
or deposit administration or immediate participation guarantee contract issued
by or entered into with an insurer to provide benefits under the Plan.
1.12 "Early Retirement Date" means the first day of any month following
the month in which a Member who has reached age 55 and has been credited with 10
Years of Service, but who has not reached his Normal Retirement Date, actually
retires.
1.13 "Effective Date" means April 1, 1971.
1.14 "Employee" means:
1.14.1 an individual who is employed by the Employer,
1.14.2 a leased employee who is not employed by an Employer but is
required to be treated as so employed by section 414(n) of the Code, and
4
<PAGE>
1.14.3 when required by context under Section 1.19, a former
Employee.
1.15 "Employer" means Berwind Corporation, and any other employer
included with Berwind Corporation in:
1.15.1 a controlled group of employers or trades or businesses
within the meaning of section 414(b) or section 414(c) of the Code, or
1.15.2 an affiliated service group within the meaning of section
414(m) of the Code,
provided that any such employer shall be included within the term "Employer"
only while a member of such a group that includes Berwind Corporation.
1.16 "Employment Commencement Date" means the first day an Employee is
credited with an Hour of Service with the Employer.
1.17 "Employment Recommencement Date" means the first day following a
Severance from Service Date on which an Employee is credited with an Hour of
Service with the Employer.
1.18 "Fund" means the assets and earnings, appreciation or additions
thereto held by the Trustee or the Insurer, or both, under the Trust, the
Contract, or both for the exclusive benefit of Members, their surviving spouses,
and other Beneficiaries.
1.19 "Hour of Service", for participation, vesting and benefit
accrual, means each hour for which an Employer is paid, or entitled to payment,
for performing duties for the Employer.
1.20 "Insurer" means a legal reserve insurance company that enters into
or issues a Contract under the Plan.
1.21 "Late Retirement Date" means the actual retirement date of any
Member who continues his employment after his Normal Retirement Date; provided
that in no event shall a Member's employment be continued after he reaches age
70, except upon the approval of the President of Berwind Corporation.
1.22 "Member" means an Employee who has met the eligibility
requirements of Article II.
1.23 "Normal Retirement Date" means the date upon which a Member
reaches age 65.
5
<PAGE>
1.24 "Qualified Joint and Survivor Annuity" means a monthly joint and
survivor annuity that is the Actuarial Equivalent of the normal form of benefit
for an unmarried Member, as such benefit is described in Section 6.3, and that
provides an annuity for the life of the Member's surviving spouse equal to 50%
of the annuity payable for the Member's life.
1.25 "Participating Company" means:
1.25.1 the Bepex Division of Berwind Corporation, and
1.25.2 any other division of Berwind Corporation that shall be
joined in the Plan or any affiliate of Berwind Corporation that shall adopt the
Plan and execute a joinder herein with the consent of the Board of Directors.
1.26 "Period of Service" means the period between the later of:
1.26.1 the Employee's Employment Commencement Date, or
1.26.2 in the case of an Employee entitled to service credit under
Section 1.34.1, the first anniversary after January 1, 1984 of the Employee's
Employment Recommencement Date, as applicable, and the earlier of the Employee's
Severance from Service Date or his Normal Retirement Date.
1.27 "Plan" means the Pension Plan set forth in this document.
1.28 "Plan Year" means the year ending December 31. The Plan Year shall
also be the limitation year for purposes of section 415(j) of the Code.
1.29 "Retirement Board" means the entity appointed under Section 8.2 to
administer the Plan.
1.30 "Severance from Service Date" means the date upon which an
Employee severs his service with the Employer, which date shall be the earlier
of:
1.30.1 the date upon which the Employee quits, is discharged,
retires or is placed on indefinite layoff; or
1.30.2 the first anniversary of the first date of such Employee's
absence from service for any other reason.
6
<PAGE>
1.31 "Social Security Offset" means an amount determined as of the
earlier of:
1.31.1 the Member's date of termination of employment, or
1.31.2 the date the Member reaches age 60.
The Member's Social Security primary insurance amount as of age 65 shall be
computed, assuming the Member's annual rate of compensation on the date of the
determination shall continue until he reaches age 65. The Social Security Offset
shall be 50% of the Member's Social Security primary insurance amount,
determined in accordance with the provisions of the Social Security Act in
effect on the date of the determination; provided that if the Member has been
credited with fewer than 30 Years of Service as of the date of termination of
employment, the Social Security Offset shall be reduced by multiplying it by a
fraction, the numerator of which shall be the number of the Member's Years of
Service and the denominator of which shall be 30. In determining a Member's
compensation for years before such Member became an Employee, the following
rules shall apply:
1.31.3 For years before an Employee's date of hire with the
Employer, compensation shall be estimated by applying a salary scale, projected
backwards, to the Employee's compensation (as defined in Section 3.03 of Revenue
Ruling 71-446) at date of hire. The salary scale shall be either an annual rate
of not less than 6%, or the actual change in the average earnings from year to
year as determined by the Social Security Administration.
1.31.4 The Retirement Board shall provide a written notice to each
Member of his right to furnish actual earnings history and of the financial
consequences of failure to furnish such history. The notice shall be contained
in the summary plan description and shall also be given upon separation from
service. The notice shall contain a deadline for provision of earnings
information. If the actual earnings history is provided within the time required
in the notice, the Member's benefits shall be determined based on such earnings.
1.32 "Trust" means the legal entity created by the trust agreement
between Berwind Corporation and the Trustee, fixing all rights and liabilities
with respect to managing and controlling the Fund, or the portion thereof held
in trust, for the purposes of the Plan.
7
<PAGE>
1.33 "Trustee" means the trustee or any successor trustee or trustees
hereafter designated by the Board of Directors and named in the trust agreement
or any amendment thereto.
1.34 "Year of Service" means:
1.34.1 Any period of service ending an or before the anniversary
in 1984 of the Employee's Employment Commencement Date or Employment
Recommencement Date, as applicable, that was a Year of Service (or fraction
thereof) under the Plan as in effect on December 31, 1983 shall constitute a
Year of Service (or fraction thereof); except that for purposes of benefit
accrual, only those Years of Service after the Employee became a Member of the
Plan (as in effect on December 31, 1983) shall be counted. If the Member severed
from service with the Employer before January 1, 1984 and is subsequently
rehired after December 31, 1983, service prior to severance from service shall
be counted under the Break-in-Service rules of the Plan as in effect on December
31, 1983;
1.34.2 A 12 consecutive month period, included within a Period of
Service measured from the Employee's Employment Commencement Date or Employment
Recommencement Date, as applicable, or in the case of an Employee entitled to
service credit under Section 1.34.1, the first anniversary on or after January
1, 1984 of the Employee's Employment Commencement Date, or the Employee's
Employment Recommencement Date, as applicable, provided that the following
special rules shall apply:
1.34.2.1 if an Employee (1) quits, is discharged, is
placed in indefinite layoff or retires and (2) within 12
months thereafter returns to service and is credited with an
Hour of Service, his Years of Service, for vesting only, but
not for benefit accrual, shall be computed as though his
service has not been severed.
1.34.2.2 If an Employee who is absent from service
for any reason other than those specified in Section 1.34.2.1
above, (1) while so absent, quits, is discharged, is placed on
indefinite layoff or retires, (2) within 12 months after the
first date upon which he was absent from service, returns to
service and (3) is credited with an Hour of Service, his Years
of Service, for vesting, but not for benefit accrual, shall be
computed as though his service had not been severed.
8
<PAGE>
1.34.2.3 For vesting and benefit accrual purposes,
an Employee who continues to receive his regular compensation
during any period of absence, or who is absent by reason of
active duty in the armed forces of the United States or on a
leave of absence authorized by the Employer, and who returns
to service with the Employer within the time during which his
reemployment rights are protected by federal law or by the
expiration date of his authorized leave of absence, as
applicable, shall be treated as though he had been actively
performing services for the Employer during such period of
absence.
1.34.2.4 Except to the extent fractional Years of
Service may be aggregated to produce complete Years of Service
under the above rules, fractional Years of Service shall be
disregarded for vesting purposes.
1.34.3 Years of Service for benefit accrual shall include all Years of
Service as a Member of the Plan, including any fractional year, except that
employment after a Member reaches age 65 shall not be taken into account in
determining the number of his Years of Service for benefit accrual purposes.
1.34.4 Any calendar month during which an Employee is employed by an
Employer for 15 or more calendar days shall be counted in computing Years of
Service.
1.34.5 If a Participating company is one of the employers in a
controlled group of employers or trades or businesses within the meaning of
section 414(b) or section 414(c) of the Code, or in an affiliated service group
within the meaning of section 414(m) of the Code, for purposes of eligibility to
participate under Article II, eligibility for early retirement benefits under
Article III and vesting under Article V, Years of Service shall be determined as
if all employers in the controlled group or affiliated service group were a
single employer, including employment during periods when the employer was not a
part of the controlled or affiliated service group.
1.34.6 In the case of seasonal employees, a "Year of Service" shall be
determined in accordance with regulations issued by the United States Department
of Labor.
1.34.7 To the extent such employment is not otherwise included in
determining Years of Service under this Section 1.34, periods of employment
before January 1, 1979 with
9
<PAGE>
the Strong-Scott Division or the K-G Division that were considered Years of
Service under the Strong-Scott Division Pension Plan or the Berwind Plan shall
be counted as Years of Service under this Plan for all purposes.
ARTICLE II. ELIGIBILITY FOR PARTICIPATION.
2.1 Eligibility Rule. Except as provided in Section 2.2, an Employee
shall be eligible to become a Member of the Plan on the later of the date he
reaches age 21 or the date he is credited with a Year of Service, as defined in
Section 1.34.2.
2.2 Ineligible Employees. The following Employees shall be ineligible
to participate in the Plan:
2.2.1 each Employee who has reached age 60 or more as of the date
he is first employed by an Employer;
2.2.2 each Employee who is employed by an Employer that is not a
Participating Company;
2.2.3 each Employee who is a member of a collective bargaining unit
as to which there is evidence that retirement benefits were the subject of good
faith bargaining between the Employer and the bargaining representative of the
unit unless the applicable bargaining agreement provides for coverage under the
Plan;
2.2.4 each Employee for whom the Employer makes contributions under
another defined benefit or defined contribution employee pension benefit plan;
and
2.2.5 each leased Employee as defined in section 414(n) of the
Code.
2.3 Commencement of Participation. An eligible Employee who completes
the requirements of Section 2.1 during the first six months of a Plan Year shall
become a Member on the first day of that Plan Year. An Employee who completes
such requirements during the second six months of a Plan Year shall become a
Member on the first day of the following Plan Year, provided he is not then
excluded from participation under Section 2.2.
2.4 Participation After a Severance from Service. An individual who is
reemployed by an Employer after such Employee incurs a Severance from Service
Date shall become a Member as of his Employment Recommencement Date, unless he
is excluded from participation by any provision of Section 2.2.
10
<PAGE>
2.5 Time of Participation - Excluded Employees. An Employee otherwise
eligible to be a Member of the Plan, but excluded because of the application of
any provision of Section 2.2, shall be eligible to become a Member as of the
first day of the month coincident with or next following the date upon which the
applicable provision of Section 2.2 ceases to apply. A Member who becomes
subject to any provision of Section 2.2 shall cease to be a Member as of the
last day of the month with, or within which, any such provision becomes
applicable.
ARTICLE III. RETIREMENT AND DEATH BENEFITS.
3.1 Normal and Late Retirement. A Member who retires on his Normal
Retirement Date or Late Retirement Date shall be entitled to a monthly
retirement benefit equal to the amount calculated under Section 3.1.1, Section
3.1.2 or Section 3.1.3 below as applicable. Such benefit shall be payable in
accordance with Article VI. See the minimum benefit provisions of Section 3.8.
3.1.1 Calculation of Normal and Late Retirement Benefits - General
Rule. Except as otherwise provided in Section 3.1.2 or Section 3.1.3, a Member
who retires on his Normal Retirement Date or Late Retirement Date shall be
entitled to a monthly retirement benefit equal to 1/12 of the greater of the
amount calculated under Section 3.1.1.1 below and the amount calculated under
Section 3.1.1.2 below. Such benefit shall be payable in accordance with Article
VI.
3.1.1.1 1.5% of the Member's Average Compensation, as
defined in Section 1.5, multiplied by the number of his Years
of Service after the Effective Date but before January 1,
1976, plus 1.8% of his Average Compensation multiplied by the
number of his Years of Service after December 31, 1975, not to
exceed 25 Years of Service, plus 1% of his Average
Compensation multiplied by the number of his Years of Service
after December 31, 1975 in excess of 25; minus the Member's
Social Security Offset, as determined under Section 1.31.
3.1.1.2 A Member whose retirement benefit is
calculated under this Section 3.1.1 shall in any event be
entitled to a minimum benefit equal to 0.75% of his Average
Compensation multiplied by the number of his Years of Service
after the Effective Date.
11
<PAGE>
3.1.2 Calculation of Normal and Late Retirement Benefits of Former
Participants in The Strong-Scott Division Pension Plan. A Member who
participated in The Strong-Scott Division Pension Plan on December 31, 1978 and
who retires on his Normal Retirement Date or Late Retirement Date shall be
entitled to a monthly retirement benefit equal to 1/12 of the greater of the
amount calculated under Sections 3.1.2.1, 3.1.2.2 and 3.1.2.3 below, and the
amount calculated under Section 3.1.2.4 below. Such benefit shall be payable in
accordance with Article VI.
3.1.2.1 The Member's past service benefit for service
prior to October 1, 1968, which shall be equal to 0.8% of the
average of his annual Compensation for such period of service
multiplied by the number of the Member's Years of Service
prior to October 1, 1968, to a maximum of 16 such years; plus
3.1.2.2 1.5% of the Member's Average Compensation, as
defined in Section 1.5, multiplied by the number of his years
of service after September 30, 1968, but before January 1,
1976, plus 1.8% of his Average Compensation multiplied by the
number of his Years of Service after December 31, 1975, not to
exceed 25 Years of Service, plus 1% of his Average
Compensation multiplied by the number of his Years of Service
after December 31, 1975 in excess of 25; minus
3.1.2.3 the Member's Social Security Offset, as
determined under Section 1.31.
3.1.2.4 A Member whose retirement benefit is
calculated under this Section 3.1.2 shall in any event be
entitled to a minimum benefit equal to 0.75% of his Average
Compensation multiplied by the number of his Years of Service
after September 30, 1968.
3.1.3 Calculation of Normal and Late Retirement Benefits of Former
Participants in the Berwind Plan. A Member who participated in the Berwind Plan
on December 31, 1978 and who retires on his Normal Retirement Date or his Late
Retirement Date shall be entitled to a monthly retirement benefit equal to 1/12
of the amount calculated under Sections 3.1.3.1 and 3.1.3.2 below. Such benefit
shall be payable in accordance with Article VI. See the minimum benefit
provisions of Section 3.8.
3.1.3.1 1.8% of the Member's Average Compensation, as
defined in Section 1.5, multiplied by the number of his Years
of Service, not to exceed 25
12
<PAGE>
Years of Service, plus 1% of his Average Compensation
multiplied by the number of his Years of Service in excess of
25; minus
3.1.3.2 the Member's Social Security Offset, as
defined in Section 1.31.
3.1.3.3 A Member whose benefit is calculated under
this Section 3.1.3 and who had credited service under the
Berwind Plan before January 1, 1971 may elect to have his
retirement benefit calculated under the provisions of Section
3.7.
3.1.4 Additional Benefits of Certain Controlled Group Employees.
3.1.4.1 Eligibility. This Section 3.1.4 shall apply
to a Member who formerly participated in (1) any retirement
plan to which a Participating Company contributed on his
behalf or to which an Employer contributed on his behalf
pursuant to the terms of a collective bargaining agreement, or
(2) any other retirement plan maintained by an Employer and on
whose behalf assets attributable to the Member's accrued
benefit liability under such plan are not transferred to this
Plan as a result of the Member's transfer to non-union status
or his transfer to employment with a Participating Company.
Such a Member shall be entitled to the additional benefit
described below in Section 3.1.4.2, in addition to the benefit
described above in Section 3.1.1, Section 3.1.2, Section 3.1.3
or in Section 3.7.
3.1.4.2 Amount of Additional Benefit. The additional
benefit shall be equal to the portion of the accrued benefit
under a retirement plan described of Section 3.1.4.1(1) or
Section 3.1.4.1(2) above that was forfeited; provided that
only benefits accrued in such other retirement plan while the
other Employer was, with a Participating Company, a part of a
controlled or affiliated service group as described in section
414(b), section 414(c) or section 414(m) of the Code shall be
used in determining the amount of additional benefits under
the Plan, and that this Section 3.1.4 shall not operate to
duplicate defined benefit pension plan benefits for a single
period of employment.
13
<PAGE>
3.1.5 Benefits in Case of Asset-Transfer. In the event an
individual becomes a Member of the Plan by reason of a transfer described in
Section 3.1.4.1(1) or Section 3.1.4.1(2) and assets attributable to the Member's
accrued benefit liability under the plan from which the Member transferred are
transferred to this Plan, such Member's Accrued Pension Benefit shall be
computed under Section 3.1 as though all his years of service for benefit
accrual under such other plan were Years of Service as a Member of this Plan.
3.2 Early Retirement Benefits.
3.2.1 General Rule. A Member who retires at an Early Retirement
Date while in the employ of a Participating Company or another Employer, and a
Member who is no longer employed by an Employer and who has reached age 55 and
has been credited with 10 or more Years of Service, may elect to receive a
benefit beginning at or after such Early Retirement Date and not later than by
his Normal Retirement Date. The early retirement benefit shall be the Member's
Accrued Pension Benefit computed in the manner described in Section 3.1, and
shall be paid in accordance with Article VI. If payment of the Member's early
retirement benefit is to begin before his Normal Retirement Date, the benefit
shall be multiplied by the applicable benefit reduction factor under the
following schedule (interpolated to the nearest month).
BENEFIT REDUCTION SCHEDULE
<TABLE>
<CAPTION>
Years Before Normal Benefit
Age Retirement Date Factor
--- --------------- ------
<S> <C> <C>
55 10 .58
56 9 .63
57 8 .67
58 7 .73
59 6 .78
60 5 .85
61 4 .90
62 3 .95
63 2 .97
64 1 .99
</TABLE>
3.2.2 Early Retirement Benefit - Special Rule. A Member who
participated in the Berwind Plan on December 31, 1978 and who had credited
service under that plan before January 1, 1971 may elect to have his early
retirement benefit calculated under the provisions of Section 3.7 rather than
under Section 3.2.1.
14
<PAGE>
3.3 Death Benefit. There shall be death benefits provided under the
Plan as follows:
3.3.1 Death of a Member Before Vesting in Accrued Pension Benefit.
If an individual participated in the Berwind Plan on December 31, 1978, his
Accumulated Contributions were transferred to the Trust under this Plan and he
dies before he is entitled to a vested interest in his Accrued Pension Benefit
under Section 5.1, his Beneficiary shall be entitled to receive the amount of
the Member's Accumulated Contributions, if any. Such benefit shall be paid in a
lump sum, in accordance with Section 6.4, to such Beneficiary.
3.3.2 Death of Member After Retirement Date. If a Member whose
employment terminates after his Early Retirement Date or Normal Retirement Date
dies more than 30 days after such termination of employment, his Beneficiary
shall be entitled to a lump sum death benefit equal to the monthly Accrued
Pension Benefit of such Member multiplied by 15 and then rounded upwards to the
next $100 with a minimum benefit of $500 and a maximum benefit of $2,000. In any
case where the Actuarial Equivalent of a retirement benefit is paid in a lump
sum in accordance with Section 6.4, the death benefit described in this Section
3.3.2 may be paid at the same time. This benefit shall be in addition to any
benefit payable under a contingent annuity or term certain option in effect
under Article VI at the time of death and in addition to the preretirement
surviving spouse's benefit described in Section 3.3.3 and Section 3.3.4 and the
payment of Accumulated Contributions under Section 3.3.1.
3.3.3 Death of Vested Member Before Annuity Starting Date -
Surviving Spouse's Benefit. Effective January 1, 1984, if:
3.3.3.1 a Member who is vested in his Accrued
Pension Benefit dies while employed by a Employer before his
Annuity Starting Date, or
3.3.3.2 a Member who terminated his employment on or
after January 1, 1976 having a vested interest in his Accrued
Pension Benefit dies before his Annuity Starting Date, his
spouse, if living on the Member's date of death, shall
receive a spouse's death benefit as provided in Section
3.3.4. To be eligible to receive such benefit, the surviving
spouse shall have been married to the Member throughout the
one-year period ending with the date of the Member's death.
15
<PAGE>
3.3.4 Amount and Payment of Surviving Spouse's Benefit. The
surviving spouse's benefit under Section 3.3.3 shall be 50% of the amount
payable to the Member had he retired as of the day before his death and did not
elect to receive his benefit in any form other than a Qualified Joint and
Survivor Annuity. The benefit payable to the surviving spouse shall be payable
monthly for the life of the surviving spouse beginning on the spouse's Annuity
Starting Date, unless a lump sum payment of the benefit is made at the direction
of the Retirement Board pursuant to Section 6.4. See the minimum benefit
provisions of Section 3.8.
3.4 Vested Deferred Retirement Benefit. A Member whose employment is
terminated prior to his Normal Retirement Date for any reason other than early
retirement or death shall be entitled to his vested interest, if any, in his
Accrued Pension Benefit as determined in accordance with Sections 5.1, 5.2 and
5.3. See the minimum benefit provisions of Section 3.8. Such benefit shall be
paid in accordance with Article VI.
3.5 Return of Accumulated Contributions. An Member who participated in
the the Berwind Plan on December 31, 1978, whose Accumulated Contributions were
transferred to the Trust under the Plan and who terminates his employment for
any reason other than death, before he has been credited with 10 Years of
Service shall be entitled to receive the amount of his Accumulated Contributions
in a lump sum within six months following such termination.
3.6 Restoration of Accrued Pension Benefit. If, in connection with a
termination of his employment, a Member receives a lump sum distribution of his
Accumulated Contributions in accordance with Section 3.5, and such Member later
returns to employment with a Participating Company and again becomes eligible to
participate in the Plan, he may repay the full amount of the lump sum
distribution of his Accumulated Contributions he received at the prior
termination of employment, plus an amount equal to 5% interest compounded
annually from the date of the distribution. In such event, the Member's Accrued
Pension Benefit, determined at the prior termination of employment, shall be
restored.
3.7 Special Early, Normal and Late Retirement Benefits. A Member who
participated in the Berwind Plan on December 31, 1978 and who had years of
credited service under the Plan for employment before January 1, 1971 may elect
to have his early retirement benefit, normal retirement benefit or late
retirement benefit computed as follows:
16
<PAGE>
3.7.1 Special Normal and Late Retirement Benefits. In the case of
normal or late retirement, for each calendar month of each Year of Service after
July 1, 1948, 1% of the Member's Compensation up to $250 received during such
calendar month plus 2% of such monthly Compensation in excess of $250.
3.7.2 Special Early Retirement Benefit. In the case of an early
retirement, a benefit calculated under Section 3.7.1 payable as either:
3.7.2.1 a deferred retirement benefit beginning on
the first day of the month following the Member's Normal
Retirement Date, in which case it shall be computed as a
special normal retirement benefit on the basis of the
Member's Compensation and Years of Service to the date of
early retirement; or
3.7.2.2 a retirement benefit beginning on the first
day of any calendar month following the Member's Early
Retirement Date, and before his Normal Retirement Date, in
which case the calculated special normal retirement benefit
shall be multiplied by the applicable benefit reduction
factor under the following schedule (interpolated to the
nearest month):
BENEFIT REDUCTION SCHEDULE
<TABLE>
<CAPTION>
Years Before Normal Benefit
Age Retirement Date Factor
--- --------------- ------
<S> <C> <C>
55 10 .56
56 9 .60
57 8 .64
58 7 .69
59 6 .74
60 5 .80
61 4 .86
62 3 .91
63 2 .94
64 1 .97
</TABLE>
3.8 Minimum Benefit. This Section applies to a Member who
participated in the Berwind Plan on December 31, 1978, whose Accumulated
Contributions were transferred to the Trust under this Plan and who reaches an
Early Retirement Date or Normal Retirement Date. Subject to the further
provisions of this Section the Member's minimum benefit under the Plan shall be
equal to such Accumulated Contributions, minus the sum of amounts
17
<PAGE>
paid to such Member, his surviving spouse or other Beneficiary under Section
6.3, Section 6.5 or Section 6.6. The minimum benefit shall be paid to the
Member's Beneficiary in accordance with Section 6.4.
ARTICLE IV. CONTRIBUTIONS BY PARTICIPATING COMPANIES.
4.1 Contributions by Participating Companies. The Participating
Companies shall make such contributions to the Fund as they shall deem
appropriate to provide the benefits described under the Plan, but not less than
the amount necessary to prevent an accumulated funding deficiency under the
minimum funding standards of the Employee Retirement Income Security Act of
1974, as amended. However, a Participating Company shall have no obligation to
make contributions to the Fund after the Plan has terminated as to its
employees, whether or not benefits accrued prior to the date of termination
have been fully funded, except as required by law.
4.2 Time of Contributions. Payment of each Participating Company's
contribution to the Fund in accordance with Section 4.1 shall be made within the
time prescribed by the Code as the time within which a contribution must be made
in order to constitute:
4.2.1 a credit to the Plan's minimum funding standard account (or
alternative funding standard account) for the Plan Year to which the
contribution relates, and
4.2.2 an allowable Federal income tax deduction for the
Participating company's taxable year for which the contribution is made.
ARTICLE V. VESTING
5.1 Rate of Vesting-General Rule. Except as provided in Sections 5.2
and 5.3, a Member shall have no vested interest in his Accrued Pension Benefit
until he has been credited with 10 Years of Service, at which time he shall
become 100% vested in his Accrued Pension Benefit.
5.2 Full Vesting in Accumulated Contributions. A Member who
participated in the Berwind Plan on December 31, 1978 and whose Accumulated
Contributions were transferred to the Trust under this Plan shall be 100% vested
in his Accumulated Contributions at all times.
18
<PAGE>
5.3 Vesting at Normal Retirement Date. A Member's interest in his
Accrued Pension Benefit shall in any case become l00% vested if he is an
Employee at his Normal Retirement Date.
5.4 Application of Forfeitures. Any amounts forfeited under this
Article V shall not be used to increase the benefit of any Member, but shall be
used to reduce the future contributions of Participating Companies.
ARTICLE VI. PAYMENT AND FORMS OF BENEFITS.
6.1 Benefit Commencement Date - Normal Retirement and Late Retirement.
The benefit of a Member who retires on or after his Normal Retirement Date shall
be paid beginning on his Normal Retirement Date or his Late Retirement Date, as
applicable.
6.2 Benefit Commencement Date - Early Retirement. A Member who retires,
or a Member who is no longer employed by an Employer and who is eligible to
elect an Early Retirement Date shall, at least 90 days prior to that date, file
with the Retirement Board an election to receive either a deferred benefit
payable beginning at his Normal Retirement Date or a benefit payable beginning
before his Normal Retirement Date.
6.3 Normal Form of Benefit for Unmarried Member. The normal form of an
unmarried Member's retirement benefit hereunder, whether payable at or prior to
the Member's Normal Retirement Date or at his Late Retirement Date, shall be
monthly payments for the Member's lifetime. See the minimum benefit provisions
of Section 3.8.
6.4 Lump Sum Payments. At the direction of the Retirement Board, a lump
sum payment of the Actuarial Equivalent of any benefit payable under any section
of the Plan may be made by the Trustee provided that if the current actuarial
value of the benefit exceeds $3,500, the Retirement Board shall obtain the
written consent of the Member, or if the Member has died, his surviving spouse
or other Beneficiary. A lump sum payment shall be made consistent with the
provisions of Section 6.9.
6.5 Normal Form of Benefit for Married Member - Qualified Joint and
Survivor Annuity; Notice and Election Procedures.
6.5.1 Form of Payment. The normal form of retirement benefit for a
Member who is married on the date his monthly retirement benefit is to begin
shall be a Qualified Joint and Survivor Annuity. A married Member may elect to
receive the
19
<PAGE>
normal form of benefit for unmarried Members under Section 6.3 or an alternate
form of benefit under Section 6.6, if the Member's spouse consents in writing to
the Member's election pursuant to a procedure established by the Retirement
Board. See the minimum benefit provisions of Section 3.8.
6.5.2 Initial Notice and Election. At least
nine months before a Member is eligible to elect an Early Retirement Date (or
nine months before the Normal Retirement Date of a Member who is ineligible for
an Early Retirement Date), the Retirement Board shall supply him with a written
explanation describing:
6.5.2.1 the effect of the Qualified
Joint and Survivor Annuity and the effect of the other forms
of benefit available to him under the Plan,
6.5.2.2 the Member's right to waive
the Qualified Joint and Survivor Annuity and his spouse's
rights with respect to such waiver, and
6.5.2.3 his rights during his election
period, as defined in Section 6.5.3. The explanation shall
advise the Member that, unless by the day before his Annuity
Starting Date he notifies the Retirement Board in writing of
an election to receive a different form of benefit, and his
spouse has consented to such alternate election in writing,
his benefit shall be paid in the Qualified Joint and Survivor
Annuity form.
6.5.3 Election Period; Extension of Election
Period. A Member's election period under this Section 6.5 shall be the 90-day
period ending on his Annuity Starting Date. If, by not later than the day before
his Annuity Starting Date, the Member notifies the Retirement Board in writing
of an election not to take the Qualified Joint and Survivor Annuity, and his
spouse has consented in writing to such alternate election his benefit shall be
paid in the alternate form selected by the Member. However, if by not later than
the day before his Annuity Starting Date, the Member requests the Retirement
Board to furnish him with additional information relating to the effect of the
Qualified Joint and Survivor Annuity, the election period under this section
shall be extended and his Annuity Starting Date shall be postponed to a date not
later than 90 days following the furnishing to him of the additional
information.
6.5.4 Effect of Election. An election
hereunder may be changed before a Member's Annuity Starting Date
- 20 -
<PAGE>
but shall become irrevocable upon a Member's Annuity Starting Date.
6.5.5 Marital Status. Unless a Member
notifies the Retirement Board of a change in his marital status after
termination of employment and before benefit payments begin, benefits shall be
paid in accordance with the marital status entered in the records of the
Retirement Board at the time of termination of employment.
6.6 Other Forms of Benefit Payment. Subject
to the spousal waiver provision described in Section 6.5.1, and in lieu of a
form of payment provided in Section 6.3 or Section 6.5, a Member may elect to
have the amount payable under Article III paid in one of the following forms,
each of which shall be the Actuarial Equivalent of the normal form of benefit
for an unmarried member as described in Section 6.3:
6.6.1 a joint and survivor annuity that
provides a reduced annuity for the life of the Member, with the provision that
after his death 50% or 100% of such amount, as specified in the Member's
election, shall be paid to the Member's Beneficiary during the Beneficiary's
life. All payments under this option shall cease with the last payment due prior
to the death of the survivor of the Member and his Beneficiary. See the minimum
benefit provisions of Section 3.8; or
6.6.2 an annuity for the life of the
Member with the provision that if the Member dies before he has received 60 or
120 monthly payments, as specified in the Member's election, benefit payments
shall continue to his Beneficiary, until a total of 60 or 120 monthly payments,
as applicable, has been made. See the minimum benefit provisions of Section 3.8.
6.7 Benefits Primarily for Member. Unless
otherwise required by Section 6.5 or any applicable provision of law, if any
payments are to continue for the benefit of a person other than the Member's
spouse for a period extending beyond the Member's life expectancy, the present
value of the payments to the Member at the date those payments are to begin must
be more than 50% of the present value of all payments to the Member and such
other person.
6.8 Delayed Retirement; Restoration to
Service. Any Member who remains in employment after his Normal Retirement Date
or who, having terminated employment and received benefits hereunder, is
subsequently reemployed as an Employee eligible for membership under Section 2.1
for more than 40 Hours of Service per month, shall not be entitled to benefit
payments while so
- 21 -
<PAGE>
employed or reemployed but shall accrue additional service for employment up to
his Normal Retirement Date in accordance with the provisions of Article III.
Upon subsequent retirement his benefit shall be recomputed based upon his total
Years of Service and Average Compensation at the subsequent termination date. If
the Member received a lump sum distribution upon an earlier termination of
employment, the benefit so computed upon the subsequent termination of
employment shall be reduced by an amount equivalent to the then current
Actuarial Equivalent value of such lump sum payment, unless the Member has made
a repayment of his Accumulated Contributions under Section 3.6. In other cases,
retirement benefit payments shall be redetermined as of the subsequent
termination of employment in accordance with the form of benefit payment in
effect prior to the Member's reemployment and adjusted to reflect the increase,
if any, in benefits attributable to Years of Service and Average Compensation
after reemployment and prior to Normal Retirement Date. The rules of this
Section shall be applied consistent with the provisions of 29 CFR Sec.
2530.203-3 issued by the United States Department of Labor, which provisions are
incorporated herein by reference.
6.9 Benefit Commencement Date - General Rule.
Notwithstanding the foregoing provisions of this Article VI, payment of any
benefit due a Member, spouse, or other Beneficiary shall begin, unless the
Member, spouse, or other Beneficiary elects, no later than 60 days following the
close of the Plan Year in which occurs the later of:
6.9.1 the Member's Normal Retirement Date; or
6.9.2 the Member's actual termination of
employment.
Subject to Section 6.4, a Member, spouse or other Beneficiary may elect to have
distribution made or begin later than a date specified in Section 6.9.1 or
Section 6.9.2, but in no event later than:
6.9.2.1 in the case of a Member who is
a 5% owner of the Employer, as defined in section 416(i) of
the Code, April 1 following the calendar year in which the
Member reaches age 70-1/2, unless the Member made a valid
deferral election before January 1, 1984 and such election has
not been revoked, or
6.9.2.2 in the case of any other
Member, April 1 following the calendar year in which the
Member reaches age 70-1/2 or actually retires, whichever is
later.
- 22 -
<PAGE>
6.10 Claims Procedure. A Member, eligible surviving
spouse or other Beneficiary who believes himself entitled to benefits hereunder,
and who has not begun to receive those benefits within 120 days after the last
date specified in Section 6.9, may claim those benefits by submitting to the
Retirement Board a written notification of his right to such benefits. In the
event that the claim is wholly or partially denied, the Retirement Board shall,
within 90 days (or in special cases, and upon prior written notice to the
claimant, 180 days) of receipt of the claim, inform the Member, eligible
surviving spouse or other Beneficiary of the reason or reasons for the denial,
the specific reference to the Plan provisions on which the denial was based,
any additional information that may be necessary to perfect the claim, with
reasons therefor, and the procedure for reviewing the denial of the claim. In
such case the Member, eligible surviving spouse, other Beneficiary or his
representative shall have the opportunity to appeal to the Retirement Board for
review thereof by requesting such review in writing to the Retirement Board. The
Member, eligible surviving spouse, other Beneficiary or his representative shall
have a right to review all pertinent documents and submit comments in writing.
Thereafter the Retirement Board shall render a decision in writing, stating
specific reasons therefor and citing specific Plan references, no later than 60
days after its receipt of the request for review. If special circumstances
require extension, the Retirement Board's decision may be given within 120 days
after receipt of the request for review.
ARTICLE VII. LIMITATIONS ON AMOUNT OF BENEFITS.
7.1 Code Section 415 Limit.
7.1.1 Primary Limit. In no case shall
benefits with respect to any Member payable under this Plan and all other
defined benefit employee pension plans maintained by the Employer, when
expressed as an annual benefit in the form of a straight life annuity, exceed
the lesser of:
7.1.1.1 $90,000 (or such greater amount
after 1987 as may be allowable under regulations prescribed by
the United States Department of the Treasury); or
7.1.1.2 100% of the Member's average
compensation received during the three consecutive Plan Years
of his participation during which he received the greatest
aggregate compensation, multiplied by a fraction (that may not
exceed one) the numerator of
- 23 -
<PAGE>
which is the number of the Member's Years of Service and the
denominator of which is 10.
If a Member's benefit is payable as a Qualified Joint and Survivor Annuity, or
if his Beneficiary under Section 6.6.1 is his spouse, no adjustment of the
foregoing limitation shall be made. In the case of any other benefit payable
under Section 6.6, such benefit shall be adjusted to the Actuarial Equivalent of
a straight life annuity before applying the limitation of this Section 7.1.1,
using an interest rate equal to the greater of 5% or the interest rate provided
in Appendix A.
7.1.1.3 section 7.1.1.2 shall not
operate to reduce any benefit of $10,000 or less per year
payable to a Member who does not participate in a defined
contribution employee pension plan to which an Employer
contributes.
7.1.1.4 If a Member participated in
this Plan on July 1, 1982, Section 7.1.1 shall not reduce that
Member's benefit below his Accrued Pension Benefit determined
as of December 31, 1982.
7.1.2 If a Member retires either before
reaching age 62, or after reaching 65, the limits of Section 7.1.1 shall be
adjusted in accordance with regulations issued under section 415(b) of the Code:
7.1.2.1 in the case of a benefit
payable beginning before age 62, to an amount that is not less
than the equivalent of an annual benefit of $75,000 beginning
at age 55 using an interest rate equal to the greater of 5% or
the interest rate provided in Appendix A; and
7.1.2.2 in the case of a benefit
payable beginning after age 65, to an amount that is the
equivalent of an annual benefit of $90,000 beginning at age 65
using an interest rate equal to the lesser of 5% or the
interest rate provided in Appendix A.
7.2 Combined Limit. If a Member of the Plan also participates
in any defined contribution employee pension plan (or, after December 31, 1985,
a funded welfare plan as defined in section 419(e) of the Code) maintained by
the Employer, the sum of the defined benefit fraction and the defined
contribution fraction shall not exceed one.
- 24 -
<PAGE>
7.2.1 Defined Benefit Fraction. The defined
benefit fraction for any Plan Year is a fraction:
7.2.1.1 the numerator of which is the
Member's projected annual benefit under the Plan and all other
defined benefit employee pension plans maintained by the
Employer (determined as of the close of the Plan Year), and
7.2.1.2 the denominator of which is the
lesser of (1) $90,000 or the applicable dollar limit for such
year determined under Section 7.1.1, multiplied by 1.25 (1.0
if Section B.5 of Appendix B applies), or (2) the Member's
average compensation for the three consecutive calendar years
of active participation produce the highest average,
multiplied by 1.4.
7.2.2 Defined Contribution Fraction. The
defined contribution fraction for any Plan Year is a fraction:
7.2.2.1 the numerator of which is the
total of the annual additions to the Member's account for the
Plan Year and all prior Plan Years under all defined
contribution employee pension plans maintained by the Employer
(and, after December 31, 1985, all funded welfare plans, as
defined in section 419(e) of the Code, maintained by the
Employer), and
7.2.2.2 the denominator of which is
the lesser of the following amounts determined for such Plan
Year and for each prior Plan Year during which the Employee
participated:
i) $30,000, or the applicable
limit for each such Plan Year, multiplied by 1.25 (1.0 if
Section B.5 of Appendix B applies), or
ii) 35% of the Member's
compensation for each such Plan Year.
7.2.3 Transitional Rule. The denominator of
the defined contribution fraction under Section 7.2.2 for all Plan Years ending
before January 1, 1983 shall, at the Retirement Board's election and provided
the plan in question existed on or before July 1, 1982, be:
7.2.3.1 the maximum annual additions
to the Member's accounts under all defined contribution
- 25 -
<PAGE>
employee pension plans maintained by the Employer that could
have been made under the primary limit applicable to such
plans for all Plan Years ending on or before December 31,
1982, multiplied by
7.2.3.2 a fraction, (1) the numerator
of which is the lesser of $51,875 or 35% of the Member's 1981
compensation, and (2) the denominator of which is the lesser
of $41,500 or 25% of the Member's l98l compensation.
7.2.4 Definition of Compensation. Solely for
the purposes of this Section 7.1, the term "compensation" means a Participant's
wages, salaries and other amounts received for personal services actually
rendered in the course of employment with the Employer, and excluding the
following:
7.2.4.1 Employer contributions to a
plan of deferred compensation that are not includable in the
Employee's gross income for the taxable year in which
contributed, or employer contributions under a simplified
employee pension plan to the extent such contributions are
deductible by the employee, or any distributions from a plan
of deferred compensation;
7.2.4.2 amounts realized from the
exercise of a non-qualified stock option, or when restricted
stock (or property) held by the Employee either becomes freely
transferable or is no longer subject to a substantial risk of
forfeiture;
7.2.4.3 amounts realized from the
sale, exchange or other disposition of stock acquired under a
qualified stock option; and
7.2.4.4 other amounts that received
special tax benefits, or contributions made by the Employer
(whether or not under a salary reduction agreement) towards
the purchase of an annuity described in section 403(b) of the
Code (whether or not the amounts are actually excludable from
the gross income of the Employee).
For purposes of applying the limitations of this Section 7.2, compensation for a
Limitation Year is the compensation actually paid or includable in gross income
during such year.
7.3 Benefit Limitations - Rules for Certain
Highly-Paid Employees. The benefit due any Member, including a former
- 26 -
<PAGE>
Member, whose anticipated annual benefit under this Plan exceeds $1,500 shall,
if the Member was among the 25 highest paid Members on the Effective Date, upon
the occurrence of any of the events described below, be limited as provided in
this Section and Sections 7.4 through 7.8. This limitation applies if:
7.3.1 the Plan is terminated within 10 years
after the Effective Date;
7.3.2 the benefits due a Member described
above become payable within 10 years after the Effective Date; or
7.3.3 the benefits due a Member described
above become payable before the full current costs of the Plan, for the first
10 years after the Effective Date, have been funded.
7.4 Limitations on Contributions for Certain
Highly-Paid Employees. If Section 7.3 applies, then contributions that may be
used for the benefit of a Member described in section 7.3 shall not exceed the
greater of;
7.4.1 $20,000; or
7.4.2 20% of the first $50,000 of the Member's
Average Compensation, multiplied by the number of years between the Effective
Date and
7.4.2.1 the date of the Plan's
termination,
7.4.2.2 the date the Member's benefit
becomes payable, or
7.4.2.3 the date of the failure to meet
the Plan's full current costs,
as applicable. If, as of the date described in Section 7.4.2.1 or Section
7.4.2.2, the full current costs of the Plan have not been met, then the date of
the failure to meet such costs shall be substituted for the date in Section
7.4.2.1 or Section 7.4.2.3, as applicable. If Section 7.4.2.2 applies, the
number of years that may be taken into account may be recomputed for each year
if the full current costs of the Plan are met for such year.
7.5 Contributions for: Purposes of Section 7.4.
For purposes of the limitations in Section 7.4, the contributions that may be
used for the benefit of a Member include not only contributions previously
allocated exclusively for his benefit,
- 27 -
<PAGE>
but any unallocated funds that would be used for his benefit if the Plan were
then terminated or the Member withdrew from the Plan.
7.6 Exception to Limitations of Section 7.4. The
limitations of Section 7.4 may be exceeded for the purpose of making current
retirement income benefit payments to retired Members if:
7.6.1 the contributions that may be used for
any such Member are applied either to provide:
7.6.1.1 level amounts of annuity in
the basic form of benefit provided for under the Plan for him
at retirement (or, if he has already retired, beginning
immediately), or
7.6.1.2 level amounts of annuity in an
alternate form of benefit provided under the Plan if the level
amount of annuity under such alternate form of benefit is not
greater than the level amount of annuity under the basic form
of benefit provided under the Plan;
7.6.2 the annuity thus provided is
supplemented, to the extent necessary, to provide the full retirement income
benefits in the basic form called for under the Plan, by current payments to
such Member as his benefits come due; and
7.6.3 such supplemental payments are made at
any time only if the full current costs of the Plan have then been met, or the
aggregate of such supplemental payments for all such Members does not exceed the
aggregate contributions already made under the Plan in the year then current.
7.7 Special Definitions and References. Unless
defined otherwise in the Plan, the terms used in Sections 7.3 through 7.6 shall
have the meanings prescribed in Treas. Reg. Secs. 1.401-4(c)(2)(vi) and
1.404(a)-6. Further, the $1,500 amount referred to in Section 7.3 and the
$20,000 amount referred to in Section 7.4.1 shall be adjusted consistent with
Treas. Reg. Sec. 1.401-4(c)(5).
7.8 Application of Excess Funds. Any excess arising
by application of the foregoing provisions shall be used and applied for the
benefit of the other Members, their surviving spouses or other Beneficiaries.
- 28 -
<PAGE>
ARTICLE VIII. PLAN ADMINISTRATION.
8.1 Allocation of Fiduciary Responsibility. The Plan shall be
administered by the Retirement Board, which shall be the Plan's "named
fiduciary" and "administrator", as those terms are defined by the Employee
Retirement Income Security Act of 1974, as amended, and its agent designated to
receive service of process. All matters relating to the administration of the
Plan, including the duties imposed upon the Plan administrator by law, except
those duties relating to the control or management of Plan assets, shall be the
responsibility of the Retirement Board. All matters relating to the control or
management of Plan assets shall, except to the extent delegated in accordance
with the trust agreement, be the sole and exclusive responsibility of the
Insurer or the Trustee, as applicable.
8.2 Appointment of Retirement Board. The Retirement Board shall
consist of no fewer than three persons who shall be appointed and may be removed
by the Board of Directors. Persons appointed to the Retirement Board may be, but
need not be, Employees. Any Retirement Board member may resign by giving written
notice to the Board of Directors, which notice shall be effective 30 days after
delivery. A Retirement Board member may be removed by the Board of Directors by
written notice to such Retirement Board member, which notice shall be effective
immediately upon delivery of the notice. The Board of Directors shall promptly
select a successor following the resignation or removal of any Retirement Board
member, if necessary to maintain a Retirement Board of at least three members.
8.3 Compensation and Expenses of Retirement Board. Members of the
Retirement Board who are employees of a Participating Company shall serve
without compensation. Members of the Retirement Board who are not employees of a
Participating Company may be paid reasonable compensation for services rendered
to the Plan. Such compensation and all ordinary and necessary expenses of the
Retirement Board shall be paid by the Participating Companies.
8.4 Retirement Board: Rules and Regulations. The Retirement Board
shall elect a Chairman and a Secretary and may elect an Assistant Secretary. The
Secretary and Assistant Secretary may be, but need not be, members of the
Retirement Board. The Retirement Board shall enact such rules and regulations
for the conduct of its business and for the administration of the Plan as it may
deem desirable. The Retirement Board may act either at meetings at which a
majority of its members are present or by a writing signed by a majority of its
members without the holding of a meeting. Records shall be kept of the meetings
and
- 29 -
<PAGE>
actions of the Retirement Board. No member of the Retirement Board who is a
Member of the Plan shall vote upon any matter affecting only his benefit.
8.5 Exclusive Benefit Rule. The Retirement Board shall administer and
interpret the Plan for the exclusive benefit of Members, their surviving spouses
and other Beneficiaries.
8.6 Funding Policy and Method. The Retirement Board shall:
8.6.1 establish and carry out a funding policy and method
consistent with the objectives of the Plan; and
8.6.2 establish and maintain a minimum funding standard
account, as defined in section 412 the Code, and, if appropriate, an
alternative minimum funding standard account, also as defined in
section 412 the Code. Not later than the last day of each Plan Year
the Retirement Board shall report to the Board of Directors the amount
of contribution necessary to prevent an accumulated funding deficiency
for that Plan Year.
8.7 Consultants and Advisors. The Retirement Board may, and to the
extent necessary for the maintenance of the minimum funding standard account or
alternative funding standard account and the preparation of required reports
shall, employ accountants, actuaries, attorneys and other advisors. The fees
charged by such accountants, actuaries, attorneys or other advisors shall
represent reasonable compensation for services rendered, and shall be paid by
the Participating Companies.
8.8 Control of Fund. No Retirement Board member shall, at any time,
handle any assets of the Fund. All payments to the Fund shall be made by the
Participating Company officer charged with that responsibility by the
Participating Company's board of directors, and all payments from the Fund shall
be made by the Trustee.
8.9 Retirement Board: Delegation and Allocation. The Retirement Board
may, by unanimous action in writing, delegate any of its responsibilities to any
Participating Company officer, and may allocate any of its responsibilities to
one or more members of the Retirement Board. In the event of any such delegation
or allocation the Retirement Board shall establish procedures for the thorough
and frequent review of the performance of such duties. Persons to whom
responsibilities have been delegated may not delegate to others any
discretionary authority or discretionary control with respect to the management
or administration of the Plan.
- 30 -
<PAGE>
ARTICLE IX. AMENDMENT AND TERMINATION
9.1 Amendments. The Plan may be amended at any time and from time to
time by the Board of Directors, provided that no amendment shall divest any
interest of any Member, surviving spouse or other Beneficiary, nor be effective
unless the Plan shall continue to be for the exclusive benefit of the Members,
their surviving spouses, and their other Beneficiaries. In addition, effective
August 1, 1984, no amendment shall decrease any Member's Accrued Pension
Benefit, eliminate or reduce any benefit subsidy or early retirement benefit, or
eliminate any optional form of benefit except in accordance with section
411(d)(6) and section 412(c)(8) of the Code.
9.2 Termination. While each Participating Company intends to continue
the Plan indefinitely, each reserves the right to terminate or partially
terminate the Plan at any time with respect to Members employed by it. If the
Plan is so terminated or partially terminated, all amounts then standing to the
credit of the Fund, and attributable to the contributions of such Participating
Company, shall be allocated to the Accrued Pension Benefits of affected Members
in the manner prescribed by Section 9.3. All such Members' unvested Accrued
Pension Benefits, to the extent then funded, shall immediately vest and be
nonforfeitable and the Fund shall continue to be held for distribution as
provided under the Plan. Any residual assets, after all liabilities of the Plan
to such Members, their surviving spouses and their other Beneficiaries have been
satisfied, shall be distributed to Berwind Corporation unless specifically
directed otherwise by the Board of Directors of Berwind Corporation. No
Employees of the terminating Participating Company may thereafter be admitted to
the Plan as new Members and such Participating Company shall make no further
contributions to the Fund, except as may be required by law.
9.3 Allocation of Assets Upon Termination. In the event of termination
or partial termination of the Plan all of the assets of the Fund shall be
allocated among the affected Members, surviving spouses and other Beneficiaries
in the following order:
9.3.1 the assets shall first be allocated to that portion of
a Member's benefit, if any, derived from his Accumulated
Contributions.
9.3.2 the assets shall next be allocated, in the case of
benefits payable as an annuity,
- 31 -
<PAGE>
9.3.2.1 if the benefit of a Member, surviving
spouse, or Beneficiary was in pay status as of the beginning
of the three year period ending an the termination date of
the Plan, to each such benefit, based on the provisions of
the Plan (as in effect during the five year period ending on
such date) under which the benefit would be the least, or
9.3.2.2 if a benefit (other than a benefit
described in Section 9.3.2.1) would have been in pay status
as of the beginning of such three year period if the Member
had retired prior to the beginning of the three year period
and if the benefits had commenced (in the normal form of
annuity under the Plan) as of the beginning of such period,
to each such benefit based on the provisions of the Plan (as
in effect during the five year period ending on such date)
under which such benefit would be the least.
For purposes of Section 9.3.2.1, the lowest benefit in pay status during a three
year period shall be considered the benefit in pay status for such period.
9.3.3 Any remaining assets shall be allocated:
9.3.3.1 to all other benefits (if any) of
individuals under the Plan guaranteed under section 4022 of
the Employee Retirement Income Security Act of 1974, as
amended (without regard to section 4022(b)(5) of the Act);
9.3.3.2 to the additional benefits (if any) that
would be determined under Section 9.3.3.1 if section
4022(b)(6) of the Employee Retirement Income Security Act of
1974, as amended, did not apply;
9.3.3.3 to all other nonforfeitable benefits under
the Plan;
9.3.3.4 to all benefits under the Plan; and
9.3.3.5 to Berwind Corporation, unless
specifically directed otherwise by the Board of Directors of
Berwind Corporation, if all liabilities of the Plan to
Members, their surviving spouses and their other
Beneficiaries have been satisfied and such distribution is
not prohibited by any provision of law.
- 32 -
<PAGE>
If the Fund is insufficient to provide in full for any of the classes
set forth above, the assets remaining shall be applied proportionately among
Members, surviving spouses and other Beneficiaries of that class and nothing
shall be applied to any subsequent class.
The above priorities and allocation of assets shall be determined in
accordance with section 4044 of the Employee Retirement Income Security Act of
1974, as amended.
ARTICLE X. MISCELLANEOUS.
10.1 Merger, Consolidation or Transfers. The Board of Directors
reserves the right to merge or consolidate the Plan with any other defined
benefit employee pension plan qualified under the Code, and to transfer Plan
assets or liabilities in connection therewith, provided that the benefit that
would be payable to each Member in the event of a Plan termination occurring
immediately after any such merger, consolidation or transfer of assets or
liabilities, shall be at least equal to the benefit that would have been payable
to each Member in the event of a Plan termination occurring immediately before
such merger, consolidation or transfer.
10.2 Rights of Participating Companies. The existence of the Plan
shall not confer upon any Employee the right to be continued as an Employee.
Each Participating Company expressly reserves the right to discharge any of its
Employees whenever in its judgment its best interests so require.
10.3 Nonalienation of Benefits. No benefit payable under the Plan
shall be subject in any manner to anticipation, assignment or voluntary or
involuntary alienation. This section shall not preclude the Retirement Board,
the Trustee, or either of them, from complying with the terms of a qualified
domestic relations order as defined in section 414(p) of the Code.
10.4 Facility of Payment - Incapacity. Unless the Retirement Board is
directed otherwise by the terms of a qualified domestic relation order, as
defined in section 414(p) of the Code, if any Member, surviving spouse or other
Beneficiary shall be physically or mentally incapable of receiving or
acknowledging receipt of any payment due under the terms of the Plan and no
legal representative shall have been appointed for him, the Retirement Board may
direct the Insurer or the Trustee, as applicable, to make any such payment to
any person or institution maintaining such Member, surviving spouse or other
Beneficiary,
- 33 -
<PAGE>
and the release of such person or institution shall be a valid and complete
discharge for such payment.
10.5. Facility of Payment Minority. Unless the Retirement Board is
directed otherwise by the terms of a qualified domestic relations order, as
defined in section 414(p) of the Code, if the surviving spouse or other
Beneficiary of any Member shall be a minor and no guardian shall have been
appointed for him, the Retirement Board may direct the Trustee to retain any
payment due under the Plan for his benefit until he attains majority. Such
amount, as authorized by the Retirement Board, may be held in cash, deposited in
bank or savings accounts, or invested and reinvested in direct obligations of
the United States, and the income thereon may be accumulated and invested or the
income and principal may be expended and applied directly without the
intervention of any guardian and without application to any court.
10.6 Prohibition Against Diversion. Prior to the satisfaction of all
liabilities with respect to Members, surviving spouses and other Beneficiaries,
no part of the principal or income of the Fund shall be used for, or diverted
to, purposes other than for the exclusive benefit of Members, their surviving
spouses or their other Beneficiaries under the Plan. No person shall have any
interest in or right to any part of the earnings of the Fund, or any rights in,
or to, or under the Fund or any part of the assets thereof, except to the extent
expressly provided in the Plan, Contract and Trust.
10.7 Unclaimed Benefits. If a Member, surviving spouse or other
Beneficiary to whom a benefit is payable under the Plan cannot be located
following a reasonable effort to do so by the Retirement Board, such benefit
shall be forfeited but shall be reinstated if a claim therefor is filed by the
Member, surviving spouse or other Beneficiary.
10.8 Provisions Relating to Top-Heavy Plan. Notwithstanding anything
in the Plan to the contrary, if the Plan is determined to be a top-heavy plan
within the meaning of Section A.14 of Appendix B and section 416(g) of the Code
for any Plan Year beginning after December 31, 1983, then the Plan shall meet
the requirements of Article B of Appendix B for any such Plan Year.
10.9 Date of Effectiveness. Except as may be specifically provided
otherwise, this amendment and restatement of the Plan shall be effective as of
January 1, 1984.
- 34 -
<PAGE>
To record the adoption of this amendment and restatement of the Plan,
BERWIND CORPORATION has caused its authorized officers to affix its corporate
name and seal this day of , 1985.
(CORPORATE SEAL) BERWIND CORPORATION
Attest: By:
---------------------------- ------------------------------
- 35 -
<PAGE>
APPENDIX A
Option Election Factors for Un1sex 83M
Berwind
Pension Plans
Step #1: Determine the monthly pension benefit in the normal form of Life
Annuity commencing at actual retirement age.
Step #2: Enter the following Table A, and Table B if necessary for J&S
options, to determine the option factor for the age and option. Use
age nearest birthday.
Step #3: Multiply the monthly benefit (from Step #1) times the option factor
to determine the monthly benefit in the optional form.
Table A
Factor to Convert Life Annuity Form To:
<TABLE>
<CAPTION>
Annuitant 30% 66 2/3 75% 100%
Age 5C&C 10C&C 15C&C J&S* J&S* J&S* J&S*
--- ---- ----- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Less than 55 .993 .980 .952 .936 .912 .905 .876
55 .992 .970 .940 .928 .906 .895 .864
56 .991 .966 .934 .924 .903 .890 .858
57 .990 .963 .927 .920 .899 .884 .851
58 .988 .959 .919 .916 .895 .878 .841
59 .987 .954 .910 .912 .891 .872 .832
60 .985 .949 .901 .907 .887 .866 .829
61 .984 .943 .891 .903 .882 .860 .822
62 .982 .936 .880 .898 .876 .854 .815
63 .979 .929 .867 .894 .868 .848 .807
64 .977 .920 .854 .889 .860 .842 .799
65 .974 .911 .840 .884 .851 .835 .791
66 .970 .901 .825 .878 .844 .829 .782
67 .966 .890 .809 .872 .837 .822 .773
68 .961 .878 .792 .866 .830 .815 .764
69 .956 .865 .774 .860 .823 .807 .755
70 .951 .852 .756 .855 .817 .799 .747
71 .945 .838 .737 .850 .811 .792 .739
72 .939 .823 .718 .845 .804 .785 .731
73 .933 .808 .699 .841 .798 .779 .724
74 .926 .79l .679 .837 .792 .772 .715
75 .917 .773 .658 .833 .786 .765 .706
More than 75 .895 .724 .606 .823 .771 .746 .684
</TABLE>
*Note: The above J&S factors assume Annuitant and Joint Annuitant are same age
(within one year). If age difference is one year or greater, adjust the above
J&S factors by Table B.
Example: (10 C&C): Annuitant is age 58 is entitled to $100/month starting at
age 58 in a Life Annuity form. The 10 C&C option factor would be .959
and he or she would be entitled to $95.90/month starting at age 58 in
a 10 C&C Annuity form.
Example: (100% J&S): Annuitant is age 62, with Joint Annuitant also age 62, and
is entitled to $100/month starting at age 62 in a Life Annuity form.
The 100% J&S option factor would be .815 and he or she would be
entitled to $81.50/month starting at age 62 in a 100% Joint & Survivor
annuity form.
* * * *
The J&S factors in Table A assume Joint Annuitant and Annuitant are same age
(within 1 year). If Joint Annuitant is younger than Annuitant, subtract the
following Table B factors times the age difference from the Table A factors. If
Joint Annuitant is older, add the following Table B factors times the age
difference (Note: if the Joint Annuitant is older, the maximum factor under any
J&S is .990).
Table B
Factor to Adjust for Age Difference on J&S
<TABLE>
<CAPTION>
Annuitant 50% 66 2/3 75% 100%
Age J&S J&S J&S J&S
--- --- --- --- ---
<S> <C> <C> <C> <C>
60 or less .002 .003 .003 .004
61-65 .003 .004 .004 .005
66 or more .004 .005 .006 .007
</TABLE>
Example: If Annuitant is age 63 with Joint Annuitant age 54, the age difference
is 9 years. The 100% Joint and Survivor factor from TABLE A of .807 will be
decreased (factor, and monthly benefit, will be lower because younger Joint
Annuitant is likely to outlive Annuitant) by 9 x .005, or by .045. The proper
factor is therefore .807 minus .045, or .762.
Exhibit 10.16.1
Hosokawa Micron International Inc.
Officer's Certificate
The undersigned hereby certifies that Exhibit 10.16 is a fair and accurate
English translation of the German document to which it corresponds.
Date: May 27, 1998 /s/ Simon H. Baker
-----------------------------------
Simon H. Baker
Vice President Taxes, Secretary, and
General Counsel
BETWEEN
[GRAPHIC LOGO OMITTED]
INTERNATIONAL ASSOCIATION OF MACHINISTS
AND AEROSPACE WORKERS, AFL-CIO
DISTRICT LODGE #190
AND
BEPEX CORPORATION
EFFECTIVE: OCTOBER 1, 1995
TERMINATES: APRIL 30, 1999
<PAGE>
TABLE OF CONTENTS
I UNION RECOGNITION 1
II GENERAL PURPOSE AND SCOPE OF AGREEMENT 2
III MANAGEMENT RIGHTS 3
IV UNION SECURITY AND DUES 4
V NO STRIKE, NO LOCK OUT 6
VI NON DISCRIMINATION 6
VII RATES OF PAY AND JOB CLASSIFICATION 7
VIII HOURS AND SHIFTS 10
IX SENIORITY 14
X APPRENTICES 17
XI PAY FOR JURY DUTY 19
XII FUNERAL PAY 20
XIII HOLIDAYS 20
XIV VACATIONS 24
XV WORKING CONDITIONS AND SAFETY 27
XVI GRIEVANCE PROCEDURE 29
XVII UNION REPRESENTATION 33
XVIII HEALTH, MEDICAL AND DENTAL BENEFITS 33
XIX PENSION 35
XX SICK LEAVE SUPPLEMENTING U.C.D. OR WORKER'S
COMPENSATION INSURANCE 38
XXI PLANT RELOCATION AND SEVERANCE PAY 38
XXII BEPEX CORPORATION 401(K) SAVINGS 39
XXIII MISCELLANEOUS SUBJECTS 40
XXIV DURATION OF AGREEMENT 42
APPENDIX A WAGES 44
APPENDIX B DEFINITION OF JOB CLASSIFICON 45
APPENDIX C GROUP INSURANCE, HOSPITALIZATION, MEDICAL & DENTAL 48
APPENDIX D SICK LEAVE PLAN 49
APPENDIX E TRUST FUND OBLIGATIONS 53
XIX PENSION CONTRACT LANGUAGE 55
APPENDIX F COMPANY WORK RULES 56
APPENDIX G SAFETY RULES 61
APPENDIX H SUBSTANCE ABUSE POLICY 63
<PAGE>
AGREEMENT
BETWEEN
BEPEX CORPORATION
AND
PETALUMA LODGE NO. 1596, DISTRICT NO. 190
INTERNATIONAL ASSOCIATION OF MACHINISTS AND AEROSPACE WORKERS
AFL-CIO
EFFECTIVE: 10/1/95 TERMINATION: 4/30/99
- --------------------------------------------------------------------------------
By and between BEPEX CORPORATION, located in Santa Rosa, California, party of
the first part, hereinafter referred to as "the Company"; and PETALUMA lodge no.
1596, district no. 190, OF THE INTERNATIONAL ASSOCIATION OF MACHINISTS AND
AEROSPACE WORKERS, AFL-CIO, party of the second part, hereinafter referred to as
"the Union".
WITNESSETH: It is hereby mutually agreed as follows --
ARTICLE I
UNION RECOGNITION
SECTION 1. COVERAGE
This AGREEMENT shall cover all employees of the Company coming under the
jurisdiction of the UNION.
SECTION 2. RECOGNITION AND JURISDICTION
The COMPANY recognizes the UNION as the sole bargaining agent for employees
engaged in the making, manufacturing, repairing, dismantling, building,
maintaining, constructing, erecting, assembling of all tools and dies,
machinery, engines, motors, pumps and all other metal and plastic devices,
either driven by hand or power that comes under the jurisdiction of the
International Association of Machinists, as defined in its Constitution as of
this date, and the operation of all tools, machines, and mechanical devices, and
all welding used in connection with such work and such other classifications
that may be required to properly perform and complete the work or jobs of
employees performing work within the jurisdiction of the UNION. The above
jurisdictional claims are to specifically include the experimental and
development work on all tools, dies, jigs, fixtures and all heat treating used
in connection with such work.
SECTION 3. SPECIFICALLY EXCLUDED ARE
<PAGE>
a) Supervisors and/or foremen who do not use tools of the trade except in a
supervisory capacity, and who by working, do not displace any employees
covered under this AGREEMENT, and who also are exempt from the wage and
hour provisions of the Fair Labor Standards Act of 1938 as amended. It is
not intended that the foregoing apply to leadermen, supervisors, ____- as
___ to use the tools of the trade.
b) Clerical and office employees engineering, professional, technical and
laboratory personnel, watchmen or guards, gardeners, office janitors and
all other employees unless they are covered by an addendum to AGREEMENT.
Also students hired for three (3) months or less who do not replace
employees covered by this AGREEMENT.
ARTICLE II
GENERAL PURPOSE AND SCOPE OF THE AGREEMENT
SECTION 1.
The general purpose of this AGREEMENT is to set forth the hours of work, rates
of pay and conditions of work to be observed by the COMPANY and the UNION; and
to provide orderly and harmonious procedures between the COMPANY and the UNION;
and to secure a prompt and fair disposition of grievances. It is the further
purpose of the AGREEMENT to prevent interruption of work and to promote the
efficient operation of the business.
SECTION 2.
In recognition of its responsibility as collective bargaining representative of
production and maintenance employees employed at its Santa Rosa plant location
in the defined unit, the UNION agrees that it will cooperate fully in
discouraging absenteeism and tardiness and that it will support COMPANY efforts
to: raise the level of employee performance, eliminate waste and inefficiency of
working time, material or equipment, or work practices which limit production or
quality; improve the quality and productivity in all work, strengthen good will
between the COMPANY, the UNION, the employees, the customers and the public, to
prevent accidents and promote safety, and to preserve energy. It shall be the
responsibility of each employee to apply him/herself diligently and in a manner
which provides work which meets acceptable levels of quality and quantity.
SECTION 3.
The parties intend that the provisions of this AGREEMENT shall constitute the
entire AGREEMENT between the COMPANY and the UNION. No AGREEMENT, alteration,
understanding, variation, waiver or modification of any of the terms, conditions
or covenants contained herein shall be binding upon the parties hereto, unless
made and executed in writing between the parties and made part of this
AGREEMENT. This AGREEMENT supersedes all previous AGREEMENTS including all
verbal or written supplemental AGREEMENTS and past AGREEMENTS or practices.
SECTION 4.
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Memorandums of Agreement agreed to between the COMPANY and the UNION prior to
the effective date of this AGREEMENT, shall be reviewed by both the COMPANY and
the UNION prior to the effective date of this AGREEMENT. Only those Memorandums
mutually agreed to be included within this AGREEMENT and again signed by the
appropriate representatives of the COMPANY and the UNION, shall be part of this
AGREEMENT. Such Memorandums of Agreement shall be contained in the Appendix of
the AGREEMENT. Should a Memorandum of Agreement be reached between the COMPANY
and the UNION during the term of this AGREEMENT, it should be signed to become
part of this AGREEMENT. Nothing within this Article II is intended to conflict
with Article II, Sections 3 and 4 or to restrict the rights of the parties as
stated within this AGREEMENT.
ARTICLE III
MANAGEMENT RIGHTS
SECTION 1.
The UNION agrees that, except as expressly and specifically provided to the
contrary by the written provisions of this AGREEMENT, the COMPANY shall continue
to have and retain the sole and exclusive rights and authority to administer
and/or manage its business, operations and affairs, to exclusively direct the
working force and the employees covered hereby and, in addition to other
functions and responsibilities not specifically mentioned in this AGREEMENT and,
therefore, without attempting to list herein all these Management Rights, but
prominent among such rights, the right and authority of the COMPANY shall
include: The right to lease or sublease; the right to expand, sell, move,
establish new operations, transfer and/or terminate all or part of its
operations; the right to establish and/or change hours of work including number
of hours worked and/or work schedules in accordance with this AGREEMENT; the
right to select, hire and layoff employees and/or to determine the size and
composition of the COMPANY's work force; the establishment and determination of
the required jobs within the plant, eliminate or create new jobs; the
determination of the levels of productivity, quality and efficiency; the right
to discipline, suspend or discharge employees for cause; the right to change or
introduce any new or improved methods, materials, equipment or facilities; the
right to schedule the volume or schedule of manufacturing or work; the right to
determine the methods, techniques and types of work or service to be performed,
not performed, or work or service to be subcontracted; the determination of the
products to be made or subcontracted as limited only by the AGREEMENT between
the parties; and the right to make and enforce such reasonable rules and
regulations as the COMPANY may consider necessary or desirable for the operation
of this business. These Management Rights are not all inclusive, but indicate
the type of matters which belong to and are inherent to the COMPANY. The COMPANY
not exercising rights reserved to it or exercising them in a particular way
shall not be deemed a waiver of its rights or of its right to exercise them in
some other way.
SECTION 2.
It is expressly understood and agreed that all rights which the COMPANY had
prior to the execution of this AGREEMENT, are hereby expressly reserved and
retained by the COMPANY and shall continue to be vested solely in the COMPANY.
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SECTION 3.
Management recognizes and the UNION agrees that every good organization must
have standards of conduct in order to promote efficiency, harmony and safety.
Rules and regulations of the COMPANY are based on the thought that each and
every one of such rules are necessary and reasonable for the benefit of all of
the COMPANY's employees. All employees must comply with the COMPANY's General
Rules and Regulations as agreed to between the parties, including safety rules
and rules of conduct as published and/or posted as a condition of continued
employment.
ARTICLE IV
UNION SECURITY AND DUES
SECTION 1. HIRING OF EMPLOYEES
a) All employees covered by this Agreement shall become and remain members of
the UNION as a condition of employment on one of the following dates,
whichever is later.
The 31st calendar day following the beginning of their employment;
The 31st calendar day following the effective date of this AGREEMENT; or
The 61st calendar day following the date of signing this AGREEMENT.
b) The COMPANY shall notify the UNION of all job openings within the
bargaining unit covered by this AGREEMENT. The UNION may refer applicants
for such openings. In interviewing and hiring for such job openings, the
COMPANY will not discriminate against any applicant referred by the UNION.
The COMPANY will notify the UNION office and Shop Steward of the name,
address, classification and the date of hire for each employee hired for a
job covered by this BARGAINING AGREEMENT immediately following hiring of
such employee.
c) In the application of paragraph (a) above, when the COMPANY is notified by
the UNION in writing that an employee has failed to make application and
tender the UNION initiation fee or reinstatement fee, or is not a member
in good standing by failing to tender the UNION dues, the COMPANY shall,
within two (2) working days terminate such employee. Such employee shall
not be re-employed by the COMPANY during the life of this AGREEMENT unless
the employee becomes a member in good standing in the UNION as defined by
law.
d) In exception to the above, the COMPANY may place employees in the factory
for future sales, office or engineering force training for a period of
three (3) months; however the ratio of one (1) for the shop or two (2) for
fifty (50) employees within the bargaining unit, shall not be exceeded
except by mutual consent between the COMPANY and the UNION, and these
employees shall not replace the employees regularly employed and working.
The UNION and the Steward shall be notified in writing a week prior to
placing such persons in the shop.
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SECTION 2.
The COMPANY agrees to deduct UNION dues from any employee member of the UNION,
under conditions conforming to law, upon the employee providing and maintaining
a valid written and signed authorization for such deduction. Such authorization
shall remain in full force and effect and shall be honored for the duration of
this AGREEMENT and thereafter, unless canceled in writing beforehand by the
individual. Deductions shall be made and forwarded to the person designated by
the UNION as authorized to receive such dues deductions. The UNION will provide
the COMPANY written notification of the person to receive dues deductions, the
address to which such dues are to be sent, and the amount of such periodic
deductions.
SECTION 3. DEDUCTIONS FROM PAY
a) There shall be no deduction from employees' pay covered by this AGREEMENT
except as provided in this AGREEMENT or as required and in the manner
prescribed by law, or as mutually agreed to by the COMPANY and the UNION
and as authorized in writing by an employee.
b) The UNION shall indemnify and save the COMPANY harmless from all claims,
suits, judgments, expenses (including attorney's fees and court costs),
attachments, and from all other forms of liability as a result of making
any deductions in accordance with the foregoing authorization and
assignment, and other provisions of this Article IV.
c) The COMPANY obligation to make such deductions as specified in this
Article IV shall terminate automatically on the termination of the
employee who signed the authorization or upon the transfer of such
employee to another job of the COMPANY not covered by this AGREEMENT.
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ARTICLE V
NO STRIKE. NO LOCK OUT
SECTION 1. NO STRIKE - NO LOCKOUT
a) During the term of this AGREEMENT the UNION will not cause a strike or
production stoppage of any kind, nor will any employee or employees take
part in a strike, in an intentional slow down in the rate of production or
in any manner cause interference with or stoppage of the COMPANY's work at
or around the COMPANY's premises, provided the COMPANY follows the
grievance procedure for which provision is made herein. Likewise, the
COMPANY agrees that there shall be no lockouts during the life of this
AGREEMENT provided the UNION follows the grievance procedure for which
provision is made herein.
b) There shall be no refusal to work on, handle or produce any materials or
equipment, or to perform services duly assigned to an employee, because of
a labor dispute affecting the vendor or purchaser of said materials or
equipment.
c) In the event an employee or group of employees violate the provisions of
this Article, he or they shall be deemed to have quit their employment. If
such an employee or group of employees are re-employed by the COMPANY, any
restoration of benefits shall be by mutual agreement with the UNION.
d) In the event of such a work stoppage, the International Union and the
Local Union agree that they will implement the procedure set forth
hereafter:
1) Publicly declare the strike is unauthorized
2) Order its members to return to work notwithstanding the existence of
a picket line.
3) In good faith use every reasonable effort to terminate such
unauthorized strike.
4) Refrain from interfering with or challenging in any way,
legal-contractual-or otherwise, any disciplinary action which the
COMPANY may take against any employee(s) provided that, if any issue
of fact exists as to whether or not such employee(s) has engaged in
any such prescribed action, such issue can be subject to the
grievance and arbitration procedure.
SECTION 2. MAINTENANCE OF COMPANY'S CONDITIONS
The UNION members agree to exert every reasonable effort to advance the business
of their COMPANY.
ARTICLE VI
NON-DISCRIMINATION
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SECTION 1.
There shall be no discrimination against any member of the UNION by the COMPANY
or against the COMPANY signatory to this AGREEMENT by the UNION.
SECTION 2.
The COMPANY and the UNION shall comply with all applicable laws respecting equal
employment opportunity. The UNION agrees to cooperate fully with the COMPANY in
its efforts to comply with Executive Orders as well as federal, state or local
legislation affecting equal employment opportunity.
SECTION 3.
The term(s) "employee" or "employees" or references to male gender whenever used
in this AGREEMENT shall include only those employees included in the defined
unit, regardless of whether each employee(s) is male or female.
ARTICLE VII
RATES OF PAY AND JOB CLASSIFICATIONS
SECTION 1. WAGES
a) Minimum wages for classifications of employees covered by this AGREEMENT
are set forth in "Appendix A" which is a part of this AGREEMENT. Premium
wage rates over and above the minimum wage rates may or may not be paid by
the COMPANY.
b) The COMPANY and the UNION agree that the COMPANY's employees shall perform
any and all assigned work within their classification. Should an employee
be unable to perform such work due to matters of skill, ability or health,
he/she may be transferred to a classification that encompasses such
employee's level of competence (skill or ability) or other measures may be
taken. Such employee shall receive the rate of pay for such a
classification to which he/she is transferred. Should the UNION or
employee disagree with such transfer, rate of pay, or measures, the UNION
or employee may file a grievance beginning at Step 2 in the Grievance
Procedure.
c) Notwithstanding any other provisions of the AGREEMENT, the COMPANY shall
retain the sole right to temporarily transfer an employee to perform
duties that are within his/her level of competence (skill and ability).
When an employee in any of the classifications in the AGREEMENT is
temporarily assigned to a higher classification of work, for one (1) hour
or less in any one (1) day, he/she shall receive a maximum of one (1)
hour's pay at the higher rate. A temporary assignment is defined as an
assignment of
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thirty (30) calendar days or less. Exception will be made for a
replacement of an employee on an extended illness or vacation by mutual
agreement between the COMPANY and the UNION.
d) An employee who is regularly classified in a higher classification shall
not be reduced in rate when temporarily assigned to a lower classification
of work, which means thirty (30) calendar days or less. Exceptions to the
above general policy occur under both plant-wide and classification
seniority where transfer to a lower classification is caused by conditions
which could cause a lay-off due to lack of work.
SECTION 2. DEFINITIONS OF JOB CLASSIFICATIONS
Definitions for Job Classification contained in the wage structure "Appendix A"
are set forth in "Appendix B" which is a part of this AGREEMENT.
SECTION 3. WEEKLY PAY PERIODS
Except where otherwise agreed to between the COMPANY and the UNION, wages shall
be paid as follows --
Employees shall be paid weekly. There shall be no unreasonable delay in the
payment of wages on pay day.
When pay day falls on a recognized holiday, the day preceding the holiday shall
be considered as pay day.
Where pay day is on Friday, employees on second or third shift shall be paid not
later than the termination of their shift preceding the Friday day shift.
SECTION 4. METHOD OF COMPUTING PAY
Employees' pay shall be computed by multiplying the number of hours worked by
the applicable rate.
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SECTION 5. NEW CLASSIFICATIONS
The COMPANY retains the sole right to establish new classifications and to
assign rates of pay to such new classifications. The UNION may confer with the
COMPANY regarding the rate of pay assigned by the COMPANY to such
classifications, but such conference shall not delay the implemenentation of the
job or the assignment of pay. Should the UNION disagree with the rate of pay
assigned such new classification, the UNION may grieve such rate of pay
beginning at Step 3 of the Grievance Procedure. Pending final settlement of the
dispute concerning the rate of pay for the new classification, the work shall be
performed at the rate of pay established by the COMPANY. When a permanent rate
of pay is established, it shall become effective on the date the work was first
performed in the plant.
SECTION 6. PAY FOR LEADPERSONS, SET-UP EMPLOYEES, INSTRUCTORS
EXISTING LEADPERSONS (those assigned prior to the ratification of 8/16/78
AGREEMENT):
a) When an employee is specifically assigned to instruct other employees, he
shall receive not less than ten percent (10%) above the rate of pay for
the highest classification instructed.
b) When an employee is specifically assigned as Leadperson, he shall receive
not less than ten percent (10%) above the rate of pay for the highest
classification led, or five percent (5%) above his/her own classification
rate, whichever is greater. A Leadperson may have the responsibility for
direction of personnel, including instruction and assignment of work, and
for the set up, adjustment and proper functioning of equipment. This
paragraph includes Die Setters and Machine Adjusters if assigned
Leadperson responsibilities.
NEW LEADPERSONS (Those assigned subsequent to the ratification of 8/16/78
AGREEMENT).
When an employee is assigned as Leadperson, he shall receive a premium above
his/her regular rate of
$0.50 per hour if assigned on a shift where supervision is present.
l.00 per hour if assigned on a shift where supervision is not present.
SECTION 7. PAY FOR RECALL AND PROMOTION
A employee shall be recalled from layoff in accordance with his/her seniority
and qualifications (skill and ability) to perform the work of the job to which
he/she is recalled. Such employee shall receive the rate of pay for such job
classification as prescribed in Appendix "A" of the AGREEMENT. An employee
promoted to a higher classification shall receive the rate of pay for such job
classification.
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SECTION 8. PAY FOR BUMPING
When a decrease of forces occurs for any reason requiring layoff of employees in
any job classification, the least senior employee, in the job classification
affected will be the first to be displaced, provided all the remaining employees
can perform the available work at the acceptable level. An employee displaced as
a result of such decrease in forces, in lieu of layoff, will be entitled, on the
basis of plant wide seniority, and provided he/she has the qualifications, skill
and ability to perform the work of the classification, to displace the least
senior employee in a lower classification. Once transferred, such employee will
receive the rate of pay provided for such lower job classification, as provided
in Appendix "A" of this Agreement.
ARTICLE VIII
HOURS AND SHIFTS
SECTION 1. STANDARD STRAIGHT TIME HOURS OF WORK
a) Except as provided in Section 5, Call-in Pay, this Article defines the
hours of work and shall not be construed as a guarantee of hours of work
per day or per week, or of days of work per week.
b) Except as provided in Section 2, Shifts and Shift Differentials, eight (8)
hours shall constitute a normal day's work starting at 7:30 a.m. and
ending not later than 4:30 p.m., with a lunch period of the employee's
time. Forty (40) hours shall constitute a normal week's work, from 7:30
a.m. Monday to 4:30 p.m. Friday. A differential of up to one (1) hour in
the starting and ending time may be put into effect by the COMPANY where
mutually agreed to between the COMPANY and the majority of the employees.
The UNION agrees to make exception of one (1) hour in the starting time,
set forth above, for a limited number (one to a shop of 2% of total
employees) of service employees necessary to prepare for production on a
regular shift basis. This is not to include emergency work, and such
employees shall not perform production work.
c) In exception to the above at the request of either party, the COMPANY and
the UNION shall meet and confer on an addendum covering a work week or
work hours that may be required by special conditions by the company. This
paragraph (c) shall not be subject to the Grievance Procedure.
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SECTION 2. SHIFTS SHIFT DIFFERENTIALS
a) FIRST OR REGULAR DAY SHIFT
A consecutive eight (8) hour period between the hours of 7:30 a.m. and
4:30 p.m., exclusive of lunch period on the employee's time.
b) WHERE TWO SHIFTS ARE WORKED
The second shift shall start no later than thirty (30) minutes after the
first shirt terminates, and shall consist of eight (8) consecutive hours
of work, exclusive of a thirty (30) minute lunch period on the employee's
time.
c) WHERE THREE SHIFTS ARE WORKED
1) The first shift consist of eight (8) hours worked between 7:30 a.m.
and 4:00 p.m. with a thirty (30) minute lunch period on the
employee's time.
2) The second shift will start immediately after the end of the first
shift at 4:00 p.m. and end at 12:30 a.m. including a thirty (30)
minute lunch period on the employee's time.
3) The third shift will overlap the second shift and will begin at
11:00 pm. and end at 7:30 am. including a thirty (30) minute lunch
period on the employee's time.
4) By mutual agreement the start and stop time for these three shifts
may be revised, but each shift will include eight (8) hours worked
with a thirty (30) minute lunch period on the employee's time.
d) Employees assigned to a second shift operation shall be paid the second
shift hourly rate for time worked (see Appendix "A")
Employees on second or third shift shall receive eight (8) hours pay
provided they work a full shift.
SECTION 3. TRANSFER TO ANOTHER SHIFT
a) Employees transferred from one shift to another shall be given twenty-four
(24) hours notice or shall be paid overtime for the first shift so worked.
Change of shift shall not result in any loss of time to an employee, and
when an employee is transferred from one shift to another with the
requisite twenty-four (24) hours notice and where the transfer is for more
than one shift, no overtime pay shall be required.
When an employee is transferred from one shift to another, for one shift
only, he shall be compensated at overtime rate. in all cases of transfer,
the employee affected shall have a minimum rest period of seven (7) hours
between shifts or as prescribed by law.
b) Shop Stewards or Acting Shop Stewards shall not be transferred from the
shift to which they are assigned while work which they are capable of
performing is available.
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c) Seniority shall be considered in determining which shift an employee will
work. The consideration will be given to each employee once a year.
SECTION 4. OVERTIME
a) Overtime be paid as follows:
DAILY OVERTIME will be paid at the rate of time and one-half for the first
two (2) hours. All subsequent hours will be paid at the rate of double
time. Saturday overtime will be paid at the rate of time and one half for
the first eight (8) hours. All subsequent hours be paid at double time.
SUNDAY AND HOLIDAY OVERTIME will be paid at the rate of double time.
b) The employee performing the job shall have the first refusal of overtime.
For the machine shop, the last person that operates the machine shall have
first refusal rights for overtime work.
c) Employees will be notified on Thursday if they are to be assigned Saturday
overtime whenever possible.
d) There shall be no pyramiding of overtime hours or rates of pay.
SECTION 5. CALL-IN PAY
a) Any employee called and/or reporting for work at the beginning of the
shift shall receive either four (4) hours work or four (4) hours pay at
the applicable rate, provided he does not leave sooner of his own accord.
This includes Saturdays, Sundays and Holidays.
b) Except on Saturdays, Sundays and Holidays, any employee who works more
than four (4) hours shall receive either eight (8) hours work or eight (8)
hours pay provided he does not leave sooner of his own accord.
c) An Employee shall be deemed as requested to report on his regular shift
unless notified by an authorized COMPANY representative prior to his
leaving his residence for work on that shift. In the event an employee has
been absent for any reason, this section shall not apply unless he has
first contacted his Supervisor and is notified when to report for work.
d) The provisions of this Section shall not apply if work is unavailable as a
result of causes beyond the control of the COMPANY.
SECTION 6. CALL-BACK PAY
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a) All employee who has left the COMPANY's premises and who is called back to
work after the termination of his regular shift shall receive either four
(4) hours work or four (4) hours pay at the overtime rate
b) An employee shall not be required to stand by for a call back to work
after the termination of his regular shift.
c) Any employee called back to perform emergency repair work on machinery or
equipment shall be required to perform only the specific emergency repair
work on that machinery or equipment for which he was called back, and
shall receive a minimum of four (4) hours pay at the applicable overtime
rate.
SECTION 7. TRAVEL TIME
All travel taken up in traveling to and from outside work, not to exceed eight
(8) hours per day computed from 7:30 a.m. to 7:30 a.m., shall be paid for at
straight time, plus actual and necessary expenses, until destination is reached
and the employees are required to travel on overtime days, they shall be paid
travel time at overtime rates. Appropriate transportation shall be provided or
allowed. In the case of air travel, Coach shall be considered first class
transportation and shall be provided wherever it is available, Air travel
accident insurance shall be provided by the employer.
In no event shall an employee be paid under this provision less than the amount
required by the applicable provision or interpretations of the Fair Labor
Standards.
SECTION 8. REST PERIODS
There shall be two (2) ten (10) minute paid rest periods on each shift of eight
(8) or more hours. The exact time of such rest periods shall be scheduled by the
COMPANY. Employees are expected to adhere to the allotted time off for such rest
periods.
SECTION 9. INVENTORY
Whenever possible, inventory will be done on weekends.
SECTION 10. WAGE RATES FOR COMPUTING HOLIDAYS AND VACACTIONS
Employees assigned to second or third shift operations shall receive Holiday pay
and vacation pay at their shift rate.
SECTION 11. COMPUTATION OF OVERTIME
Overtime rates shall be computed on the straight-time hourly shift rate of pay.
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ARTICLE IX
SENIORITY
SECTION 1. SENIORITY RULE5
In the absence of written seniority rules agreed to by the COMPANY and the
UNION, the following provisions shall apply:
a) An employee shall not attain seniority until he has completed a
probationary period of sixty (60) calendar days (plus an added thirty (30)
days if there is an attendance or attitude problem) in the employ of the
COMPANY, after which time his seniority shall date from his date of hire.
b) All active employees as of March 31, 1977 will maintain seniority over
employees on layoff regardless of date of hire.
c) In event of a reduction in workforce:
EXISTING EMPLOYEES (those hired prior to the ratification of this 8/l6/78
AGREEMENT)
(1) Employees called back after March 31,1977 will be laid off first.
(2) It is understood that the employee may bump into one of the six (6)
classifications established in the AGREEMENT dated May 5, 1977.
Further, it is agreed such employees will be paid at wage rates (as
adjusted) set forth in "Appendix A -Wages" of the above stipulated
AGREEMENT.
NEW EMPLOYEES (those hired subsequent to the ratification of this
8/16/78 AGREEMENT)
(1) When a reduction is necessary by job classification, the person with
the least classification seniority in the job classification being
reduced may exercise his total plant seniority in bumping into a
lower job classification which he is able to perform. It is
understood that the employee may bump into one of the seven
classifications established in this contract dated February 18,
1982. Further, it is agreed such employees will be paid at wage
rates (as adjusted) set forth in "Appendix A - Wages" of this
AGREEMENT.
d) An employee so reduced in classification due to curtailment of employment
shall have the first opportunity to resume his higher classification when
his former job is available in line with his seniority.
e) Employees who exercise their option to bump an employee in a lower
classification because of seniority must be willing, competent and
qualified to perform the work remaining to be done in the classification
and willing to take the rate of pay (as provided in Paragraph C (2) above)
of the classification to which they are assigned.
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f) For reasons other than requirements of the job, the COMPANY may retain an
employee without regard to seniority by special arrangement with the UNION
prior to layoff.
g) New jobs will be posted on plant bulletin boards for five (5) working days
and may be claimed by qualified employees in accordance with the following
procedures:
If such employees successfully bid new jobs they will receive the
classification and wage rate (as adjusted) as set forth in "Appendix A -
Wages."
h) Shop Stewards or Acting Shop Stewards shall have top seniority while
acting in the capacity of Shop Stewards.
SECTION 2. LOSS OF SENIORITY
Continuous service shall be broken and recall right forfeited by --
a) Failure to notify the COMPANY and the UNION of intent to return to work
within two (2) working days after the date recall notice is sent to the
employee's last address on record with the COMPANY and failure to report
to work within five (5) working days after the date recall notice is sent
to the employee's last address on record with the COMPANY. (Copy of recall
notice to be sent to the Union at the same time it is sent to the
employee.)
b) Absence from work for a period equal to an employee's length of continuous
service with the COMPANY up to a maximum of eighteen (18) consecutive
months, except for substantiated medical leave.
c) Voluntary quit.
d) Discharge for cause.
e) Any employee whose total absence or absence for medical leaves accumulates
to a period of time in excess of the employee's seniority recall rights,
shall lose seniority provided that such seniority right may be extended by
mutual agreement between the COMPANY and the UNION and, further that any
period of ninety (90) days of active full time employment shall restore
full medical leave rights equal to the employee's seniority.
SECTION 3. NOTICE OF LAYOFF
a) The UNION and the Shop Steward shall be notified as far in advance as
possible, but in no event less than one (1) day prior to any layoff.
b) On the date that employees are laid off or terminated, the UNION shall be
notified in writing of the names and classifications of all employees laid
off or terminated and the date such layoff or termination occurred.
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SECTION 4. LEAVES OF ABSENCE
a) In cases of established emergency such as death in the immediate family,
the company will grant a leave of absence for a reasonable period of time.
b) In all cases where leaves of absence are granted by the COMPANY to
employees covered by this AGREEMENT, the UNION shall be notified in
writing of the name of the employee, the effective date and the
termination date of the leave of absence. In the event a leave of absence
is extended, such extension shall be made in writing to the employee with
a copy to the UNION. Any employee who does not return or overstays a leave
of absence will be considered to have quit his employment and, if rehired,
shall be considered a new employee.
c) Provided it will not interfere with the efficient operation of the plant,
the COMPANY, upon written request of the UNION, will grant a leave of
absence to an employee for official UNION business, such leave not to
exceed six (6) months.
SECTION 5. RETRENCHMENT IN OPERATIONS
The COMPANY agrees to cooperate as practicable in retaining regular working
forces. When business conditions of the COMPANY necessitate, the COMPANY will
consider the distribution of the remaining work among the work force up to a
period of two (2) weeks. If the work reduction will continue for a period longer
than two (2) weeks, then the COMPANY will consider the reduction of the work
force according to the seniority provisions of this AGREEMENT. Either
consideration will be undertaken consistent with efficient operation of the
business, and final determination regarding the retrenchment program will rest
solely with the COMPANY. The COMPANY will, prior to any retrenchment, however,
meet with the UNION to discuss the proposed retrenchment.
SECTION 6. INFORMATION FURNISHED THE UNION
Within ninety (90) days subsequent to the signing of this AGREEMENT, the
COMPANY shall furnish the UNION with a seniority list covering all employees
within the bargaining unit listing their names, classifications, and status
(Active, Leave of Absence, Layoff, etc.)
When the COMPANY is requested in writing by the UNION, he shall furnish a
revised up-to-date seniority list. Such request shall not be made more often
than once in any calendar year.
SECTION 7. PROMOTION OUTSIDE THE BARGAINING UNIT
Except in the case of an employee who becomes a member of another union within
the plant, any employee transferred or promoted to a position in the plant which
is outside the bargaining unit shall be credited for seniority purposes with his
seniority at the time of his promotion out of the bargaining unit, such credit
to remain
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in effect for a period not to exceed two (2) years. However, the employee shall
not accrue seniority credit while outside bargaining the unit.
ARTICLE X
APPRENTICES
SECTION 1. ACCEPTANCE OF STANDARDS
The UNION and the COMPANY agree to follow the Standards established by the Joint
Apprenticeship Committee covered by this AGREEMENT. Selection of apprentices
shall conform to the principles of Equal Employment Opportunities and
Affirmative Action.
SECTION 2. GRIEVANCE PROCEDURE AVAILABLE
In case a question arises regarding the interpretation or application of the
provisions of the standards, it shall first be taken up by the Shop Steward or
Shop Stewards with the authorized representative of the COMPANY. If no decision
is rendered within five (5) working days, the question shall be referred
immediately to the appropriate Joint Apprenticeship Committee through the UNION
in writing.
The Joint Apprenticeship Committee shall review the facts and render a decision
which shall be nal and binding on both parties.
SECTION 3. LENGTH OF APPRENTICESHIP
The apprenticeship training period shall conform to the appropriate Joint
Apprenticeship Standards.
SECTION 4. TERMINATION OF APPRENTICES
Following the probationary period set forth in the appropriate Joint
Apprenticeship Standards, no apprentice shall be laid off or be permitted to
leave his employment without the approval of the Joint Apprenticeship Committee
provided, however, that nothing in this Section shall prevent a COMPANY form
discharging an apprentice for just cause. Any discharge shall be reported
immediately to the appropriate Joint Apprenticeship Committee. Should the Joint
Apprenticeship Committee or the UNION desire to appeal this discharge, it shall
be appealed to Step 3 of Article XVI - Grievance Procedure, within three (3)
working days following the date the secretary of the appropriate Joint
Apprenticeship Committee receives the report of the discharge.
SECTION 5. PAY FOR APPRENTICES
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The apprentice rate shall be computed on a percentage basis on the
Journeyman's rate for the craft to which the apprentice is indentured, as
follows:
<TABLE>
<CAPTION>
Machinists: Welders:
----------- --------
<S> <C> <C> <C> <C>
1st period - - - - - - 68% Probationary Period - - - - - - - 500 hrs, 68%
2nd period - - - - - - 71% 1st period - - - - - - - - - - - - 1000 hrs, 71%
3rd period - - - - - - 74% 2nd period - - - - - - - - - - - - 1000 hrs, 75%
4th period - - - - - - 77% 3rd period - - - - - - - - - - - - 1000 hrs, 79%
5th period - - - - - - 80% 4th period - - - - - - - - - - - - 1000 hrs, 83%
6th period - - - - - - 83% 5th period - - - - - - - - - - - - 1000 hrs, 87%
7th period - - - - - - 87% 6th period - - - - - - - - - - - - l000 hrs, 91%
8th period - - - - - - 91% Thereafter, Journeyman Rate - - 100%
</TABLE>
For Machinists and Welders a Period is defined as one-thousand (1000) hours of
employment, including school time.
SECTION 6. RATIO AND RULES
a) There shall be one (1) apprentice allowed for each approved shop, and
additional apprentices shall be allowed upon application to and approval
from the appropriate Joint Apprenticeship Committee, provided, however,
that the total ratio of apprentices to Journeymen shall not exceed one (1)
apprentice for each five (5) employed Journeymen members of the UNION
involved, except where this requirement may be waived by mutual agreement
of the parties.
b) No person shall be employed as an apprentice unless he is properly
indentured under California Law.
c) Apprentices shall not be required to work on the third shift. Apprentices
may work on the second shift provided that such work shall not interfere
with their related instruction.
SECTION 7. JOURNEYMAN TRAINING
In order to meet the average increased demand for Journeymen, it is recognized
that a training program for upgrading semi-skilled people must be developed.
Therefore, it is agreed that Specialist employees of the COMPANY may be trained
for a period of twenty-four (24) months to become Journeymen. Trainees are
defined as those Specialists who have had at least two (2) years experience in
shop work within the scope of their classification of work. As performance
indicates, training may be extended by mutual agreement of both parties. The
COMPANY shall consider the following in selecting employees as trainees or
indentured apprentices.
Performance shall be of first consideration, and when equal, seniority
will then be of first consideration.
Persons selected must be willing, competent and qualified to progress to
Journeymen classification.
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There all be at least one (1) trainee or indentured apprentice trained when the
COMPANY has ten (10) or more Journeymen in any single Journeyman classification.
Additional trainees or indentured apprentices may be trained but in no event
shall the ratio of trainees or indentured apprentices exceed one (1) trainee or
apprentice to five (5) Journeymen actively at work in the classification for
which the trainee (or indentured apprentice) is being trained. All trainees (or
indentured apprentices) shall serve a probationary period of five hundred (500)
hours. Where training is for Machine Shop proper, trainees shall spend the same
time in related classrooms as required for apprentices.
The COMPANY shall participate in both of the above training programs as
applicable.
The starting rate for a trainee shall be his present classification rate of pay
as provided for in the collective bargaining agreement, with subsequent increase
as follows:
1/4 of the wage differential between Present classification and Journeyman
classification base rate each six (6) months worked and Journeyman rate after
twenty-four months worked as a trainee.
In exception to the above, no one shall be placed in an apprentice or training
program while Journeymen employees are on layoff and subject to recall in their
plant.
SENIORITY FOR TRAINED EMPLOYEES
An indentured apprentice or a graduate of an equivalent journeymen training
program (including Maintenance classifications), shall be granted seniority as a
Journeymen equal to his length of continuous service IN A TRAINING PROGRAM with
the COMPANY after completing training up to a maximum of four (4) years.
ARTICLE XI
PAY FOR JURY DUTY
SECTION 1.
Where an employee is unable to report for work on his regular shift by reason of
Jury Service, (called for examination for Jury Duty or serving on Jury Duty by
being impaneled in a jury box and actively serving as a juror) he will, upon
furnishing written proof of such service, be paid the difference between the
jury pay and the amount he would have been paid on his regular shift pay lost
under the qualifications set forth below:
a) When employee is called for Jury Duty for 1st time, he must review with
Foreman and COMPANY may request employee to request extension based on
production load.
b) Day shift employees called for Jury Duty or examination and excused by the
court prior to 12:00 noon shall return to work for the balance of their
day shift and shall be paid the difference between the jury pay or
examination pay, if any, and their straight-time pay lost.
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<PAGE>
c) Night or swing shift employees called for Jury Duty or examination and
excused by the court prior to noon shall report for their regular night
shift or swing shift work and shall not be eligible for any jury pay under
this Section.
d) Night shift or swing shift employees (except as provided in Paragraph b)
above) shall not be required to work on Jury Duty in the daytime and work
night shift or swing shift on the same calendar day, but shall receive the
difference between their jury pay and their regular shift pay lost.
e) Employees will present proof of service, including the time served and
amount of pay received.
f) Article XI, Section 1, Pay for Jury Duty, shall not apply in any case
where an employee voluntarily seeks Jury Duty.
ARTICLE XII
FUNERAL PAY
SECTION 1. FUNERAL LEAVE OF ABSENCE
There shall be three (3) days allowed off for a death in the employee's
immediate family, consisting of the following relationships: spouse, child,
mother, father, brother, sister, mother-in-law and father-in-law. At the request
of the COMPANY, the employee shall furnish a death certificate and proof of
relationship. This provision would not apply if death occurs during employee's
paid vacation or while employee is on leave of absence, layoff or sick leave.
Such time off shall be paid for by the COMPANY at the employee's shift rate of
pay for eight (8) hours per day. Time paid for funeral leave will not be
considered as time worked.
ARTICLE XIII
HOLIDAYS
SECTION 1. RECOGNIZED HOLIDAYS
There shall be ten (10) paid holidays during the contract year.
MEMORIAL DAY
INDEPENDENCE DAY
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<PAGE>
*Floating Holiday
Labor Day
Thanksgiving Day
Day after Thanksgiving
Christmas
Day after Christmas
New Year's Day
Washington's Birthday
* The Floating Holiday may be taken by individual employees at a time
scheduled and approved by the COMPANY at least thirty (30) days in advance. The
scheduling of such holiday will be approved only at times that do not impair the
efficient operations of the Company. New employees must be employed for 3 months
prior to qualify for Floating Holiday.
Holidays may be rearranged by mutual agreement between the COMPANY and a
majority of its employees.
SECTION 2. QUALIFYING CONDITIONS
Each employee shall receive eight (8) times the shift rate of pay for the above
holidays provided:
a) The employee has been in the employ of the COMPANY for twenty-one (21)
days worked preceding the day on which the holiday is observed.
b) The employee worked the last regularly-scheduled work day prior to and the
next regularly-scheduled work day immediately following the holiday. If
the employee worked some time during the two (2) calendar weeks preceding
the week in which the holiday occurred, he will receive pay
notwithstanding absence on the last full work day prior to or the next
full work day following where such absence was due to:
1) Industrial accident; (on-duty injury while at work for Bepex
Corporation occurring within two calendar weeks prior to the date
the holiday is to be observed).
2) Bona fide illness substantiated by a doctors certificate that
proves the employee's illness.
3) A temporary layoff which extends ten (10) working days or less
after the day on which the holiday occurred; or
4) Absence approved by the COMPANY.
c) Where an employee works at two or more classifications during a week in
which a paid holiday occurs, he shall be paid for such holiday, provided
he qualifies under the provisions of this Article, at the rate for the
classification in which he worked fifty percent (50%) or more of his time
during the work week in which the holiday occurs.
21
<PAGE>
d) Should an employee be tardy the day before or the day after a paid
holiday, for a period of up to the first (2) hours of the scheduled start
of his/her shift, such employee shall receive holiday pay as prescribed.
This is not to say that the COMPANY automatically allows or excuses a two
(2) hour tardiness during the holiday period or at any other time.
tardiness becomes part of the employee's attendance record and thus
disciplinary action may result from the tardiness.
22
<PAGE>
SECTION 3. HOLIDAY ON SATURDAY AND SUNDAY
If a holiday set forth above falls on Saturday, the preceding Friday shall be
observed as the holiday; if a holiday set forth above falls on a Sunday and is
observed by the Nation on the following Monday, said holiday will be paid for
under the conditions contained in this Article, except as previously agreed in
Section 1.
SECTION 4. HOLIDAY DURING VACATION
When one of the paid holiday occurs within an employee's vacation period, he
shall be required to take an additional day's vacation and he shall receive
holiday pay as provided in this Section, in addition to his vacation pay,
provided he works the last scheduled work day prior to and the regularly
scheduled work day following his vacation period as required in Section 2 of
this Article. The exceptions in Section 2(b) above, shall also apply to this
Section.
SECTION 5. PAY FOR WORK ON A HOLIDAY
Employees who qualify for holiday pay in accordance with Section 2, above, shall
receive double time in addition to the holiday pay for work performed on any of
the recognized holidays.
SECTION 6. THE DAY BEFORE CHRISTMAS AND NEW YEAR'S
The following shall apply only to the day preceding Christmas and the day
preceding New Year's Day:
When more than one (1) shift is regularly scheduled, the shift hours may be
rearranged to permit second and third shift employees to celebrate Christmas Eve
and New Year's Eve. Such rearrangements shall not constitute a transfer of
shift.
SECTION 7. OTHER COMPENSATION
Holiday pay shall not be provided when an employee is receiving other forms of
compensation as may be provided in the AGREEMENT, or provided by law, except as
stipulated within this AGREEMENT.
SECTION 8. PERFECT ATTENDANCE AWARD
An award equal to one (1) day's pay or one day paid absence, will be given to
everyone who achieves perfect attendance during the contract year. Perfect
attendance is defined as missing one (1) day's work.
Absences NOT counted against employees:
1) Absence from work up to two hours.
2) Vacation and holidays.
3) Lay-off or retrenchment (people laid off and return to work by end
of contract year).
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<PAGE>
4) Call-in vacation can be used per Article XII, Section 4.
5) Time off is by mutual agreement (company initiated).
6) The day an industrial accident takes place.
7) Funeral leave.
ARTICLE XIV
VACATIONS
SECTION 1. QUALIFYING PERIOD
The COMPANY shall adhere to the principle of paid vacations each year as
follows:
Employees who have completed thirty (30) calendar days with the COMPANY as of
April 30th shall be granted a vacation in the period from Memorial Day to April
30th of the following year provided, however, that where production problems
necessitate shutting down the entire plant or part thereof at one time, the
vacation period for such plant shutdowns shall be limited to school vacation
period, namely, Memorial Day through Labor Day.
SECTION 2. LENGTH OF VACATION AND VACATION PAY
The length of vacation and the corresponding amount of vacation pay for each
employee shall be determined as follows --
a) Total all hours worked during the preceding year ending April 30th,
including the following --
1) Employees who work a full shift on second or third shift shall be
credited with eight (8) hours worked in computing vacation hours.
Where they work less than a full shift, they shall be credited only
with hours worked.
2) Vacation time paid for, holidays paid for and jury duty paid for
shall be computed as time worked.
3) Where either U.C.D. or Industrial Compensation payments are made for
working days lost due to Sickness, Non-Industrial Accident or
Industrial Accident, such days lost shall be considered as days
worked for purposes of computing length of vacation and vacation pay
up to the following amounts: Sickness or Non-Industrial Accident 65
work days (520 hours); Industrial Accident 130 working days (1040
hours). The employee must provide the required information to the
COMPANY on or before May 15 of the vacation year in order to receive
vacation credit for the time accumulated under the provisions of
this paragraph.
The COMPANY shall have available for the employee the proper forms
for filing the required information sixty (60) days prior to May 15.
Where the employee is unable to file due to disability, he shall
have the opportunity to file after his return to work.
24
<PAGE>
b) Effective February 18, 1982, determine proper percentage figures for
computing vacations from employee length of service as follows --
Less than one (1) year 2%
One (1) year but less than eight (8) years 4%
Eight (8) years but less than fifteen (15) years 6%
Fifteen (15) years and over 8%
c) Determine Vacation hours by multiplying proper vacation percentage figure
obtained in Paragraph (b) above, by total hours worked as figured in
Paragraph (a) above.
d) Employees whose 8th and 15th years fall after 4/30, but prior to October
31, will have hours calculated by 5% and 7% respectively. Vacation pay
will be calculated at rate employee is making at time of vacation.
e) Determine number of vacation days off by dividing eight (8) into hours
earned as figured in Paragraph (c) above. When an employees credit for
vacation time off results in a fractional day of four (4) hours or less,
the employee shall be paid vacation pay in lieu of time off. When the
fractional day is over four (4) hours, the employee shall be required to
take the day off. Should the length of vacation corresponding with the
amount of vacation pay be computed to a fractional week of three (3) days
or more, upon prior arrangement with the COMPANY, the employee shall have
the option of rounding out his time off to an even number of weeks. Such
additional time off shall be at the employee's own expense.
f) As of April 30th each year, determine vacation pay by multiplying vacation
hours earned as determined in Paragraph (c) above, by the shift rate of
pay in effect in the payroll period immediately preceding April 30th,
provided, however, that employees shall be paid their vacation pay at the
time they take heir vacations. Where an employee works two or more
classifications during the payroll period immediately preceding April
30th, the rate to be used in determining vacation pay shall be the rate of
the classification for which the employee was paid fifty percent (50%) or
more of his time during the payroll period immediateLy preceding April
30th. From any vacation payment there must be deducted federal or state
taxes as required by law.
g) Employees temporarily assigned to another shift (a temporary assignment is
defined as thirty (30) working days or less) immediately prior to April
30th shall receive their normal shift rate of pay for the purpose of
computing vacation pay.
25
<PAGE>
SECTION 3. VACATION NOT ACCUMULATIVE
Neither vacations nor vacation pay will be accumulative from year to year, and
no employee shall accept vacation payment in lieu of time off, except as
provided in Section (d) above, or as mutually agreed upon between the COMPANY,
employee and the UNION.
SECTION 4. SCHEDULING OF VACATIONS
Where it does not interfere with the efficient operation of the COMPANY's
business, the COMPANY will cooperate with the individual preference of senior
employees in scheduling vacations.
When production problems necessitate shutting down the entire plant or a part
thereof at one time, the COMPANY, where possible, will provide work for
employees who desire to work and who have not earned a full vacation.
The COMPANY shall notify the employees as far in advance as possible, but in no
event less than thirty (30) days prior to said closing.
Employees may use up to one week of vacation each year to be applied to
unexpected, unpaid absences, to be taken in increments of one full day not to
exceed more than one (1) absence of three (3) days in any thirty (30) day
period, provided they notify the COMPANY no later than the first day of the
absence.
Vacations shall be taken at times approved and scheduled in advance. The COMPANY
will use reasonable efforts to permit employees to select the vacation on the
basis of their length of service with the COMPANY, insofar as operating
conditions permit and provided that the orderly and efficient operations of the
COMPANY are not impaired. First priority will be given to employees who request
vacation prior to May 15 each year. By May 15 each year, each employee shall
notify the COMPANY in writing of the vacation times requested during the
following "VACATION" year (April 30 to April 30). In any event, employees are
encouraged to provide the COMPANY a minimum of four (4) weeks advance notice of
their request for vacation. Insofar as protocol, such requested vacation will be
granted at times requested by the employee, provided it does not impair
operating efficiency and the COMPANY's needs.
SECTION 5. VACATION PAY AS SEVERANCE PAY
a) Except as provided below, each employee upon termination shall receive any
vacation earned but not received since date of hire including pay based on
hours worked after April 30th. If employment is terminated for any reason
within two (2) months from date of hire, no vacation or termination pay
will be due.
b) In the case of layoff or discharge, where the number of days for severance
pay due an employee would extend to or through any of the paid holidays
set forth in Article XIII, such paid holiday shall be added to the pay due
the employee laid off or discharged. The provisions of this paragraph
shall not apply in case of voluntary quit or in any case where the
employee who is off the payroll by reason of sickness, injury or leave of
absence requests payment of vacations pay.
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<PAGE>
SECTION 6. EMPLOYEES' VACATION OPTION
Employees with two (2) years seniority or more who have a scheduled vacation
period agreed to by COMPANY who become subject to layoff prior to said vacation
period may take the option of taking earned vacation pay at time of layoff or
leaving it with the COMPANY to be paid to them at the time of scheduled
vacations.
In all other cases employees shall be paid all earned vacations at time of
layoff.
ARTICLE XV
WORKING CONDITIONS AND SAFETY
SECTION 1. INDUSTRIAL ACCIDENTS
When an employee is injured so seriously as to require that he be excused from
work by an authorized representative of management, he shall be paid for the
balance of the shift on which the industrial injury occurred.
When, after the employee returns to work, there is a bona fide recurrence of the
injury on the job and an authorized representative of management, acting on the
recommendation of a doctor, excuses the employee from work, he shall be paid for
the balance of the shift.
Employees who are working after having compensable injury or illness and who are
required to take time off during a regular working day to receive medical
treatment for such compensable injury or illness shall be paid their regular
hourly rate of pay for such time off.
SECTION 2. SAFETY RULES
In the interest of maintaining high standards of safety, and to minimize
industrial accidents and illness, the following is agreed --
a) The COMPANY will comply with all State and Federal safety and sanitary
laws. Suitable washrooms shall be maintained and kept in clean and
sanitary condition. Employees shall maintain lockers in a clean and
sanitary condition. The UNION shall cooperate with the COMPANY to promote
safe and sanitary work conditions and to eliminate any real safety
hazards. Employees shall be responsible for knowing and observing all the
COMPANY's published/posted safety rules.
b) Adequate safety devices shall be provided by the COMPANY, and when such
devices are furnished, it shall be mandatory for employees to use them.
c) No employee shall be discharged or disciplined for refusing to work on a
job if his refusal is based upon the valid claim that said job is not
safe, or might unduly endanger his health, until it has been determined
that the job is, or has been, made safe or will not unduly endanger
his/her health.
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<PAGE>
d) No employee shall be permitted to work alone in any shop, or in any
isolated spots in any shop, which are beyond the call and observation of
other persons.
e) To satisfy the safety program which requires employees to wear safety
g1asses, the COMPANY shall provide standard safety frames and
non-prescription lenses, and it is mandatory that the employee wear them
provided that the condition of his eyes is such that he does not require
prescription glasses.
When an employee requires prescription glasses, he/she shall provide the
prescription that the COMPANY will pay one-half the cost of the standard safety
frames and the safety lenses ground to his prescription up to 535 per year.
Replacement of safety lenses shall not exceed one pair per calendar year. The
full cost of replacement of frames and lenses due to work accidents shall be
borne by the COMPANY. All lenses shall comply with the American National
Standard requirements stipulated by the Occupational Safety and Health Act
(OSHA) requirements. No phototropic (photogrey) lens shall be approved for use
as a COMPANY-approved safety lens for reimbursement or on-the-job use.
f) Employees who operate cranes shall be fully instructed in the safe
operation of the equipment.
g) Heat and ventilation shall be provided where practical.
h) Employees required to perform welding shall be furnished colored glasses
for welders' hoods and goggles by the COMPANY.
SECTION 3. MEDICAL EXAMINATION
Prospective employees may be required to take a physical examination before
being employed and placed on the payroll.
At any time following the hiring of any employee, the COMPANY may require the
employee to take a physical examination. The intention here is to avoid having
employees on jobs which might jeopardize their health or the safety and health
of others. Should the physical examination disclose such conditions, the COMPANY
will make every effort to assign the employee to other work in his
classification and within his capability. When such other work is not available,
the employee may be removed from the payroll and the cases taken up with the
Business Representative of the UNION. If no agreement is reached within five (5)
working days, the matter may be referred to the Grievance Procedure.
When available to the COMPANY, a copy of the physical report will immediately be
furnished to the employee.
Cost of physical examinations shall be paid by the COMPANY.
SECTION 4.
The COMPANY and UNION will encourage employees to work in a safe mariner and to
use or wear safety equipment or apparel as required and will cooperate to see
that employees properly use and care for such equipment or apparel. Each
employee shall exercise proper care of the equipment or apparel to be used
during working hours, including storing and maintenance and shall be held
strictly accountable for them.
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SECTION 5.
No employee may leave COMPANY property during his/her scheduled work hours
(exclusive of the unpaid lunch period) without the express permission of an
appropriate COMPANY representative.
SECTION 6.
Each employee is expected to maintain an acceptable attendance record and to
report to work on time.
SECTION 7.
Each employee, while actually employed or while on layoff or leave of absence,
shall be obligated to keep the COMPANY advised of his/her most current address
and telephone number and other information as may legally be required for
confidential COMPANY personnel records. An employee's failure to provide such
information or to keep it current, absolves the COMPANY of any of its
obligations under this AGREEMENT which may be affected by the lack of such
information.
ARTICLE XVI
GRIEVANCE PROCEDURE
SECTION 1. GRIEVANCE DEFINED
a) A grievance is defined as a condition that exists as a result of an
unsatisfactory adjustment or failure to adjust a claim or dispute by an
employee or employees, the Steward or Stewards or the UNION concerning
rates of pay, hours or working conditions set forth herein, or the
interpretation or application of the AGREEMENT arising during the term of
this AGREEMENT. All grievances shall be processed in accordance with the
following procedure and without resorting to a strike, slowdown, lockout
or any other action or conduct that prevents normal continuation of work,
a violation of Article V, NO STRIKE, NO LOCKOUTS.
SECTION 2. GRIEVANCE PROCEDURE
STEP 1. ORAL PROCEDURE - No matter shall be considered a grievance until it is
first taken up orally by the employee and/or Shop Steward with the immediate
foreman or supervisor who will attempt to settle the matter. If the alleged
grievance is not settled it shall be reduced to writing and processed directly
into Step 2 at which time it is considered an official grievance and subject to
the time limits set forth herein.
STEP 2. STEWARD AND FORMAN - (Written Grievance) The Shop Steward shall take up
the grievance with the immediate foreman or supervisor who will attempt to
adjust the grievance and the
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<PAGE>
COMPANY will render a decision in writing within two (2) working days from the
time of its presentation to him. When an unsatisfactory answer is received, the
grievance may be referred to Step 3 in writing.
STEP 3. BUSINESS REPRESENTATIVE AND MANAGEMENT - The Business Representative or
authorized UNION Representative(s) (not a Shop Steward) and an authorized
representative(s) of the COMPANY shall meet within three (3) working days. The
COMPANY shall render an answer in writing within five (5) working days after
such meetings. When an unsatisfactory answer is received or if the grievance is
unanswered within the above time limit, the grievance may be referred by the
UNION either directly to Arbitration, Step 5, or by mutual agreement between the
parties to a Grievance Review Committee as set forth in Step 4. The decision for
either arbitration or submission to the Grievance Review Committee must be made
in writing within five (5) working days.
STEP 4. GRIEVANCE REVIEW COMMITTEE - There shall be a committee known as the
Grievance Review Committee composed of two (2) COMPANY representatives and two
(2) UNION representatives. It is understood that no UNION representative or
COMPANY representative shall have been directly or indirectly participants in
the previous steps.
The Committee shall meet at a mutually agreeable time and place. The Grievance
Committee shall review the cases presented to it, investigate the circumstances
and facts, hear testimony and question witnesses. The decision of the majority
of the Grievance Review Committee shall be final and binding on the COMPANY and
the UNION, such decision shall be within the scope and terms of this AGREEMENT
but shall not add to, subtract from, alter, or change the scope and terms. The
decision shall be rendered in writing within ten (10) days from the time of
presentation to the Grievance Review Committee and shall specify the effective
date of the decision.
In the event the Grievance Review Committee cannot reach a majority decision or
fails to render a written decision within the above set time limit, the
plaintiff may appeal to Step 5, Arbitration. Such appeal shall be made in
writing within five (5) working days.
STEP 5. ARBITRATION
a) In the event a grievance is not settled at Step 3 or by the Grievance
Review Committee using the outlined grievance procedure, such grievance
may be submitted to arbitration upon written notice by the UNION to the
COMPANY within five (5) working days after the COMPANY's Step 3 answer or
after the Grievance Review Committee has communicated its decision to the
parties. Any submission to arbitration shall specify the issue(s) raised
by the grievance including the Article(s) and Section(s) of the AGREEMENT
allegedly violated under the provision of Article XI together with the
specific award requested to resolve the matter.
b) Within (10) days of the receipt of the written notice of the intent to
arbitrate, the COMPANY will meet with the UNION to select a mutually
agreeable arbitrator. If the parties are unable to select a mutually
agreeable arbitrator, he shall be selected by and under the procedures of
the American Arbitration Association, i.e., the Association will submit a
list of five arbitrators qualified in the subject at dispute between the
parties. The parties will then alternately strike names from the lists.
After four (4) names are thus eliminated from the list, the last name
remaining will be the duly selected arbitrator.
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<PAGE>
c) In no event shall more than one grievance be subject to arbitration before
the same arbitrator at the same time except by a mutual agreement in
writing between the parties. In any instance where the question of
arbitrability is raised, the arbitrator shall be directed to review and
reply to that issue before any hearing or discussion, review or reply may
be directed to the subject grievance by a subsequent arbitrator. No more
than one (1) grievance shall be heard by a single arbitrator at one (1)
time and/or hearing except by mutual agreement in writing between the
parties, except where more than one (1) grievance with identical issued
and/or circumstances may be heard by one (1) arbitrator at the same time
or hearing. The arbitrator shall be empowered only to interpret the
expressed provision(s) of the AGREEMENT as they apply to the particular
case at issue and the arbitrator shall have no power or authority to
subtract from, alter, amend, or change any term and/or provision of this
AGREEMENT including the present wage rates in any way, or impose on any
party hereto a limitation or obligation not provided for in this
AGREEMENT, including the interpretation of federal or state statues or
local ordinance that may be involved in the consideration of the
grievance. Further, the arbitrator shall not be empowered, and shall have
no authority to base his award on any alleged practice or oral
understanding which is not incorporated in writing. The arbitrator may
rule on a challenged wage rate of a new, revised or combined job using
only those rates already established for comparison.
d) The decision or award of the arbitrator, in writing, on the merits of any
grievance within his jurisdiction and authority shall be final and binding
upon all the parties of the AGREEMENT.
SECTION 3. GENERAL RULES
a) The arbitrator's charge shall be borne equally by the COMPANY and the
UNION. Each party shall pay the expense of its own representatives and
witnesses.
b) Time limits may be extended by mutual agreement.
c) In the event the UNION, as such, has a grievance, the grievance shall be
processed directly into Step 3.
d) Any grievance shall be considered settled in accordance with the last
position communicated by the COMPANY or the Grievance Review Committee
unless it is referred in writing to the next succeeding step within five
(5) working days from the date a written decision is given on the
grievance.
e) Grievances regarding alleged improper discharge or layoff must be filed
within three (3) working days after such discharge or layoff. Other
grievances shall be without effect and void unless presented in writing to
the lowest applicable step within fifteen (15) days from the date of
occurrence or within fifteen (15) days from the date the employee,
employees or the UNION first acquire, or by ordinary observation should
have acquired, knowledge of the fact or facts upon which the grievance is
based. Retroactive pay shall be limited to a maximum of thirty (30)
working days except in cases of willful violation of contract the
Arbitrator may waive the thirty (30) working day limitation on
retroactivity.
f) All awards of back wages shall be limited to the amount of wages the
employee would otherwise have earned from his employment with the COMPANY
less any unemployment or other compensation for personal services rendered
from any source during the period involved in the dispute.
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g) At Step 2 and Step 3 and referral to the Grievance Review Committee, the
Union's written submission shall specify and identify the specific issue
raised by the grievance, including the article(s) and Section(s) of the
AGREEMENT allegedly violated, known facts surrounding the matter and the
specific remedy sought.
h) All the time limits specified in the grievance (including Grievance
Review) and the arbitration procedure shall be jurisdictional and shall be
conditions precedent upon which the grievance shall be recognized and
processed further. If any and/or all the time limits are not complied
with, the COMPANY may rightfully and lawfully refuse to process the
grievance further and the grievance shall be considered null and void and
end then and there without either the UNION or any allegedly aggrieved
employee being entitled to process the matter to a subsequent step or to
arbitration, or otherwise. However, by written mutual agreement of both
the COMPANY and the UNION, the parties may agree to modify or extend any
of the jurisdictional time limitations specified within the Article for
any particular grievance.
i) It is understood and agreed that matters relating to Medical, Life,
Pensions, Disability Benefits matters other than reasons of non-payment of
premiums or other items not expressly covered in this AGREEMENT, shall not
be subject to the grievance and/or arbitration procedures provided herein.
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ARTICLE XVII
UNION REPRESENTATION
SECTION 1. UNION REPRESENTATION
a) STEWARD PROVIDED FOR - for the purpose of representation within a plant
the UNION shall be entitled to a reasonable and adequate number of
Stewards, who shall restrict their activities to the handling of
grievances and other legitimate UNION business, and in this connection
shall be allowed a reasonable amount of time for this purpose.
b) BUSINESS REPRESENTATIVE TO ACT FOR STEWARD - Where for any reason a plant
does not have a Steward, UNION members may be represented by a Business
Representative of the UNION who may process a grievance in place of a
Steward. The UNION will make every reasonable effort to maintain an active
Steward with credentials and authority to act as such.
c) ACCESS TO ESTABLISHMENT - Business Representatives of the UNION, for
performance of official UNION duties, upon application to the offices of
the COMPANY, shall be permitted to enter the premises of the COMPANY
during working hours.
The Business Representative shall not unreasonably interfere with the
normal work duties of employees or the operation of the plant.
d) UNION MAY USE BULLETIN BOARD - The UNION shall have the privilege of
suitable space on bulletin boards, for posting notices of official UNION
business, provided that copies of such notices are delivered to the
COMPANY prior to posting.
SECTION 2.
The UNION will supply the COMPANY with a list of Stewards showing the area of
their jurisdiction and shift they represent, and the names of Lodge officers.
ARTICLE XVIII
HEALTH MEDICAL AND DENTAL BENEFITS
1) The present Group Insurance, Hospitalization, Surgical, Medical and Dental
Program (see Appendix "C") shall remain in full force and effect and will
continue to be administered by the C.M.T.A. -I.A.M. Joint Health and
Welfare Trust, subject to the following conditions:
a) The three COMPANY Trustees shall be appointed by the California
Metal Trade Association.
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b) The three UNION Trustees shall be appointed by the Administrative
Assistant of District 190 Machine and Manufacturing Division, I.A.M. &
A.W.
c) Expenses in connection with the operation of the Trust shall be paid from
the regular monthly contributions paid by the COMPANIES who are
subscribers to the Trust.
d) The sole obligation of the COMPANY to the Trust shall be to pay a monthly
premium necessary to maintain the benefits described in Appendix "C".
2) Any or all of the benefits provided under this Article XVIII may be
provided directly from the Trust Funds, or through an insurance
company, or a service organization, or any combination thereof.
3) The California -IAM Dental Benefit Trust shall be merged into the
C.M.T.A. - I.A.M. Joint Health and Welfare Trust effective September
1, 1974 (or earlier if the Trustees of both Trusts so agree), with
the latter being the continuing Trust. Eligibility for dental
coverage shall be determined in accordance with rules in effect on
March 31, 1974, until the merger and thereafter until such time as
the Trustees of the continuing Trust deem it advisable to conform
such rules (or more closely conform them) to the provisions of
paragraph C-6 of Appendix "C".
4) In the interest of reducing costs, the COMPANY reserves the right to
terminate its participation in the C.M.T.A. - I.A.M. Joint Health
and Welfare and/or the Cal/I.A.M. Dental Benefit Trust providing it
is able to obtain equal or better coverage from another carrier and
that it notifies the UNION at least thirty (30) days in advance of
the change.
5) The group Insurance, Hospitalization, Surgical, Medical and Dental
Program for employees covered by this AGREEMENT and their dependents
is set forth in Appendix "C".
6) The Company and the UNION agree that the COMPANY's sole
responsibility will be to make monthly premium payments to the
C.M.T.A.-I.A.M. H&W Trust for benefits provided by the
D.M.T.A.-I.A.M. Group Insurance, Hospitalization, Surgical, Medical,
Life and Dental plans. The monthly maximum premium amounts are as
follows:
Effective 9/1/95 $435.00 per month maximum premium
Effective 9/1/96 $529.00 permonth maximum premium
Effective 9/1/97 $559.00 per month maximum premium
Effective 9/1/98 $589.00 per month maximum premium
In the event the insurance premiums exceed $589.00 per month between 9/1/98
through 4/30/99, (fourth year of the AGREEMENT) the COMPANY will pay up to the
monthly premium amount paid in behalf of Bepex (Santa Rosa) salary-paid
employees. Should that amount not meet C.M.T.A. - I.A.M. Group Insurance monthly
premium needs, the remaining portion will be deducted from employee's pay in a
manner to be agreed to by the COMPANY and the UNION.
Should changes in the Plan design, claims experience, etc. or other action
result in a decrease in premiums below the amount provided for each contract
period stipulated above, the COMPANY's sole obligation will be to pay the
decreased monthly premium amount.
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ARTICLE XLX
PENSION PROGRAM
The Pension Program for employees covered by this AGREEMENT is set forth in a
separate AGREEMENT between the parties entitled "Standard Participation
Agreement."
SECTION 1. PENSION PLAN
a) Commencing with the 1st day of August, 1978, and for the duration of the
Collective Bargaining Agreement, the COMPANY agrees to make payments to
the C.M.T.A. - I.A.M. Pension Fund or its successor, I.A.M. National
Pension Fund, (the "Pension Fund") for each employee employed in a job
classification covered by the Collective Bargaining Agreement.
The COMPANY shall make a contribution of one dollar and fifteen cents
($1.15) effective 5/1/96 and a contribution of one dollar and twenty cents
($1.20) effective 5/1/97 to the Pension Fund for up to forty (40) hours
per week for which pay is required, except jury pay, pay for apprentice
school time which is outside the employee's regular working hours, payment
for sickness and injury time, and bereavement pay.
Contributions for a new, temporary, probationary, part-time or full-time
employee are payable after a maximum of 60 calendar days from the first
day of employment.
b) The COMPANY and I.A.M. Lodge further agree as follows:
1) The payments to the Pension Fund required by paragraph a) above
shall be made to the Pension Fund, which was established under the
Agreement and Declaration of Trust dated May 1, 1960, as amended,
which has been signed by the COMPANY and I.A.M. Lodge in the place
provided at the end of such Trust Agreement.
2) They shall sign the standard participation agreement required by
the Trustees of the Pension Fund.
3) The Pension Plan adopted by the Trustees of the Pension Fund shall
at all times conform with the requirements of the Internal Revenue
Code, so as to enable the COMPNAY at all times to treat
contributions to the Pension Fund as a deduction for Federal Income
Tax purposes.
4) All Contributions shall be made at such time and in such manner as
the Trustees require; and the trustees shall have the authority to
have an independent Certified Public Accountant audit the payroll
and wage records of the COMPANY for the purpose of determining the
accuracy of contributions to the Pension Fund.
a) Any changes in the Pension Plan by the CMTA/IAM will be
integrated into this AGREEMENT, except that COMPANY
contributions shall remain as provided with Section 1 (a) of
this Article XIX.
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5) Failure of a COMPANY to make contributions when due shall not
relieve any other COMPANY of its obligation to make payments to the
Pension Fund. If a COMPANY shall fail to make its contributions
within thirty (30) days after the date required by the Trustees,
the COMPANY shall be liable for all expenses incurred by the
Trustees in enforcing payment of the contribution for each full
calendar month the contribution remains unpaid. The Trustees may
take any action necessary or appropriate to enforce payment of the
contributions, expenses and liquidated damages due from a COMPANY,
including, but not limited to, proceedings at law and in equity.
6) The COMPANY's liability for payment hereunder shall not be subject
to the grievance procedure or arbitration provided under this
AGREEMENT, and in addition to the remedies of the Trustees, the
I.A.M. Lodge shall have the right to take whatever steps are
necessary to secure compliance with the provisions of this
AGREEMENT set forth in Section 1 above, any provision of this
AGREEMENT to the contrary notwithstanding.
c) The COMPANY shall have no liabilities with respect to the
Pension Fund except to make contributions to such Plan as
required under this AGREEMENT, to execute any standard form
of Subscription Agreement required by the Pension Fund, and
such other liabilities as may be imposed by law.
SECTION 2. AUTOMATIC RETIREMENT - 70
a) Effective January 1, 1979, all employees covered by this AGREEMENT who are
seventy (70) years of age or older will be retired, provided, however that
they are then qualified for benefits under the IAM National Pension Plan.
b) Employees not covered in a) above who are classified as original members
of the Pension Plan shall retire on the last day of the month in which--
1) they have attained age seventy (70) and
2) qualify for benefits under the IAM National Pension Plan.
c) Any employee not covered in (a) or (b) above shall retire on the effective
date of this contract, or when they attain age seventy (70), whichever
occurs later.
SECTION 3. MEDICAL BENEFITS - RETIREES
Effective September 1, 1996, a Joint Trust was established for the purpose of
providing medical benefits for retired employees and their spouses under the
following conditions:
a) Three COMPANY trustees shall be appointed by the California Metal Trades
Association.
b) Three UNION Trustees shall be appointed by the Administrative Assistant of
District 190 Machine and Manufacturing Division, I.A.M. & A.W.
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c) The sole obligation of the COMPANY covered by this Trust during the life
of this AGREEMENT shall be to pay the rate of $0.30 per hour.
d) Expenses in connection with the operation of the Trust shall be paid from
the contributions described in paragraph (C) above.
e) The COMPANY, while not covered by the Master Agreement, has an Agreement
with the International Association of Machinists and Aerospace Workers and
its affiliated District and/or Local Lodge signatory to this AGREEMENT,
and is a subscriber to this Trust to qualify their CMTA-IAM Trust
pensioners for this benefit.
f) The COMPANY covered by this AGREEMENT shall continue to subscribe to this
Trust, except for merger provided below.
g) Determination and payment of claims shall not be subject to the grievance
procedure.
h) The right to determine the amount of benefits, the eligibility of
employees and their dependents to draw benefits, and such like functions
shall be vested solely in the Trustees.
i) The intent of this program is to provide benefits separate from and in
addition to the Federal Government's Medicare Program.
j) The CMTA-IAM Retiree Medical Plan and Trust shall be merged into the
CMTA-IAM Joint Health and Welfare Trust effective September 1, 1977 (or
earlier if the Trustees agree and can accomplish it) with the latter being
the continuing Trust. All companies that subscribe to the CMTA-IAM Retiree
Medical Plan and Trust, prior tot he merger, will make the contractual
cents per hour (limited to a maximum of 40 hours per week) contribution to
the CMTA-IAM Joint Health and Welfare trust after the merger, and become
subscribers to the latter Trust for the Retiree Medical contributions and
benefits. The benefits for retirees and spouses will be provided solely
from the cents per hour contribution established for that purpose.
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<PAGE>
SECTION 4.
The COMPANY and the UNION agree that for the duration of this AGREEMENT, the
COMPANY's premium cost obligations for the DMTA-IAM Retiree Medical Plan will
not exceed $0.30 per hour.
Should the retiree medical plan be dissolved by the CMTA-IAM H&W Trust, the
COMPANY reserves the right to take such steps as it deems in its best interest
to provide or not provide a medical benefit for bargaining unit employees.
ARTICLE XX
SICK LEAVE PLAN SUPPLEMENTING U.C.D. OR
WORKER'S COMPENSATION INSURANCE
The Sick Leave Plan Supplementing U.C.D. or Worker's Compensation Insurance for
employees covered by this AGREEMENT is set forth in Appendix "D" which is part
of this AGREEMENT. All supplemental benefits paid by the company will remain at
the level effective 10/1/95 for the duration of the AGREEMENT.
ARTICLE XXI
PLANT RELOCATION AND SEVERANCE PAY
1) The purpose of the Severance Pay Program is to alleviate economic distress
resulting from permanent termination of employment due to abandonment of
operations, or permanent discontinuance of a department of the Plant or a
substantial portion thereof.
2) When the COMPANY decides to abandon operations and/or to close permanently
a plant or discontinue permanently a department of a plant or a
substantial portion thereof, and to terminate the employment of
individuals, an employee whose employment is so terminated shall be
entitled to a severance allowance in accordance with, and subject to, the
following provisions:
a) the employee must remain at work until he is released and terminated by
the COMPANY.
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3) The COMPANY shall pay severance pay to terniinated employees as follows:
Less than one ( 1) year of continuous service - no severance pay.
One (1) full week's pay (forty (40) hours straight time at the
classification rate of pay) - for every year of service.
4) The COMPANY will pay up to three (3) months premiums for the benefits set
forth in Article XIX of this AGREEMENT for employees who receive severance
pay provided those employees are not covered by another employer-paid plan
providing these benefits. In order to receive these benefits, the employee
must furnish proof (such as his slip for unemployment compensation) within
ten (10) days after the first of the month of termination to the Trust
that he is not covered for these benefits for each of the three (3) months
following his termination.
5) The COMPANY shall notify the UNION in writing at least thirty (30) days
prior to the closing or moving of his plant and the consequent termination
of employees. Should the above plant movement or closing be the result of
causes beyond the control of the COMPANY, the thirty (30) days notice
shall not apply.
6) When any employee with seven (7) years continuous service or ten (10)
years accumulative service is laid off, employee will be paid severance
when and if their call back rights expire. Call back rights will be
extending to three years, with employee having the option to take
severance at end of 2 years. Paid per Article XVII of Contract. If the
laid off employee(s) does not take severance pay at the end of his/her
second year, the severance moneys will be paid automatically at the end of
the third year. Election of severance at the end of the second year will
forfeit all call back rights.
ARTICLE XXII
BEPEX CORPORATION 401(K) INCENTIVE SAVINGS PLAN FOR UNION EMPLOYEES
Section 1. Intent of the Parties
The COMPANY and the UNION agree that a defined contribution, incentive savings
plan, guided by the regulations of the Section 401(k) of the Internal Revenue
Tax Code, is available to employees to help them accumulate funds for
retirement. Such Plan shall be known as the Bepex Corporation 401(k) Incentive
Savings Plan for Union Employees, ("Plan"). Definitive documents will be
available to each participant in the Plan. The Plan documents are on file with
the COMPANY and will govern the operation of the Plan.
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<PAGE>
SECTION 2. OPERATION OF THE PLAN
The COMPANY reserves the sole right to change Plan Administrators and/or to make
operative changes in the Plan's administration and procedures, or change that
the COMPANY to operate the Plan. Any change in the Plan, as a result of
legislation will be implemented requirements of the law.
SECTION 3.
This Article contains the entire AGREEMENT between the COMPANY and the UNION
regarding this benefit Plan. The Plan is not subject to the provisions of the
Grievance and/or Arbitration procedure, Article XVI.
ARTICLE XXIII
MISCELLANEOUS SUBJECTS
SECTION 1. STUDY OF JOB EVALUATION FOR MANUFACTURING CONCERNS
It is agreed that the parties hereto will meet at the request of either party to
discuss a job evaluation system to meet the requirements of the manufacturing
operations of the COMPANY. It is further Agreed that no job evaluation program
shall be installed except by express agreement in writing between the COMPANY
and the UNION.
SECTION 2. NEW TECHNOLOGY
Prior to introduction of New Technology, the COMPANY shall provide the UNION
with full information regarding the proposed technology changes. Current
employees shall be trained before new employees. Training is at expense of
employer.
SECTION 3. MAINTENANCE
Subcontracting maintenance work or in-house modifications will be done by
Maintenance Department employees and cannot be subcontracted when maintenance
unit employees are on lay-off.
SECTION 4. SUBCONTRACTING
The COMPANY agrees not to subcontract historically designated Santa Rosa
products (those made in Santa Rosa, Bepex, prior to 2-28-86) while employees
qualified to do the work at an acceptable level are on layoff.
Exceptions to the above:
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1) Strong Scott Blender
2) Fluid Beds
3) Products which, for economic reasons, cannot be manufactured at Bepex,
Santa Rosa, California due to Bepex, Santa Rosa costs exceeding
subcontract costs by more than 10%. At such time,if employees qualified
to do the job/work are on layoff, the COMPANY will meet with the UNION
to review information listed below:
o Subcontract cost - 'quote'
o History of Bepex, Santa Rosa Labor Hours projected.
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ARTICLE XXIV
DURATION OF AGREEMENT
SECTION 1. TERMINATION
a) This Agreement entered into this 1st day of October, 1995 shall remain
in effect until April 30, 1999 and shall be considered as renewed from
year to year thereafter unless either party shall give written notice
to the other of its desire to amend the AGREEMENT This written
notification must be received by the other party at least sixty (60)
days prior to the expiration date of this AGREEMENT. If one party
provides written notice of its intent to negotiate a new AGREEMENT,
then the parties shall meet not later than forty-five (45) day prior to
the expiration date for the purpose of negotiating the desired
amendments or modifications.
b) Both parties acknowledge that this contract constitutes the entire
AGREEMENT between the parties and concludes collective bargaining for
its term, subject only to a desire by both parties to agree mutually to
amend or supplement it at any time. Any past agreements not made a
specific part of this AGREEMENT shall be deemed null and void.
SECTION 2. VALIDITY AND GOVERNMENT REGULATIONS
1) Should any provision and/or provisions of this AGREEMENT be in
conflict, be rendered or declared invalid by reason of any existing or
subsequently enacted federal, state or local legislation, Executive
Order of the President of the United States, or by reason of any decree
of a court of competent jurisdiction, such invalidation of such part
and/or parts of this AGREEMENT shall not invalidate the remaining
portions hereof and the same remaining portions shall remain in full
force and effect. The appropriate mandatory provisions or such
presidential Executive Order or such court order shall prevail.
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2) If, during the period of the AGREEMENT, the United States government or
the State of California enacts a law providing for any previously
negotiated benefits, including pension, hospitalization, life
insurance, medical, etc., the amount of such benefits under the present
program shall be credited against the requirements of any law requiring
the same in whole or in part.
FOR THE EMPLOYER: FOR THE UNION:
BEPEX CORPORATION PETALUMA LODGE NO. 1596
DISTRICT NO. 190
International Association of
Machinists & Aerospace Workers,
AFL-CIO
/s/ [illegible] /s/ [illegible]
- ------------------------------- ------------------------------------
/s/ [illegible] /s/ [illegible]
- ------------------------------- ------------------------------------
/s/ [illegible] /s/ [illegible]
- ------------------------------- ------------------------------------
- ------------------------------- ------------------------------------
- ------------------------------- ------------------------------------
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APPENDIX A - WAGES
(Reference - Article VII, Section 1)
SECTION 1. CLASSIFICATIONS AND RATES OF PAY
EFFECTIVE OCTOBER 1 1995 THROUGH APRIL 30.1999
<TABLE>
<CAPTION>
1ST YEAR 2ND YEAR 3RD YEAR 4TH YEAR
-------- -------- -------- --------
(effective 10/1/95) (effective 5/1/96) (effective 5/1/97) (effective 5/1/98)
<S> <C> <C> <C> <C>
GRADE 1 19.18 19.38 19.58 19.93
GRADE 2 18.45 18.65 18.85 19.20
GRADE 3 14.20 14.40 14.60 14.90
GRADE 4 13.43 13.63 13.83 14.13
GRADE 5 12.54 12.74 12.94 13.19
GRADE 6 11.79 11.99 12.19 12.44
GRADE 7 11.10 11.30 11.50 11.75
Specialist A 16.32 16.52 16.72 17.02
Specialist B 15.08 15.28 15.48 15.78
</TABLE>
Inflation Adjustment suspended for life of agreement.
Journeymen hired after March 23, 1992 will be paid the following:
a) $1.00 per hour less than Journeyman rate for 1st six months.
b) $.50 per hour less than Journeyman rate for 2nd six months.
Grade 3 employees will be paid $.50 below Grade 3 rate for 1st six months.
SHIFT PREMIUM
Employees assigned to 2nd shift will receive a shift premium of twenty-two cents
($0.22) per hour in addition to the above classification rate.
Employees assigned to 3rd shift will receive a shift premium of thirty-three
($0.33) per hour in addition to the above classification rate.
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APPENDIX "B"
DEFINITION OF JOB CLASSIFICATIONS
The following job descriptions are intended to serve as a guide to the proper
classification of employees in the various work operations covered by this
contract.
1. MAINTENANCE MACHINIST - GRADE 1
A qualified machinist who is regularly assigned to repair, overhaul and maintain
existing machinery and/or equipment used in the operation of the COMPANY's plant
and make such parts therefore as are within the employee's capacity and ability
and who, in the course of the employee's employment works with the aid of hand
or machine tools, with or without drawings, laying out his work when necessary,
setting up machine and working to specified tolerances. He may perform other
related duties.
a) Any employee doing the following work will be paid the Maintenance
Machinist Rate of pay:
1) Design jigs and fixtures, or redesign same from original print.
2) Make special form tools (bushings and special boring bars).
3) Perform machining repairs for maintenance.
2. JOURNEYMAN INSPECTOR - GRADE 2
Must have ability to read and interpret complex blueprints and schematics. Must
have thorough knowledge and experience in using and reading all standard
inspection tools and devices. Must have knowledge and experience in the
following areas: (1) sheet metal burning and forming, (2) welding and
fabrication of various materials, (3) machining, (4) assembly, (5) receiving
purchased components, and (6) general knowledge of good manufacturing practices.
Must be able to read and interpret all types of written specifications.
3. JOURNEYMAN MACHINIST - GRADE 2
A person who has served a Machinist's apprenticeship of four (4) years or who
has equivalent knowledge and experience, is capable of operating machine tools,
doing precession bench and floor work, using precision measuring instruments,
reading blueprints, making standard shop computations relating to dimensions of
work and determination of machining feeds, speeds, laying out work, making
setups and carrying complete mechanical projects through assembly and testing in
the manner of a craftsman.
4. JOURNEYMAN WELDER - GRADE 2
A person having the knowledge, training, experience and skill to weld or cut
metal, as required by the employer, utilizing Shielded Metal-Arc Welding (SMAW),
Gas Metal-Arc Welding (GMAW), Gas Tungsten-Arch Welding (GTAW), Submerged Arc
Metal (SAW) and Oxy-fuel gas processes. He shall be able to read blueprints. He
shall also be capable of selecting the proper size and type of welding
electrodes, rods, bluxes and the proper size welding and cutting tips. He shall
also be capable of the layout and fit up of component parts and carrying
complete mechanical projects through assembly and testing in the manner of
craftsmen.
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5. PRESSBRAKE OPERATOR - GRADE 2
The grade also includes personnel who set up, operate, adjust and maintain
pressbrake equipment. Person performs duties such as setting dies, positioning
stop gauges, adjusting ram stroke, sequencing of multiple pass operations and
reading blueprints.
All of the above personnel maintain equipment and perform clean-up of work area.
6. GENERAL MACHINE OPERATOR - GRADE 3
This includes all personnel expected to perform duties in a specialized area of
metal fabrication or machine shop operations. Once assigned to a specific
machine line such as a lathe or a mill, this person along with supervision
assistance will set up, adjust, operate and maintain the following.
Lathes (both horizontal and vertical) NC and CNC lathes
- or -
Mills, NC and CNC mills (both horizontal and vertical)
This person will also be required to operate the drill press, key setter,
profiler, blanchard grinders (both horizontal and vertical), ECM, and the saw.
As a general worker in the machine shop this person will work from drawings,
specifications, written instructions and operation sheets and will maintain the
machines in good working condition and also maintain a clean and organized work
area. It is agreed that Grade 3 classified employees will not operate horizontal
boring mills or vertical-turrent lathes. Employees within this classification
will not perform machine maintenance.
7. WELDER - GRADE 3
This also includes all personnel expected to perform duties in a specialized
area of metal fabrication or machine shop operation. Person sets up, operates,
adjusts and maintains welding equipment used in Shielded Metal-Arc Welding
(SMAW), Gas Metal-Arc Welding (GMAW), Gas Tungsten-Arc Welding (GTAW), Submerged
Arc Metal (SAW), and Oxy-fuel gas processes. Performs welding and hardfacing
operations and screen fabrication. Requires knowledge of and ability to read
welding symbols. Maintains machines in working condition and performs cleanup of
work area.
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8. BURNING MACHINE, FLIGHT PRESS SAW AND SHEAR - GRADE 4
Sets up and operates burning machine to perform cutting operations. Sets up and
operates the Flight Press. Sets up and operates he Shear. Sets up and operates
the Saw. Makes necessary adjustments incidental to the machine operations.
Maintains machines in working condition and performs clean-up of work area.
9. PAINTER - GRADE 4
Applies paint, lacquer or protective finishes with a spray gun, automatic spray
gun, or by brush to surfaces of manufactured products. Person is required to
maintain spraying equipment in working condition. Performs clean-up of work
area.
10. PRODUCTION WORKER I - GRADE 5
Included in this classification are the shipping, receiving and packaging of
units, parts, etc., and any related clerk functions required.
11. PRODUCTION WORKER II - GRADE 6
This includes general workers in Machine Shops. Metal Fabrication or industrial
operations who operate equipment such as Pullmax, blasting equipment, and
grinders. Duties may also include routine maintenance, oiling, greasing, and
cleaning of machinery. Other duties include parts handling, such as the
coordination department parts room and tool cribs. Also included are general
carpentry, routine machine operations and assembly functions. May also help
press brake operator maintain equipment and perform cleanup of work area.
12. JANITOR - GRADE 7
Sweeps floors and removes waste materials in manufacturing areas. Scrubs, mops
and polishes floors, sweeps and dusts manufacturing offices and stairways.
Removes scrap paper. Cleans washrooms, drinking fountains and replenishes
supplies performs various duties as assigned.
13. LABORER - GRADE 7
Moves and handles materials and unloads trucks using various material handling
equipment such as forklift, hand truck, etc. Performs various duties as
directed. Maintains equipment and helps perform cleanup of work areas.
47
<PAGE>
APPENDIX C
GROUP INSURANCE, HOSPITALIZATIONS, SURGICAL, MEDICAL, & DENTAL PROGRAM
Bepex Corporation agrees to follow the CMTA/IAM Joint Health & Welfare and
Dental Trust according to the current summary plan description, or any future
plan.
Effective September 1, 1995, if an employee left work prior to 9/12/95 because
of a disability as provided in this section, the employer will be responsible
for making the six months or twelve months premium payment even if the payment
period extends after 9/11/95.
Effective September 1, 1995, the life insurance in the standard benefit package
will be at the level of $2O,OOO.
Please refer to your booklets for any questions.
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APPENDIX D
SICK LEAVE PLAN SUPPLEMENTING U.C.D. OR WORKER'S COMPENSATION INSURANCE
SECTION 1. GENERAL PURPOSE
The general objective of this plan, which shall become effective October 1, 1995
is to provide employees with wage stability during long-term illness or injury.
This protection shall cover only that number of days, weeks, or months (as set
forth in section 2) below) during which the employee would have been working had
the employee not be disabled. Excluded from the coverage of this Appendix are
all maternity benefits. This program will provide weekly benefit levels on a
seven day basis in accordance with the formula set forth below. These weekly
benefits are integrated with benefits received from the State Unemployment
Disability Fund or Worker's Compensation benefits. The daily benefit will be
one-seventh of the weekly benefit.
Company-Paid Supplemental
Bepex Classification 10/1/95 thru 4/30/99
- -------------------- -------------------------
Grade 1 Maintenance Machinist $156.00
Grade 2 Journeyman $133.00
(Closed Class)
Specialist "A" $ 79.00
Specialist "B" $ 62.00
Grade 3 Welder, Machine Operator $ 77.00
Grade 4 Painter $ 47.00
Flight Press Operator
Burning Machine
Grade 5 Production Worker I $ 30.00
Grade 6 Production Worker II $ 16.00
Grade 7 Janitor, Laborer -------
SECTION 2. ELIGIBILITY AND DURATION OF BENEFITS
All employees must complete one full year of service from last date of hire to
be eligible for any benefits under this Plan. Eligibility and duration of
benefits will be determined as follows:
a) Employees with LESS than one year of service as of April 30 will start
accruing benefits on the first of the month following the month in which
they complete one full year of service as outlined below.
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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF OF DAYS
LENGTH OF SERVICE IN MONTHS SUPPLEMENTAL SICK LEAVE BENEFITS
- --------------------------- --------------------------------
<S> <C>
12 MONTHS OR LESS NONE
- ----------------- ----
13 months 1 calendar days
14 months 2 calendar days
15 months 3 calendar days
16 months 5 calendar days
17 months 6 calendar days
18 months 7 calendar days
19 months 8 calendar days
20 months 9 calendar days
21 months 11 calendar days
22 months 12 calendar days
23 months 13 calendar days
</TABLE>
b) Employees with MORE than one year of service as of April 30 of any year
will have the duration of their benefits for the entire sick leave year
computed as of April 30 at the same time that vacation benefits are
determined. Duration of benefits shall be as follows --
<TABLE>
<CAPTION>
NUMBER OF DAYS SUPPLEMENTAL
LENGTH OF SERVICE SICK LEAVE BENEFIT
----------------- ------------------
<S> <C>
1 year but less than 2 years 14 calendar days
2 years but less than 3 years 28 calendar days
3 years but less than 5 years 56 calendar days
5 years but less than 10 years 91 calendar days
10 years and over 182 calendar days
</TABLE>
c) The benefits of this plan shall not be paid to any employee who ceases
active full-time work for any reason other than an illness or accident
for which he is paid benefits under the State U.C.D. Program or
Worker's Compensation Insurance Program.
In exception to this paragraph, where an employee is on layoff and is
recalled to work but is unable to work by reason of a disability which
qualifies under this plan, he shall be eligible for benefits starting
on the date he would have returned to work as a result of the recall.
d) Each eligible employee shall be entitled to receive supplemental sick
leave pay in any sick leave year, May l through April 30, up to the
number of days as determined in Section 2, and in accordance with the
schedule of benefits set forth in Section 1, provided that, to qualify
for any benefit in the new sick leave year beginning May 1, an employee
must work for the COMPANY in the new sick leave year a number of days
equal to the total number of days in the preceding sick leave year for
which sick leave benefits were paid.
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e) Employees who are on disability on the anniversary date, April 30,
shall be entitled only to the number of days as determined in Section 2
to which they were entitled on the day they ceased active full-time
work for the COMPANY by reason of disability.
Such employees must return to active full-time work for the company in
the new sick leave year and requalify for benefits in accordance with
(a) above.
f) The total benefits to which an employee is entitled under this plan can
be applied only once during the sick leave year; i.e., from May 1
through April 30. If qualified sick leave absence occurs more than once
during a sick leave year, the maximum benefits to which any employee is
entitled will be reduced by the amount of benefits already paid during
the sick leave year.
g) To be paid supplemental sick leave pay under this plan, the employee
must be eligible for, be paid, and present to the COMPANY no later than
thirty (30) calendar days after his return to work, a copy of the State
U.C.D. or Worker's Compensation Insurance benefits paid to him. Upon
presentation of this evidence to the COMPANY, he shall receive
supplemental sick leave pay as expeditiously as possible.
SECTION 3. GENERAL PROVISIONS
a) THE COMPANY'S SOLE OBLIGATION UNDER THIS CONTRACT IS TO PROVIDE THE
BENEFITS OUTLINED HEREIN AND THERE SHALL BE NO DUPLICATE OR OVERLAPPING
BENEFITS PAID UNDER THIS CONTRACT: i.e., no supplemental sick leave pay
shall be paid for any day for which the employee is also entitled to
pay for any reason under this contract.
b) Only fill day sick leave payments will be made. No supplemental pay
shall be paid for partial work days lost.
c) Working days lost for which supplemental sick leave benefits are paid
and supplemental sick leave payments made under this plan shall not be
considered as time worked for any purpose in this contract except as
otherwise provided in paragraph (a) 3 of Section 2 of article VII -
Vacations.
d) The benefits of this plan shall not apply to any disability not covered
by U.C.D. or Worker's Compensation Insurance. In any case, the waiting
period provided under U.C.D. Worker's Compensation Insurance shall
apply before benefits shall be paid.
e) Satisfactory evidence of disability is a prerequisite to participation
in the benefits provided by this plan. Qualification for U.C.D. or
Worker's Compensation benefits is not necessarily in and of itself
considered satisfactory evidence of disability for purposes of this
plan. Further, the COMPANY, at its discretion and at its expense,
reserves the right to have its own physician examine an employee
participating or seeking to participate. If such examination reveals
that there is not satisfactory evidence of disability, the benefits
under this plan shall cease until the matter is resolved. If the matter
is not resolved, it may be referred to the Grievance Procedure.
f) In order to qualify for benefits, the employee has the responsibility
for taking all proper steps to insure early recovery. Such steps may
include the attendance of a qualified physician and the purchase of
drugs, medicines, medical supplies and hospitalization service as
necessary.
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<PAGE>
g) Upon request of the COMPANY the employee shall furnish to the COMPANY
the doctor's estimate of the date that the disability will terminate
and the employee will resume his regular or customary work. This
information is recorded in Question #24 of the current State U.C.D.
Claim Form.
52
<PAGE>
APPENDIX "E"
TRUST FUND OBLIGATIONS
In addition to the obligations set forth above in Articles XV, XVI and Appendix
"C", with respect to the following pension and Welfare Plans, the parties agree
to be bound by all the terms and provisions of the Trust Indentures establishing
said Plans, as said Trust Indentures are presently in effect and as they may
hereafter be amended in accordance with their provisions relative to amendment:
1. CMTA-IAM Pension Plan or its successor, the IAM National Pension Fund.
2 CMTA-IAM Retiree Medical Plan.
3. CMTA-IAM Joint Health & Welfare Plan.
PENSION AND RETIREE MEDICAL CONTRIBUTIONS:
Contributions to the Pension Plan and to the Retiree Medical Plan shall be based
on all hours for which pay is required -- up to 40 hours per week -- under this
AGREEMENT, except jury pay, pay for apprentice school time which is outside the
employee's regular working hours, payment for sickness and injury time,
bereavement pay, and payments made in accordance with sick leave plans
supplementing U.C.D.
HEALTH & WELFARE AND DENTAL CONTRIBUTIONS:
Monthly contributions to the Health & Welfare and Dental Plans shall be in such
amounts as the Joint Union-Management Boards administering said plans from time
to time determine to be necessary to pay their costs of administration and to
provide the benefits required hereunder. The monthly contribution shall be paid
for all employees who are carried on the payroll as of the first business day of
any calendar month. Contributions to the Health and Welfare Plan shall also be
required for employees employed prior to the sixteenth day of the month who are
entitled to immediate coverage under Appendix "C".
PAYMENT OF CONTRIBUTIONS:
Reports and contributions to the Pension and Retiree Medical Plans are due and
payable on the tenth day of the month following the month for which the hours
are being reported. Reports and contributions to the Dental and Health & Welfare
Plans shall be payable on the tenth day of the current month. For any period of
time for which no required report form has been filed, the Company's obligation
- -- until the proper report form is filed -- shall not be less than the amount
which would be owing based on the facts reported on the report form covering the
most recent month reported. Performance of these obligations shall be made at
such address as may be specified from time to time on the report forms.
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<PAGE>
LIQUIDATED DAMAGES:
It is understood that the contribution rates to the above Trusts are based upon
timely payments from the employers. If the employers do not make timely
payments, the Trust Funds lose interest on money which should have been
received, incur additional administrative expense in the form of letters,
telephone calls, changes in computer billings and other collection expenses, all
of which constitute damages arising from the Company's failure to make timely
payment of contributions. From the nature of the case, it is impractical or
extremely difficult to fix the actual damages resulting from each default.
Therefore, in any case where the required monthly payment is delinquent for
longer than any grace period the joint board may allow, liquidated damages shall
be imposed equal to ten percent (10%) of the delinquent contribution, with
minimum liquidated damages of $25,000 to any Trust to which payment is
delinquent. Furthermore, if payment is not made within two months of the
original due date, interest shall accrue at the rate of ten percent (10%) per
annum from the original due date, and the delinquent Company shall be
responsible for any reasonable legal fees incurred in connection with the
delinquency, whether or not legal action has been brought, and for court costs
if legal proceedings are instituted.
MISCELLANEOUS
If any joint board determines that the Company is consistently delinquent in
paying its contributions, then it may require and the Company shall promptly
provide such cash deposit or other security as it may deem necessary to protect
the Trust against any further delinquencies, and may reduce or eliminate any
grace period otherwise available to the Company.
None of the Trusts shall be responsible for paying benefits for any employee if
the required contributions on his behalf have not been received, except as
specifically provided under any of the Trust Indentures or rules and regulations
adopted thereunder. Furthermore payment of benefits directly by any Trust Fund,
or payment of premiums in insurance companies or service organizations by any
Trust Fund, is conditioned upon the existence of sufficient money in that Trust
Fund to make payments.
The right to modify or to amend this Appendix is specifically reserved to the
parties.
54
<PAGE>
I.A.M. NATIONAL PENSION FUND
STANDARD CONTRACT LANGUAGE
BENEFIT PLAN C
"ARTICLE XIX - PENSIONS"
A. The COMPANY shall contribute to the I.A.M. National Pension Fund,
Benefit Plan C., for each hour for which employees in all job
classifications covered by this AGREEMENT are entitled to receive pay
under this AGREEMENT at $1.15 per hour effective 5/1/95 and $1.20 per
hour effective 5/1/97.
B. The COMPANY shall continue contributions based on a forty (40) hour
work week while an employee is off work due to paid vacations or paid
holidays.
C. Contributions for a new, temporary, probationary, part-time or
full-time employee are payable after a maximum of 60 calendar days from
the first day of employment.
D. The I.A.M. Lodge and the COMPANY adopt and agree to be bound by, and
hereby assent to the Trust Agreement, dated May 1, 1960, as amended,
creating the 1.A.M. National Pension Fund and the Plan rules adopted by
the Trustees of I.A.M. National Pension Fund in establishing and
administering the foregoing Benefit Plan pursuant to the said Trust
Agreement, as currently in effect and as the Trust and Plan may be
amended from time to time.
E. The parties acknowledge that the Trustees of the I.A.M. National
Pension Fund may terminate the participation of the employees and the
COMPANY in the Plan if the successor collective bargaining agreement
fails to renew the provisions of this pension Article, other than to
increase the Contribution Rate or to add job classifications or
categories of hours for which contributions are payable
F. This Article contains the entire agreement between the parties
regarding pensions and retirement under this Benefit Plan and any
contrary provision in the AGREEMENT shall be void. No oral or written
modification of this AGREEMENT shall be binding upon the Trustees of
the I.A.M. National Pension Fund. No grievance procedure, settlement or
arbitration decision with respect to the obligation to contribute shall
be binding upon the Trustees of the said Pension Fund.
55
<PAGE>
APPENDIX F
COMPANY WORKING RULES FOR EMPLOYEES COVERED BY THE LABOR-MANAGEMENT
AGREEMENT
These rules are published for your information and to minimize the likelihood of
an employee, through misunderstanding or otherwise, becoming subject to any
disciplinary action. Violation of any COMPANY rule cannot be ignored by
management. These rules and regulations are fully enforceable under Article III,
Section 3 of the AGREEMENT. It is only fair that you should be familiar with
these rules. The COMPANY considers all to be of importance.
SECTION 1
RULES SUBJECT TO DISCIPLINARY ACTION IF VIOLATED
1. Avoid tardiness or absenteeism. Day shift hours are 7:30 a.m. to 4:00
p.m. with 30 minutes (unpaid) for lunch between 12:00 noon and 12:30
p.m. Swing shift hours are 4:00 p.m. to 1:00 a.m. with 30 minutes
(unpaid) for lunch between 8:00 p.m. and 8:30 p.m.
2. Work exclusively through your foreman. This includes request for
maintenance.
3. Obtain permission from respective foreman before leaving assigned work
area. (Except for reasonable use of laboratory or to obtain needed
equipment or tools for his work).
4. Perform satisfactory work. Avoid repeated mistakes and rework.
5. If unable to come to work, advise foreman or COMPANY within 2 hours
after start of shift on first day of absence. This does not
automatically excuse the absence.
6. No loitering, visiting or other abuses of time during assigned work
hours.
7. Adhere to safety rules published and POSTED for your protection.
8. Do not operate any tools unless skilled or instructed in proper use.
Ask foreman for instructions.
9. Do not knowingly damage or abuse COMPANY tools or property.
10. Keep work area and equipment reasonably clean. This applies also to the
use of equipment outside of assigned work area.
11. Use pay phones to make outgoing phone calls during lunch or coffee
breaks. Incoming emergency phone calls will be processed as fast as
possible through regular switchboard and through respective foremen.
12. Report accurate time and shop numbers according to established
procedure. (These are used to establish correct selling prices which
aid sales).
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<PAGE>
13. Obtain approval of production manager before soliciting or collecting
contributions, or distributing written or printed matter on the COMPANY
property during regular work hours.
14. Arrange for visitors to see you outside of factory buildings at lunch
time or after assigned work hours.
15. Do not discredit or otherwise abuse the credibility of a foreman or
supervisor through any act or action willful1y designed.
16. Do not leave COMPANY premises during assigned work hours without
permission of respective foreman.
17. Excessive Absenteeism (See Section III).
NOTE: THESE RULES ARE NOT INTENDED TO BE ALL INCLUSIVE.
DISCIPLINARY ACTION which will be administered for violation of any of the above
rules:
1. First offense - verbal warning
2. Second offense - written warning
3. Third offense - disciplinary suspension up to fifteen (15)
working days depending on the seriousness or
nature of the violation
4. Fourth offense - discharge
Since the aim of this program is to be helpful and constructive, discipline will
be progressive. However, any employee who had no violations for six (6)
consecutive calendar months, shall clear his record by one step. For each
additional six (6) consecutive months period thereafter, his record would
improve by one step. Thus, an employee who had reached step 3 above could wipe
the slate clean with no violations for eighteen (18) consecutive calendar
months.
SECTION II
ACTIONS SUBJECT TO IMMEDIATE DISCHARGE
1. Deliberately endangering the safety or life of others.
2. Deliberately delaying or restricting production or making others to do
so.
3. Refusal to perform work properly assigned by a foreman or supervisor.
4. Disclosure of any COMPANY information such as drawings, specifications,
customer lists, to unauthorized persons.
5. Willingly falsifying any COMPANY records, including time records.
6. Bringing liquor or narcotics into the plant, or consuming liquor or
using narcotic on COMPANY premises, or reporting for work under the
influence of liquor or narcotics after having been warned once in
writing for this offense.
7. Deliberately abusing, destroying, damaging or defacing COMPANY
property, tools, equipment or the property of others on COMPANY
premises.
8. Fighting on COMPANY property.
9. Theft.
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<PAGE>
10. Fourth violation of any rule under Section I.
NOTE: THE PRECEDING LIST IS NOT INTENDED TO BE ALL INCLUSIVE.
SECTION III - ABSENTEE AND TARDINESS CONTROL PROGRAM
OBLIGATIONS
The following program reflects but one of the efforts to limit absenteeism and
tardiness and to enunciate responsibilities as prescribed within Article II,
Section 2, and Article XV, Section 6 of the AGREEMENT.
The control of absenteeism and tardiness is a serious matter. The solution to
preventing or controlling either from becoming a problem rests in the mutual
acceptance by the employee, the UNION and the COMPANY of their respective
responsibilities. The costs of absenteeism or tardiness are obvious in that they
often promote the need for otherwise unnecessary overtime, temporary transfers
or other temporary measures that may affect the timeliness, quality and quantity
of production. Bepex Corporation has the responsibility to its customers and to
its management and employees to provide quality work, at the lowest possible
cost and on time. Thus, each employee must accept their responsibility of
reporting to work promptly at the times scheduled. The well-being of the COMPANY
and each employee's job is ultimately affected by absenteeism and tardiness.
ABSENTEE RATE
There is no amount of lost time or number of absences or tardiness per month or
per year which will neatly divide a satisfactory from an unsatisfactory
attendance or tardiness record for individual employees. There is no specific
gauge available that can be used to measure the limits of satisfactory vs.
unsatisfactory attendance or tardiness. Even to provide such a figure may only
serve to give absentee offenders a false sense of a maximum allowable amount. An
employee is obligated to report to work regularly and on time. That is what
he/she was hired to do. If he/she never has to be absent, he/she shouldn't be.
It is fully recognized, however, that unexpected illnesses, accidents or other
living requirements may require an employee's absence from work or even a late
arrival. It is expected that these be kept to a minimum.
It is quite evident that both intermittent short-term absences and tardiness and
long-term absences present cost-related problems. However, the unexpected
intermittent short-term absence and tardiness or leave early is the situation
that presents the greatest cost-related problem to the COMPANY with unexpected
changes in scheduling; in producing quality work often with substitute
employees; in productivity, due to employee unfamiliarity with work; and
ultimately in costs, due to the interruptions and changes. It is found that the
majority of intermittent, short-term absenteeism is attributable to a minority
number of employees. Although Bepex will consider an employee's employability
for both short- and long-term absences, the intermittent, short-term absence or
tardiness is the type addressed by this particular program.
RANKING OF ABSENTEE OFFENDERS
Periodically (quarterly, monthly, weekly), employees will be ranked in order of
the number of TIMES they are absent over the prior 12 month period. The number
of DAYS absent will be the secondary factor in the ranking.
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<PAGE>
Any single, continuous absence, even though over a weekend or holiday, will
constitute a single TIME. Those employees at the top of such list will be
considered first for counseling and/or disciplinary action. Employees who are
moving upwards on the list, those whose absentee rate shows no improvement or
those whose absentee rate is worsening, will also be considered for counseling
and/or disciplinary measures, as the COMPANY deems necessary. The COMPANY will,
therefore, attempt to address the worst offenders and those who have had prior
disciplinary action first. The same approach will be used for tardiness.
TARDINESS
A single lateness from the starting time, or a single leave early, will be
listed as a single time tardy for this program. A tardiness of over two (2)
hours will count as an absence. Should an employee continue his/her rate of
absenteeism or tardiness, disciplinary action, including discharge may be
required.
DISCIPLINARY MEASURES
Disciplinary measures will be taken to confirm counseling or lack of improvement
in attendance or tardiness. Disciplinary action l normally begin with counseling
and a written, confirming warning. The employee's record, level of prior
discipline, rate of absenteeism, etc., will be among the factors considered to
determine the level of discipline meted out. Disciplinary action will proceed in
accordance with Section I, above. The final step will result in the employee's
discharge and loss of all seniority. Disciplinary action will result if the
employee's rate of absenteeism is not improving or has not improved to an
acceptable level.
INTENTION
The full intention of this approach is to force a reduction in the number of
times absent or tardy by the top-ranked absentee offenders until the absentee
rate for such top-ranked offenders is at an "acceptable" level. Ideally,
counseling and/or the lowest levels of discipline will bring desired results.
The COMPANY will share the information on the lists of the top absentee and
tardiness offenders, with the UNION, and in accordance with the intentions of
Article II, Section 2 of the AGREEMENT will cooperate with the bargaining
representatives in their obligation to cooperate in reducing absenteeism and
tardiness. Should there be disagreement as to the disciplinary action(s) taken
by the COMPANY, the provision of Article XVI, Grievance Procedure, may be
applied.
EXCEPTIONS
Absenteeism for the following reasons will not be considered in the Bepex
intermittent, short-term absentee control program:
Time off due to a bona fide industrial accident at Bepex, where the employee can
show proof of the injury and accident and time off for subsequent medical
treatment for the same compensable injury. The COMPANY reserves the right to
make or change appointments for subsequent medical treatment.
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<PAGE>
Time off for holidays, paid vacation, jury duty, and funeral pay as prescribed
within the Labor-Management AGREEMENT or for service with the U.S. Armed Forces
or National Guard.
Note #1: Any employee who is absent for three (3) consecutive working days or
more and who has reported his/her absence and is known to be ill,
will not be permitted to return to work without a full, unrestricted
medical clearance (physician's statement). The COMPANY reserves the
right to have employees who return to work be examined by a
physician.
Note #2: Any three (3) consecutive working-day period of unreported absence
will be considered as a quit.
Note #3: Employees are to report off work no later than two (2) hours after
the beginning of an absence relating the reason for the absence and
anticipated day they will return to work. Reporting off work does
NOT constitute an excused absence.
SECTION IV - TARDINESS
Any company, in order to plan and assure its production, must depend on its
employees starting work on time. Tardiness is inexcusable and should not occur.
DEFINITION OF TARDY
Reporting to work after the regular starting time of the shift and before two
(2) hours into the shift is considered a tardy. (Anything after 2 hours is
considered an absence.)
Two (2) tardies in any one calendar month are equal to one (1) absence for
purposes of disciplinary action.
LOSS OF PAY
An employee reporting to work late will have his pay reduced in six (6) minute
increments (1/10 hour) rounded out to the net higher increment.
SECTION V - ATTENDANCE
1. Time cards should not be punched in before 10 minutes before the
start of the shift.
2. Time cards must be punched out immediately after the end of the
employee's assigned work hours, but within 10 minutes after the end
of the shift, or upon leaving before the end of shift.
3. Note rules regarding time cards in Section I, No.1 and 12. Section
II, No.5.
4. Off premises work will be manually reported on time card and
approved by foreman.
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<PAGE>
APPENDIX G
SAFETY RULES
1. All injuries, even slight, must be reported immediately to your foreman.
2. Report any unsafe practices, equipment or conditions to your foreman.
3. Horseplay is NOT allowed anytime or anywhere on plant site.
4. Employees MUST NOT work in the plant alone.
5. Reporting to work under the influence or the consumption of intoxicating
liquor or drugs on the job is cause for immediate dismissal. (See
COMPANY working rules, Section II, No.6)
6. Avoid heavy lifting. Get help if needed. USE mechanical lifting devices.
7. Use correct lifting positions to avoid back strain.
8. Safety glasses with side shields or goggles MUST ALWAYS be worn in shop
areas. Prescription safety glasses can be obtained from the purchasing
department when the prescription is furnished by the employees up to one
pair a year and $35.00 a pair.
9. Use appropriate eye protective gear when grinding or polishing.
10. Use dust mask when grinding in enclosed area.
11. Steel-toed safety shoes MUST be worn by all shop employees. The COMPANY
reimburses two-thirds or a maximum of $30.00 for safety shoes.
12. Observe good housekeeping. Keep your working area clean and orderly.
13. Stack materials safely. Avoid lopsided or leaning stacks.
14. Keep aisles clear and clean.
15. Only qualified and approved personnel are allowed to operate machinery
and equipment.
16. Before starting any machinery, assure that all personnel are properly
positioned so as to avoid any potential injury. BE SURE when overhauling
or repairing any equipment that a warning tag is installed on main
lockout switch. This will prevent accidental closing of the switch.
NEVER remove danger tags from a main lockout until ALL work has been
completed.
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17. Close all valves on oxygen, acetylene, argon, COU2 Dor, any other
pressure gas tanks after each use or at end of each shift.
18. Place all waste material in receptacles provided for that purpose.
19. Secure all ladders.
20. All protruding nails must either be removed or bent over.
21. Forklifts are to be operated by authorized personnel ONLY. More than one
person on a forklift is prohibited.
22. Maximum speed for forklifts outside the building is 5 MPH; inside the
building is 3 M.P.H.
23. When driving forklifts or other vehicles in the buildings, always yield
right of way to pedestrians.
24. Wear hearing protection devices in all designated areas. Excessive
noise is a health hazard to you and those around you.
The above SAFETY RULES are for YOUR protection and for the safety of
YOUR fellow workers. PLEASE COOPERATE! Ask your fellow employees to do likewise.
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APPENDIX H
(SUBSTANCE ABUSE POLICY
It is understood and agreed between Bepex Corporation, Santa Rosa, California
(hereafter "COMPANY") and Redwood Lode No. 1178, District 115 of the
international Association of Machinists and Aerospace Workers, AFL-CIO
(hereafter, "UNION") that: this understanding and agreement in no ways alters or
supersedes any provisions of the current AGREEMENT or the one to be effective
between the COMPANY and the UNION effective May 1, 1989 through April 30, 1992,
except as provided in such agreement. This Memorandum of Agreement shall be one
part of the Agreement between the COMPANY and the UNION effective May 1, 1991
through April 30, 1992.
Section 1. Addiction Recovery Program (ARP)
A. BEPEX and the UNION are committed to providing a safe and productive
work environment for Employees. BEPEX and the UNION recognize the
valuable resource we have in our Employees and recognize that the state
of an Employee's health affects attitude, effort, and job performance.
Substance abuse causes decreased efficiency and greatly increased risk
of injury to Employees. BEPEX and the UNION therefore adopt this policy
on behalf of each of its' Employees. The intent of the policy is
threefold:
1. To maintain a safe, drug and alcohol free work place.
2. To maintain our work force at its maximum effectiveness.
3. To provide confidential, Addiction Recovery Program (ARP)
referral and treatment to those Employees who recognize they
have a substance abuse problem and voluntarily seek treatment
for it.
B. In order to achieve these purposes, it is our primary goal to identify
those Employees and refer them to professional counsel, before job
performance has become a disciplinary problem. Employees are urged to
use the services available through the Addiction Recovery Program
(ARP). Employees who voluntarily seek help through the ARP will not
jeopardize their job security by such self-identification.
1. Employees who have a substance abuse problem shall directly
contact the ARP Program. All information will be kept
confidential and the individual referred to professional
counselors and advised how to utilize your Addiction Recovery
Program for appropriate treatment.
2. Treatment for alcoholism or drug dependency is provided under
applicable Health and Welfare plans, up to the limits
described in the plans.
3. An Employee shall be granted necessary leave of absence for
treatment of drug/alcohol problems contingent upon signing a
"Referral Agreement" requiring completion of an approved
treatment program.
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<PAGE>
SECTION 2. WORK RULES
A. All Employees must report to work in a physical condition that will
enable them to perform their jobs in a safe and efficient manner.
Employees shall not:
1. Use, possess, dispense or receive alcohol, intoxicants or
controlled substances (drugs) on or at the job site.
2. Report to work with any measurable amount of a controlled
substance, intoxicant or illegal drug in their system.
B. Medication prescribed by a physician is an exception when the physician
prescribing medication has released the Employee to work while taking
the prescribed medication. However, abuse of prescribed drugs is a
violation of this policy.
C. Employees who violate the above work rules shall be subject to
appropriate discipline up to and including discharge. It is the intent
to encourage and assist Employees in treatment and rehabilitation
through the Addiction Recovery Program, as is outlined in this policy.
Section 3. Testing
A. Substance abuse is a disease which is treatable and the object of this
policy is rehabilitation and not termination although termination may
at times be necessary as otherwise provided in this policy.
B. An Employee whose work performance and/or behavioral conduct indicates
that he/she is not in a physical condition that would permit the
Employee to perform a job safely and efficiently will be subject to
submitting to a urine, blood or breathalyzer test to determine the
presence of alcohol or drugs in the body. Provided:
1. BEPEX has reasonable grounds to believe that the Employee is
under the influence of or impaired by alcohol or drugs.
Reasonable grounds include abnormal coordination, appearance,
behavior, speech or odor. It can also include work performance,
safety and attendance problems.
2. The supervisor's reasonable grounds must be confirmed by another
management representative in conjunction with a representative of
the Union, which may be the Business Representative or Shop
Steward if immediately available.
3. The Employee will be provided with an opportunity to explain
his/her conduct at the time of confirmation to the
Representatives, including the Union Representative, set forth in
2, above.
C. Employees who are directly or indirectly involved in an accident
involving property damage or injury which requires medical care are
subject to submitting to a blood, urine or breatholyzer test, if
reasonable cause exists. The innocent victims of an accident will not
be subject to a test unless reasonable cause exists.
D. Employees required to take a test will be placed on an unpaid leave of
absence pending receipt of the test results.
1. If test results are negative, absent time will be paid by the
COMPANY.
64
<PAGE>
E. Failure to submit to a test as required above will be grounds for
termination. Employees who feel that they have a legitimate grievance
must still submit to the test and then file a grievance in accordance
with Article XVI Section 2 Grievance Procedure of this Agreement. If
the Employee voluntarily consents to obtaining assistance through the
Addiction Recovery Program and immediately enters into a written
Referral Agreement the test may be waived upon agreement by the
COMPANY.
F. The COMPANY shall select reputable facilities for base testing and
confirmatory testing at the COMPANY'S expense. The facility for
confirmatory testing must meet all standards required by law and/or set
by State or Federal Health Agencies for laboratory performance and they
must employ certified Medical Toxicologists and technicians. The UNION
will be provided with the testing facilities' names, addresses and
credentials if requested. The UNION retains the right to demand a
change in the test procedure, or test facility based on reliable
information which disproves the accuracy or quality of either. The
UNION also retains the right to request a change in test procedure or
test facility when a reasonable and superior alternative to either is
available.
G. The UNION will have the opportunity to review the testing procedure.
H. All samples which test positive will be confirmed using a gas
chromatography/mass spectrometry test or a superior or equally reliable
test if same becomes reasonably available.
I. None of the testing procedures are intended to be in violation of the
law, and if they are, they shall be eliminated without voiding
other parts of this policy.
Section 4. Referral Agreement
A. It is the intent of the COMPANY and the UNION, to prevent and correct
problems associated with drug and alcohol through the ARP in order to
avoid situations which could occur which may result in disciplinary
action. Therefore, an Employee who voluntarily enters the ARP or has a
positive result on a test may have disciplinary action withheld pending
satisfactory completion of the Referral Agreement requirements.
B. The terms of the disciplinary action will be set forth in a written
Referral Agreement entered into between the Employee, the UNION, ARP
and the COMPANY. When reviewing the written agreement, the disciplinary
action will be abated for an Employee who satisfactorily completes the
treatment program prescribed by the ARP counselor and who meets the
terms and conditions of the written Referral Agreement.
C. An Employee who fails to cooperate, abandons or does not complete the
treatment program prescribed by ARP counseling or who fails to live up
to the terms and conditions of the Referral Agreement will receive the
previously withheld discipline. However, before the disciplinary action
is imposed, the COMPANY and the UNION will attempt to counsel the
Employee into completing the treatment program.
D. Whether an Employee volunteers to participate in the ARP or is required
to participate as a condition of continued employment, that Employee
shall continue to be subject to the same rules, working conditions
65
<PAGE>
and disciplinary procedures in effect for other Employees, i.e.,
Employees cannot escape discipline for future infractions by being
enrolled in the ARP.
E. In order to ensure confidentiality in the ARP program, the COMPANY
shall designate a Management Employee as the Employee Assistance
Representative for the COMPANY. This individual shall be the sole
representative of the COMPANY in possession of the Employee ARP
information.
F. Whenever Owner or Awarding Agency specifications require the COMPANY to
provide a drug-free work place, such additional requirements may be
incorporated herein upon mutual agreement of the UNION and the COMPANY.
66
HOSOKAWA MICRON INTERNATIONAL INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Effective as of April 14, 1998
<PAGE>
TABLE OF CONTENTS
FOREWORD..................................................................... i
SECTION ONE DEFINITIONS................................................... 1
SECTION TWO PARTICIPATION................................................. 4
2.1 Qualification for Participation............................... 4
2.2 Continuation of Participation................................. 4
SECTION THREE BENEFITS REQUIREMENTS AND PAYMENTS............................ 5
3.1 Supplemental Retirement Benefits.............................. 5
3.2 Vesting....................................................... 6
3.3 Forfeitures................................................... 6
3.4 Optional Forms of Benefit Payments............................ 7
SECTION FOUR GENERAL MATTERS............................................... 8
4.1 Benefits from General Assets.................................. 8
4.2 No Assignment................................................. 8
4.3 Administrator of Plan......................................... 9
4.4 Expenses of Plan.............................................. 9
4.5 Amendment or Termination...................................... 9
4.6 Limitation on Benefits and Payments........................... 9
4.7 Claims Procedure.............................................. 9
4.8 Limitation on Liability....................................... 10
4.9 Agent for Service of Process.................................. 11
4.10 Delivery of Elections to Administrator........................ 11
4.11 Delivery of Notice to Participants............................ 11
4.12 No Employment Rights.......................................... 11
SECTION FIVE CONSTRUCTION OF THE PLAN...................................... 12
5.1 Construction of the Plan...................................... 12
5.2 Counterparts.................................................. 12
APPENDIX A .............................................................. 13
<PAGE>
FOREWORD
Effective as of April 14, 1998, Hosokawa Micron International Inc. adopted
the Hosokawa Micron International Inc. Supplemental Executive Retirement Plan
(the "Plan") for the benefit of its key executives and those of its Affiliates.
The benefits provided under the Plan are intended to constitute a deferred
compensation plan for "a select group of management or highly compensated
employees" for purposes of the Employee Retirement Income Security Act of 1974.
-i-
<PAGE>
SECTION ONE
DEFINITIONS
As used herein, the following terms shall have the following respective
meanings, unless a different meaning is required by the context:
1.1 "ACTUARIAL EQUIVALENT" means the present value of a benefit when computed
on the basis of the following actuarial assumptions:
(a) MORTALITY: is the 1983 Group Annuity Mortality Table set forth in
Internal Revenue Service Revenue Ruling 95-6 (which is a
fixed blend of 50% of the male mortality rates and 50% of
the female mortality rates of the 83 GAM) or such other
mortality table as prescribed by the Secretary of the
Treasury under Section 807(d)(5)(A) of the Internal
Revenue Code of 1986, as amended;
(b) INTEREST:
(i) for calculating lump sums under Section 3.4(c), is the
rate on thirty year U.S. Treasury securities in effect
for the second month (November) immediately preceding the
first day of the calendar year in which the distribution
is made;
(ii) for all other purposes, is 7%
1.2 "ADMINISTRATOR" means the Compensation Committee of the Board (or the full
Board if there is no such committee). To the extent appropriate,
"Administrator" also means the person(s) designated by the Administrator
for a particular purpose.
1.3 "AFFILIATE" means the term as defined under the Stock Option Plan.
-1-
<PAGE>
1.4 "CAUSE" means the term as defined under the Stock Option Plan.
1.5 "COMPANY" means the Hosokawa Micron International Inc. or any successor by
merger, purchase, reorganization or otherwise.
1.6 "COMPENSATION" means the base salary paid by the Company or an Affiliate to
a Participant while a Participant, including the amount of any reductions
in the Participant's otherwise payable compensation attributable to
Internal Revenue Code Sections 125 or 401(k) contributions, and excluding
bonuses, commissions, imputed income, reimbursed expenses, severance pay,
disability payments, any other contributions or benefits arising in
connection with this Plan or in connection with any other employee benefit
or welfare plan of the Company or an Affiliate and such other payments as
determined by the Administrator under uniform rules applicable to all
Employees similarly situated.
1.7 "DISABLED or DISABILITY" means disability within the meaning of the
long-term disability plan of the Company or Affiliate which is applicable
to the Participant. If the Participant is not so covered, Disability means
a medically determinable physical or mental impairment of an Employee which
renders him or her incapable of continuing his or her usual and customary
employment with the Company and which constitutes a total disability under
the Federal Social Security Act.
1.8 "EFFECTIVE DATE" means April 14, 1998.
1.9 "EMPLOYEE" means an employee of the Company or an Affiliate.
1.10 "FINAL AVERAGE COMPENSATION" means the average of a Participant's
Compensation
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<PAGE>
received in any 3 consecutive calendar years during the last 10 consecutive
full calendar years before a Participant's last day of Service which
produce the highest average. If a Participant has less than three
consecutive calendar years of Service, Compensation shall be averaged over
the Participant's total period of Service.
1.11 "JOINT & ONE-HALF SURVIVOR ANNUITY" means an annuity payable for the life
of a Participant with an annuity payable for life continuing after the
Participant's death to his or her spouse. The amount continued to the
spouse shall be 50% of the amount payable to the Participant.
1.12 "NORMAL RETIREMENT DATE: means the first day of the month following the
later of the Participant's attainment of age 65 or termination of
employment.
1.13 "PARTICIPANT" means a person described in Section Two.
1.14 "PLAN" means this, the Hosokawa Micron International Inc. Supplemental
Executive Retirement Plan, as set forth herein and as may be amended from
time to time.
1.15 "SERVICE" means an Employee's period of employment (including periods of
employment before the Effective Date) with the Company or an Affiliate, but
including employment with an Affiliate only for such period(s) during which
it is an Affiliate.
1.16 "STOCK OPTION PLAN" means the Hosokawa Micron International Inc. 1997
Stock Option Plan.
-3-
<PAGE>
SECTION TWO
PARTICIPATION
2.1 Qualification for Participation
Employees become Participants upon designation by the Compensation
Committe of the Board ( or the full Board if there is no such committee).
Participants as of the Effective Date are listed in Appendix A to the Plan.
The Administer shall amend Appendix A to reflect subsequent changes to the
list.
2.2 Continuation of Participation
An Employee who has become a Participant shall remain a Participant so long
as benefits are payable to or with respect to such Participation under
the Plan.
-4-
<PAGE>
SECTION THREE
BENEFITS REQUIREMENTS AND PAYMENTS
3.1 SUPPLEMENTAL RETIREMENT BENEFITS
(a) NORMAL RETIREMENT BENEFIT
Subject to the provisions of Section 3.2 and 3.3, a Participant
shall be eligible to receive a monthly supplemental retirement
benefit at the Participant's Normal Retirement Date, payable as a
Joint & One-Half Survivor Annuity for a married Participant and
payable as a life annuity for an unmarried Participant, equal to
1/12 of the excess, if any, of (i) less (ii) and (iii), reduced
further, if applicable, by (b), where:
(i) is 48 percent of the Participant's Final Average
Compensation;
(ii) is the Actuarial Equivalent of the annual benefit payable
at the Participant's Normal Retirement Date, if any, that
the Participant is eligible to receive, whether or not
applied for, from any defined benefit pension plan
maintained at any time by the Company or an Affiliate; and
(iii) in the case of supplemental retirement benefits paid by
reason of the Participant's Disability, is the amount of
the annual disability benefit that the Participant is
receiving from any disability plan the benefits of which
are provided by the Company or an Affiliate.
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<PAGE>
(b) EARLY RETIREMENT BENEFIT
Prior to the Participant's attainment of age 61, he or she may
elect commencement of his or her supplemental retirement benefits,
if any, on or after attainment of age 62. Such election must be
made on such form as prescribed by the Administrator. The
Participant's early retirement benefit shall be the Actuarial
Equivalent of his or her normal retirement benefit in (a) above.
3.2 VESTING
(a) Subject to Section 3.3, each Participant shall vest in his or her
benefits on the basis of years of Service in accordance with the
following schedule:
COMPLETED YEARS OF SERVICE VESTED PERCENTAGE
Less than 5 0%
5, but less than 6 25%
6, but less than 7 30%
7, but less than 8 35%
8, but less than 9 40%
9, but less than 10 45%
10, but less than 11 50%
11, but less than 12 60%
12, but less than 13 70%
13, but less than 14 80%
14, but less than 15 90%
15 or more 100%
(b) A Participant also shall become 100% vested upon his or her
Disability prior to termination of employment.
3.3 FORFEITURES
(a) Any portion of benefits in which the Participant is not vested
upon his or her termination of employment or retirement shall be
forfeited.
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<PAGE>
(b) Notwithstanding the preceding provisions of this Section 3, a
Participant whose employment is terminated for Cause shall forfeit
any benefits to which he or she otherwise is entitled under the
Plan.
3.4 OPTIONAL FORMS OF BENEFIT PAYMENTS
(a) ELECTIONS
Each Participant may elect to receive his or her benefits in one
of the optional forms specified in (b) below. Such election must
be made on such form as is prescribed by the Administrator and, in
the case of the lump sum option, must be made prior to the
Participant's attainment of age 61 (or, if later, within 60 days
after the adoption of the Plan).
(b) JOINT & 75% OR JOINT & 100% SURVIVOR ANNUITY OPTION
For married Participants, an annuity that is the Actuarial
Equivalent of the Joint & One-Half Survivor Annuity provided under
Section 3.1 that is payable for the life of the Participant, with
the provision that after the Participant's death his or her spouse
shall receive, for life, 75% or 100% (as elected by the
Participant) of the amount payable to the Participant.
(c) LUMP SUM
For married and unmarried Participants, a lump sum that is the
Actuarial Equivalent of the benefit provided under Section 3.1.
-7-
<PAGE>
SECTION FOUR
GENERAL MATTERS
4.1 BENEFITS FROM GENERAL ASSETS
Benefits under the Plan will be paid from the general assets of the
Company. In the event that the Company shall decide to establish an
advance accrual reserve on its books or establish a "grantor trust"
(within the meaning of Sections 671 through 679 of the Internal Revenue
Code) against the future expense of supplemental retirement benefit
payments under this Plan, such reserve or grantor trust shall not under
any circumstances be deemed to be an asset of this Plan but, at all
times, shall remain a part of the general assets of the Company,
subject to claims of the Company's creditors.
The Company shall make no provision for the funding (within the meaning
of the Employee Retirement Income Security act of 1974) of any
supplemental retirement benefits hereunder.
Neither a Participant nor any other person (natural or otherwise) shall
have any interest in any specific asset of the Company as a result of
the Plan.
4.1 NO ASSIGNMENT
Benefits payable under the Plan will not be subject to assignment,
transfer, sale, pledge, encumbrance, alienation or charge by a
Participant, spouse, or other person.
-8-
<PAGE>
4.3 ADMINISTRATOR OF PLAN
The Administrator shall be vested with the general administration of
the Plan including the exclusive right to interpret the Plan. The
decisions, actions and records of the Administrator shall be conclusive
and binding upon the Company and all persons having or claiming to have
any right or interest in or under the Plan.
4.4 EXPENSES OF PLAN
All expenses of the Plan will be paid by the Company.
4.5 AMENDMENT OR TERMINATION
The Plan may be amended or terminated at any time by the Board of
Directors. However, no amendment or termination of the Plan may have a
material adverse impact upon the accrued rights of anyone participating
in the Plan as of the amendment or termination date, unless he or she
consents to such amendments in writing.
4.6 LIMITATION ON BENEFITS AND PAYMENTS
A person entitled to supplemental retirement benefits pursuant to
Section 3.1 shall have a claim upon the Company only to the extent of
the monthly payments, if any, due up to and including the then current
month and shall not have a claim against the Company for any subsequent
monthly payment unless and until such payment shall become due and
payable.
4.7 CLAIMS PROCEDURE
In the event that any Participant or other payee claims to be entitled
to a benefit under the Plan, and the Administrator determines that such
claim should be denied in whole or in part, the Administrator shall, in
writing, notify such claimant within 90 days of receipt of such claim
that his or her claim has been denied, setting forth the specific
reasons for such denial. Such notification shall be written in a manner
reasonably expected to be understood by such Participant or other payee
and shall set forth the pertinent sections of
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<PAGE>
the Plan relied on, and where appropriate, an explanation of how the
claimant can obtain review of such denial. Within 60 days after receipt
of such notice, such claimant may request, by mailing or delivery of
written notice to the Administrator, a review by the Administrator of
the decision denying the claim. If the claimant fails to request such a
review within such 60 day period, it shall be conclusively determined
for all purposes of this Plan that the denial of such claim by the
Administrator is correct. If such claimant requests a review within
such 60 day period, the Participant or other payee shall have 30 days
after filing a request for review to submit additional written material
in support of the claim. Within 60 days after the later of its receipt
of the request for review or the request to submit additional written
material, the Administrator shall determine whether such denial of the
claim was correct and shall notify such claimant in writing of its
determination. If such determination is favorable to the claimant, it
shall be binding and conclusive. If such determination is adverse to
such claimant, it shall be binding and conclusive unless the claimant
notifies the Administrator within 90 days after the mailing or delivery
to him or her by the Administrator of its determination, that the
claimant intends to institute legal proceedings challenging the
determination of the Administrator, and actually institutes such legal
proceedings within 180 days after such mailing or delivery.
4.8 LIMITATION ON LIABILITY
The Administrator shall not be liable for any act or omission on its
part, excepting only its own willful misconduct or gross negligence or
except as otherwise expressly provided by applicable law. To the extent
permitted by applicable law, and not otherwise covered by insurance,
the Company shall indemnify and save harmless the Administrator against
any and all claims, demands, suits or proceedings in connection with
the Plan that may be brought by Participants or their beneficiaries, or
by any other person, corporation, entity, government or agency thereof;
provided, however that such indemnification shall not apply with
respect to acts or omissions of willful misconduct or gross negligence.
The
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<PAGE>
Administrator, at the Company's expense, but not without consultation
with the Company and/or the Company's legal counsel, may settle such
claim or demand asserted, or suit or proceedings brought, against the
Administrator when such settlement appears to be in the best interest
of the Company.
4.9 AGENT FOR SERVICE OF PROCESS
The Administrator or such other person as may from time to time be
designated by the Administrator shall be the agent for service of
process under the Plan.
4.10 DELIVERY OF ELECTIONS TO ADMINISTRATOR
All elections, designation, requests, notices, instructions and other
communications required or permitted under the Plan form the Company, a
Participant, or other person to the Administrator shall be on the form
prescribed by the Administrator, shall be mailed by first-class mail or
delivered to such address as shall be specified by the Administrator,
and shall be deemed to have been given or delivered only upon actual
receipt thereof by the Administrator at such location.
4.11 DELIVERY OF NOTICE TO PARTICIPANTS
All notices, statements, reports and other communications required or
permitted under the Plan from the Company or the Administrator to any
officer of the Company, Participant, or other person, shall be deemed
to have been duly given when delivered to, or when mailed by
first-class mail, postage prepaid, and addressed to such person at this
address last appearing on the records of the Administrator.
4.12 NO EMPLOYMENT RIGHTS
The establishment of the Plan shall not be construed as conferring any
rights upon any person or Employee for employment or a continuation of
employment, nor shall it be construed as limiting in any way the right
of the Company or Affiliate to discharge any
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<PAGE>
Employee or to treat him or her without regard to the effect which such
treatment might have upon him or her as a Participant under the Plan.
SECTION FIVE
CONSTRUCTION OF THE PLAN
5.1 CONSTRUCTION OF THE PLAN
The provisions of this Plan shall be construed, regulated, and
administered according to the laws of the State of New York.
5.2 COUNTERPARTS
This Plan has been established by the Company in accordance with the
resolutions adopted by the Board of Directors and may be executed in
any number of counterparts, each of which shall be deemed to be an
original. All the counterparts shall constitute one instrument, which
may be sufficiently evidenced by any one counterpart.
IN WITNESS WHEREOF, and as evidence of the adoption of this Plan by the Company,
it has caused the same to be signed by its officer duly authorized, and its
corporate seal to be affixed this 17 day of April 1998.
ATTEST HOSOKAWA MICRON
INTERNATIONAL INC.
- ----------------------- By: /s/ Isao Sato
------------------------------
-12-
<PAGE>
APPENDIX A
HOSOKAWA MICRON INTERNATIONAL INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
PARTICIPANTS AS OF EFFECTIVE DATE. The following shall be Participants as the
Effective Date:
Mr. Isao Sato
o ---------------------------
Mr. William J. Brennan
o ---------------------------
Mr. Simon H. Baker
o ---------------------------
Mr. Gordon E. Ettie
o ---------------------------
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Hosokawa Micron International Inc.
Management Incentive Plan
0bjectives
The purpose of a Management Incentive Plan (the "Plan") is to provide cash
rewards to key employees who contribute to the achievement of corporate-wide
goals established for the company overall and its business units.
Eligibility
Individuals with Corporate or Business Segment responsibilities at the Vice,
President level and above are eligible for participation in the Plan. In
addition, the President or Executive Vice President and General Manager of each
Operating Unit and salaried employees, at the Director level and above,
reporting directly to the President or Executive Vice President and General
Manager of each Operating Unit are eligible to be nominated for participation.
Participation below this level may be provided for on an exception basis. All
participants participation requires the annual approval of the Chief Executive
Officer.
Note: Participation in this Management Incentive Plan is restricted to those
Units that have a planned (budgeted) Pretax income which exceeds US $500,000.
Awards to individuals hired or promoted into eligible positions during the year
will be determined on a pro rata basis. Individuals hired or promoted on or
after July 1 will not be eligible for an award for that year.
<PAGE>
Awards
Each participant will be assigned a target award, expressed as a percentage of
base salary in effect at the beginning of the year. The target award will be
paid if business unit financial performance objectives at the target level
(e.g., 100% of Business Plan) and individual goals are achieved in full. If
financial performance objectives and individual goals are exceeded, awards will
increase up to pre-established maximum amounts. Target and maximum incentive
awards are shown below:
<TABLE>
<CAPTION>
Position Target Award Maximum Award
<S> <C> <C>
Corporate SVP's/Business 40% 80%
Segment Presidents and above
Corporate/Business Segment 30% 60%
VP's/BU President or GM
Unit VP or Directors 20% 40%
</TABLE>
Each business unit will establish an accrual equal to the sum of the Target
Awards of approved participants. The accrual is to be adjusted periodically
during the year based on the business unit's financial results. All financial
results (e.g., Pre-Tax Income and Cash Flow) will be measured after the full
cost of incentive awards are accrued.
Performance Weightings
As described, awards will be based on a combination of business unit financial
performance and individual performance. The performance factor weightings used
will vary by position to reflect each participants responsibilities and impact.
<PAGE>
If a participant's employment terminates for any reason other than death,
disability or retirement, before the end of the fiscal year, no award will be
made. If a participant's employment terminates because of death, disability or
retirement during the fiscal year, a pro rata award will be made.
Financial Objectives and Performance Measures
At the beginning of each year, financial objectives will be established for each
business unit, subject to the approval of the Chief Executive Officer, and
communicated to participants. The financial objectives will specify three levels
of achievement:
1. A Target performance that represents expected results for the business
unit for the year, i.e. Fiscal Year Plan;
2. A Maximum performance objective that represents outstanding performance
and is substantially greater than the target level; and,
3. A Threshold performance objective that is less than the target and
represents the minimum level of performance for which bonus will be paid.
Financial performance objectives will be measured against the Business Plan
(Budget) approved for the year. If actual financial performance for a business
unit is below 85% of the Business Plan, no award is earned.
Two performance measures will be used to establish business unit financial
performance objectives as compared to the approved Business Plan:
<PAGE>
The performance weightings are shown below:
<TABLE>
<CAPTION>
Performance Factor Weightings
-----------------------------
Business Business
Position Corporate Segment Unit Individual
- -------- --------- ------- ---- ----------
<S> <C> <C>
Corp. Staff 80% 20%
Bus. Segment 40% 40% 20%
Staff
Unit President/
General Manager 20% 20% 40% 20%
Other Unit Staff 20% 50% 30%
</TABLE>
For example, 80% of the award for participants with Corporate responsibilities
will be based on achievement of Corporate financial performance objectives and
20% of the award will be based on individual performance. For a business unit
President or General Manager, 20% of the award will be based on the achievement
of the Corporate financial performance objectives, 40% on achievement of
business unit financial performance objectives, 20% on Business Segment
financial performance objectives, and 20% on individual performance objectives.
Weightings may be adjusted by the Chief Executive Officer at the beginning of
the year. Any change in the performance factor will be communicated promptly to
participants.
<PAGE>
Financial Performance Objectives
The performance scale shown below identifies threshold, target and maximum
financial performance objectives that will apply to business unit (Corporate,
Business Segment and Business Unit) financial performance. The performance scale
also identifies the corresponding award payout levels, expressed as a percentage
of the target awards assigned to participants with business unit (Corporate,
Business Segment, and Business unit) responsibilities.
<TABLE>
<CAPTION>
Financial Performance Objectives
Percent of Award
Business Plan Payout
Performance Level Achieved Percentage
<S> <C> <C>
Maximum 200% 200%
150% 150%
Target 100% 100%
Threshold 85% 70%
Below Minimum Less than 85% 0%
</TABLE>
If actual results fall in between the Performance Levels specifically identified
on the scale, straight-line interpolation will be used to determine the
corresponding Award Payout Percentage. As the performance scale indicates, for
each 1% over the Business Plan for business unit Pre-Tax Income and Cash Flow,
the award Payout Percentage increases by 1%. Conversely, for each 1% decrease
below the Business Plan, the Award Payout Percentage decreases by 2%.
<PAGE>
At the end of the year, actual Pre-tax Income and Cash Flow of each business
unit will be compared to the performance objectives scale. Comparisons will be
made in local currency. The Award Payout Percentage will be determined
separately for each of these two performance measures. Each Award Payout
Percentage will be multiplied by the assigned weighting (70% weighting for
Pre-tax Income and 30% weighting for Cash Flow) with the result added together
to develop an overall Award Payout Percentage for the business unit.
When determining the overall Award Payout Percentage for a business unit, the
maximum Award Payout Percentage applied to a single performance measure is 200%.
If actual results on a single measure are less than 85% of Plan, zero credit
will be applied towards the overall Award Payout Percentage. If the overall
Award Payout Percentage for a business unit is less than 70%, no bonus payments
will be made to any participants in the business unit.
The Company reserves the right to adjust the business unit performance scales
in the beginning of each year on a case by case basis to reflect special
situations. Participants affected by any such adjustments will be notified
promptly. The Company reserves the right to change the performance scales in
future years.
Award Determination and Payment
The Chief Financial Officer will determine Award Payout Percentages for each
business unit within 15 days after final financial results are known for the
year. Award Payout Percentages will be communicated to each business unit
President or General Manager who will develop award recommendations for
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Pre-Tax Income 70%
Operating Cash Flow 30%
----
Financial Performance 100%
----
</TABLE>
Individual Performance
Each participant will establish individual goals that contribute to the
achievement of the business unit's financial objectives. Individual goals are to
be submitted in writing for approval, as described below, by October 15 of each
year.
a) Individual goals prepared by Business Segments Presidents will be approved
by the Chief Executive Officer.
b) Individual goals prepared by business unit Presidents or Executive Vice
Presidents and General Managers and business segment participants will be
approved by the Business Segment President.
c) Individual goals of other business unit participants will be approved by
the business unit President or Executive Vice President and General
Manager.
d) Individual goals of Corporate participants will be approved by the Chief
Executive Officer or his designee.
Note: All individual objectives are to be specific and measurable.
<PAGE>
each participant in the business unit based on the Award Payout Percentage and
individual performance ratings.
Individual performance ratings of participants may range from 0% to 200%.
The following guidelines should be used to establish individual ratings:
<TABLE>
<CAPTION>
<S> <C> <C>
Outstanding 150% to 200% Substantially exceeds all goals
Above Expectations 120% to 150% Substantially exceeds most
goals; meets all goals
Meets Expectations 80% to 120% Meets essentially all goals
in a fully satisfactory manner
Below Expectations 40% to 80% Does not meet majority of
goals in a satisfactory manner
Unsatisfactory 0% to 40% Substantially fails to achieve
individual goals
</TABLE>
Award recommendations for business unit participants are to be submitted to the
Chief Financial Officer, via the Business Segment Office. Award recommendations
for Corporate and Business Segment participants are to be submitted to the Chief
Financial Officer. The Chief Financial Officer will summarize all
recommendations and submit the recommendations to the Chief Executive Officer
for approval. Cash payments will be made as soon as is practical after financial
results for the year have been established. Payments will be reduced by all
withholding amounts required by federal, state or other taxing authorities.
<PAGE>
Examples
Here are several examples of how the Plan will work in an business unit:
Example 1
Assume a business unit has budgeted Pre-tax income of $2,000,000 and Cash Flow
of $2,600,000. Actual results for the year indicate Pre-tax income of $3,000,000
and Cash Flow of $3,250,000. The Award Payout Percentage for the business unit
is calculated as follows:
<TABLE>
<CAPTION>
<S> <C>
Actual PTI/Budgeted PTI $3,000,000/$2,000,000 = 150% x 70% = 105 %
Actual CF/Budgeted CF $3,250,000/$2,600,000 = 125% x 30% = 37.5%
Business Unit Award Payout Percentage=142.5%
</TABLE>
Since actual results are greater than 100% of budget, actual/budget equals the
Award Payout Percentage, no interpolation is required.
The business unit Award Payout Percentage will be used to determine 40% of the
business unit President's bonus. Corporate and Business Segment financial
performance and individual performance will each count for 20%. In this example,
assume that Business Segment and Corporate performance and individual
performance are each rated at 100%.
Operating Unit President
<TABLE>
<CAPTION>
<S> <C>
Salary $120,000
Target Award 30% or $36,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Percent of
Award Target
Performance Factor Payout Award
Weightings Percentage Earned
<S> <C> <C> <C>
Corporate 20% 100% 20%
Business Segment 20% 100% 20%
Business Unit 40% 142.5% 57%
Individual 20% 100% 20%
----
Total 117%
</TABLE>
The business unit President will receive a bonus of $42,120 (117% of the target
award).
Bonus awards to unit VP's will depend on business segment, business unit and
individual performance. Assume a unit VP earns a salary of $70,000. The bonus
award to the unit VP who fully meets his/her individual goals will equal $16,982
(121.3% of the target award).
Unit VP
Salary $70,000
Target Award 20% or S 14,000
<TABLE>
<CAPTION>
Percent of
Award Target
Performance Factor Payout Award
Weightings x Percentage Earned
<S> <C> <C> <C>
Bus Segment 20% 100% 20%
Business Unit 50% 142.5% 71.3%
Individual 30% 100% 30%
----
Total 121.3%
</TABLE>
<PAGE>
However, since the Award Payout Percentage for the individual component can vary
from 0% to 200%, the bonuses will normally vary. In this example, the Total
Award Payout Percentage could range from a minimum of 91.3% to a maximum of
151.3% of the target award. Actual bonuses could range from $12,782 to $21,182
depending on individual achievement.
Example 2
Assume again that a business unit budgeted Pre-tax Income of $2,000,000 and Cash
Flow of $2,600,000. Actual results for the year indicate Pre-tax Income of
$1,800,000 and Cash Flow of $2,340,000. The Award Payout for the business unit
is calculated as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Actual PTI/Budgeted PTI $1,800,000/$2,000,000 = 90%
PTI Award Payout Percentage=80% x 70% = 56%
Actual CF/Budgeted CF $2,340,000/$2,600,000 = 90%
CF Award Payout Percentage 30% x 30% = 24%
--
Business Unit Award Payout Percentage 80%
</TABLE>
Since actual results on both performance measures is less than 100% of Budget,
interpolation using the 1:2 factor, explained in the Performance Factor
Weightings section above, is used to determine the Award Payout Percentage. For
example, Since PTI is 10% below budget, the Award Payout Percentage is reduced
by 20% points and equals 80%.
<PAGE>
The business unit Award Payout Perceritacre will be used to determine 40% of the
business unit President's bonus. Corporate, Business Segment financial
performance and Individual performance will each account for 20%. In this
example, assume that both Business Segment and Individual performance are rated
at 100%.
Business Unit President
Salary $120,000
Target Award 30% or S36,000
<TABLE>
<CAPTION>
Percent of
Award Target
Performance Factor Payout Award
Weightings x Percentage = Earned
<S> <C> <C> <C>
Corporate 20% 100% 20%
Bus Segment 20% 100% 20%
Business Unit 40% 80% 32%
Individual 20% 100% 20%
----
Total 92%
</TABLE>
The business unit President will receive a bonus of $33,205 (92% of the Target
Award).
Bonus awards to other unit staff will depend on business unit and individual
performance. Assume a unit VP earns a salary of $70,000. The bonus award to the
unit VP who fully meets his individual goals will equal $12,600 (90% of the
Target Award).
<PAGE>
Unit VP
Salary $70,000
Target Award 20% or $14,000
<TABLE>
<CAPTION>
Percent of
Award Target
Performance Factor Payout Award
Weightings x Percentage = Earned
<S> <C> <C> <C>
Bus Segment 20% 100% 20%
Business Unit 50% 80% 40%
Individual 30% 100% 30%
----
Total 90%
</TABLE>
However, since the Award Payout Percentage for the Individual component can vary
from 0% to 200%, the bonuses will normally vary. In this example, the Total
Award Payout Percentage could range from a minimum of 60% to a maximum of 120%
of the Target Award. Actual bonuses could range from $8,400 for an individual
who achieves none of his/her individual goals to $16,800 for an individual who
makes an outstanding contribution.
Example 3
Assume again that a business unit has budgeted Pre-tax Income of $2,000,000 and
Cash Flow of $2,600,000. Actual results for the year indicate Pre-tax Income of
$1,600,000 and Cash Flow of $2,300,000. The Award Payout Percentage is
calculated as follows:
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Actual PTI/Budgeted PTI $1,600,000/$2,000,000 = 80% = 0%
Actual CF/Budgeted CF $2,300,000/$2,600,000 = 88.5
Cash Flow Award Payout Percentage 77.0% x 30% = 23.1%
-----
Business Unit Award Payout Percentage = 23.1%
</TABLE>
Since 80% is below the threshold level of performance set for Pre-tax Income
(85% of the Budget), the business unit receives no Pre-tax credit. Since the
overall Award Payout Percentage is below the 70% threshold, no bonus payments
are made to the business unit President or his staff.
Example 4
Assume again that a business unit has budgeted Pre-tax Income of $2,000,000 and
Cash Flow of $2,600,000. Actual results for the year indicate Pre-tax Income of
$3,800,000 and Cash Flow of $5,450,000. The Award Payout Percentage for the
business unit is calculated as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Actual PTI/Budgeted PTI $3,800,000/$2,000,000 = 190% x 70% = 133%
Actual CF/Budgeted CF $5,450,000/$2,600,000 = 210%
200% x 30% = 60%
----
Business Unit Award Payout Percentage 193%
</TABLE>
Since the maximum Award Payout Percentage is 200%, 200% rather 210% is used to
calculate the Award Payout Percentage for Cash Flow.
The business unit Award Payout Percentage will be used to determine 40% of the
business unit President's bonus. Corporate and Business Segment financial
performance and Individual
<PAGE>
performance will each count for 20%. In this example, assume that both Business
Segment performance and Individual performance are rated at 100%.
Business Unit President
Salary $120,000
Target Award 30% or $36,000
<TABLE>
<CAPTION>
Percent of
Award Target
Performance Factor Payout Award
Weightings x Percentage = Earned
<S> <C> <C> <C>
Corporate 20% 100% 20%
Bus Segment 20% 100% 20%
Business Unit 40% 193% 77.2%
Individual 20% 100% 20%
----
Total 137.2%
</TABLE>
The business unit President will receive a bonus of $49,392 (137.2% of the
Target Award).
Bonus awards to unit VP's will depend on business unit and individual
performance. Assume a unit VP earns a salary of $70,000. The bonus award to the
unit VP who fully meets his/her individual goals will equal $20,510 (146.5% of
the Target Award).
<PAGE>
Unit VP
<TABLE>
<CAPTION>
Percent of
Award Target
Performance Factor Payout Award
Weightings x Percentage = Earned
<S> <C> <C> <C>
Bus Segment 20% 100% 20%
Business Unit 50% 193% 96.5%
Individual 30% 100% 30%
----
Total 146.5%
</TABLE>
However, since the Award payout Percentage for the Individual component can vary
from 0% to 200%, the bonuses will normally vary. In this example, the Total
Award Payout Percentage could range from a minimum of 116.5% to a maximum of
176.5% of the Target Award. Actual Bonuses could range from $16,310 to $24,710.
General
Nothing contained in this Plan nor participation in or any action taken under
the Plan shall be construed or deemed an employment contract or give any
employee any right to be retained as an employee or guarantee of employment. In
addition, nothing contained in this Plan nor any action taken hereunder shall
be construed, deemed or implied to be a contract or agreement that any award
granted in one year will be granted in a subsequent year.
<PAGE>
Although the Company intends to continue the HMII Management Incentive Plan, the
Company reserves the right to amend or discontinue the Plan at any time for any
reason or no reason..
The Chief Executive Officer is responsible for the administration of the Plan
and shall interpret and administer the Plan and any rules and regulations
relating to it. The Chief Executive Officer may delegate the authority to
administer the Plan in whole or in part. However, any changes to the size of the
awards provided under the Plan or business unit financial performance objectives
require the approval of the Chief Executive Officer.
