<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 1, 1998.
REGISTRATION NO. 333-53759
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------
COLUMBUS MCKINNON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 3536 16-0547600
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NO.) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
----------------
140 JOHN JAMES AUDUBON PARKWAY
AMHERST, NEW YORK 14228-1197
(716) 689-5400
(Address, including zip code, and telephone number,including area code, of
registrant's principal executive offices)
SEE TABLE OF ADDITIONAL REGISTRANTS
ROBERT L. MONTGOMERY, JR.
EXECUTIVE VICE PRESIDENT
COLUMBUS MCKINNON CORPORATION
140 JOHN JAMES AUDUBON PARKWAY
AMHERST, NEW YORK 14228-1197
(716) 689-5400
(Name, address, including zip code, and telephonenumber, including area code,
of agent for service)
Copy to:
ROBERT J. OLIVIERI, ESQ.
LIPPES, SILVERSTEIN, MATHIAS & WEXLER LLP
700 GUARANTY BUILDING, 28 CHURCH STREET
BUFFALO, NEW YORK 14202-3950
(716) 853-5100
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
----------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box [_]
TABLE OF ADDITIONAL REGISTRANTS(1)
<TABLE>
<CAPTION>
EXACT NAME OF
REGISTRANT AS SPECIFIED STATE OF OTHER JURISDICTION OF PRIMARY STANDARD INDUSTRIAL
IN ITS CHARTER INCORPORATION OR ORGANIZATION CLASSIFICATION CODE
- ----------------------- ------------------------------ ---------------------------
<S> <C> <C>
Automatic Systems, Inc. Missouri 3535
LICO, Inc. Missouri 3535
LICO Steel, Inc. Missouri 1791
Mechanical Products,
Inc. Delaware 3613
Minitec Corporation Delaware 3613
Yale Industrial
Products, Inc. Delaware 3536
</TABLE>
- --------
(1) The address, including zip code, and telephone number, including area
code, of each of the additional Registrants' principal executive office is
140 John James Audubon Parkway, Amherst, New York 14228-1197, (716) 689-
5400.
<PAGE>
PROSPECTUS
COLUMBUS MCKINNON CORPORATION
OFFER TO EXCHANGE
8 1/2% SENIOR SUBORDINATED NOTES DUE 2008
FOR ANY AND ALL OUTSTANDING 8 1/2% SENIOR SUBORDINATED NOTES DUE 2008
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON AUGUST
3, 1998 UNLESS EXTENDED BY COLUMBUS McKINNON CORPORATION. As more fully
described herein under "The Exchange Offer--Expiration Date; Extensions;
Amendment," the time the Exchange Offer expires (including extensions, if any,
by the Company) is referred to as the "Expiration Date."
Columbus McKinnon Corporation, a New York corporation ("Columbus McKinnon"
or the "Company") and the Guarantors (as defined), are hereby offering (the
"Exchange Offer"), upon the terms and subject to the conditions set forth in
this prospectus (the "Prospectus") and the accompanying letter of transmittal
(the "Letter of Transmittal"), to exchange $200,000,000 aggregate principal
amount of its 8 1/2% Senior Subordinated Notes due 2008 (the "Exchange
Notes"), which exchange has been registered under the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to a registration statement of
which this Prospectus is a part (the "Registration Statement"), for
$200,000,000 aggregate principal amount of its 8 1/2% Senior Subordinated
Notes due 2008 (the "Private Notes" and, collectively with the Exchange Notes,
the "Notes") which were sold on March 31, 1998 in a transaction exempt from
registration under the Securities Act and are outstanding on the date hereof.
The form and terms of the Exchange Notes are substantially identical in all
respects (including principal amount, interest rate, maturity and ranking) to
the form and terms of the Private Notes, except that (i) the Exchange Notes
will have been registered under the Securities Act and, therefore, will not
bear legends restricting the transfer thereof and (ii) holders of the Exchange
Notes will not be entitled to certain rights of holders of the Private Notes
under the Registration Rights Agreement (as defined), which rights will
terminate upon consummation of the Exchange Offer. The Exchange Notes will
evidence the same obligations as the Private Notes and will be issued pursuant
to, and entitled to the benefits of, the Indenture (as defined) governing the
Private Notes. The Exchange Offer is being made to satisfy the obligations of
the Company under the Registration Rights Agreement relating to the Private
Notes. See "The Exchange Offer" and "Description of the Exchange Notes."
The Exchange Notes will bear interest at a rate equal to 8 1/2% per annum.
Interest on the Exchange Notes will be payable semi-annually in arrears on
April 1 and October 1 of each year, commencing October 1, 1998.
Prior to April 1, 2003, the Exchange Notes will be redeemable at any time at
the option of the Company, in whole or in part, at the Make-Whole Price (as
defined), plus accrued and unpaid interest and Liquidated Damages (as
defined), if any, thereon to the redemption date. On and after April 1, 2003,
the Exchange Notes will be redeemable at any time at the option of the
Company, in whole or in part, at the redemption prices set forth herein, plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the
redemption date. In addition, on or prior to April 1, 2001, the Company may
redeem up to 35% of the aggregate principal amount of Exchange Notes issued
under the Indenture (as defined) at a redemption price of 108.50% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the redemption date, with the net cash proceeds of
one or more offerings of Equity Interests (as defined), other than
Disqualified Stock (as defined), of the Company; provided that at least $130.0
million in aggregate principal amount of Exchange Notes remain outstanding
immediately after the occurrence of each such redemption. In the event of a
Change of Control (as defined), the Company will be required to make an offer
to each holder of the Exchange Notes to repurchase all or any part of such
holder's Exchange Notes at a repurchase price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages, if
any, thereon to the repurchase date. See "Description of Notes" and "Risk
Factors--Repurchase of Notes Upon Change of Control."
The Exchange Notes will be general unsecured obligations of the Company and
will be subordinated in right of payment to all current and future Senior Debt
(as defined) of the Company. In addition, the Exchange Notes will be
effectively subordinated to all indebtedness of the Company's subsidiaries. As
of March 31, 1998, the Company and its subsidiaries had approximately $248.8
million of Senior Debt outstanding and approximately $1.3 million of available
borrowings under the New Credit Agreement (as defined). The Indenture will
permit the Company and its subsidiaries to incur additional indebtedness,
including additional Senior Debt, in the future, subject to certain
restrictions. See "Description of Notes--Subordination."
-------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE EXCHANGE NOTES.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURI-
TIES 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.
-------------------
<PAGE>
The Exchange Notes are being offered hereby in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement. The
Company has agreed to pay the expenses of the Exchange Offer. Based on the
interpretations by the staff of the Securities and Exchange Commission (the
"Commission") set forth in no-action letters issued to third parties, the
Company believes that the Exchange Notes issued pursuant to the Exchange Offer
in exchange for the Private Notes may be offered for resale, resold or
otherwise transferred by any person in whose name the Private Notes are
registered on the books of the Company or any other person who has obtained a
properly completed bond power from the registered holder (a "Holder") thereof
(other than any such Holder that is an "affiliate" of the Company within the
meaning of Rule 405 promulgated under the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities
Act, provided that such Exchange Notes are acquired in the ordinary course of
such Holder's business and such Holder does not intend to participate and has
no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. In some cases, certain broker-dealers may
be required to deliver a prospectus in connection with the resale of such
Exchange Notes.
This Prospectus, as it may be amended or supplemented from time to time, may
be used by a broker-dealer in connection with any resale of Exchange Notes
received in exchange for such Private Notes where such Private Notes were
acquired by such broker-dealer for its own account as a result of market-
making activities or other trading activities (other than Private Notes
acquired directly from the Company). The Company has agreed that it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale.
Prior to this Exchange Offer, there has been no public market for the Notes.
If a market for the Exchange Notes should develop, the Exchange Notes could
trade at a discount from their principal amount. The Company does not intend
to list the Exchange Notes on any securities exchange nor does the Company
intend to apply for quotation of the Exchange Notes on the NASDAQ National
Market or other quotation system.
The Exchange Notes issued pursuant to this Exchange Offer will be issued in
the form of a Global Exchange Note (as defined ), which will be deposited
with, or on behalf of, The Depository Trust Company (the "Depository" or
"DTC") and registered in its name or in the name of Cede & Co., its nominee.
Beneficial interests in the Global Exchange Note representing the Exchange
Notes will be shown on, and transfers thereof will be effected through,
records maintained by DTC and its participants. Notwithstanding the foregoing,
Private Notes held in certificated form will be exchanged solely for
Certificated Exchange Notes (as defined herein). After the initial issuance of
the Global Exchange Note, Certificated Exchange Notes will be issued in
exchange for the Global Exchange Note only on the terms set forth in the
Indenture. See "Description of the Exchange Notes--Book-Entry, Delivery and
Form."
The date of this Prospectus is July 1, 1998.
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS MAY INCLUDE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS
INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT COULD
CAUSE THE ACTUAL RESULTS OF THE COMPANY TO DIFFER MATERIALLY FROM THE RESULTS
EXPRESSED OR IMPLIED BY SUCH STATEMENTS, INCLUDING GENERAL ECONOMIC, AND
BUSINESS CONDITIONS, CONDITIONS AFFECTING THE INDUSTRIES SERVED BY THE COMPANY
AND ITS SUBSIDIARIES, CONDITIONS AFFECTING THE COMPANY'S CUSTOMERS AND
SUPPLIERS, COMPETITOR RESPONSES TO THE COMPANY'S PRODUCTS AND SERVICES, THE
OVERALL MARKET ACCEPTANCE OF SUCH PRODUCTS AND SERVICES AND OTHER FACTORS
DISCLOSED IN THE COMPANY'S PERIODIC REPORTS FILED WITH THE COMMISSION.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by the Company
pursuant to the Exchange Act are incorporated by reference in this Prospectus
and made a part hereof: the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1997; the Company's Quarterly Report on Form 10-Q
for the fiscal quarters ended June 29, 1997, September 28, 1997 and December
28, 1997; the Company's Current Report on Form 8-K dated October 17, 1996, as
amended by Amendment No. 1 on Form 8-K/A filed December 31, 1996; the
Company's Current Report on Form 8-K dated November 12, 1996; the Company's
Current Report on Form 8-K dated November 29, 1996; the Company's Current
Report on Form 8-K dated December 16, 1996; the Company's Current Report on
Form 8-K dated January 9, 1997; the Company's Current Report on Form 8-K dated
October 27, 1997; the Company's Current Report on Form 8-K dated March 23,
1998; and the Company's Current Report on Form 8-K dated April 9, 1998.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of the Exchange Offer shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which is also incorporated
or deemed to be incorporated by reference herein modifies, supersedes or
replaces such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to any person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy
of any or all of the documents which have been incorporated by reference in
this Prospectus, other than exhibits to such documents, unless such exhibits
are specifically incorporated by reference into the documents so incorporated.
Any such request should be directed to Lois H. Demler, Corporate Secretary,
Columbus McKinnon Corporation, 140 John James Audubon Parkway, Amherst, New
York 14228-1197 (telephone number: (716) 689-5409).
(i)
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere or incorporated by reference in this Prospectus. Unless the context
otherwise requires, all references herein to the "Company" or "Columbus
McKinnon" include Columbus McKinnon Corporation and its subsidiaries (except in
the section of this Prospectus entitled "Description of Notes").
THE COMPANY
Columbus McKinnon, established in 1875, is a leading designer, manufacturer
and distributor of a broad range of material handling, lifting and positioning
products. The Company sells its products both domestically and internationally,
primarily to third-party distributors and, to a lesser extent, directly to
manufacturers and end-users for a wide range of applications. The Company's
major commercial markets include the general manufacturing, crane building,
mining, construction, transportation, entertainment, power generation, waste
management, agricultural, marine, automotive and logging markets. Additionally,
the Company sells its products to the consumer market through hardware and farm
equipment distributors, mass merchandisers and rental outlets. For the year
ended March 31, 1998, the Company generated net sales and income from
operations of $510.7 million and $67.9 million, respectively.
The Company's products include a wide variety of electric, lever, hand and
air-powered hoists; hoist trolleys; alloy, carbon steel and kiln chain; closed-
die forgings, such as hooks, shackles and loadbinders; electric, hydraulic and
pneumatic operator-controlled manipulators; industrial components, such as
mechanical and electromechanical actuators, mechanical jacks and rotary unions;
scissor lifts; below-the-hook lifters; circuit protection devices; logging
tools and chain making and chain repair equipment. Through innovative design
and manufacturing expertise developed by the Company and through selective
acquisitions, the Company has established a leading market share in many of its
product lines. As a result of its recent acquisitions of Univeyor A/S
("Univeyor") and LICO, Inc. ("LICO"), the Company has also positioned itself as
a leader in the project design, management and implementation of automated
material handling systems. Columbus McKinnon believes it has more overhead
hoists in use in North America than all of its competitors combined. The
Company's products and customer base are highly diversified; no single product
accounted for more than 1% and no individual customer accounted for more than
5% of net sales for the year ended March 31, 1998.
The Company believes that the demand for its products has increased in recent
years and will continue to increase in the future as a result of several
favorable trends impacting a broad array of industries that have enabled the
Company to expand into new product areas and markets. These trends include:
PRODUCTIVITY ENHANCEMENT. In recent years employers have responded to
competitive pressures by seeking to maximize productivity and efficiency. The
Company's hoists and other lifting and positioning products allow loads to be
lifted and placed quickly, precisely, with little effort, and with fewer
people.
SAFETY REGULATIONS AND CONCERNS. Driven by federal and state workplace safety
regulations such as the Occupational Safety and Health Act ("OSHA") and the
Americans with Disabilities Act, and by the general competitive need to reduce
costs such as health insurance premiums and workers' compensation expenses,
employers seek safer ways to lift and position loads. The Company's lifting and
positioning products enable these tasks to be performed with reduced risk of
personal injury.
WORKFORCE DIVERSITY. The percentages of women, disabled and older persons in
the work force and the tasks they perform are continuing to increase. The
Company's products enable many workplace tasks to be
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performed safely, efficiently and with less physical stress. The Company
believes that increasing diversity in the workforce will continue to increase
demand for its products.
OUTSOURCING OF MATERIAL HANDLING PROJECT DESIGN AND MANAGEMENT. More of the
Company's customers and end-users are outsourcing non-core business functions
to improve productivity and cost efficiency. This has created opportunities for
the Company to assume the project design, management and implementation
responsibilities for both workstation and facility-wide material handling
systems. The Company's opportunity to capitalize on this trend has been
enhanced by the recent acquisitions of Univeyor and LICO. Through the
combination of the Company's expertise and technological know-how with that of
Univeyor and LICO, the Company believes that it will be able to position itself
as a leader in the project design, management and implementation of automated
material handling systems. As a result, many of the Company's existing products
may be utilized in these systems. See "--Recent Developments."
The Company has extended its product lines and penetrated new markets in
recent years through several acquisitions which have been successfully
integrated into the Company. In November 1995 and October 1996, the Company
acquired Lift-Tech International, Inc. ("Lift-Tech") and Yale Industrial
Products, Inc. ("Yale"), respectively, manufacturers of hoist and crane
components, and in December 1996, the Company acquired Lister Bolt & Chain Ltd.
("Lister"), a specialty bolt and chain manufacturer. These, together with other
acquisitions made by the Company, have enhanced the Company's position as the
largest North American manufacturer of overhead hoists, operator-controlled
manipulators and alloy chain. As a result of internal growth and acquisitions,
the Company's net sales and income from operations have increased to $510.7
million and $67.9 million, respectively, for the year ended March 31, 1998 from
$128.3 million and $12.2 million, respectively, in fiscal 1993, representing
compound annual growth rates of approximately 31.8% and 41.0%, respectively.
The Company's Common Stock is listed on the Nasdaq National Market under the
symbol "CMCO." On June 30, 1998, the last reported sale price of the Common
Stock on the Nasdaq National Market was $26 per share and approximately 13.8
million shares were outstanding.
KEY STRENGTHS
The Company attributes its strong competitive position to the following key
strengths:
LEADING MARKET POSITION. Columbus McKinnon is the largest manufacturer of
hoists, alloy and high strength carbon steel chain and operator-controlled
manipulators in North America. The Company has developed its leading market
position over its 120-year history by emphasizing technological innovation,
manufacturing excellence and superior after-sale service.
PREFERRED PROVIDER TO MAJOR DISTRIBUTORS. The Company enjoys long-standing
relationships with and is a preferred provider to many of its largest
distributors. Since 1990, during a period of significant consolidation among
distributors of material handling equipment, the Company has benefitted from
this consolidation as it has maintained and enhanced its relationships with the
leading distributors. The Company believes that its ability to retain existing
customers and attract new customers is attributable to its ongoing commitment
to customer service and satisfaction. For example, the Company maintains close
contact with its customers and provides prompt aftermarket service to end-users
of its products through a network of independent distributors staffed with
Company-trained professionals at over 300 hoist repair centers, over 100 repair
parts distribution centers and 11 chain service centers. Additionally, to
ensure continuing product development and market awareness, the Company
sponsors advisory boards composed of representatives of its largest
distributors and aftermarket sales and service network.
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DIVERSIFIED PRODUCTS, MARKETS, AND CUSTOMER BASE. The Company believes that
it offers the most extensive product line of material handling products in the
markets which it serves. No single product accounted for more than 1% of net
sales for the year ended March 31, 1998. The Company's products are sold to
over 10,000 general, specialty and service-after-sale distributors and original
equipment manufacturers ("OEMs") for various applications in the general
manufacturing, overhead crane, construction, transportation, entertainment,
power generation, waste management, agricultural, marine and logging markets.
Additionally, the Company sells its products for consumer use to over 100
hardware, trucking and transportation, farm hardware and rental outlets. No
single customer accounted for more than 5% of net sales for the year ended
March 31, 1998. The Company believes that the breadth of its products, the
diversity of its markets and the strength of its distribution relationships
minimize its dependence on any particular product, market or customer.
LARGE INSTALLED PRODUCT BASE; STRONG BRAND NAMES. Columbus McKinnon believes
it has more overhead hoists in use in North America than all of its competitors
combined. In addition, the Company's brand names, including Big Orange, Budgit,
Chester, CM, Coffing, Cyclone, Duff-Norton, Hammerlok, Herc-Alloy, Little Mule,
Lodestar, Puller, Shaw-Box, Valustar and Yale, are among the most recognized
and respected in the industry. The Company believes that its strong brand name
recognition, together with the Company's large installed base of products,
provide it with a significant competitive advantage in selling its full product
line to existing and new customers as well as providing repair and replacement
parts.
EXPERIENCED MANAGEMENT TEAM WITH SIGNIFICANT OWNERSHIP INTEREST. The
Company's management team provides a depth and continuity of experience. The
Company's directors and executive officers own an aggregate of approximately
21.9% of the Company's outstanding Common Stock. See "Principal Shareholders."
In addition, in April 1997 Columbus McKinnon implemented economic value added
("EVA(R)") as a performance measure and is using EVA(R) goals to, among other
things, determine incentive-based compensation for all of its employees.
BUSINESS STRATEGY
The Company's strategic objective is to further enhance its position as a
leading designer, manufacturer and distributor of material handling, lifting
and positioning products both domestically and internationally. The Company
plans to achieve this objective through the continued implementation of the
following three-pronged strategy:
ENHANCE EXISTING BUSINESS. The Company continually strives to enhance its
existing business through the following:
. Leverage Strong Competitive Position. The Company's position as a leading
provider of material handling equipment has resulted in a substantial
installed base of its products. The Company's close relationships with its
distributors permit it to obtain customer information and product
requirements in order to respond to and anticipate future needs of end-
users of the Company's products, which the Company believes allows it to
maintain its market leadership position. The repair and replacement of
parts and complementary products for the Company's large installed base of
products represents additional revenue growth potential. The Company
believes that it can expand the market and customer base for new and
acquired products by introducing these products through its existing
distribution channels. In addition, the Company believes it can achieve
product and marketing synergies by selling its products into the markets
of acquired businesses.
. Increase Productivity and Realize Cost Savings. In addition to developing
and introducing new products, the Company focuses on improving the quality
and reliability of its products and increasing manufacturing efficiency.
Fourteen of the Company's manufacturing facilities and six of the
Company's distribution facilities have achieved ISO 9000 certification,
and substantially all of the Company's
3
<PAGE>
remaining manufacturing and distribution facilities are in the process of
obtaining such certification. The Company improves productivity by
reducing cycle times, increasing employee involvement in production and
investing in new, more efficient manufacturing processes, including
computer-aided design capabilities. The Company has implemented EVA(R) to
analyze the utilization of its assets and productivity in order to improve
all aspects of the Company's operations, and to determine incentive-based
compensation for its employees. Further, the Company believes additional
cost savings can be realized through the continued integration of the
operations of recent acquisitions with those of the Company. For example,
through its increased critical mass, the Company has been able to achieve
raw material purchasing efficiencies.
INCREASE PENETRATION OF INTERNATIONAL MARKETS. The Company maintains a
distributor network in approximately 50 countries and has manufacturing
facilities in Canada, Mexico, Germany, Denmark, France and China. The Company
intends to increase its international presence, with a primary focus on
enhancing its existing presence in Europe and expanding its operations into the
Pacific Rim, South America and Africa. The Company intends to accomplish this
growth by strengthening its international distribution network and by making
additional strategic acquisitions and alliances. The recent acquisition of
Univeyor has provided the Company with another European operating location, and
will enable the Company to market Univeyor's material handling systems
expertise to the Company's customer base. The Company has increased its
international net sales from approximately 12.9% ($16.6 million) of net sales
in fiscal 1993 to approximately 21.1% ($107.5 million) of net sales for the
year ended March 31, 1998.
PURSUE SELECTIVE ACQUISITIONS. The Company intends to selectively pursue
strategic acquisitions, joint ventures and alliances. Potential strategic
combinations will be evaluated based on their ability to, among other things:
(i) complement existing businesses and further expand product lines;
(ii) strengthen the Company's leadership position in the material handling and
lifting industry; (iii) provide synergistic opportunities; (iv) enhance and
broaden distribution channels; (v) increase the Company's international
presence; and (vi) enhance shareholder value and be EVA(R) positive.
RECENT DEVELOPMENTS
More of the Company's customers and end-users are outsourcing non-core
business functions to improve productivity and cost efficiency, including
material handling project design, management and implementation
responsibilities. The Company has focused on capitalizing on this trend by its
recent acquisitions of Univeyor and LICO. The Company believes that the
combination of its expertise and technological know-how with that of Univeyor
and LICO, and the continuing emphasis by manufacturers to decrease fixed
engineering costs through downsizing, will permit the Company to position
itself as a leader in the project design, management and implementation of
automated material handling systems. The Company further believes that these
acquisitions will create cross-selling opportunities, thereby expanding the
market and customer base for the Company's products and creating product and
marketing synergies.
ACQUISITION OF UNIVEYOR. In January 1998, the Company acquired all of the
outstanding capital stock of Univeyor, a Denmark-based designer, manufacturer
and distributor of automated material handling systems, for approximately $15.0
million plus assumed liabilities. Univeyor has designed material handling
systems for, among others, Apple Computer, British Telecom, LEGO, Nestle, Saab-
Scania, Siemens, Sony and Volvo. This acquisition enables the Company, which
previously has designed solutions only for individual workstations, to offer
automated material handling systems for the entire workplace. Univeyor
generated net sales for the twelve months ended March 31, 1998 of approximately
$22.5 million.
4
<PAGE>
LICO ACQUISITION. On March 31, 1998, the Company acquired all of the
outstanding capital stock of LICO for approximately $155.0 million in cash,
adjusted for outstanding borrowings at closing (the "LICO Acquisition"). LICO,
based in Kansas City, Missouri, is a leading designer, manufacturer and
installer of custom conveyor and automated material handling systems, primarily
for the automotive industry, and to a lesser extent, the steel, construction
and other industrial markets. LICO has designed material handling systems for,
among others, American Steel and Wire, Cummins Engine, Ford, General Motors,
Harley-Davidson, J.I. Case, John Deere, Maytag, Mercury Marine and Saturn.
LICO's customers have increasingly implemented programs to consolidate their
material handling suppliers, thereby relying on fewer qualified companies to
provide these systems. In addition, these customers are requiring qualified
suppliers to be able to complete increasingly larger projects. Reflecting these
developments, LICO has become a leading supplier of custom conveyors and
material handling systems to many of its customers including its two largest
customers, General Motors and Ford, which together represented approximately
82% of LICO's sales for the twelve months ended March 31, 1998. Further, the
trend by the auto manufacturers to shorten new model life cycles, emphasize
rapid plant changeovers and focus on increasing plant flexibility has also
favorably impacted LICO. As a result of these positive industry trends, LICO's
backlog increased to $136.3 million at March 31, 1998, representing an increase
of $44.1 million over its backlog at March 31, 1997. For the twelve months
ended March 31, 1998, LICO had net sales of approximately $165.9 million.
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THE NOTES OFFERING
The Notes................. The Private Notes were sold by the Company on March
31, 1998 to Bear, Stearns & Co. Inc. and Goldman,
Sachs & Co. (the "Initial Purchasers") pursuant to
a Purchase Agreement dated March 26, 1998 (the
"Purchase Agreement"). The Initial Purchasers
subsequently resold the Private Notes (i) to
qualified institutional buyers in reliance on Rule
144A under the Securities Act, (ii) to a limited
number of institutional accredited investors
pursuant to Regulation D under the Securities Act
and (iii) to Non-U.S. persons in offshore
transactions pursuant to Regulation S under the
Securities Act.
Registration Rights Pursuant to the Purchase Agreement, the Company and
Agreement................. the Initial Purchasers entered into a Registration
Rights Agreement dated March 31, 1998 (the
"Registration Rights Agreement"), which grants the
holders of the Private Notes certain exchange and
registration rights. The Exchange Offer is intended
to satisfy such exchange rights which will
terminate upon consummation of the Exchange Offer
except under certain limited circumstances. See
"The Exchange Offer--Termination of Certain
Rights".
THE EXCHANGE OFFER
The Exchange Offer........ The Company is hereby offering to exchange $1,000
of Exchange Notes for each $1,000 of Private Notes
that are properly tendered and accepted. The Com-
pany will issue Exchange Notes on or promptly after
the Expiration Date. As of the date hereof,
$200,000,000 aggregate principal amount of Private
Notes are outstanding. See "The Exchange Offer--
Purpose of the Exchange Offer."
Based on an interpretation by the staff of the Com-
mission set forth in no-action letters issued to
third parties, the Company believes that the Ex-
change Notes issued pursuant to the Exchange Offer
in exchange for Private Notes may be offered for
resale, resold and otherwise transferred by a
holder thereof (other than (i) an "affiliate" of
the Company within the meaning of Rule 405 under
the Securities Act, (ii) a broker-dealer who ac-
quired Private Notes directly from the Company to
resell pursuant to Rule 144A or any other available
exemption under the Securities Act or (iii) a bro-
ker-dealer who acquired Private Notes as a result
of market making or other trading activities),
without compliance with the registration and pro-
spectus delivery requirements of the Securities
Act; provided that the holder is acquiring Exchange
Notes in the ordinary course of its business and is
not participating, and has no arrangement or under-
standing with any person to participate, in the
distribution of the Exchange Notes. Holders of Pri-
vate Notes wishing to accept the Exchange Offer
must represent to the Company, as required by the
Registration Rights Agreement, that such conditions
have been met. The Company believes that none of
the registered holders of
6
<PAGE>
the Private Notes is an affiliate (as such term is
defined in Rule 405 under the Securities Act) of
the Company. Any broker-dealer that resells Ex-
change Notes that were received by it for its own
account pursuant to the Exchange Offer and any bro-
ker or dealer that participates in the distribution
of such Exchange Notes may be deemed to be an "un-
derwriter" within the meaning of the Securities Act
and any profit on any such resale of Exchange Notes
and any commissions or concessions received by any
such persons may be deemed to be underwriting com-
pensation under the Securities Act.
Each broker-dealer that receives Exchange Notes for
its own account in exchange for Private Notes must
acknowledge that it will deliver a Prospectus in
connection with any resale of such Exchange Notes.
The Letter of Transmittal states that by so ac-
knowledging and by delivering a prospectus, a bro-
ker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securi-
ties Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a
broker-dealer in connection with resales of Ex-
change Notes received in exchange for Private
Notes, where such Private Notes were acquired by
such broker-dealer as a result of market-making or
other trading activities. The Company has agreed to
make this Prospectus (as it may be amended or sup-
plemented) available to any broker-dealer, upon re-
quest, for use in connection with any such resale,
for a period of one year after the Registration
Statement is declared effective by the Commission
or until such earlier date on which all the Ex-
change Notes are freely tradeable. However, any
broker-dealer who acquired the Private Notes di-
rectly from the Company other than as a result of
market-making activities or ordinary trading activ-
ities may not fulfill its prospectus delivery re-
quirements with this Prospectus, but must comply
with the registration and prospectus delivery re-
quirements of the Securities Act. See "The Exchange
Offer--Resale of the Exchange Notes."
Consequences of Failure
to Exchange..............
Holders of Private Notes who do not tender their
Private Notes in the Exchange Offer will continue
to hold such Private Notes and will be
entitled to all the rights and limitations applica-
ble thereto under the Indenture. All untendered,
and tendered but not unaccepted, Private Notes will
continue to be subject to the restrictions on
transfer provided for in the Private Notes and the
Indenture. To the extent that Private Notes are
tendered and accepted in the Exchange Offer, the
trading market, if any, for the Private Notes could
be adversely affected. See "The Exchange Offer--
Consequence of Failure to Exchange."
Expiration Date...........
The Exchange Offer will expire at 5:00 p.m., New
York City time, on August 3, 1998 unless the Ex-
change Offer is extended by the Company, in its
sole discretion, in which case the term "Expiration
Date" shall mean the latest date and time to which
the Exchange Offer is extended. See "The Exchange
Offer--Expiration Date; Extensions; Amendments."
7
<PAGE>
Accrued Interest on the
Exchange Notes and the The Exchange Notes will bear interest from and in-
Private Notes............ cluding the date of issuance of the Private Notes
(March 31, 1998). Holders whose Private Notes are
accepted for exchange will be deemed to have waived
the right to receive any interest accrued on the
Private Notes. See "The Exchange Offer--Interest on
the Exchange Notes."
Conditions to the The Exchange Offer is subject to certain customary
Exchange Offer........... conditions that may be waived by the Company. The
Exchange Offer is not conditioned upon any minimum
aggregate amount of Private Notes being tendered
for exchange. See "The Exchange Offer--Conditions."
Procedures for Tendering
Private Notes............ Each Holder of Private Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with such Private Notes and any other required
documentation to State Street National Bank and
Trust Company, as exchange agent (the "Exchange
Agent"), at its address set forth herein. By exe-
cuting the Letter of Transmittal, the holder will
represent to and agree with the Company that, among
other things, (i) the Exchange Notes to be acquired
by such holder of Private Notes in connection with
the Exchange Offer are being acquired by such
holder in the ordinary course of its business, (ii)
such holder is not currently participating and has
no arrangement or understanding with any person to
participate in a distribution of the Exchange
Notes, (iii) if such holder is a broker-dealer reg-
istered under the Exchange Act or is participating
in the Exchange Offer for the purposes of distrib-
uting the Exchange Notes, such holder will comply
with the registration and prospectus delivery re-
quirements of the Securities Act in connection with
a secondary resale transaction of the Exchange
Notes acquired by such person and cannot rely on
the position of the staff of the Commission set
forth in no-action letters (see "The Exchange Of-
fer--Resale of Exchange Notes"), (iv) such holder
understands that a secondary resale transaction de-
scribed in clause (iii) above and any resales of
Exchange Notes obtained by such holder in exchange
for Private Notes acquired by such holder directly
from the Company should be covered by an effective
registration statement containing the selling secu-
rity holder information required by Item 507 of
Regulation S-K of the Commission and (v) such
holder is not an "affiliate," as defined in Rule
405 under the Securities Act, of the Company. If
the holder is a broker-dealer that will receive Ex-
change Notes for its own account in exchange for
Private Notes that were acquired as a result of
market-making activities or other trading activi-
ties, such holder will be required to acknowledge
in the Letter of Transmittal that such holder will
deliver a prospectus in connection with any resale
of such Exchange Notes; however, by so acknowledg-
ing and by delivering a prospectus, such holder
will not be deemed to admit that it is an "under-
writer" within the meaning of the Securities Act.
See "The Exchange Offer--Procedures for Tendering."
8
<PAGE>
Special Procedures for
Beneficial Owners........ Any beneficial owner whose Private Notes are regis-
tered in the name of a broker, commercial bank,
trust company or other nominee and who wishes to
tender such Private Notes in the Exchange Offer
should contact such registered holder promptly and
instruct such registered holder to tender on such
beneficial owner's behalf. If such beneficial owner
wishes to tender on such owner's own behalf, such
owner must, prior to completing and executing the
Letter of Transmittal and delivering such owner's
Private Notes, either make appropriate arrangements
to register ownership of the Private Notes in such
owner's name or obtain a properly completed bond
power from the registered holder. The transfer of
registered ownership may take considerable time and
may not be able to be completed prior to the Expi-
ration Date. See "The Exchange Offer--Procedures
for Tendering."
Guaranteed Delivery
Procedures............... Holders of Private Notes who wish to tender their
Private Notes and whose Private Notes are not imme-
diately available or who cannot deliver their Pri-
vate Notes, the Letter of Transmittal or any other
documentation required by the Letter of Transmittal
to the Exchange Agent prior to the Expiration Date
must tender their Private Notes according to the
guaranteed delivery procedures set forth under "The
Exchange Offer--Guaranteed Delivery Procedures."
Acceptance of the Private
Notes and Delivery of Subject to the satisfaction or waiver of the condi-
the Exchange Notes....... tions to the Exchange Offer, the Company will ac-
cept for exchange any and all Private Notes that
are properly tendered in the Exchange Offer prior
to the Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be delivered on
the earliest practicable date following the Expira-
tion Date. See "The Exchange Offer--Terms of the
Exchange Offer."
Withdrawal Rights......... Tenders of Private Notes may be withdrawn at any
time prior to the Expiration Date. See "The Ex-
change Offer--Withdrawal of Tenders."
Certain Federal Income
Tax Considerations....... For a discussion of certain material federal income
tax considerations relating to the exchange of the
Exchange Notes for the Private Notes, see "Certain
United States Federal Income Tax Considerations."
Exchange Agent............
State Street Bank and Trust Company, N.A. is serv-
ing as the Exchange Agent in connection with the
Exchange Offer.
Use of Proceeds........... The Company will not receive any cash proceeds from
the issuance of the Exchange Notes offered hereby.
See "Use of Proceeds."
9
<PAGE>
TERMS OF THE EXCHANGE NOTES
The Exchange Offer applies to $200,000,000 aggregate principal amount of the
Private Notes. The form and terms of the Exchange Notes are substantially
identical in all respects (including principal amount, interest rate, maturity
and ranking) to the form and terms of the Private Notes, except that (i) the
Exchange Notes will have been registered under the Securities Act and,
therefore, will not bear legends restricting the transfer thereof; and (ii)
holders of the Exchange Notes will not be entitled to certain rights of holders
of the Private Notes under the Registration Rights Agreement, which rights will
terminate upon consummation of the Exchange Offer. The Exchange Notes will
evidence the same obligations as the Private Notes and will be issued pursuant
to, and entitled to the benefits of, the Indenture governing the Private Notes.
The Exchange Offer is being made to satisfy the obligations of the Company
under the Registration Rights Agreement relating to the Private Notes. For
further information and for definitions of certain capitalized terms used
below, see "The Exchange Offer" and "Description of the Exchange Notes."
Issuer.................... Columbus McKinnon Corporation
Securities Offered........ Exchange Notes
Maturity.................. April 1, 2008.
Interest.................. Interest on the Exchange Notes will be payable
semi-annually in arrears on April 1 and October 1
of each year, commencing on October 1, 1998.
Guarantees................ The Exchange Notes will be guaranteed on a senior
subordinated basis by certain existing and future
Domestic Restricted Subsidiaries of the Company
(the "Guarantors").
Ranking................... The Exchange Notes will be general unsecured obli-
gations of the Company and will be subordinated in
right of payment to all current and future Senior
Debt of the Company. In addition, the Exchange
Notes will be effectively subordinated to all in-
debtedness of the Company's subsidiaries. As of
March 31, 1998, the Company and its subsidiaries
had approximately $248.8 million of Senior Debt
outstanding and approximately $53.0 million of
available borrowings under the New Credit Agree-
ment. The Indenture will permit the Company and its
subsidiaries to incur additional indebtedness, in-
cluding additional Senior Debt, in the future, sub-
ject to certain restrictions. See "Description of
Notes--Subordination."
Optional Redemption....... Prior to April 1, 2003, the Exchange Notes will be
redeemable at the option of the Company, in whole
or in part, at the Make-Whole Price, plus accrued
and unpaid interest and Liquidated Damages, if any,
thereon to the redemption date. On and after April
1, 2003, the Exchange Notes will be redeemable at
the option of the Company, in whole or in part, at
the redemption prices set forth herein, plus ac-
crued and unpaid interest and Liquidated Damages,
if any, thereon to the redemption date. In addi-
tion, on or prior to April 1, 2001, the Company may
redeem up to 35% of the aggregate principal amount
of Exchange Notes issued under the Indenture at a
redemption price of 108.50% of the principal amount
thereof, plus accrued and unpaid interest and Liq-
uidated Damages, if any, thereon to the redemption
date, with the net cash proceeds of one or more of-
ferings of Equity Interests, other than
10
<PAGE>
Disqualified Stock, of the Company; provided that
at least $130.0 million in aggregate principal
amount of Exchange Notes remain outstanding immedi-
ately after the occurrence of each such redemption.
See "Description of Notes--Optional Redemption."
Change of Control......... In the event of a Change of Control, the Company
will be required to make an offer to each Holder of
the Exchange Notes to repurchase all or any part of
such Holder's Exchange Notes at a repurchase price
equal to 101% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages,
if any, thereon to the repurchase date.
Covenants................. The indenture pursuant to which the Exchange Notes
will be issued (the "Indenture") contains certain
covenants that, among other things, limit the abil-
ity of the Company and its Restricted Subsidiaries
(as defined) to incur additional Indebtedness (as
defined), pay dividends, repurchase Equity Inter-
ests or make other Restricted Payments (as de-
fined), create Liens (as defined), enter into
transactions with Affiliates (as defined), sell as-
sets or enter into certain mergers and consolida-
tions. See "Description of Notes."
Exchange Offer, Under certain circumstances the Company and the
Registration Rights....... Guarantors may be required to file a shelf regis-
tration statement to cover resales of the Private
Notes by holders thereof (a "Shelf Registration").
If the Company and the Guarantors do not comply
with their obligations under the Registration
Rights Agreement, they will be required to pay
specified Liquidated Damages to the holders of the
Notes under certain circumstances. See "Description
of Notes--Registration Rights; Liquidated Damages."
Absence of Market for the
Exchange Notes...........
There is currently no market for the Exchange
Notes. Although the Initial Purchasers have in-
formed the Company that they currently intend to
make a market in the Exchange Notes, the Initial
Purchasers are not obligated to do so, and any such
market making may be discontinued at any time with-
out notice. Accordingly, there can be no assurance
as to the development or liquidity of any Market
for the Exchange Notes. See "Plan of Distribution."
RISK FACTORS
Prospective purchasers of the Exchange Notes should carefully consider the
matters set forth under "Risk Factors," as well as the other information and
financial statements and data included in this Offering Memorandum, prior to
making an investment in the Exchange Notes.
11
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth certain summary data of the Company for each
of the three years in the period ended March 31, 1998. The financial data is
derived from the Company's consolidated financial statements included elsewhere
herein. The historical information includes (i) the results of operations of
Lift-Tech since its acquisition on November 1, 1995, (ii) the results of
operations of Yale since its acquisition on October 17, 1996, (iii) the results
of operations of Lister since its acquisition on December 19, 1996 and (iv) the
results of operations of Univeyor since its acquisition on January 8, 1998. The
pro forma data gives effect to the Offering, the New Credit Agreement, the
acquisition of Univeyor and the LICO Acquisition as if they occurred at April
1, 1997. This table should be read in conjunction with "Selected Financial
Data," "Management's Discussion and Analysis of Results of Operations and
Financial Condition" and the Consolidated Financial Statements of the Company,
including the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------- ---------
FISCAL YEARS ENDED MARCH YEAR
31, ENDED
---------------------------- MARCH 31,
1996 1997 1998 1998
-------- -------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales................ $209,837 $359,424 $510,731 $693,269
Cost of products sold.... 149,511 251,987 363,117 514,468
-------- -------- -------- --------
Gross profit............. 60,326 107,437 147,614 178,801
Selling expenses......... 19,120 32,550 45,181 49,850
General and
administrative
expenses................ 13,941 24,636 24,342 33,234
Amortization of
intangibles............. 791 5,197 10,201 15,044
Other charges............ 672 -- -- --
-------- -------- -------- --------
Income from operations... 25,802 45,054 67,890 80,673
Interest and debt
expense................. 5,292 11,930 23,975 35,251
Interest and other
income.................. 1,134 1,168 1,940 2,013
-------- -------- -------- --------
Income before income
taxes, minority
interest, and
extraordinary charge.... 21,644 34,292 45,855 47,435
Income tax expense....... 8,657 15,617 22,434 23,927
-------- -------- -------- --------
Income before minority
interest and
extraordinary charge.... $ 12,987 $ 18,675 $ 23,421 $ 23,508
======== ======== ======== ========
OTHER DATA:
EBITDA(1)................ $ 32,164 $ 57,507 $ 88,919 $107,543
EBITDA margin(1)......... 15.3% 16.0% 17.4% 15.5%
Depreciation and
amortization............ $ 5,228 $ 11,285 $ 19,089 $ 24,857
Capital expenditures..... 6,988 9,392 10,501 11,439
Ratio of earnings to
fixed charges(2)........ 5.1x 3.9x 2.9x 2.3x
PRO FORMA RATIOS:
EBITDA to cash
interest(3)............. 3.1x
Total debt to EBITDA..... 4.2x
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
-----------------------
1997 1998
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets........................................... $ 548,245 $763,748
Total long-term debt (including current maturities).... 286,288 448,312
Total liabilities...................................... 398,089 597,226
Total shareholders' equity............................. 150,156 166,522
</TABLE>
(footnotes on following page)
12
<PAGE>
(1) EBITDA represents income before interest and debt expense, income tax
expense, depreciation and amortization, minority interest, extraordinary
charge and cumulative effect of accounting change. EBITDA margin represents
EBITDA divided by net sales. EBITDA is presented because it provides useful
information regarding the Company's ability to service and/or incur debt.
EBITDA should not be considered in isolation from or as a substitute for
net income, cash flows from operating activities or other consolidated
income or cash flow statement data prepared in accordance with generally
accepted accounting principles or as a measure of profitability or
liquidity.
(2) For purposes of calculating the ratio of earnings to fixed charges, (i)
earnings consist of income before income taxes, extraordinary charge,
cumulative effect of accounting change and minority interest in net income
(loss) of consolidated entities plus fixed charges and (ii) fixed charges
consist of interest and debt expense.
(3) Cash interest represents interest and debt expense less non-cash debt
expense related to the amortization of debt issuance costs of approximately
$0.5 million for the year ended March 31, 1998 on a pro forma basis.
13
<PAGE>
RISK FACTORS
Prior to making an investment decision, prospective purchasers should
consider carefully all of the information set forth in this Prospectus and, in
particular, should evaluate the following factors:
SUBSTANTIAL LEVERAGE
The Company has indebtedness that is substantial in relation to its
shareholders' equity. As of March 31, 1998, the Company had total indebtedness
of approximately $448.3 million (excluding approximately $148.9 million of
trade payables and other accrued and non-current liabilities) and total
shareholders' equity of approximately $166.5 million. In addition, the Company
had approximately $53.0 million of borrowing availability under the New Credit
Agreement. The Company's leveraged financial position poses substantial risks
to holders of the Notes, including the risks that (i) a substantial portion of
the Company's cash flow from operations will be dedicated to the payment of
interest on the Notes, borrowings under the New Credit Agreement and other
indebtedness, (ii) the Company's leveraged position may impede its ability to
obtain financing in the future for working capital, capital expenditures and
general corporate purposes and (iii) the Company's highly leveraged position
may make it more vulnerable to economic downturns and may limit its ability to
withstand competitive pressure. If the Company is unable to generate
sufficient cash flow from operations in the future to service its indebtedness
and to meet its other commitments, the Company will be required to adopt one
or more alternatives, such as refinancing or restructuring its indebtedness,
selling material assets or operations, or seeking to raise additional debt or
equity capital. There can be no assurance that any of these actions could be
effected on satisfactory terms, that they would enable the Company to continue
to satisfy its capital requirements or that they would be permitted by the
terms of existing or future debt agreements, including the Indenture and the
New Credit Agreement. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition--Liquidity and Capital Resources."
SUBORDINATION OF NOTES
The Notes will be general unsecured obligations of the Company, subordinated
in right of payment to all existing and future Senior Debt of the Company,
including obligations under the Company's New Credit Agreement. As of March
31, 1998, the Company had outstanding Senior Debt of approximately $248.8
million. Subject to certain limitations, the Indenture will permit the Company
to incur additional indebtedness, including Senior Debt. See "Description of
Notes--Certain Covenants." In addition, the Notes will be effectively
subordinated to all indebtedness of the Company's subsidiaries, which totaled
approximately $2.8 million as of March 31, 1998. The indebtedness under the
New Credit Agreement will also become due prior to the time the principal
obligations under the Notes become due. As a result of the subordination
provisions contained in the Indenture, in the event of a liquidation or
insolvency of the Company, the assets of the Company will be available to pay
obligations on the Notes only after all Senior Debt has been paid in full, and
there may not be sufficient assets remaining to pay amounts due on any or all
of the Notes then outstanding.
COMPETITION
The markets in which the Company operates are highly competitive. The
Company faces competition from a number of different manufacturers, both
domestically and abroad, in each of its product lines, some of which have
greater financial and other resources than the Company. The principal
competitive factors affecting the market for the Company's products include
performance, functionality, price, brand recognition, customer service and
support, and product availability. See "Business--Competition."
CYCLICALITY
The Company's business is affected by the state of both the U.S. and
worldwide economies in general, and by the varying cyclicality of the
industries in which its products are used. There can be no assurance that any
future state of the U.S. and/or worldwide economy will not have an adverse
effect on the Company's business, financial condition and results of
operations.
14
<PAGE>
COMPANY GROWTH AND RISKS RELATED TO ACQUISITIONS; LICO'S CONTRACTS AND
CUSTOMERS
Historically, the Company has grown through a combination of internal growth
and acquisitions. Although the Company intends to pursue the acquisition of
additional businesses, there can be no assurance that the Company will be able
to locate or acquire other suitable acquisition candidates on acceptable
terms. There can be no assurance that any business it may acquire in the
future will be effectively and profitably operated and integrated into the
Company. In addition, the acquisition, operation and integration of an
acquired business may involve a number of other risks, including an increase
in the Company's indebtedness, the diversion of management's attention and the
retention of and training of key personnel. The Company also intends to
enhance its international presence through strategic acquisitions and
alliances. International expansion may involve additional risks including
those described in "--International Operations."
The Company acquired all of the outstanding capital stock of LICO on March
31, 1998. LICO's business is dependent to a large degree on two significant
customers, General Motors and Ford, which together represented approximately
82% of LICO's sales for the twelve months ended March 31, 1998. In addition,
LICO pursues and is awarded large contracts which generally last for 12 to 18
months and are accounted for on a percentage of completion basis. Although a
majority of the projects undertaken by LICO have been profitable historically,
the profitability on these projects, as well as the period in which income
from these projects is recognized, can vary from original estimates. LICO has
experienced a significant increase in revenues, profitability and backlog.
There can be no assurance that LICO will be able to maintain its current level
of financial results.
INTERNATIONAL OPERATIONS
The Company has operations and assets located outside of the United States,
primarily in Canada, Mexico, Germany, Denmark, France and China. In addition,
the Company imports a portion of its hoist product line from China, and sells
its products to distributors located in approximately 50 countries.
International operations are subject to a number of special risks, including
currency exchange rate fluctuations, trade barriers, exchange controls, risk
of governmental expropriation, political risks and risks of increases in
taxes. Also, some foreign jurisdictions have laws limiting the right and
ability of entities organized or operating therein to pay dividends or remit
earnings to affiliated companies unless specified conditions are met. The
inability of the Company to conduct its foreign operations, import foreign
products or distribute its products internationally could have an adverse
effect on the Company's business, financial condition and results of
operations.
IMPACT OF RAW MATERIAL PRICES
The principal raw material used by the Company in its chain and forging
operations is steel. The steel industry as a whole is cyclical, and steel
prices can be volatile due to numerous factors beyond the control of the
Company. This volatility can significantly affect the Company's raw material
costs. Competitive conditions will determine whether steel price increases can
be passed on to the Company's customers. The inability of the Company to pass
some or all of future steel price increases to its customers could have an
adverse effect on the Company's business, financial condition and results of
operations.
LABOR RELATIONS
At March 31, 1998, the Company had approximately 4,100 employees. Of these
employees, approximately 1,460 are represented under twelve separate
collective bargaining agreements which expire at various times between August
22, 1998 and April 30, 2003. A collective bargaining agreement covering
approximately 130 employees at the Company's Cedar Rapids, Iowa facility
expires on August 22, 1998. There can be no assurance that negotiations to
extend such agreement will be successfully concluded without a work stoppage.
The Company experienced a 29-day work stoppage at its Cobourg, Ontario plant
in fiscal 1994. In addition, the Yale facility in Charlotte, North Carolina
had a five-day work stoppage in fiscal 1997, prior to its acquisition by the
Company.
15
<PAGE>
There can be no assurance that the Company will not experience further
significant work stoppages in the future or that its relations with its
employees will continue to be good. See "Business--Employees."
LEGAL MATTERS
The Company is a party to various lawsuits, the outcome of which, if adverse
to the Company, could have an adverse impact on the business, financial
condition and results of operations of the Company. On November 18, 1996, an
action entitled Milliken & Company vs. Duff-Norton Company, Inc. and
Industrial Distribution Group, Inc. d/b/a Dixie Industrial Supply Company was
commenced in the Superior Court of Troup County, Georgia. In its complaint in
this action, the plaintiff alleges that a rotary union coupler manufactured by
a subsidiary of Yale failed, causing a fire resulting in alleged damages to
the plaintiff's carpet manufacturing facility and equipment in excess of $500
million. This action has been turned over to the Company's insurer and is in
the early stages of discovery. The Company's insurance coverage applicable to
this matter is limited to $100 million plus the costs and expenses of
defending the action. The Company has denied all of the material allegations
contained in the complaint and has asserted certain affirmative defenses and
counterclaims. Based upon the advice of its counsel, the Company believes it
has meritorious defenses to the causes of action specified in the complaint
and intends to vigorously defend this action. However, there can be no
assurance as to the outcome of this litigation. See "Business--Legal
Proceedings."
ENVIRONMENTAL MATTERS
Like many manufacturing companies, the Company is subject to various
federal, state and local environmental laws, including, but not limited to,
those governing air emissions, water discharges, and the storage, handling,
disposal and remediation of petroleum and hazardous substances. The Company
has in the past and will likely in the future incur expenditures in order to
ensure compliance with such environmental laws. Due to the possibility of
unanticipated factual or regulatory developments, the amount and timing of
future environmental expenditures could vary substantially from those
currently anticipated. Moreover, certain of the Company's facilities have been
in operation for many years and, over such time, the Company and other
predecessor operators of such facilities have generated and disposed of wastes
which are or may be considered hazardous. Accordingly, although the Company
has undertaken considerable efforts to comply with applicable environmental
laws, it is possible that environmental requirements or facts not currently
known will require unanticipated efforts and expenditures which cannot be
currently quantified. See "Business--Environmental and Other Governmental
Regulation."
DEPENDENCE ON KEY MANAGEMENT
The success of the Company's business is dependent upon the management and
leadership skills of Herbert P. Ladds, Jr., the Company's Chairman of the
Board and Chief Executive Officer, Timothy T. Tevens, the Company's President,
Robert L. Montgomery, Jr., the Company's Executive Vice President, and other
members of the Company's senior management team. The Company does not have
employment agreements with any of its management employees. The Company has
announced that Mr. Ladds plans to resign as Chief Executive Officer in July
1998, but will continue to serve thereafter as Chairman of the Board. The
Company also announced that upon Mr. Ladds' resignation, Mr. Tevens will
become the Chief Executive Officer of the Company. The loss of any of these
individuals or an inability to attract and retain additional personnel could
adversely affect the Company's business, financial condition and results of
operations. There can be no assurance that the Company will be able to retain
its existing senior management personnel or to attract additional qualified
personnel.
ABSENCE OF PUBLIC MARKET
The Exchange Notes are being offered to the holders of the Private Notes.
The Private Notes were offered and sold on March 31, 1998 (i) to "Qualified
Institutional Buyers" (as defined in Rule 144A under the Securities Act), (ii)
to other institutional "accredited investors" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the
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Securities Act) and (iii) outside the United States in reliance on Regulation
S under the Securities Act, and are eligible for trading in the Private
Offering, Resales and Trading through Automated Linkages ("PORTAL") market.
The Exchange Notes will be a new class of securities for which there
currently is no established trading market. Although the Exchange Notes will
generally be permitted to be resold or otherwise transferred by nonaffiliates
of the Company without compliance with the registration requirements under the
Securities Act, the Company does not intend to apply for listing of the
Exchange Notes on any national securities exchange or for quotation of the
Exchange Notes on any automated dealer quotation system. Although the Initial
Purchasers have informed the Company that they currently intend to make a
market in the Exchange Notes, the Initial Purchasers are not obligated to do
so, and any such market making may be discontinued at any time without notice.
The liquidity of any market for the Exchange Notes will depend upon the number
of holders of the Exchange Notes, the interest of securities dealers in making
a market in the Exchange Notes and other factors. Accordingly, there can be no
assurance as to the development or liquidity of any market for the Exchange
Notes. If an active trading market for the Exchange Notes does not develop,
the market price and liquidity of the Exchange Notes may be adversely
affected. If the Exchange Notes are traded, they may trade at a discount from
their initial offering price, depending upon prevailing interest rates, the
market for similar securities, the performance of the Company and certain
other factors. The liquidity of, and trading markets for, the Exchange Notes
may also be adversely affected by general declines in the market for non-
investment grade debt. Such declines may adversely affect the liquidity of,
and trading markets for, the Exchange Notes independent of the financial
performance of, or prospects for, the Company.
REPURCHASE OF NOTES UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
make an offer to repurchase all or any part of the Exchange Notes at a price
equal to 101% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the date of repurchase.
Certain events involving a Change of Control may result in an event of default
under the New Credit Agreement and under other indebtedness of the Company
that may be incurred in the future. An event of default under the New Credit
Agreement or other future Senior Debt could result in an acceleration of such
indebtedness, in which case the subordination provisions of the Exchange Notes
would require payment in full (or provision therefor) of such Senior Debt
before the Company may repurchase or make other payments in respect of the
Exchange Notes. See "Description of Notes--Repurchase at the Option of
Holders--Change of Control" and "--Subordination." There can be no assurance
that the Company would have sufficient resources to repurchase the Exchange
Notes or pay its obligations if the indebtedness under the New Credit
Agreement or other future Senior Debt were accelerated upon the occurrence of
a Change of Control. The inability to repurchase all of the tendered Exchange
Notes would constitute an event of default under the Indenture. These
provisions may be deemed to have anti-takeover effects and may delay, defer or
prevent a merger, tender offer or other takeover attempt. No assurance can be
given that the terms of any future indebtedness will not contain cross default
provisions based upon change of control or other defaults under such debt
instruments.
FRAUDULENT CONVEYANCE
Under applicable provisions of the United States Bankruptcy Code and
comparable provisions of state fraudulent transfer or conveyance law, if the
Company, at the time it issued the Exchange Notes, or any guarantor, at the
time it entered into its guarantee of the Notes (a) incurred such obligation
with intent to hinder, delay or defraud creditors or (b) received less than
reasonably equivalent value or fair consideration in connection with such
incurrence and (i) was insolvent at the time of the incurrence, (ii) was
rendered insolvent by reason of such incurrence (and the application of the
net proceeds thereof), (iii) was engaged or was about to engage in a business
or transaction for which the assets remaining with the Company or such
guarantor constituted unreasonably small capital to carry on its business or
(iv) intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature, then, in each such case, a court of
competent jurisdiction could avoid, in whole or in part, the Exchange Notes or
such guarantee thereof, as the case may be, or, in the
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alternative, subordinate the Exchange Notes or such guarantee to existing and
future indebtedness of the Company or such guarantor, as the case may be. The
measure of insolvency for purposes of the foregoing will vary depending upon
the law applied in such case. Generally, however, the Company or a guarantor
would be considered insolvent if the sum of its debts, including contingent
liabilities, was greater than all of its assets at fair valuation or if the
present fair salable value of its assets was less than the amount that would
be required to pay the probable liability on its existing debts, including
contingent liabilities, as they become absolute and matured.
The Company believes that, for purposes of the United States Bankruptcy Code
and state fraudulent transfer or conveyance laws, (a) the Exchange Notes and
the guarantees thereof are being issued without the intent to hinder, delay or
defraud creditors and for proper purposes and in good faith, (b) the Company
and the Guarantors will receive reasonably equivalent value or fair
consideration and (c) the Company and the Guarantors, after the issuance of
the Exchange Notes and the application of the proceeds thereof, will be
solvent, will have sufficient capital for carrying on their businesses and
will be able to pay their debts as they mature. There can be no assurance,
however, that a court passing on such questions would agree with the Company's
belief.
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes for Private Notes pursuant to the Exchange
Offer will be made only after timely receipt by the Exchange Agent of such
Private Notes, a properly completed, duly executed Letter of Transmittal and
all other required documents. Therefore, Holders desiring to tender their
Private Notes in exchange for Exchange Notes should allow sufficient time to
ensure timely delivery. The Company is under no duty to give notification of
defects or irregularities with respect to the tenders of Private Notes for
exchange. Any Private Notes that are not tendered or are tendered but not
accepted will, following the consummation of the Exchange Offer, continue to
be subject to the existing restrictions upon transfer thereof and, upon
consummation of the Exchange Offer, the registration rights under the
Registration Rights Agreement generally will terminate. In addition, any
Holder who tenders pursuant to the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale. Each broker-dealer that receives Exchange Notes
for its own account in exchange for Series A Notes, where such Private Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus
in connection with any resale of such Exchange Notes. See "The Exchange
Offer."
RESTRICTIONS ON TRANSFER
The Private Notes were offered and sold by the Company in a private offering
exempt from registration pursuant to the Securities Act and have been resold
pursuant to Rule 144A, Rule 501(a)(1), (2), (3) or (7) and Regulation S and
other exemptions under the Securities Act. As a result, the Private Notes may
not be reoffered or resold by purchasers except pursuant to an effective
registration statement under the Securities Act or pursuant to an applicable
exemption from such registration, and the Private Notes are legended to
restrict transfer as aforesaid. Each Holder (other than any Holder who is an
affiliate or promoter of the Company) who duly exchanges Private Notes for
Exchange Notes in the Exchange Offer will receive Exchange Notes that are
freely transferable under the Securities Act. Holders who participate in the
Exchange Offer should be aware, however, that if they accept the Exchange
Offer for the purpose of engaging in a distribution, the Exchange Notes may
not be publicly reoffered or resold without complying with the registration
and prospectus delivery requirements of the Securities Act. As a result, each
Holder accepting the Exchange Offer will be deemed to have represented, by its
acceptance of the Exchange Offer, that it acquired the Exchange Notes in the
ordinary course of business and that it is not engaged in, and does not intend
to engage in, a distribution of the Exchange Notes. If existing Commission
interpretations permitting free transferability of the Exchange Notes
following the Exchange Offer are changed prior to consummation of the Exchange
Offer, the Company will use its best efforts to register the Private Notes for
resale under the Securities Act. See "Prospectus Summary--The Exchange Offer"
and "Description of the Exchange Notes--Registration Rights; Liquidated
Damages."
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The Private Notes currently may be sold pursuant to the restrictions set
forth in Rule 144A, Rule 501(a) (1), (2), (3) or (7) or Regulation S under the
Securities Act or pursuant to another available exemption under the Securities
Act without registration under the Securities Act. To the extent that Private
Notes are tendered and accepted in the Exchange Offer, the trading market for
the untendered and tendered but unaccepted Private Notes could be adversely
affected.
YEAR 2000 RISK
The Company has implemented a Year 2000 date conversion program to ensure
that the Company's computer systems and applications will function properly
beyond 1999. The Company believes that it has allocated adequate resources for
this purpose and expects its Year 2000 date conversion program to be
successfully completed on a timely basis. However, there can be no assurance
that this will be the case. The Company does not expect to incur significant
expenditures to address this issue. The ability of third parties with whom the
Company transacts business to adequately address their Year 2000 issues is
outside the Company's control. There can be no assurance that the failure of
the Company or such third parties to adequately address their respective Year
2000 issues will not have an adverse effect on the Company's business,
financial condition and results of operations.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Private Notes were sold by the Company on March 31, 1998 (the "Issue
Date") to the Initial Purchasers pursuant to the Purchase Agreement. The
Initial Purchasers subsequently sold the Private Notes to (i) "qualified
institutional buyers" ("QIBs"), as defined in Rule 144A under the Securities
Act ("Rule 144A"), in reliance on Rule 144A, (ii) to institutional "accredited
investors" within the meaning of subparagraph (a)(1), (2) (3) or (7) of Rule
501 under the Securities Act and (iii) to non-U.S. persons in offshore
transactions pursuant to Regulation S under the Securities Act. As a condition
to the sale of the Private Notes, the Company and the Initial Purchaser
entered into the Registration Rights Agreement on March 31, 1998. Pursuant to
the Registration Rights Agreement, the Company agreed that, unless the
Exchange Offer is not permitted by applicable law or Commission policy, it
would (i) file with the Commission a Registration Statement under the
Securities Act with respect to the Exchange Notes within 60 days after the
Issue Date, (ii) use its best efforts to cause such Registration Statement to
become effective under the Securities Act within 120 days after the Issue Date
and (iii) use its best efforts to consummate the Exchange Offer within 150
days after the Issue Date. A copy of the Registration Rights Agreement has
been filed as an exhibit to the Registration Statement. The Registration
Statement is intended to satisfy certain of the Company's obligations under
the Registration Rights Agreement and the Purchase Agreement.
RESALE OF THE EXCHANGE NOTES
With respect to the Exchange Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to third
parties, the Company believes that a holder (other than (i) a broker-dealer
who purchased such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act, (ii)
any such holder that is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act or (iii) a broker-dealer who acquired
Private Notes as a result of market making or other trading activities) who
exchanges Private Notes for Exchange Notes in the ordinary course of business
and who is not participating, does not intend to participate, and has no
arrangement with any person to participate, in a distribution of the Exchange
Notes, will be allowed to resell Exchange Notes to the public without further
registration under the Securities Act and without delivering to the purchasers
of the Exchange Notes a prospectus that satisfies the requirements of Section
10 of the Securities Act. However, if any holder acquires Exchange Notes in
the Exchange Offer for the purpose of distributing or participating in the
distribution of the Exchange Notes or is a broker-dealer, such holder cannot
rely on the position of the staff of the Commission enumerated in certain no-
action letters issued to third parties and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any resale transaction, unless an exemption from registration is otherwise
available. Each broker-dealer that receives Exchange Notes for its own account
in exchange for Private Notes, where such Private Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Letter of Transmittal states that
by so acknowledging and by delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Private Notes where such Private Notes
were acquired by such broker-dealer as a result of market-making or other
trading activities. Pursuant to the Registration Rights Agreement, the Company
has agreed to make this Prospectus, as it may be amended or supplemented from
time to time, available to broker-dealers for use in connection with any
resale for a period of one year after the Registration Statement is declared
effective or until such earlier date on which the Exchange Notes are freely
tradable. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Private
Notes validly tendered and not withdrawn prior to the Expiration Date. The
Company will issue $1,000 principal amount of Exchange Notes in exchange for
each $1,000 principal
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amount of outstanding Private Notes surrendered pursuant to the Exchange
Offer. Private Notes may be tendered in integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Private Notes except that (i) the exchange will be registered under the
Securities Act and, therefore, the Exchange Notes will not bear legends
restricting the transfer thereof, (ii) holders of the Exchange Notes will not
be entitled to any of the rights of holders of Private Notes under the
Registration Rights Agreement, which rights will terminate upon the
consummation of the Exchange Offer except under certain limited circumstances.
See "--Termination of Certain Rights." The Exchange Notes will evidence the
same obligations as the Private Notes (which they replace) and will be issued
under, and be entitled to the benefits of, the Indenture, which also
authorized the issuance of the Private Notes, such that both series of Notes
will be treated as a single class of securities under the Indenture.
As of the date of this Prospectus, $200,000,000 in aggregate principal
amount of the Private Notes are outstanding and registered in the name of Cede
& Co., as nominee for DTC. Only a registered holder of the Private Notes (or
such holder's legal representative or attorney-in-fact) as reflected on the
records of the Trustee under the Indenture may participate in the Exchange
Offer. There will be no fixed record date for determining registered holders
of the Private Notes entitled to participate in the Exchange Offer.
Holders of the Private Notes do not have any appraisal or dissenters' rights
under the Indenture in connection with the Exchange Offer. The Company intends
to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the
Securities Act, the Exchange Act and the rules and regulations of the
Commission thereunder.
The Company shall be deemed to have accepted validly tendered Private Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Private Notes for the purposes of receiving the Exchange Notes from the
Company.
Holders who tender Private Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Private
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
August 3, 1998 unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will (i) notify the
Exchange Agent of any extension by oral or written notice, (ii) mail to the
registered holders an announcement thereof and (iii) issue a press release or
other public announcement, which shall include disclosure of the approximate
number of Private Notes deposited to date, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date. Without limiting the manner in which the Company may choose to make a
public announcement of any delay, extension, amendment or termination of the
Exchange Offer, the Company shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely press release to an appropriate news agency.
The Company reserves the right, in its reasonable discretion, (i) to delay
accepting any Private Notes, (ii) to extend the Exchange Offer or (iii) if any
conditions set forth below under "--Conditions" shall not have been satisfied,
to terminate the Exchange Offer by giving oral or written notice of such
delay, extension or termination to the Exchange Agent. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly
as practicable by oral or written notice thereof to the registered holders. If
the Exchange Offer is
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amended in a manner determined by the Company to constitute a material change,
the Company will promptly disclose such amendment by means of a prospectus
supplement that will be distributed to the registered holders, and the Company
will extend the Exchange Offer for a period of five to ten business days,
depending upon the significance of the amendment and the manner of disclosure
to the registered holders, if the Exchange Offer would otherwise expire during
such five to ten business day period.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate equal to 8 1/2% per annum.
Interest on the Exchange Notes will be payable semi-annually in arrears on
each April 1 and October 1, commencing October 1, 1998. Holders of Exchange
Notes will receive interest on October 1, 1998 from the date of initial
issuance of the Exchange Notes, plus an amount equal to the accrued interest
on the Private Notes from March 31, 1998, the date of initial issuance of the
Private Notes, to the date of exchange thereof for Exchange Notes. Holders of
Private Notes that are accepted for exchange will be deemed to have waived the
right to receive any interest accrued on the Private Notes.
PROCEDURES FOR TENDERING
Only a registered holder of Private Notes may tender such Private Notes in
the Exchange Offer. To tender in the Exchange Offer, a holder of Private Notes
must either, (i) complete, sign and date the Letter of Transmittal, or a
facsimile thereof, have the signatures thereon guaranteed if required by the
Letter of Transmittal, and mail or otherwise deliver such Letter of
Transmittal or such facsimile to the Exchange Agent at the address set forth
below under "--Exchange Agent", or (ii) if such Private Notes are tendered
pursuant to the procedures for book-entry transfer set forth below, a holder
tendering Private Notes may transmit an Agent's Message (defined herein) to
the Exchange Agent in lieu of the Letter of Transmittal, in either case prior
to the Expiration Date. In addition, either (i) certificates for such Private
Notes must be received by the Exchange Agent along with the Letter of
Transmittal, (ii) a timely confirmation of a book-entry transfer (a "Book-
Entry Confirmation") of such Private Notes, if such procedure is available,
into the Exchange Agent's account at the Depositary pursuant to the procedure
for book-entry transfer described below, must be received by the Exchange
Agent prior to the Expiration Date or (iii) the holder must comply with the
guaranteed delivery procedures described below. The term "Agent's Message"
means a message, transmitted to the Book-Entry Transfer Facility and received
by the Exchange Agent and forming a part of the Book-Entry Confirmation, which
states that the Book-Entry Transfer Facility has received an express
acknowledgement from the tendering participant in the Book-Entry Transfer
Facility that such participant has received and agrees to be bound by the
Letter of Transmittal and that the Company may enforce the Letter of
Transmittal against such participant.
The tender by a holder that is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the
Letter of Transmittal.
THE METHOD OF DELIVERY OF PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR PRIVATE NOTES SHOULD
BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner(s) of the Private Notes whose Private Notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact the registered holder
promptly and instruct such registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the
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Letter of Transmittal and delivering such owner's Private Notes, either make
appropriate arrangements to register ownership of the Private Notes in such
owner's name or obtain a properly completed bond power from the registered
holder. The transfer of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "--Withdrawal of Tenders"), as the case may be, must be guaranteed
by an Eligible Institution (as defined) unless the Private Notes tendered
pursuant thereto are tendered (i) by a registered holder who has not completed
the box titled "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures
on a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be made by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or company having an office or
correspondent in the United States or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act which is a member of
one of the recognized signature guarantee programs identified in the Letter of
Transmittal (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Private Notes listed therein, such Private Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Private
Notes.
If the Letter of Transmittal or any Private Notes or bond powers are signed
by Trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act
must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Private Notes will be
determined by the Company in its reasonable discretion, which determination
will be final and binding. The Company reserves the absolute right to reject
any and all Private Notes not properly tendered or any Private Notes the
Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right to waive any
defects, irregularities or conditions of tender as to particular Private
Notes. The Company's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in the Letter of Transmittal) will
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Private Notes must be cured
within such time as the Company shall determine. Although the Company intends
to notify holders of defects or irregularities with respect to tenders of
Private Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Private Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived.
While the Company has no present plan to acquire any Private Notes that are
not tendered in the Exchange Offer or to file a registration statement to
permit resales of any Private Notes that are not tendered pursuant to the
Exchange Offer, the Company reserves the right in its sole discretion to
purchase or make offers for any Private Notes that remain outstanding
subsequent to the Expiration Date or, as set forth below under "--Conditions,"
to terminate the Exchange Offer and, to the extent permitted by applicable
law, purchase Private Notes in the open market, in privately negotiated
transactions or otherwise. The terms of any such purchases or offers could
differ from the terms of the Exchange Offer.
By tendering, each holder of Private Notes will represent to the Company
that, among other things, (i) Exchange Notes to be acquired by such holder of
Private Notes in connection with the Exchange Offer are being acquired by such
holder in the ordinary course of business of such holder, (ii) such holder has
no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iii) such holder acknowledges and agrees
that any person who is a broker-dealer registered under the Exchange Act or is
participating in the Exchange Offer for the purposes of distributing the
Exchange Notes must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction of the Exchange Notes, acquired by such person and cannot rely on
the position of the staff of the
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Commission set forth in certain no-action letters, (iv) such holder
understands that a secondary resale transaction described in clause (iii)
above and any resales of Exchange Notes obtained by such holder in exchange
for Private Notes acquired by such holder directly from the Company should be
covered by an effective registration statement containing the selling security
holder information required by Item 507, as applicable, of Regulation S-K of
the Commission and (v) such holder is not an "affiliate," as defined in Rule
405 under the Securities Act, of the Company. If the holder is a broker-dealer
that will receive Exchange Notes for such holder's own account in exchange for
Private Notes that were acquired as a result of market-making activities or
other trading activities, such holder will be required to acknowledge in the
Letter of Transmittal that such holder will deliver a copy of this Prospectus
(as it may be supplemented or amended) in connection with any resale of such
Exchange Notes; however, by so acknowledging and by delivering a prospectus,
such holder will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
RETURN OF PRIVATE NOTES
If any tendered Private Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Private Notes are
withdrawn or are submitted for a greater principal amount than the holders
desire to exchange, such unaccepted, withdrawn or non-exchanged Private Notes
will be returned without expense to the tendering holder thereof (or, in the
case of Private Notes tendered by book-entry transfer into the Exchange
Agent's account at the Depositary pursuant to the book-entry transfer
procedures described below, such Private Notes will be credited to an account
maintained with the Depositary) as promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Private Notes at DTC for purposes of the Exchange Offer within two
business days after the date of this Prospectus, and any financial institution
that is a participant in the Depositary's systems may make book-entry delivery
of Private Notes by causing DTC to transfer such Private Notes into the
Exchange Agent's account at DTC in accordance with DTC's procedures for
transfer. However, although delivery of Private Notes may be effected through
book-entry transfer at DTC, the Letter of Transmittal or facsimile thereof,
with any required signature guarantees, or an Agent's Message in lieu of a
Letter of Transmittal, and any other required documents, must, in any case, be
transmitted to and received by the Exchange Agent at the address set forth
below under "--Exchange Agent" on or prior to the Expiration Date or pursuant
to the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Private Notes and (i) whose Private Notes
are not immediately available or (ii) who cannot deliver their Private Notes,
the Letter of Transmittal or any other required documents to the Exchange
Agent prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery) setting forth the name and
address of the holder, the certificate number(s) of such Private Notes and
the principal amount of Private Notes tendered, stating that the tender is
being made thereby and guaranteeing that, within five New York Stock
Exchange trading days after the Expiration Date, the Letter of Transmittal
(or a facsimile thereof), together with the certificate(s) representing the
Private Notes in proper form for transfer or a Book-Entry Confirmation, as
the case may be, and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) Such properly executed Letter of Transmittal (or facsimile thereof),
as well as the certificate(s) representing all tendered Private Notes in
proper form for transfer and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within five New York Stock
Exchange trading days after the Expiration Date.
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Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Private Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time prior to the Expiration Date.
To withdraw a tender of Private Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Private Notes to be withdrawn (the "Depositor"), (ii) identify the Private
Notes to be withdrawn (including the certificate number or numbers and
principal amount of such Private Notes) and (iii) be signed by the holder in
the same manner as the original signature on the Letter of Transmittal by
which such Private Notes were tendered (including any required signature
guarantees). All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all
parties. Any Private Notes so withdrawn will be deemed not to have been
validly tendered for purposes of the Exchange Offer and no Exchange Notes will
be issued with respect thereto unless the Private Notes so withdrawn are
validly retendered. Properly withdrawn Private Notes may be retendered by
following one of the procedures described above under "The Exchange Offer--
Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange the Exchange Notes for, any
Private Notes, and may terminate the Exchange Offer as provided herein before
the acceptance of such Private Notes, if the Exchange Offer violates
applicable law, rules or regulations or an applicable interpretation of the
staff of the Commission.
If the Company determines in its reasonable discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any Private
Notes and return all tendered Private Notes to the tendering holders, (ii)
extend the Exchange Offer and retain all Private Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of holders
to withdraw such Private Notes (see "--Withdrawal of Tenders") or (iii) waive
such unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Private Notes that have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders of the Private Notes, and the Company
will extend the Exchange Offer for a period of five to ten business days,
depending upon the significance of the waiver and the manner of disclosure to
the registered holders, if the Exchange Offer would otherwise expire during
such five to ten business day period.
TERMINATION OF CERTAIN RIGHTS
All rights under the Registration Rights Agreement (including registration
rights) of holders of the Private Notes eligible to participate in the
Exchange Offer will terminate upon consummation of the Exchange Offer except
with respect to the Company's continuing obligations (i) to indemnify such
holders (including any broker-dealers) and certain parties related to such
holders against certain liabilities (including liabilities under the
Securities Act), (ii) to provide, upon the request of any holder of a
transfer-restricted Private Note, the information required by Rule 144A(d)(4)
under the Securities Act in order to permit resales of such Private Notes
pursuant to Rule 144A, (iii) to use its best efforts to keep the Registration
Statement effective to the extent necessary to ensure that it is available for
resales of Exchange Notes by broker-dealers for a period of up to one year
from the date the Registration Statement is declared effective or until such
earlier date on which the Exchange Notes are freely tradeable and to provide
copies of the latest version of the Prospectus to such broker-
25
<PAGE>
dealers upon their request during such period and (iv) to file a shelf
registration statement as required by the Registration Rights Agreement if any
holder of transfer-restricted Notes notifies the Company within 20 business
days of the consummation of the Exchange Offer that (A) such holder is
prohibited by applicable law or Commission policy from participating in the
Exchange Offer, or (B) such holder may not resell the Exchange Notes acquired
by it in the Exchange Offer to the public without delivering a prospectus and
that this Prospectus is not appropriate or available for such resales by such
holder, or (C) that such holder is a broker-dealer and holds Private Notes
acquired directly from the Company or one of its affiliate (see "--Additional
Interest").
FEES AND EXPENSES
The expenses incident to the compliance by the Company and the Guarantors
with their obligations under the Registration Rights Agreement will be borne
by the Company. The expenses of soliciting tenders will be borne by the
Company. The principal solicitation is being made by mail; however, additional
solicitation may be made by telegraph, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be $200,000. Such
expenses include registration fees, fees and expenses of the Exchange Agent
and the Trustee, accounting and legal fees and printing costs, among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Private Notes pursuant to the Exchange Offer. If, however, a transfer tax
is imposed for any reason other than the exchange of the Private Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder.
CONSEQUENCE OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Private
Notes are urged to consult their financial and tax advisors in making their
own decisions on what action to take.
The Private Notes that are not exchanged for the Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such
Private Notes may be resold only (i) to a person whom the seller reasonably
believes is a QIB in a transaction meeting the requirements of Rule 144A, (ii)
in a transaction meeting the requirements of Rule 144 under the Securities
Act, (iii) outside the United States to a foreign person in a transaction
meeting the requirements of Rule 904 under the Securities Act, (iv) in
accordance with another exemption from the registration requirements of the
Securities Act (and based upon an opinion of counsel if the Company so
requests), (v) to the Company or (vi) pursuant to an effective registration
statement and, in each case, in accordance with any applicable securities laws
of any state of the United States or any other applicable jurisdiction.
ACCOUNTING TREATMENT
For accounting purposes, the Company will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the Exchange Notes.
26
<PAGE>
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed Exchange Agent for
the Exchange Offer. Delivery of the Letters of Transmittal and any other
required documents, questions, requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent as follows:
By Registered or Certified Mail:
State Street Bank and Trust Company
Two International Place
Corporate Trust Window, 4th Floor
Boston, Massachusetts 02110
Attn: Kellie Mullen
Confirm by Telephone: (617) 664-5587
Confirm by Fax: (617) 664-5290
Delivery to other than the above addresses or facsimile number will not
constitute a valid delivery.
27
<PAGE>
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the Exchange Notes in the
Exchange Offer.
The net proceeds to the Company from the offering of the Private Notes was
approximately $195.6 million, after deducting discounts to the Initial
Purchasers and estimated expenses of the Offering. The Company used such
proceeds, together with borrowings under the New Credit Agreement, to repay a
portion of the borrowings outstanding under the Company's existing credit
facilities and to fund the LICO Acquisition. See "Description of Other
Indebtedness" and "Business--Recent Acquisitions."
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1998, which gives effect to the sale of the Private Notes, the closing of
the New Credit Agreement and the LICO Acquisition (Dollars in thousands).
<TABLE>
<S> <C>
Long-term debt (including current maturities):
Credit Agreement.................................................. $240,000
8 1/2% Senior Subordinated Notes due 2008......................... 199,468
Other debt........................................................ 8,844
--------
Total long-term debt............................................. 448,312
Total shareholders' equity......................................... 166,522
--------
Total capitalization............................................. $614,834
========
</TABLE>
28
<PAGE>
SELECTED FINANCIAL INFORMATION
The following table sets forth selected consolidated financial information
of the Company for each of the five fiscal years in the period ended March 31,
1998. This information includes (i) the results of operations of Lift-Tech
since its acquisition on November 1, 1995, (ii) the results of operations of
Yale since its acquisition on October 17, 1996, (iii) the results of
operations of Lister since its acquisition on December 19, 1996 and (iv) the
results of operations of Univeyor since its acquisition on January 8, 1998.
This table should be read in conjunction with the "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and the
Consolidated Financial Statements of the Company, including the notes thereto,
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31,
------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DA-
TA:
Net sales............... $142,313 $172,330 $209,837 $359,424 $510,731
Cost of products sold... 103,527 124,492 149,511 251,987 363,117
-------- -------- -------- -------- --------
Gross profit............ 38,786 47,838 60,326 107,437 147,614
Selling expenses........ 13,828 15,915 19,120 32,550 45,181
General and administra-
tive expenses.......... 10,105 11,449 13,941 24,636 24,342
Amortization of intangi-
bles................... 378 600 791 5,197 10,201
Other charges........... 2,055 1,598 672 -- --
-------- -------- -------- -------- --------
Income from operations.. 12,420 18,276 25,802 45,054 67,890
Interest and debt ex-
pense.................. 2,126 2,352 5,292 11,930 23,975
Interest and other in-
come................... 371 472 1,134 1,168 1,940
-------- -------- -------- -------- --------
Income before income
taxes, minority
interest, extraordinary
charge, and cumulative
effect of accounting
change................. 10,665 16,396 21,644 34,292 45,855
Income tax expense...... 4,637 5,892 8,657 15,617 22,434
Minority interest....... -- -- -- (323) --
Extraordinary charge for
early debt
extinguishment......... -- -- -- (3,198) (4,520)
Cumulative effect of ac-
counting change........ 1,001 -- -- -- --
-------- -------- -------- -------- --------
Net income.............. $ 7,029 $ 10,504 $ 12,987 $ 15,154 $18,901
======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
Net cash provided by op-
erating activities..... $ 5,643 $ 15,663 $ 18,338 $ 28,886 $ 40,217
Net cash (used in) in-
vesting activities..... (7,433) (8,217) (73,721) (215,851) (176,494)
Net cash (used in) pro-
vided by financing ac-
tivities............... 1,002 (7,046) 64,783 186,779 151,715
EBITDA(1)............... 15,464 22,033 32,164 57,507 88,919
EBITDA margin(1)........ 10.9% 12.8% 15.3% 16.0% 17.4%
Depreciation and amorti-
zation................. $ 2,673 $ 3,285 $ 5,228 $ 11,285 $ 19,089
Capital expenditures.... 3,751 5,348 6,988 9,392 10,501
Ratio of earnings to
fixed charges(2)....... 6.0x 8.0x 5.1x 3.9x 2.9x
BALANCE SHEET DATA (AT
END OF PERIOD):
Total assets............ $ 93,378 $ 97,822 $188,734 $548,245 $763,748
Total long-term debt
(including current
maturities)............ 20,222 22,587 9,744 286,288 448,312
Total liabilities....... 60,914 56,972 51,112 398,089 597,226
Total shareholders' eq-
uity................... 32,464 40,850 137,622 150,156 166,522
</TABLE>
- --------
(1) EBITDA represents income before interest and debt expense, income tax
expense, depreciation and amortization, minority interest, extraordinary
charge and cumulative effect of accounting change. EBITDA margin
represents EBITDA divided by net sales. EBITDA is presented because it
provides useful information regarding the Company's ability to service
and/or incur debt. EBITDA should not be considered in isolation from or as
a substitute for net income, cash flows from operating activities or other
consolidated income or cash flow statement data prepared in accordance
with generally accepted accounting principles or as a measure of
profitability or liquidity.
(2) For purposes of calculating the ratio of earnings to fixed charges, (i)
earnings consist of income before income taxes, extraordinary charge,
cumulative effect of accounting change and minority interest in net income
(loss) of consolidated entities plus fixed charges and (ii) fixed charges
consist of interest and debt expense.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
Excluding the recent acquisitions of LICO and Univeyor on March 31, 1998 and
January 7, 1998, respectively, the Company's products are sold, domestically
and internationally, principally to third party distributors in commercial and
consumer distribution channels, and to a lesser extent directly to
manufacturers and other end-users. Commercial distribution channels include
general distributors, specialty distributors, service-after-sale distributors
and original equipment manufacturers ("OEMs"). The general distributors are
comprised of industrial distributors, rigging shops and crane builders.
Specialty distributors include catalog houses, material handling specialists
and entertainment equipment riggers. The service-after-sale network includes
repair parts distribution centers, chain service centers, and hoist repair
centers. Company products are also sold to OEMs, and to the U.S. and Canadian
governments. Consumer distribution channels include mass merchandisers,
hardware distributors, trucking and transportation distributors, farm hardware
distributors and rental outlets. LICO and Univeyor sales are made primarily to
end-users. LICO's sales are concentrated in the domestic automotive industry
and, to a lesser extent, the steel, construction and other industrial markets.
Univeyor's sales are made to automotive, consumer products manufacturing,
warehousing and other industrial markets, primarily in Europe.
This section should be read in conjunction with the consolidated financial
statements of the Company included elsewhere in this Registration Statement.
RESULTS OF OPERATIONS
The following table sets forth certain income statement data for the
Company, expressed as a percentage of net sales, for each of the periods
presented:
<TABLE>
<CAPTION>
FISCAL YEARS
ENDED MARCH 31,
-------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Commercial sales......................................... 94.8% 92.6% 87.8%
Consumer sales........................................... 5.2 7.4 12.2
----- ----- -----
Net sales................................................ 100.0 100.0 100.0
Cost of products sold.................................... 71.1 70.1 71.3
----- ----- -----
Gross profit............................................. 28.9 29.9 28.7
Selling expenses......................................... 8.8 9.1 9.1
General and administrative expenses...................... 4.8 6.9 6.6
Amortization of intangibles.............................. 2.0 1.4 0.4
Other charges............................................ 0.0 0.0 0.3
----- ----- -----
Income from operations................................... 13.3 12.5 12.3
Interest and debt expense................................ 4.7 3.3 2.5
Interest and other income................................ 0.4 0.3 0.5
----- ----- -----
Income before income taxes, minority interest and
extraordinary charge.................................... 9.0 9.5 10.3
Income tax expense....................................... 4.4 4.3 4.1
----- ----- -----
Income before minority interest and extraordinary
charge.................................................. 4.6% 5.2% 6.2%
===== ===== =====
</TABLE>
Fiscal Years Ended March 31, 1998, 1997, and 1996
Sales growth during the periods was primarily due to the October 1996 Yale
acquisition and the November 1995 Lift-Tech acquisition as well as increased
volume in nearly all distribution channels. Sales in 1998 of $510,731,000
increased $151,307,000 or 42.1% over 1997, and sales in 1997 of $359,424,000
increased
30
<PAGE>
$149,587,000 or 71.3% over 1996. The 1998 sales include $204.5 million of Yale
sales and $86.0 million of Lift-Tech sales; 1997 sales include $88.3 million
of Yale sales and $81.5 million of Lift-Tech sales; 1996 sales include $29.6
million of Lift-Tech sales. In addition, during these periods the Company
introduced list price increases of approximately 4% between November and
January of each year affecting many of its hoist, chain and forged products
sold in its domestic commercial markets. Sales in the commercial and the
consumer distribution channels were as follows, in thousands of dollars and
with percentage changes for each market group:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH CHANGE CHANGE
31, 1998 VS 1997 1997 VS 1996
-------------------------- --------------- --------------
1998 1997 1996 AMOUNT % AMOUNT %
-------- -------- -------- -------- ----- -------- -----
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial sales
Domestic.............. $378,107 $267,426 $152,245 $110,681 41.4 $115,181 75.7
International......... 105,862 65,302 31,995 40,560 62.1 33,307 104.1
-------- -------- -------- -------- ----- -------- -----
483,969 332,728 184,240 151,241 45.5 148,488 80.6
Consumer sales
Domestic.............. 25,086 24,022 23,282 1,064 4.4 740 3.2
International......... 1,676 2,674 2,315 (998) (37.3) 359 15.5
-------- -------- -------- -------- ----- -------- -----
26,762 26,696 25,597 66 0.2 1,099 4.3
-------- -------- -------- -------- ----- -------- -----
Consolidated net sales.. $510,731 $359,424 $209,837 $151,307 42.1 $149,587 71.3
======== ======== ======== ======== ===== ======== =====
</TABLE>
The 41.4% growth in domestic commercial sales and the 62.1% growth in
international commercial sales in 1998 resulted primarily from the inclusion
of Yale and Lister for the full year, and the addition of Univeyor in January
1998. These acquisitions contributed to the general distribution, specialty
distribution, service-after-sale and OEM distribution channels. In addition to
the effects of acquisitions, the Company also experienced increased sales
volume through all of its commercial distribution channels due to continued
demand in the marketplace, except for the waste management sector. The only
other market channel experiencing softness in fiscal 1998 was the
international consumer channel due to a shift in demand from small retail
hardware stores to larger do-it-yourself superstores, to which the Company
supplies only a small share.
The 75.7% growth in domestic commercial sales in 1997 resulted almost
entirely from the Yale and Lift-Tech acquisitions. The Company also
experienced increased sales volume primarily in the specialty distributors
marketing channel. The 104.1% growth in international commercial sales in 1997
resulted almost entirely from the addition of the European operations of Yale,
and also from the Company's existing Canadian operations. Consumer sales in
fiscal 1997 were strongest in the Company's Canadian markets.
The Company's gross profit margins were approximately 28.9%, 29.9% and 28.7%
for 1998, 1997 and 1996, respectively. The decrease in gross profit margin in
fiscal 1998 resulted from a change in the classification of approximately $7.6
million of costs into cost of products sold which previously had been
classified as general and administrative expenses. This change was made for
intracorporate consistency and had a minimal effect on income from operations.
After isolating the effect of that classification change, the 1998 gross
profit margin increased by .5% compared to 1997; 1997 increased by 1.2% over
1996. The increase in gross profit margin in each of the periods resulted from
the effects of the Company's cost control efforts, integration of acquisitions
and the economies of scale resulting from increasing production levels.
Selling expenses were $45,181,000, $32,550,000 and $19,120,000 in fiscal
1998, 1997, and 1996, respectively. The 1998 expenses included the full year
of Yale activity; 1997 expenses were impacted by the addition of Yale and the
full year of Lift-Tech activity. As a percentage of consolidated net sales,
selling expenses were 8.8%, 9.1% and 9.1% in fiscal 1998, 1997 and 1996,
respectively. Sales per employee increased to $168,600 in fiscal 1998 from
$126,100 in fiscal 1996.
31
<PAGE>
General and administrative expenses were $24,342,000, $24,636,000 and
$13,941,000 in fiscal 1998, 1997 and 1996, respectively. The 1998 expenses
included the full year of Yale activity; 1997 expenses were impacted by the
addition of Yale and the full year of Lift-Tech activity. As a percentage of
consolidated net sales, general and administrative expenses were 4.8%, 6.9%
and 6.6% in fiscal 1998, 1997 and 1996, respectively. As noted above, the
improved percentage in fiscal 1998 was due primarily to a change that
reclassified approximately $7.6 million of expenses previously classified as
general and administrative into cost of products sold for intracorporate
consistency. The improved percentage also resulted from the fixed nature of
costs in relation to the increased sales and integration of acquisitions.
Amortization of intangibles was $10,201,000, $5,197,000 and $791,000 in
fiscal 1998, 1997 and 1996, respectively. Fiscal 1998 included a full year of
goodwill amortization resulting from the Yale acquisition; fiscal 1997
included a partial year of Yale and a full year of goodwill amortization
resulting from the Lift-Tech acquisition; fiscal 1996 included a partial year
of Lift-Tech.
Environmental remediation costs were $672,000 in fiscal 1996, and resulted
primarily from the Pendleton, New York site remediation, construction of which
is complete.
Interest and debt expense was $23,975,000, $11,930,000 and $5,292,000 in
fiscal 1998, 1997 and 1996, respectively. The fiscal 1998 and 1997 increases
were primarily due to the financing required to complete the Yale acquisition,
reflecting a full year in 1998. As a percentage of consolidated net sales,
interest and debt expense was 4.7%, 3.3% and 2.5% in fiscal 1998, 1997 and
1996, respectively.
Interest and other income was $1,940,000, $1,168,000 and $1,134,000 in
fiscal 1998, 1997 and 1996, respectively. The 1998 and 1997 improvements
reflect increases in the investment return on marketable securities held for
settlement of a portion of the Company's general and products liability
claims.
Income taxes as a percentage of pre-tax accounting income were 48.9%, 45.5%
and 40.0% in fiscal 1998, 1997 and 1996, respectively. The fiscal 1998 and
1997 percentages reflect the effect of non-deductible goodwill amortization
resulting from the Yale and Lift-Tech acquisitions.
In fiscal 1997, the minority interest share of Yale earnings of $323,000
resulted from the fact that the Company acquired 72% of the outstanding Yale
shares on a fully diluted basis in October 1996 and the remainder in January
1997.
As a result of the above, income before extraordinary charges increased
$5,069,000 or 27.6% in 1998 and $5,365,000 or 41.3% in 1997. This is based on
income before extraordinary charges of $23,421,000, $18,352,000 and
$12,987,000 or 4.6%, 5.1% and 6.2% as a percentage of consolidated net sales
in fiscal 1998, 1997 and 1996, respectively.
In fiscal 1998, the extraordinary charge for early debt extinguishment of
$4,520,000 resulted from the non-cash write-off of unamortized deferred
financing costs upon refinancing of the Company's bank debt effective March
31, 1998. The charge is net of $3,012,000 of tax benefit. In 1997, the
extraordinary charge for early debt extinguishment of $3,198,000 resulted from
the tender in December 1996 for 11.5% acquired Yale notes. The charge
consisted of redemption premiums, costs to exercise the tender offer, and
write-off of previously incurred deferred financing costs, and was net of
$2,133,000 of tax benefit.
Net income, therefore, increased $3,747,000 or 24.7% in 1998 and $2,167,000
or 16.7% in 1997. This is based on net income of $18,901,000, $15,154,000 and
$12,987,000 in fiscal 1998, 1997 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 1998, the Company acquired all of the outstanding stock of LICO
for approximately $155 million of cash, which was financed by proceeds from
the Company's new revolving credit facility and a private
32
<PAGE>
placement of senior subordinated notes, both of which also closed effective
March 31, 1998. The Company's previously existing Term Loan A, Term Loan B and
revolving credit facility were repaid and retired on March 31, 1998.
On January 7, 1998, the Company acquired all of the outstanding stock of
Univeyor for approximately $15 million of cash financed by the Company's
revolving credit facility, plus the assumption of certain debt.
The new 1998 Revolving Credit Facility provides availability up to $300
million, due March 31, 2003, against which $240 million was outstanding at
March 31, 1998. Interest is payable at varying Eurodollar rates based on LIBOR
plus a spread determined by the Company's leverage ratio, amounting to 125
basis points at March 31, 1998. The 1998 Revolving Credit Facility is secured
by all equipment, inventory, receivables and subsidiary stock (limited to 65%
for foreign subsidiaries). To manage its exposure to interest rate
fluctuations, the Company has interest rate swaps and caps.
The senior subordinated 8 1/2% Notes issued on March 31, 1998 amounted to
$199,468,000, net of original issue discount of $532,000 and are due March 31,
2008. Interest is payable semi-annually based on an effective rate of 8.45%,
considering $1,902,000 of proceeds from rate hedging in advance of the
placement. Provisions of the 8 1/2% Notes include, without limitation,
restrictions of liens, indebtedness, asset sales, and dividends and other
restricted payments. Prior to April 1, 2003, the 8 1/2% Notes are redeemable
at the option of the Company, in whole or in part, at the Make-Whole Price (as
defined). On or after April 1, 2003, they are redeemable at prices declining
annually from 108.5% to 100% on and after April 1, 2006. In addition, on or
prior to April 1, 2001, the Company may redeem up to 35% of the outstanding
notes at a redemption price of 108.5% with the proceeds of equity offerings,
subject to certain restrictions. In the event of a Change of Control (as
defined), each holder of the 8 1/2% Notes may require the Company to
repurchase all or a portion of such holder's 8 1/2% Notes at a purchase price
equal to 101% of the principal amount thereof. The 8 1/2% Notes are not
subject to any sinking fund requirements.
The Company believes that its cash on hand, cash flows, and borrowing
capacity under its revolving credit facility will be sufficient to fund its
ongoing operations, budgeted capital expenditures, and business acquisitions
for the next twelve months.
Net cash provided by operating activities increased to $40,217,000 in fiscal
1998 from $28,886,000 in 1997 and $18,338,000 in 1996. The $11,331,000
increase in net cash provided by operating activities in fiscal 1998 resulted
primarily from increased net income of $3,747,000, increased depreciation and
amortization of $7,804,000, reduced deferred tax expense of $4,818,000 and a
smaller increase in net operating assets than fiscal 1997. The $10,548,000
increase in net cash provided by operating activities in fiscal 1997 resulted
primarily from increased depreciation and amortization of $6,057,000,
increased deferred income tax expense of $3,920,000 and an extraordinary
charge for early debt extinguishment of $3,198,000. Operating assets net of
liabilities increased $2,291,000, $5,905,000 and $1,027,000 in fiscal 1998,
1997 and 1996, respectively.
Net cash used in investing activities was $176,494,000 in fiscal 1998
compared to $215,851,000 in 1997 and $73,721,000 in 1996. The 1998 amount
includes the acquisitions of LICO and Univeyor for $168,051,000, net of cash
acquired; it is reduced by $4,575,000 of proceeds from the sale of non-
operating assets acquired with Yale in fiscal 1997. The net cash used in
investing activities in fiscal 1997 includes $196,113,000 and $7,464,000 for
the Yale and Lister acquisitions, respectively, net of cash acquired. The 1996
amount includes $64,927,000 for the acquisition of Lift-Tech, net of cash
acquired.
CAPITAL EXPENDITURES
In addition to keeping its current equipment and plants properly maintained,
the Company is committed to replacing, enhancing, and upgrading its property,
plant, and equipment to reduce production costs, increase flexibility to
respond effectively to market fluctuations and changes, meet environmental
requirements, enhance
33
<PAGE>
safety, and promote ergonomically correct work stations. Consolidated capital
expenditures for fiscal 1998, 1997 and 1996 were $10,501,000, $9,392,000 and
$6,988,000, respectively, excluding those capital assets acquired in
conjunction with business acquisitions.
INFLATION AND OTHER MARKET CONDITIONS
The Company's costs are affected by inflation in the U.S. economy, and to a
lesser extent, in foreign economies including those of Europe, Canada, Mexico,
and the Pacific Rim. The Company does not believe that inflation has had a
material effect on results of operations over the periods presented because of
low inflation levels over the periods and because the Company has generally
been able to pass on rising costs through price increases. However, in the
future there can be no assurance that the Company's business will not be
affected by inflation or that it will be able to pass on cost increases.
SEASONALITY AND QUARTERLY RESULTS
Lower than average orders and shipments during the December holiday period
have a slight effect on the Company. In addition, quarterly results may be
materially affected by the timing of large customer orders, by periods of high
vacation concentrations, and by acquisitions and the magnitude of acquisition
costs. Therefore, the operating results for any particular fiscal quarter are
not necessarily indicative of results for any subsequent fiscal quarter or for
the full fiscal year.
YEAR 2000 CONVERSIONS
The Company continues to move forward with its Year 2000 readiness project.
This project is addressing all components of its information technology
infrastructure. Currently, corporate-wide assessment is underway with specific
areas already complete. The assessment of Year 2000 on the Company's
customized business information system has been completed with modifications
and enhancements underway. The Company does not believe that the costs
associated with these modifications and enhancements will be material.
EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income," which the
Company will adopt for the year ended March 31, 1999. Statement No. 130
establishes new rules for the reporting and display of comprehensive income
and its components. This includes unrealized gains or losses on the Company's
available-for-sale securities, foreign currency translation adjustments, and
minimum pension liability adjustments, which currently are reported in
shareholders' equity, and will be included and disclosed in total
comprehensive income upon adoption of the Statement. The impact of compliance
with this Statement will not impact financial position, net income or cash
flows.
The FASB also issued FAS Statement No. 131 "Disclosures about Segments of an
Enterprise and Related Information," which the Company will adopt for the year
ended March 31, 1999. Statement No. 131 superseded FAS Statement No. 14
"Financial Reporting for Segments of a Business Enterprise." Statement No. 131
established new standards for determining segment criteria and annual and
interim reporting of that data. It also established new disclosures about
products, geographic areas and major customers. Currently, the Company reports
one operating segment under Statement No. 14 and, while the impact of
compliance with Statement No. 131 has not yet been determined, the Company
expects to report at least two segments upon its adoption.
34
<PAGE>
BUSINESS
OVERVIEW
Columbus McKinnon, established in 1875, is a leading designer, manufacturer
and distributor of a broad range of material handling, lifting and positioning
products. The Company sells its products both domestically and
internationally, primarily to third-party distributors and, to a lesser
extent, directly to manufacturers and end-users for a wide range of
applications. The Company's major commercial markets include the general
manufacturing, crane building, mining, construction, transportation,
entertainment, power generation, waste management, agricultural, marine,
automotive and logging markets. Additionally, the Company sells its products
to the consumer market through hardware and farm equipment distributors, mass
merchandisers and rental outlets. For the year ended March 31, 1998, the
Company generated net sales and income from operations of $510.7 million and
$67.9 million, respectively.
The Company's products include a wide variety of electric, lever, hand and
air-powered hoists; hoist trolleys; alloy, carbon steel and kiln chain;
closed-die forgings, such as hooks, shackles and loadbinders; electric,
hydraulic and pneumatic operator-controlled manipulators; industrial
components, such as mechanical and electromechanical actuators, mechanical
jacks and rotary unions; scissor lifts; below-the-hook lifters; circuit
protection devices; logging tools and chain making and chain repair equipment.
Through innovative design and manufacturing expertise developed by the Company
and through selective acquisitions, the Company has established a leading
market share in many of its product lines. As a result of the recent
acquisitions of Univeyor and LICO, the Company has also positioned itself as a
leader in the project design, management and implementation of automated
material handling systems. Columbus McKinnon believes it has more overhead
hoists in use in North America than all of its competitors combined. The
Company's products and customer base are highly diversified; no single product
accounted for more than 1% and no individual customer accounted for more than
5% of net sales for the year ended March 31, 1998.
The Company believes that the demand for its products has increased in
recent years and will continue to increase in the future as a result of
several favorable trends impacting a broad array of industries that have
enabled the Company to expand into new product areas and markets. These trends
include:
PRODUCTIVITY ENHANCEMENT. In recent years employers have responded to
competitive pressures by seeking to maximize productivity and efficiency. The
Company's hoists and other lifting and positioning products allow loads to be
lifted and placed quickly, precisely, with little effort, and with fewer
people.
SAFETY REGULATIONS AND CONCERNS. Driven by federal and state workplace
safety regulations such as OSHA and the Americans with Disabilities Act, and
by the general competitive need to reduce costs such as health insurance
premiums and workers' compensation expenses, employers seek safer ways to lift
and position loads. The Company's lifting and positioning products enable
these tasks to be performed with reduced risk of personal injury.
WORKFORCE DIVERSITY. The percentages of women, disabled and older persons in
the work force and the tasks they perform are continuing to increase. The
Company's products enable many workplace tasks to be performed safely,
efficiently and with less physical stress. The Company believes that
increasing diversity in the workforce will continue to increase demand for its
products.
OUTSOURCING OF MATERIAL HANDLING PROJECT DESIGN AND MANAGEMENT. More of the
Company's customers and end-users are outsourcing non-core business functions
to improve productivity and cost efficiency. This has created opportunities
for the Company to assume the project design, management and implementation
responsibilities for both workstation and facility-wide material handling
systems. The Company's opportunity to capitalize on this trend has been
enhanced by the recent acquisition of Univeyor and the pending LICO
Acquisition. Through the combination of the Company's expertise and
technological know-how with that of Univeyor and LICO, the Company believes
that it will be able to position itself as a leader in the project design,
35
<PAGE>
management and implementation of automated material handling systems. As a
result, many of the Company's existing products may be utilized in these
systems. See "Offering Memorandum Summary--Recent Developments."
The Company has extended its product lines and penetrated new markets in
recent years through several acquisitions which have been successfully
integrated into the Company. In November 1995 and October 1996, the Company
acquired Lift-Tech and Yale, respectively, manufacturers of hoist and crane
components, and in December 1996, the Company acquired Lister, a specialty
bolt and chain manufacturer. These, together with other acquisitions made by
the Company, have enhanced the Company's position as the largest North
American manufacturer of overhead hoists, operator-controlled manipulators and
alloy chain. As a result of internal growth and acquisitions, the Company's
net sales and income from operations have increased to $510.7 million and
$67.9 million, respectively, for the year ended March 31, 1998 from $128.3
million and $12.2 million, respectively, in fiscal 1993, representing compound
annual growth rates of approximately 31.8% and 41.0%, respectively.
The Company's Common Stock is listed on the Nasdaq National Market under the
symbol "CMCO." On May 27, 1998, the last reported sale price of the Common
Stock on the Nasdaq National Market was $29 1/8 per share and approximately
13.8 million shares were outstanding.
The Company was incorporated under the laws of the State of New York in
1929. Its executive offices are located at 140 John James Audubon Parkway,
Amherst, New York 14228-1197 and its telephone number is (716) 689-5400.
KEY STRENGTHS
The Company attributes its strong competitive position to the following key
strengths:
LEADING MARKET POSITION. Columbus McKinnon is the largest manufacturer of
hoists, alloy and high strength carbon steel chain and operator-controlled
manipulators in North America. The Company has developed its leading market
position over its 120-year history by emphasizing technological innovation,
manufacturing excellence and superior after-sale service.
PREFERRED PROVIDER TO MAJOR DISTRIBUTORS. The Company enjoys long-standing
relationships with and is a preferred provider to many of its largest
distributors. Since 1990, during a period of significant consolidation among
distributors of material handling equipment, the Company has benefitted from
this consolidation as it has maintained and enhanced its relationships with
the leading distributors. The Company believes that its ability to retain
existing customers and attract new customers is attributable to its ongoing
commitment to customer service and satisfaction. For example, the Company
maintains close contact with its customers and provides prompt aftermarket
service to end-users of its products through a network of independent
distributors staffed with Company-trained professionals at over 300 hoist
repair centers, over 100 repair parts distribution centers and 11 chain
service centers. Additionally, to ensure continuing product development and
market awareness, the Company sponsors advisory boards composed of
representatives of its largest distributors and aftermarket sales and service
network.
DIVERSIFIED PRODUCTS, MARKETS, AND CUSTOMER BASE. The Company believes that
it offers the most extensive product line of material handling products in the
markets which it serves. No single product accounted for more than 1% of net
sales for the year ended March 31, 1998. The Company's products are sold to
over 10,000 general, specialty and service-after-sale distributors and OEMs
for various applications in the general manufacturing, overhead crane,
construction, transportation, entertainment, power generation, waste
management, agricultural, marine and logging markets. Additionally, the
Company sells its products for consumer use to over 100 hardware, trucking and
transportation, farm hardware and rental outlets. No single customer accounted
for more than 5% of net sales for the year ended March 31, 1998. The Company
believes that the breadth of its products, the diversity of its markets and
the strength of its distribution relationships minimize its dependence on any
particular product, market or customer.
36
<PAGE>
LARGE INSTALLED PRODUCT BASE; STRONG BRAND NAMES. Columbus McKinnon believes
it has more overhead hoists in use in North America than all of its
competitors combined. In addition, the Company's brand names, including Big
Orange, Budgit, Chester, CM, Coffing, Cyclone, Duff-Norton, Hammerlok, Herc-
Alloy, Little Mule, Lodestar, Puller, Shaw-Box, Valustar and Yale, are among
the most recognized and respected in the industry. The Company believes that
its strong brand name recognition, together with the Company's large installed
base of products, provide it with a significant competitive advantage in
selling its full product line to existing and new customers as well as
providing repair and replacement parts.
EXPERIENCED MANAGEMENT TEAM WITH SIGNIFICANT OWNERSHIP INTEREST. The
Company's management team provides a depth and continuity of experience. The
Company's directors and executive officers own an aggregate of approximately
21.9% of the Company's outstanding Common Stock. See "Principal Shareholders."
In addition, in April 1997 Columbus McKinnon implemented EVA(R) as a
performance measure and is using EVA(R) goals to, among other things,
determine incentive-based compensation for all of its employees.
BUSINESS STRATEGY
The Company's strategic objective is to further enhance its position as a
leading designer, manufacturer and distributor of material handling, lifting
and positioning products both domestically and internationally. The Company
plans to achieve this objective through the continued implementation of the
following three-pronged strategy:
ENHANCE EXISTING BUSINESS. The Company continually strives to enhance its
existing business through the following:
. Leverage Strong Competitive Position. The Company's position as a
leading provider of material handling equipment has resulted in a
substantial installed base of its products. The Company's close
relationships with its distributors permit it to obtain customer
information and product requirements in order to respond to and
anticipate future needs of end-users of the Company's products, which
the Company believes allows it to maintain its market leadership
position. The repair and replacement of parts and complementary products
for the Company's large installed base of products represents additional
revenue growth potential. The Company believes that it can expand the
market and customer base for new and acquired products by introducing
these products through its existing distribution channels. In addition,
the Company believes it can achieve product and marketing synergies by
selling its products into the markets of acquired businesses.
. Increase Productivity and Realize Cost Savings. In addition to
developing and introducing new products, the Company focuses on
improving the quality and reliability of its products and increasing
manufacturing efficiency. Fourteen of the Company's manufacturing
facilities and six of the Company's distribution facilities have
achieved ISO 9000 certification, and substantially all of the Company's
remaining manufacturing and distribution facilities are in the process
of obtaining such certification. The Company improves productivity by
reducing cycle times, increasing employee involvement in production and
investing in new, more efficient manufacturing processes, including
computer-aided design capabilities. The Company has implemented EVA(R)
to analyze the utilization of its assets and productivity in order to
improve all aspects of the Company's operations, and to determine
incentive-based compensation for its employees. Further, the Company
believes additional cost savings can be realized through the continued
integration of the operations of recent acquisitions with those of the
Company. For example, through its increased critical mass, the Company
has been able to achieve raw material purchasing efficiencies.
INCREASE PENETRATION OF INTERNATIONAL MARKETS. The Company maintains a
distributor network in approximately 50 countries and has manufacturing
facilities in Canada, Mexico, Germany, Denmark, France and China. The Company
intends to increase its international presence, with a primary focus on
enhancing its existing presence in Europe and expanding its operations into
the Pacific Rim, South America and Africa. The Company intends to accomplish
this growth by strengthening its international distribution network and by
making
37
<PAGE>
additional strategic acquisitions and alliances. The recent acquisition of
Univeyor has provided the Company with another European operating location,
and will enable the Company to market Univeyor's material handling systems
expertise to the Company's customer base. The Company has increased its
international net sales from approximately 12.9% ($16.6 million) of net sales
in fiscal 1993 to approximately 21.1% ($107.5 million) of net sales for the
year ended March 31, 1998.
PURSUE SELECTIVE ACQUISITIONS. The Company intends to selectively pursue
strategic acquisitions, joint ventures and alliances. Potential strategic
combinations will be evaluated based on their ability to, among other things:
(i) complement existing businesses and further expand product lines;
(ii) strengthen the Company's leadership position in the material handling and
lifting industry; (iii) provide synergistic opportunities; (iv) enhance and
broaden distribution channels; (v) increase the Company's international
presence; and (vi) enhance shareholder value and be EVA(R) positive.
PRODUCTS AND SERVICES
The Company primarily designs, manufactures and distributes a broad range of
material handling, lifting and positioning products for various applications
in industry and for consumer use. The following table sets forth certain sales
data for the Company's products, expressed as a percentage of net sales, for
the periods presented:
<TABLE>
<CAPTION>
FISCAL
YEAR
ENDED
MARCH 31,
---------
PRODUCTS 1997 1998
-------- ---- ----
<S> <C> <C>
Hoists........................................................... 57% 58%
Chain............................................................ 15 12
Forged products.................................................. 15 11
Industrial components............................................ 5 8
Circuit protection devices....................................... 2 4
Scissor lifts.................................................... 2 3
Manipulators..................................................... 2 2
Tire shredders................................................... 2 1
Conveyors........................................................ -- 1
--- ---
100% 100%
=== ===
</TABLE>
Hoists. The Company manufactures a variety of hand-operated hoists and lever
tools, air-powered hoists, electric chain hoists, and electric wire rope
hoists. Load capacities for the Company's hoist product lines range from less
than one ton to 100 tons. These products are sold under its Budgit, Chester,
CM, Coffing, Cyclone, Little Mule, Lodestar, Puller, Shaw-Box, Valustar, Yale
and other recognized trademarks. The Company's hoists are sold for use in a
variety of general industrial applications, as well as for use in the
entertainment, consumer, rental, health care and other emerging product
markets. The Company also supplies hoist trolleys, driven manually or by
electric motors, for the industrial, consumer and OEM markets.
The Company also offers a line of custom-designed, below-the-hook tooling.
Below-the-hook tooling is specialized lifting apparatus used in a variety of
lifting activities performed in conjunction with hoist and chain applications.
Chain. The Company manufactures alloy chain for various industrial
applications. Federal regulations in the United States favor the use of alloy
chain, which the Company first developed, for overhead lifting applications
because of its strength and wear characteristics. A line of the Company's
alloy chain is sold under the Herc-Alloy brand name for use in overhead
lifting, pulling and restraining applications. The Company also sells
specialized load chain for use in hoists. Three grades and multiple sizes of
carbon steel welded-link chain are sold by the Company in the industrial and
consumer markets for various load securement and other non-
38
<PAGE>
overhead lifting applications. As a result of the acquisition of Lister, the
Company now also manufactures kiln chain sold primarily to the cement and lime
kiln manufacturing market and anchor and buoy chain sold primarily to the
United States and Canadian governments.
The Company also designs and manufactures its own chain making and chain
repair equipment.
Forged Products. The Company manufactures a complete line of alloy and
carbon steel forgings, including hooks, shackles, hitch pins, master links and
loadbinders. These forgings are used in virtually all types of chain and wire
rope rigging applications in a variety of industries, including
transportation, mining, railroad, construction, marine, logging, petrochemical
and agriculture.
The Company also manufactures carbon steel forged and stamped products, such
as loadbinders, hooks, shackles and other securement devices, for sale to the
industrial, consumer and logging markets through industrial distributors,
hardware distributors, mass merchandiser outlets and OEMs.
Industrial Components. The Company, through the Duff-Norton Division of
Yale, designs and manufactures industrial components such as mechanical and
electromechanical actuators, mechanical jacks and rotary unions for sale
domestically and abroad. Actuators are linear motion devices used in a variety
of industries, including the paper, steel and aerospace industries. Mechanical
jacks are heavy duty lifting devices whose uses include the repair and
maintenance of railroad tracks, locomotives and industrial machinery. Rotary
unions are piping devices which introduce heating or cooling liquids into the
interiors of rotating drums in industrial processes in the paper, textiles,
rubber, plastics, printing and machine tool industries.
Circuit Protection Devices. The Mechanical Products Division of Yale
develops circuit protection devices for various aerospace and commercial
applications. Circuit protection devices are sold to manufacturers of private,
commercial and military aircraft, as well as NASA. In addition, they are also
sold to OEMs, electrical distributors and outlets for power supplies for use
in medical equipment, motor vehicles and other electrical components and
equipment.
Scissor Lifts. The American Lifts Division of Yale manufactures hydraulic
scissor lift tables and other engineered lifting products. These products
enhance workplace ergonomics and are sold primarily to customers in the
manufacturing, construction, general industrial and air cargo industries.
Manipulators. The Company manufactures a line of sophisticated operator-
controlled manipulators. These products are articulated mechanical arms with
specialized end tooling designed to perform lifting, rotating, turning,
tilting, reaching and positioning tasks in a manufacturing process. Utilizing
various models and size configurations, the Company can offer custom-designed
hydraulic, pneumatic, and electric manipulators for a wide variety of
applications where the user requires multi-axial movement in a harsh or
repetitive environment. The Company also has the capability to manufacture
more sophisticated, semi-robotic manipulators for specialized, repetitive
motion applications and has manufactured simple pick and place robots.
Tire Shredders. The Company manufactures a line of tire shredders, capable
of reducing tires of up to 48 inch diameter to 2 inch or 1 inch square chips.
Tire shredding allows for a broad range of recovery and recycling functions,
including the use of granulated rubber for chips in pavement and in waste
management systems, and as fuel in boilers and cement kilns. Steel in belted
tires also can be recovered and recycled, further reducing waste from disposal
of worn tires. In addition, tire shredding reduces required landfill space.
Conveyors. Commencing with its January 1998 acquisition of Univeyor, the
Company designs, manufactures and installs automated material handling systems
for a variety of industries including automotive, consumer products
manufacturing and warehousing.
SALES AND MARKETING
The Company supports its commercial and consumer sales through its sales
forces and through independent manufacturing agents worldwide, including
approximately 120 dedicated salespersons who sell hoists, chain, forged
products, manipulators, lift-tables, rotary unions, actuators, jacks, circuit
breakers and related material
39
<PAGE>
handling accessories. Consumer sales are supported through approximately 25
independent manufacturers representative companies. Commercial and consumer
sales are further supported by over 100 Company-trained customer service
correspondents and sales application engineers.
The Company promotes its products by advertising in trade journals and by
participating in more than 50 trade shows each year throughout the United
States and abroad. Trade shows are central to promotion of the Company's
products and, in certain cases, for actual sale of the Company's products,
particularly to hardware retailers. Shows in which the Company participates
range from global events held in Hanover, Germany, Cologne, Germany and
Chicago, Illinois to local "markets" and "open houses" put on by individual
hardware and industrial distributors. The Company also attends specialty shows
for the entertainment, rental, safety, environmental recycling and health care
markets, as well as general purpose industrial and consumer hardware shows. In
fiscal 1998, the Company participated in trade shows in Canada, Mexico,
Germany, England, Japan, Singapore, Malaysia, Greece, South Africa, China and
Peru, as well as in the United States.
The Company's communication program encompasses advertisements in leading
trade journals as well as producing and distributing high quality information
catalogs. On-site distributors and end-user training programs are held
worldwide to promote and reinforce the attributes of the Company's products.
The Company also has a Web site on the Internet (http://www.cmworks.com).
The Company supports its product distribution by running cooperative "pull-
through" advertising in over 60 vertical trade magazines and directories
targeted to the theatrical, international, consumer, medical, tire shredder
and crane builder markets. The Company has separate ads for chain, hoists,
forgings, lifters, manipulators, lift tables, actuators, hydraulic jacks, tire
shredders, mobility systems and hardware programs.
DISTRIBUTION AND MARKETS
Commercial Distribution. In 1998, commercial sales of industrial products
totaled approximately $484.0 million or 95% of total sales, as compared to
approximately $332.7 million or 93% in 1997. Commercial distribution channels
include industrial wholesale distributors, rigging shops, crane builders,
catalog distributors, material handling specialists, entertainment equipment
distributors, service-after-sale distributors and other general and specialty
distributors.
General Distribution Channels:
. Industrial distributors sell a variety of products for maintenance,
repair, operation and production ("MROP") applications through their own
direct sales force.
. Rigging shops are distributors who are experts in the rigging, lifting,
positioning and load securement areas of material handling. Most rigging
shops manufacture and distribute chain, wire rope and synthetic slings
and distribute off-the-shelf hoists and attachments, chain slings and
other off-the-shelf products.
. Crane builders design, build and install overhead crane and light-rail
systems for general industry and sell a wide variety of hoists and
lifting attachments.
Specialty Distribution Channels:
. Catalog distributors market a variety of MROP supplies and material
handling products either exclusively through large, nationally
distributed catalogs, or through a combination of catalog sales and a
field sales force. The customer base of catalog distributors, which
traditionally included smaller industrial companies and consumers, has
expanded to include large industrial accounts and integrated suppliers.
. Material handling distributors design and assemble systems incorporating
hoists, overhead rail systems, trolleys, lift tables, manipulators, air
balancers, jib arms and other products.
40
<PAGE>
. Entertainment equipment distributors design, supply and install a
variety of material handling equipment for concerts, theaters, ice
shows, sports arenas, convention centers and discos.
Service-After-Sale Distribution Channel:
. Service-after-sale distributors include over 100 hoist master parts
depots, 11 chain repair service stations and over 300 hoist and other
product service and repair stations. This service network is designed
for easy parts and service access for the Company's large installed base
of hoists and related equipment in North America.
Other Sales Channels:
. Original equipment manufacturers supply various component parts to other
industrial manufacturers as well as private branding and packaging of
traditional Company products for material handling and lifting. Sales in
this area have grown with the addition of the Mechanical Products
Division of Yale, which manufactures industrial and commercial circuit
breakers, and with the Duff-Norton Division of Yale, which manufactures
rotary unions and actuators.
. Government sales are sold directly by the Company and have expanded with
the acquisition of Lister, which manufactures anchor, buoy and mooring
chain for the United States and Canadian Navies and Coast Guards.
Consumer Distribution. The Company's consumer sales, consisting primarily of
carbon steel chain and assemblies, forged attachments and hand-powered hoists,
were approximately $26.8 million or 5% of total sales in 1998 and
approximately $26.7 million or 7% in 1997. Distribution of these products is
primarily comprised of five channels: two-step wholesale hardware distribution
(such as Distribution America and Ace Hardware); one-step distribution (such
as Fastenal and Canadian Tire); trucking and transportation distributors (such
as U-Haul and Fruehauf); farm hardware distributors (such as J. I. Case and
Tractor Supply Company); and rental outlets.
CUSTOMER SERVICE AND TRAINING
The Company maintains well-trained customer service departments for all of
its sales divisions, and regularly schedules product and service training
schools for all customer service representatives and field sales forces. In
addition, training schools for distribution, service stations, and end-users
are held on a regular basis at most of the Company's facilities, as well as in
the field. The Company has more than 300 service stations worldwide that
provide local and regional repair, warranty and general service work for
distributors and end-users. End-user trainees attending various training
schools maintained by the Company include representatives of General Motors,
DuPont, 3M, GTE, Cummins Engine, General Electric and many other large
industrial manufacturers.
The Company also provides a variety of collateral material in video,
cassette, CD-ROM, slide and literature format addressing such relevant
material handling topics as the care, use and inspection of chains and hoists,
and overhead lifting and positioning safety.
The Company also sponsors eight separate advisory boards made up of
representatives of its primary distributors and service-after-sale network
members who are invited to participate in discussions focused on improving
products and service. These boards enable the Company and its primary
distributors to exchange product and market information relevant to industry
trends.
RECENT ACQUISITIONS
LICO Acquisition.
On March 31, 1998, the Company acquired all of the outstanding capital stock
of LICO for $155.0 million in cash, adjusted for outstanding borrowings at
closing. Founded in 1981 in Kansas City, Missouri, LICO is a
41
<PAGE>
leading designer, manufacturer and installer of custom conveyers and material
handling systems primarily for the automotive industry and, to a lesser
extent, the steel, construction and other industrial markets.
The Company believes that the LICO Acquisition will complement its recent
acquisition of Univeyor and further strengthen its position as a leader in
providing project design, management and implementation of automated material
handling systems, and will provide the Company with an established platform
for increasing sales of its products to the automotive and industrial
manufacturing markets.
LICO provides custom conveyor and material handling systems for its
customers as either a prime contractor with turnkey responsibility for its
systems, or as a supplier working closely with the customer's general
contractor. LICO concentrates its sales efforts on engineer-to-engineer
interactions. The typical LICO product cycle begins with an initial
consultation between the customer and a LICO engineer or project manager.
After the project parameters have been defined, LICO prepares an estimate and
submits a formal bid to complete the project.
LICO recognizes revenues from its projects on a percentage of completion
basis. LICO is paid by its customers typically on a progress payment basis
upon achieving certain milestones as specified in the contracts. If a project
is terminated prior to completion, LICO is contractually entitled to recover
its costs plus a profit for work performed. Historically, very few of the
projects undertaken by LICO have been terminated.
To ensure that its bidding estimation process is accurate and that its
products and systems satisfy customer expectations, LICO maintains an active
staff of approximately 130 in-house and contract engineers with backgrounds
and degrees in electrical, structural and mechanical engineering and systems
analysis. Many of LICO's designed systems are proprietary in nature or contain
parts unique to LICO's material handling systems thereby providing it with a
significant competitive advantage. LICO places significant emphasis on the
development of new technology and products, and its designed systems often
include overhead power and free conveyors, inverted power and free conveyors,
electrified monorail systems and robotic indexing systems and automatic body
transfer systems.
LICO's customers have aggressively implemented programs to consolidate their
material handling system suppliers, relying on fewer qualified companies to
bid on and provide these systems. In addition these customers are requiring
qualified suppliers to be able to complete increasingly larger projects. LICO
has become a leading provider of custom conveyors and material handling
systems to many of its customers, including its two largest customers, General
Motors and Ford, which represented approximately 58% and 24%, respectively, of
LICO's sales for the twelve months ended March 31, 1998. In recognition of its
quality service and products, LICO has received several awards from some of
its customers. The automotive manufacturers are an attractive market for
LICO's products and systems, given: (i) the trend by these customers to
shorten new model life cycles and emphasize rapid plant change-overs; (ii) the
coordination of customer demand with manufacturing capacity which requires
flexible assembly operations; and (iii) the expanding international auto
manufacturing market. The consolidation of material handling system suppliers
coupled with the favorable trends impacting the implementation of automated
material handling systems by the automotive manufacturers and other industrial
manufacturers, as well as LICO's preferred provider status for many of these
customers, has resulted in LICO enjoying increased market shares in its
respective markets and has generated significant increases in LICO's backlog.
As of March 31, 1998, LICO's total backlog was $136.3 million, an increase of
$44.1 million from its backlog as of March 31, 1997. LICO's backlog has
generally been recognized as revenue over the following 12 to 18 months.
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<PAGE>
The following table sets forth certain information for LICO for the fiscal
periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED SEPTEMBER 30, ENDED MARCH 31,
------------------------- ---------------
1995 1996 1997 1997 1998
------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues.............................. $84,137 $129,733 $126,551 $58,609 $97,931
Operating income...................... 2,811 3,317 6,919 2,442 7,626
Net income............................ 1,799 2,061 3,817 1,273 4,649
</TABLE>
Acquisitions since November 1995.
Since November 1995 in addition to LICO, the Company has acquired four
operations:
. In January 1998, the Company acquired Univeyor, which is engaged in the
design and manufacture of automated material handling systems, for
approximately $15.0 million plus assumed liabilities. This transaction
enabled the Company, which previously has designed solutions only for
individual workstations, to offer automated material handling systems
predominantly using powered roller conveyors for the entire workplace. For
its latest fiscal year ended June 30, 1997, Univeyor had sales of
approximately $24.8 million.
. In December 1996, the Company acquired Lister, a manufacturer of cement
kiln, anchor and buoy chain and mining bolts, for approximately $7.0
million. This transaction complemented the Company's line of chain
products and provided the Company with access to new markets, particularly
in the international marketplace. Lister's sales for its latest fiscal
year ended December 31, 1996 were approximately $11.6 million.
. In October 1996, the Company acquired the majority of the outstanding
common equity of Yale, a manufacturer of a variety of lifting and
positioning products, including hoists and scissor lifts, industrial
components such as actuators, jacks and rotary unions and circuit
protection devices, for approximately $270.0 million through a cash tender
offer. In January 1997, the Company acquired the remaining common equity
of Yale and effected a merger. This acquisition further complemented the
Company's product line and also provided the Company with international
operations and distribution facilities in Europe, South Africa and China.
For its latest fiscal year ended June 30, 1996, Yale generated sales of
approximately $187.0 million.
. In November 1995, the Company acquired Lift-Tech, a manufacturer and
distributor of hoists and crane components, including wire rope and air-
powered hoists, for approximately $63.0 million. Lift-Tech's products
complemented the Company's existing hoist product lines, thereby enabling
the Company to offer a broader product line to the marketplace. Lift-
Tech's sales for its latest fiscal year ended March 31, 1995 were
approximately $64.4 million.
Acquisitions prior to November 1995.
Between February 1994 and October 1995 the Company also acquired (i) the
remaining 51% equity interest in Endor, a Mexican manufacturer of hoists, for
approximately $2.0 million, (ii) certain assets of Cady Lifters, Inc., a
manufacturer of "below the hook" lifters, for approximately $0.8 million,
(iii) the assets of the Conco Division of McGill Industries, Inc., a
manufacturer of manipulators, for approximately $0.8 million and (iv) the
assets of Durbin-Durco, Inc., a manufacturer of load securement equipment and
attachments, for approximately $2.4 million.
COMPETITION
The markets in which the Company operates are highly competitive and the
Company faces competition from a number of different manufacturers in each of
its product areas and geographic markets, domestic and foreign. The Company
competes in the sale of hoists with Demag, Kito-Harrington, Ingersoll-Rand and
Morris Material Handling; in chain with Campbell, Peerless Chain Company and
American Chain and Cable Company; in forged products with the Crosby Group,
Chicago Hardware and Campbell; and in actuators and rotary unions
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with Deublin and Joyce-Dayton. The principal competitive factors affecting the
market for the Company's products include performance, functionality, price,
brand recognition, customer service and support and product availability. Some
of the Company's competitors have greater financial and other resources than
the Company.
EMPLOYEES
At March 31, 1998, the Company had approximately 4,100 employees, 3,440 in
the United States, 215 in Canada, 120 in Mexico and 325 in Europe.
Approximately 1,460 of the Company's employees are represented under twelve
separate collective bargaining agreements which terminate at various times
between August 22, 1998 and April 30, 2003. A collective bargaining agreement
covering approximately 130 employees at the Company's Cedar Rapids, Iowa
facility expires on August 22, 1998. See "Risk Factors--Labor Relations."
During the past five years, the only interruptions or curtailments of the
Company's business due to labor disputes was a 29-day work stoppage at the
Cobourg, Ontario plant in fiscal 1994, and a five-day work stoppage at a Yale
plant in Charlotte, North Carolina in fiscal 1997. The Company believes that
its relationship with its employees is good. In support of this relationship,
the Company has maintained an Employee Stock Ownership Plan since 1988 and
also uses incentive-based compensation programs that are linked to the
Company's profitability and increase in shareholder value.
BACKLOG
The Company's backlog of orders at March 31, 1998 was approximately $198.2
million compared to approximately $58.9 million at March 31, 1997. The March
31, 1998 amount includes $136.3 million of LICO backlog. The Company's orders
for standard products are generally shipped within one week. Orders for
products that are manufactured to customers' specifications are generally
shipped within four to twelve weeks. Revenues from the Company's contracts for
automated systems are generally recognized within 12 to 18 months. The Company
does not believe that the amount of its backlog orders is a reliable
indication of its future sales.
RAW MATERIALS AND COMPONENTS
The principal raw materials used by the Company are structural steel and
processed steel bar, forging bar steel, steel rod and wire, steel pipe and
tubing and tool steel which are available from multiple sources. The Company
purchases these various forms of steel from a number of suppliers under long-
term agreements which are negotiated on a company-wide basis to take advantage
of volume discounts. Although the steel industry is cyclical and steel prices
can be volatile, the Company has not been significantly impacted in recent
years by increases in steel prices.
The Company also purchases components such as motors, bearings and gear
housings and castings. These components are generally available from several
suppliers.
The Company estimates that its total materials cost, including steel
products and components, represented approximately 32% of net sales in fiscal
1998. The Company generally seeks to pass on materials price increases to its
customers, although a lag period often exists. The Company's ability to pass
on these increases is determined by competitive conditions.
ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATION
Like many manufacturing companies, the Company is subject to various
federal, state and local laws relating to the protection of the environment.
To address the requirements of such laws, the Company has adopted a corporate
environmental protection policy which provides that all facilities owned or
leased by the Company shall, and all employees of the Company have the duty
to, comply with all applicable environmental regulatory standards, and the
Company has initiated an environmental auditing program for its facilities to
ensure compliance with such regulatory standards. The Company has also
established managerial responsibilities and
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internal communication channels for dealing with environmental compliance
issues that may arise in the course of its business. Because of the complexity
and changing nature of environmental regulatory standards, it is possible that
situations will arise from time to time requiring the Company to incur
expenditures in order to ensure environmental regulatory compliance. However,
the Company is not aware of any environmental condition or any operation at
any of its facilities, either individually or in the aggregate, which would
cause expenditures that would result in a material adverse effect on the
Company's results of operations or financial condition and, accordingly, has
not budgeted any material capital expenditures for environmental compliance
for fiscal 1999.
Certain federal and state laws, sometimes referred to as Superfund laws,
require certain companies to remediate sites that are contaminated by
hazardous substances. These laws apply to sites owned or operated by a
company, as well as certain off-site areas for which a company may be jointly
and severally liable with other companies or persons. The required remedial
activities are usually performed in the context of administrative or judicial
enforcement proceedings brought by regulatory authorities. The Company has
recently been involved in eight administrative enforcement proceedings in
connection with the remediation of certain facilities, two of which it owns
and operates and six of which it neither owns nor operates but with regard to
which it has been identified as one of several potentially responsible parties
("PRPs"). The Company has been and is cooperating with the regulatory
authorities in connection with these environmental proceedings. From the
perspective of the Company, with the exception of the two environmental
administrative proceedings discussed below, these matters have been, and are
expected to continue to be, minor matters not requiring substantial effort or
expenditure on the part of the Company.
The first environmental administrative proceeding is one in which the
Company has been identified by the New York State Department of Environmental
Conservation ("NYSDEC"), along with other companies, as a PRP at the Frontier
Chemical Site in Pendleton, New York ("Pendleton Site"), a site listed on
NYSDEC's Registry. From 1958 to 1977, the Pendleton Site had been operated as
a commercial waste treatment and disposal facility. The Company sent waste
pickling liquor generated at its facility in Tonawanda, New York to the
Pendleton Site during the period from approximately 1969 to 1977, and the
Company is participating with other PRPs in conducting the remediation of the
Pendleton Site under a consent order with NYSDEC. As a result of a negotiated
cost allocation among the participating PRPs, the Company has paid its pro
rata share of the remediation costs and accrued its share of the ongoing
operations and maintenance costs. As of March 31, 1998, the Company has paid
approximately $1.0 million in remediation and ongoing operations and
maintenance costs associated with the Pendleton Site. The participating PRPs
have identified and commenced a cost recovery action against a number of other
parties who sent hazardous substances to the Pendleton Site. If any of the
currently nonparticipating parties identified by the participating PRPs pay
their pro rata shares of the remediation costs, then the Company's share of
total site remediation costs will decrease. Settlements have been reached with
39 of the 113 defendants in the cost recovery action, and additional
settlements are expected in the future. However, the Company has not yet
received payment in connection with such settlements. The Company also has
entered into a settlement agreement with one of its insurance carriers in the
amount of approximately $734,130 in connection with the Pendleton Site and has
received payment in full of the settlement amount.
The second environmental administrative proceeding involves Mechanical
Products, Inc., a subsidiary of Yale ("MPI"). In 1987, MPI discovered that
groundwater and certain soils at and near its Jackson, Michigan plant
contained certain organic chemical compounds in concentrations above those
permitted by applicable law. MPI conducted an extensive investigation of the
site and entered into an Administrative Order by Consent with the State of
Michigan Department of Natural Resources which provides for further
investigation and the development and implementation of a plan for remedial
action. Since 1991, MPI has been engaged in efforts to investigate and
remediate the impacted areas. As of March 31, 1998, the Company has paid
approximately $3.4 million in remediation and ongoing operations and
maintenance costs associated with this site.
For all of the currently known environmental matters, the Company has
accrued a total of approximately $4.9 million as of March 31, 1998, which, in
the opinion of the Company's management, is sufficient to deal with such
matters. Further, the Company's management believes that the environmental
matters known to, or
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<PAGE>
anticipated by, the Company should not, individually or in the aggregate, have
a material adverse effect on the Company's cash flow, results of operations or
financial condition. However, there can be no assurance that potential
liabilities and expenditures associated with unknown environmental matters,
unanticipated events, or future compliance with environmental laws and
regulations will not have a material adverse effect on the Company.
The Company's operations are also governed by many other laws and
regulations, including those relating to workplace safety and worker health,
principally OSHA and regulations thereunder. The Company believes that it is
in material compliance with these laws and regulations and does not believe
that future compliance with such laws and regulations will have a material
adverse effect on its cash flow, results of operations or financial condition.
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PROPERTIES
The Company maintains its corporate headquarters in Amherst, New York and
conducts its principal manufacturing and distribution operations at the
following facilities:
<TABLE>
<CAPTION>
LOCATION UTILIZATION SQUARE FOOTAGE OWNED OR LEASED
- -------- ----------- --------------- ---------------
<S> <C> <C> <C>
UNITED STATES:
Amherst, NY............. Headquarters 52,000(1) Leased(2)
Muskegon, MI............ Hoist manufacturing 500,000 Owned
Forrest City, AR........ Hoist manufacturing 257,000 Leased
Charlotte, NC........... Industrial component manufacturing 250,000 Leased
Tonawanda, NY........... Patient lifter, manipulator and forged product 187,630(3) Owned
Wadesboro, NC........... Hoist manufacturing 180,000 Owned
Lexington, TN........... Chain manufacturing 153,230 Owned
Cedar Rapids, IA........ Forging 100,000 Owned
Reform, AL.............. Stamping factory 99,760 Owned
Damascus, VA............ Hoist manufacturing 87,400 Owned
Abingdon, VA............ Hoist manufacturing 87,000 Owned
Chattanooga, TN......... Forging 77,000 Owned
Greensburg, IN.......... Scissor lift manufacturing 60,000 Owned
Jackson, MI............. Circuit device manufacturing 53,000 Owned
Hollywood, MD........... Circuit device manufacturing 53,000 Owned
Laurens, IA............. Manipulator manufacturing 50,350 Owned
Lisbon, OH.............. Hoist manufacturing 37,000 Owned
Kansas City, MO......... Conveyor project administration 33,325 Owned
Chattanooga, TN......... Forging 33,000 Owned
Kansas City, MO......... Conveyor project design, management
and manufacturing 27,630 Owned
Kansas City, MO......... Construction management 25,000 Leased
Sarasota, FL............ Tire shredder manufacturing 24,954 Owned
Kansas City, MO......... Conveyor manufacturing 22,000 Leased
Kansas City, MO......... Conveyor project design, management and
manufacturing 20,520 Owned
Kansas City, KS......... Conveyor manufacturing 17,000 Leased
Blaine, WA.............. Chain manufacturing 15,800 Owned
Romeoville, IL.......... Chain warehouse 12,800 Leased
Ontario, CA............. Chain warehouse 12,600 Leased
Woodland, CA............ Hoist warehouse 12,000 Leased
Raytown, MO............. Conveyor manufacturing 9,500 Leased
Brighton, MI............ Engineering 8,400 Leased
Houston, TX............. Chain warehouse 7,800 Leased
Milwaukie, OR........... Warehouse 7,500 Leased
Atlanta, GA............. Chain warehouse 6,679 Leased
Seattle, WA............. Chain warehouse Space as needed Leased
INTERNATIONAL:
Cobourg, Ontario, Cana-
da..................... Chain and hoist manufacturing 125,016 Owned
Santiago, Tianguistenco,
Mexico................. Hoist manufacturing 85,000 Owned
Arden, Denmark.......... Project design and conveyor manufacturing 70,500 Owned
Richmond, British
Columbia, Canada....... Chain manufacturing 56,000 Owned
Velbert, Germany........ Hoist manufacturing 54,000 Leased
Hangzhou, China......... Metal fabrication and textile manufacturing 37,000 Leased
Hangzhou, China......... Textile strapping manufacturing 20,000 Leased
Arden, Denmark.......... Project construction 19,500 Leased
Hobro, Denmark.......... Electronic control design and manufacturing 15,000 Owned
Vierzon, France......... Hoist manufacturing 14,000 Leased
Cambridge, Ontario,
Canada................. Warehouse 11,200 Leased
Edmonton, Alberta,
Canada................. Distribution center 3,150 Leased
Rotterdam, Netherlands.. Distribution center Space as needed Leased
</TABLE>
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- --------
(1) Approximately 26,000 square feet of the building is sublet through June
30, 2003.
(2) Title to the property is vested in the Town of Amherst Industrial
Development Agency pursuant to an Industrial Development Bond transaction.
The Company has the right and obligation to purchase the property at the
expiration of the lease term for $1.00.
(3) Approximately 15,000 square feet of this facility is subject to leases
which expire at various times through 2001.
The Company also leases a number of sales offices and minor warehouses
located throughout North America, Europe, Asia and South Africa.
The Company believes that its properties have been adequately maintained,
are in generally good condition and are suitable for the Company's business as
presently conducted. The Company believes its existing facilities provide
sufficient production capacity for its present needs and for its anticipated
needs in the foreseeable future. The Company also believes that upon the
expiration of its current leases, it either will be able to secure renewal
terms or enter into leases for alternative locations at market terms.
LEGAL PROCEEDINGS
From time to time, the Company is named a defendant in legal actions arising
out of the normal course of business. The Company is not a party to any
pending legal proceeding the resolution of which the management of the Company
believes will have a material adverse effect on the Company's cash flow,
results of operations or financial condition or to any other pending legal
proceedings other than ordinary, routine litigation incidental to its
business. The Company maintains liability insurance against risks arising out
of the normal course of business.
On November 18, 1996, an action entitled Milliken & Company vs. Duff-Norton
Company, Inc. and Industrial Distribution Group, Inc. d/b/a Dixie Industrial
Supply Company was commenced in the Superior Court of Troup County, Georgia.
In its complaint in this action, the plaintiff alleges that a rotary union
coupler manufactured by a subsidiary of Yale failed, causing a fire resulting
in alleged damages to the plaintiff's carpet manufacturing facility and
equipment in excess of $500 million. This action has been turned over to the
Company's insurer and is in the early stages of discovery. The Company's
insurance coverage applicable to this matter is limited to $100 million plus
the costs and expenses of defending the action.
The Company has denied all of the material allegations contained in the
complaint and has asserted certain affirmative defenses and counterclaims.
Based upon the advice of its counsel, the Company believes it has meritorious
defenses to the causes of action specified in the complaint and intends to
vigorously defend this action. Further, the Company believes that its
potential liability, if any, arising out of this action will be within the
limits of its insurance coverage. However, there can be no assurance as to the
outcome of this litigation.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the Company's
directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
- ---- --- ----------------
<S> <C> <C>
Herbert P. Ladds, Jr.... 64 Chairman of the Board and Chief Executive Officer
Timothy T. Tevens....... 41 President, Chief Operating Officer and Director
Robert L. Montgomery,
Jr..................... 60 Executive Vice President, Chief Financial Officer and Director
Ned T. Librock.......... 45 Vice President--Sales and Marketing
Karen L. Howard......... 36 Vice President--Controller
Ernst K. H. Marburg..... 62 Vice President--Total Quality and Standards
Ivan E. Shawvan, Jr..... 46 Vice President--Human Resources
Lois H. Demler.......... 60 Corporate Secretary
Edward W. Duffy......... 71 Director
Randolph A. Marks....... 62 Director
L. David Black.......... 61 Director
</TABLE>
Herbert P. Ladds, Jr. has served as Chief Executive Officer of the Company
since 1986 and has been a director of the Company since 1973. He was President
of the Company from 1982 until January 1998 and was Executive Vice President
of the Company from 1981 to 1982 and Vice President--Sales & Marketing from
1971 to 1980. Mr. Ladds is also a director of Utica Mutual Insurance Company
and Eastman Machine Company. In January 1998, Mr. Ladds was elected Chairman
of the Board. Mr. Ladds has announced that he plans to retire as Chief
Executive Officer in July 1998, but that upon such retirement he will remain
as Chairman of the Board.
Timothy T. Tevens joined the Company as Vice President--Information Services
in May 1991 and was elected Chief Operating Officer in October 1996. In
January 1998, Mr. Tevens was elected President and a director of the Company.
From 1980 to 1991, Mr. Tevens was employed by Ernst & Young LLP in various
management consulting capacities. The Company has announced that upon Mr.
Ladds' retirement as Chief Executive Officer, Mr. Tevens will assume the
additional duties of that position.
Robert L. Montgomery, Jr. joined the Company in 1974 and has served as
Executive Vice President and Chief Financial Officer since 1987 and as a
director of the Company since 1982. Prior thereto he was employed as a
certified public accountant by Price Waterhouse LLP.
Ned T. Librock was elected Vice President--Sales and Marketing in November
1995. Mr. Librock has been employed by the Company since 1990 in various sales
management capacities. Prior to 1990, Mr. Librock was employed by Dynabrade
Inc., a manufacturer of power tools, as director of Sales and Marketing.
Karen L. Howard was elected Vice President--Controller in January 1997. From
June 1995 to January 1997, Ms. Howard was employed by the Company in various
financial and accounting capacities. Prior to June 1995, Ms. Howard was
employed by Ernst & Young LLP as a certified public accountant.
Ernst K. H. Marburg has been employed by the Company since May 1980. Prior
to his election as Vice President--Total Quality and Standards in October
1996, Mr. Marburg served the Company as Manager of Product Standards and
Services for nearly fifteen years.
Ivan E. Shawvan, Jr. was elected Vice President--Human Resources in January
1997. He has been employed by the Company since September 1984 and has served
as General Manager of the Company's
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<PAGE>
Sarasota, Florida operations from October 1988 to August 1996 and as Corporate
Human Resources Manager since August 1996.
Lois H. Demler has been employed by the Company since 1963. She has been the
Corporate Secretary of the Company since 1987.
Edward W. Duffy has been a director of the Company since 1986 and served as
Chairman of the Board from 1986 until his resignation in January 1998. Mr.
Duffy is a retired Chairman of the Board and Chief Executive Officer of Marine
Midland Bank and a retired director of W. R. Grace & Co., Niagara Mohawk Power
Corporation, Oneida Limited and Utica Mutual Insurance Company.
Randolph A. Marks has been a director of the Company since 1986. Mr. Marks
is a private investor and is a retired Chairman of the Board of American Brass
Company. He also serves as a director of Computer Task Group, Inc.
L. David Black has been a director of the Company since 1995. Mr. Black has
been the Chairman of the Board, President and Chief Executive Officer of JLG
Industries, Inc., a manufacturer of construction equipment, since 1993. Prior
thereto, he served as President of JLG Industries, Inc.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of March 31, 1998
regarding the beneficial ownership of the Company's Common Stock by (i) each
person who is known by the Company to own beneficially more than 5% of the
Company's Common Stock, (ii) by each director and the five most highly
compensated executive officers of the Company for 1996 and (iii) by all
executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
NUMBER PERCENTAGE
DIRECTORS, OFFICERS AND 5% SHAREHOLDERS OF SHARES(1) OF CLASS
--------------------------------------- ------------ ----------
<S> <C> <C>
Herbert P. Ladds, Jr.(2)(3)........................ 1,053,046 7.63%
Timothy T. Tevens(2)(4)............................ 33,773 *
Robert L. Montgomery, Jr.(2)(5).................... 1,147,878 8.31
Edward W. Duffy(2)................................. 397,239 2.88
Randolph A. Marks(2)............................... 239,840 1.74
L. David Black(2).................................. 1,700 *
Ned T. Librock(2)(6)............................... 33,945 *
Ivan E. Shawvan, Jr.(2)(7)......................... 26,241 *
Columbus McKinnon Corporation Employee Stock Owner-
ship Plan(2)...................................... 1,180,428 8.55
All Directors and Executive Officers as a Group (11
persons)(8)....................................... 3,023,261 21.90
Harris Associates L.P.(9).......................... 821,400 5.95
Gilchrist B. Berg(10).............................. 818,100 5.93
</TABLE>
- --------
* Less than 1%.
(1) Rounded to the nearest whole share. Unless otherwise indicated in the
footnotes, each of the shareholders named in this table has sole voting
and investment power with respect to the shares shown as beneficially
owned by him, except to the extent that authority is shared by spouses
under applicable law.
(2) The address of each of the executive officers and directors and the
Columbus McKinnon Employee Stock Ownership Plan is c/o Columbus McKinnon
Corporation, 140 John James Audubon Parkway, Amherst, New York 14228-
1197.
(3) Includes (i) 861,201 shares of Common Stock owned directly, (ii) 161,705
shares of Common Stock owned directly by Mr. Ladds' spouse, (iii) 15,640
shares of Common Stock held by Mr. Ladds' spouse as trustee for the
grandchildren of Mr. Ladds and (iv) 14,500 shares of Common Stock
allocated to Mr. Ladds' ESOP account.
(4) Includes (i) 18,009 shares of Common Stock directly, (ii) 50 shares of
Common Stock owned by Mr. Tevens' son, (iii) 3,214 shares of Common Stock
allocated to Mr. Tevens' ESOP account and (iv) 12,500 shares of Common
Stock issuable under currently exercisable options granted to Mr. Tevens
under the Company's Incentive Stock Option Plan (the "ISO Plan").
Excludes 37,500 shares of Common Stock issuable under options granted to
Mr. Tevens under the ISO Plan which are not exercisable within 60 days.
(5) Includes (i) 1,050,328 shares of Common Stock owned directly, (ii) 85,000
shares of Common Stock owned directly by Mr. Montgomery's spouse and
(iii) 12,550 shares of Common Stock allocated to Mr. Montgomery's ESOP
account. Excludes 1,167,878 additional shares of Common Stock owned by
the ESOP for which Mr. Montgomery serves as one of four trustees and for
which he disclaims any beneficial ownership.
(6) Includes (i) 18,004 shares of Common Stock directly, (ii) 152 shares of
Common Stock owned by Mr. Librock's son, (iii) 3,289 shares of Common
Stock allocated to Mr. Librock's ESOP account and (iv) 12,500 shares of
Common Stock issuable under currently exercisable options granted to Mr.
Librock under the ISO Plan. Excludes 37,500 shares of Common Stock
issuable under options granted to Mr. Librock under the ISO Plan which
are not exercisable within 60 days.
(7) Includes (i) 9,200 shares of Common Stock owned directly, (ii) 4,541
shares of Common Stock allocated to Mr. Shawvan's ESOP account and (iii)
12,500 shares of Common Stock issuable under currently exercisable
options granted to Mr. Shawvan under the ISO Plan. Excludes (i) 1,175,887
additional shares of Common Stock owned by the ESOP for which Mr. Shawvan
serves as one of four trustees and for which he disclaims
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<PAGE>
any beneficial ownership and (ii) 37,500 shares of Common Stock issuable
under options granted to Mr. Shawvan under the ISO Plan which are not
exercisable within 60 days.
(8) Includes options to purchase an aggregate of 50,000 shares of Common Stock
issuable to certain executive officers under the ISO Plan, all of which
are exercisable within 60 days. Excludes the shares of Common Stock owned
by the ESOP as to which Messrs. Montgomery and Shawvan and Ms. Howard
serve as trustees, except for an aggregate of 49,258 shares allocated to
the respective ESOP accounts of the executive officers of the Company and
(ii) options to purchase an aggregate of 150,000 shares of Common Stock
issued to certain executive officers under the ISO Plan, none of which ar
exercisable within 60 days.
(9) Based on information set forth in Schedule 13G filed with the Commission
by Harris Associates L.P. on January 29, 1998. The stated business address
for Harris Associates L.P. is Two North LaSalle Street, Suite 500,
Chicago, Illinois 60602-3790.
(10) Based on information set forth in Schedule 13D filed with the Commission
by Gilchrist B. Berg on November 1, 1996. The stated business address for
Mr. Berg is 225 Water Street, Suite 1987, Jacksonville, Florida 32202.
DESCRIPTION OF OTHER INDEBTEDNESS
NEW CREDIT AGREEMENT
On March 31, 1998, the Company entered into the New Credit Agreement, which
replaced its former credit facilities. The New Credit Agreement will enable the
Company to borrow under a revolving line of credit, and issue letters of
credit, up to $300.0 million. At March 31, 1998, the Company had undrawn
availability of approximately $53.0 million under the New Credit Agreement.
Quarterly commitment fees will be due on the undrawn portion of the commitment.
The New Credit Agreement will mature in 2003. The interest rate for the New
Credit Agreement will be, at the Company's option, the Base Rate or the LIBOR
rate, as determined at the date of each borrowing, plus an applicable margin to
be adjusted based upon the Company's overall leverage. On March 31, 1998, the
initial interest rate on borrowings under the New Credit Agreement was LIBOR
plus 1.25%. The Company will have the right to repay the outstanding debt under
the New Credit Agreement, in whole or in part, without penalty or premium,
subject to a limitation that prepayment of LIBOR loans will be subject to a
breakage penalty if prepaid other than on the last day of the applicable
interest period. The revolving line of credit will allow the Company to repay
and reborrow so long as there is no event of default.
Borrowings under the New Credit Agreement are secured by a first priority
security interest on all personal property of the Company and certain of its
subsidiaries, and a pledge of stock of subsidiaries (limited to 65% for foreign
subsidiaries). In addition, certain subsidiaries of the Company have jointly
and severally guaranteed the obligations of the Company under the New Credit
Agreement.
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DESCRIPTION OF NOTES
GENERAL
The Exchange Notes will be issued pursuant to the Indenture (the
"Indenture") among the Company, the Guarantors and State Street Bank and Trust
Company, N.A., as trustee (the "Trustee"). The terms of the Exchange Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (the "Trust Indenture Act"). The
Exchange Notes are subject to all such terms, and holders of Exchange Notes
are referred to the Indenture and the Trust Indenture Act for a statement
thereof. The following summary of the material provisions of the Indenture and
the Registration Rights Agreement does not purport to be complete and is
qualified in its entirety by reference to such agreements, including the
definitions therein of certain terms used below. Copies of the proposed form
of such agreements are available as set forth below under "--Additional
Information." The definitions of certain terms used in the following summary
are set forth below under "--Certain Definitions." For purposes of this
section, the term "Company" refers only to Columbus McKinnon Corporation and
not to any of its Subsidiaries and references to the "Notes" include the
Private Notes and the Exchange Notes.
The Exchange Notes will be general unsecured obligations of the Company and
will be subordinated in right of payment to all current and future Senior Debt
of the Company. As of March 31, 1998, the Company had approximately $248.8
million of Senior Debt outstanding and approximately $53.0 million of
available borrowings under the New Credit Agreement. In addition, the Exchange
Notes will be effectively subordinated to all indebtedness and other
liabilities of the Company's Subsidiaries. As of March 31, 1998, the Company's
Subsidiaries had total liabilities aggregating approximately $2.8 million. The
Indenture will permit the Company and its Subsidiaries to incur additional
indebtedness, including additional Senior Debt, in the future, subject to
certain restrictions. See "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock."
All of the Company's Subsidiaries are Restricted Subsidiaries. However,
under certain circumstances, the Company will be able to designate current or
future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries
will not be subject to many of the restrictive covenants set forth in the
Indenture. See "--Certain Covenants--Restricted Payments."
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes are limited in aggregate principal amount to $200.0
million and will mature on April 1, 2008. Interest on the Notes will accrue at
the rate of 8 1/2% per annum and will be payable semi-annually in arrears on
April 1 and October 1 of each year, commencing on October 1, 1998, to holders
of record on the immediately preceding March 15 and September 15. Interest on
the Notes will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from the date of original issuance.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months. Principal of and premium, interest and Liquidated Damages, if
any, on the Notes will be payable at the office or agency of the Company
maintained for such purpose or, at the option of the Company, payment of
interest and Liquidated Damages may be made by check mailed to the holders of
the Notes at their respective addresses set forth in the register of holders
of Notes; provided that all payments of principal, premium, interest and
Liquidated Damages with respect to Notes the holders of which have given wire
transfer instructions to the Company will be required to be made by wire
transfer of immediately available funds to the accounts specified by the
holders thereof. Until otherwise designated by the Company, the Company's
office or agency will be the office of the Trustee maintained for such
purpose. The Notes will be issued in denominations of $1,000 and integral
multiples thereof.
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes will be jointly and
severally guaranteed (the "Subsidiary Guarantees") by certain of the Company's
existing and future Domestic Restricted Subsidiaries. The Subsidiary Guarantee
of each Guarantor is subordinated to all Senior Debt of such Guarantor
(including the guarantee of such Guarantor under the New Credit Agreement) to
the same extent as the Notes are subordinated to Senior Debt of the Company.
See "--Subordination."
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The Indenture provides that in the event of (i) a sale or other disposition
of all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, (ii) a sale or other disposition of all of the Capital Stock of any
Guarantor or (iii) the designation of a Guarantor as an Unrestricted
Subsidiary as described under "--Certain Covenants--Restricted Payments," then
such Guarantor, or the corporation acquiring the property (in the event of a
sale or other disposition of all of the assets of such Guarantor), will be
released and relieved of any obligations under its Subsidiary Guarantee.
SUBORDINATION
The payment of principal of and premium, interest and Liquidated Damages on
the Exchange Notes will be subordinated in right of payment, as set forth in
the Indenture, to the prior payment in full of all Senior Debt, whether
outstanding on the date of the Indenture or thereafter incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full of all Obligations due in respect of such Senior Debt
(including interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Debt) before the holders of Exchange Notes
will be entitled to receive any payment with respect to the Exchange Notes,
and until all Obligations with respect to Senior Debt are paid in full, any
distribution to which the holders of Exchange Notes would be entitled shall be
made to the holders of Senior Debt (except that holders of Exchange Notes may
receive and retain Permitted Junior Securities and payments made from the
trust described under "--Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the Exchange
Notes (except in Permitted Junior Securities or from the trust described under
"--Legal Defeasance and Covenant Defeasance") if (i) a default in the payment
of the principal of or premium or interest on Designated Senior Debt occurs
and is continuing beyond any applicable period of grace (a "payment default")
or (ii) any other default occurs and is continuing with respect to Designated
Senior Debt that permits holders of the Designated Senior Debt as to which
such default relates to accelerate its maturity (a "nonpayment default") and
the Trustee receives a notice of such default (a "Payment Blockage Notice")
from the Company or the holders of any Designated Senior Debt. Payments on the
Notes may and shall be resumed (a) in the case of a payment default, upon the
date on which such default is cured or waived and (b) in case of a nonpayment
default, the earlier of the date on which such nonpayment default is cured or
waived or 179 days after the date on which the applicable Payment Blockage
Notice is received, unless the maturity of any Designated Senior Debt has been
accelerated. No new period of payment blockage may be commenced unless and
until 360 days have elapsed since the effectiveness of the immediately prior
Payment Blockage Notice. No nonpayment default that existed or was continuing
on the date of delivery of any Payment Blockage Notice to the Trustee shall
be, or be made, the basis for a subsequent Payment Blockage Notice.
The Indenture further requires that the Company promptly notify holders of
Senior Debt if payment of the Notes is accelerated because of an Event of
Default and upon the occurrence of certain other Events of Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, holders of Notes may recover less ratably than
creditors of the Company who are holders of Senior Debt. As of March 31, 1998,
the Company had approximately $248.8 million of Senior Debt outstanding and
approximately $53.0 million of available borrowings under the New Credit
Agreement. The Indenture permits the Company and its Subsidiaries to incur
additional indebtedness, including additional Senior Debt, in the future,
subject to certain restrictions. See "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock."
OPTIONAL REDEMPTION
Prior to April 1, 2003, the Notes will be subject to redemption at any time
at the option of the Company, in whole or in part, upon not less than 30 nor
more than 60 days' notice, at the Make-Whole Price, plus accrued
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and unpaid interest and Liquidated Damages thereon to the applicable
redemption date. On and after April 1, 2003, the Notes will be subject to
redemption at any time at the option of the Company, in whole or in part, upon
not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued
and unpaid interest and Liquidated Damages thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on April
1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003.......................................................... 104.250%
2004.......................................................... 102.833%
2005.......................................................... 101.417%
2006 and thereafter........................................... 100.000%
</TABLE>
Notwithstanding the foregoing, on or prior to April 1, 2001, the Company may
redeem up to 35% of the aggregate principal amount of Notes issued under the
Indenture at a redemption price of 108.50% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages thereon to the
redemption date, with the net cash proceeds of one or more offerings of Equity
Interests (other than Disqualified Stock) of the Company; provided that (i) at
least $130.0 million in aggregate principal amount of Notes remain outstanding
immediately after the occurrence of such redemption (excluding Notes held by
the Company and its Subsidiaries) and (ii) such redemption shall occur within
90 days of the date of the closing of such offering.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed, or, if the Notes are not so listed, on a pro rata basis,
by lot or by such method as the Trustee shall deem fair and appropriate;
provided that no Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each holder of Notes to be redeemed at
its registered address. Notices of redemption may not be conditional. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the holder thereof upon cancellation of
the original Note. Notes called for redemption become due on the date fixed
for redemption. On and after the redemption date, interest ceases to accrue on
Notes or portions of them called for redemption.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, the Company will be required to
make an offer to each holder of Notes to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages thereon to the date of purchase (the
"Change of Control Payment"). Within 30 days following any Change of Control,
the Company will mail a notice to each holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes on the date specified in such notice, which date shall be no earlier
than 30 days and no later than 60 days from the date such notice is mailed
(the "Change of Control Payment Date"), pursuant to the procedures required by
the Indenture and described in such notice. The Company will
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comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes as a
result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Notes or portions thereof being purchased by
the Company. The Paying Agent will promptly mail to each holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Indenture will
provide that, prior to complying with the provisions of this covenant, but in
any event within 90 days following a Change of Control, the Company will
either repay all outstanding Senior Debt or obtain the requisite consents, if
any, under all agreements governing outstanding Senior Debt to permit the
repurchase of Notes required by this covenant. The Company will publicly
announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The New Credit Agreement restricts the ability of the Company to repurchase
Notes, including following a Change of Control. In addition, a Change of
Control will constitute a default under the New Credit Agreement. Any future
credit agreements or other agreements relating to Senior Debt to which the
Company becomes a party may contain similar restrictions and provisions. In
the event a Change of Control occurs at a time when the Company is prohibited
from purchasing Notes, the Company could seek the consent of its lenders to
the purchase of Notes or could attempt to refinance the borrowings that
contain such prohibition. If the Company does not obtain such a consent or
repay such borrowings, the Company will remain prohibited from purchasing
Notes. The Company's failure to purchase Notes tendered in a Change of Control
Offer would constitute an Event of Default under the Indenture which would, in
turn, constitute as default under the New Credit Agreement. In such
circumstances, the subordination provisions in the Indenture would likely
restrict payments to the holders of Notes. See "--Subordination."
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole to any "person" (as such term is used in Section
13(d)(3) of the Exchange Act); (ii) the adoption of a plan relating to the
liquidation or dissolution of the Company; (iii) the consummation of any
transaction (including, without limitation, any merger or consolidation) the
result of which is that any "person" (as defined above), other than the
Employee Stock Ownership Plan, becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a
person shall be deemed to have "beneficial ownership" of all securities that
such person has the right to acquire, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or indirectly, of more than 35% of the Voting Stock of
the Company (measured by voting power rather than number of shares); or (iv)
the first day on which a majority of the members of the Board of Directors of
the Company are not Continuing Directors.
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The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Restricted Subsidiaries taken as a whole.
Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of Notes to require
the Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Restricted Subsidiaries taken as a whole to another Person or group
may be uncertain.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of the Board of
Directors on the Closing Date or (ii) was nominated for election or elected to
the Board of Directors with the approval of a majority of the Continuing
Directors who were members of the Board of Directors at the time of such
nomination or election.
ASSET SALES
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary
is in the form of cash; provided that the amount of (a) any liabilities (as
shown on the Company's or such Restricted Subsidiary's most recent balance
sheet) of the Company or such Restricted Subsidiary (other than contingent
liabilities and liabilities that are by their terms subordinated to the Notes
or any guarantee thereof) that are assumed by the transferee of any such
assets pursuant to a customary novation agreement that releases the Company or
such Restricted Subsidiary from further liability and (b) any securities,
notes or other obligations received by the Company or such Restricted
Subsidiary from such transferee that are contemporaneously (subject to
ordinary settlement periods) converted by the Company or such Restricted
Subsidiary into cash (to the extent of the cash received) shall, in each case,
be deemed to be cash for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (1) to repay Senior
Debt of the Company or any Restricted Subsidiary (and, in the case of
revolving credit borrowings, to reduce commitments with respect thereto) or
(2) to the acquisition of a majority of the assets of, or a majority of the
Voting Stock of, another business, the making of a capital expenditure or the
acquisition of other long-term assets that are used or useful in the business
of the Company or any of its Restricted Subsidiaries. Pending the final
application of any such Net Proceeds, the Company may temporarily reduce
revolving credit borrowings or otherwise invest such Net Proceeds in any
manner that is not prohibited by the Indenture. Any Net Proceeds from Asset
Sales that are not applied or invested as provided in the first sentence of
this paragraph will be deemed to constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $15.0 million, the Company will be
required to make an offer to all holders of Notes (an "Asset Sale Offer") to
purchase the maximum principal amount of Notes that may be purchased out of
the Excess Proceeds at an offer price in cash in an amount equal to 100% of
the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages thereon to the date of purchase, in accordance with the procedures set
forth in the Indenture. To the extent that any Excess Proceeds remain after
consummation of an Asset Sale Offer, the Company may use such Excess Proceeds
for any purpose not otherwise prohibited by the Indenture. If the aggregate
principal amount of Notes tendered into such Asset Sale Offer exceeds the
amount of Excess Proceeds, the Trustee shall select the Notes to be purchased
on a pro rata basis. Upon completion of such offer to purchase, the amount of
Excess Proceeds shall be reset at zero.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of
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the Company's or any of its Restricted Subsidiaries' Equity Interests
(including, without limitation, any payment in connection with any merger or
consolidation involving the Company or any of its Subsidiaries) or to the
direct or indirect holders of the Company's or any of its Restricted
Subsidiaries' Equity Interests in their capacity as such (other than dividends
or distributions payable in Equity Interests (other than Disqualified Stock)
of the Company or to the Company or a Restricted Subsidiary of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation involving
the Company) any Equity Interests of the Company (other than any such Equity
Interests owned by the Company or any Restricted Subsidiary of the Company);
(iii) make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is subordinated to
the Notes, except a payment of interest or a payment of principal at Stated
Maturity; or (iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of and after giving
effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described under caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the Closing Date (excluding Restricted Payments
permitted by clauses (ii), (iii) and (iv) of the next succeeding
paragraph), is less than the sum, without duplication, of (1) 50% of
the Consolidated Net Income of the Company for the period (taken as one
accounting period) beginning April 1, 1998 to the end of the Company's
most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus (2) 100% of the aggregate net cash proceeds
received by the Company since the Closing Date as a contribution to its
common equity capital or from the issue or sale of Equity Interests of
the Company (other than Disqualified Stock) or from the issue or sale
of Disqualified Stock or debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary
of the Company), plus (3) to the extent that any Restricted Investment
that was made after the Closing Date is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (A) the cash return of
capital with respect to such Restricted Investment (less the cost of
disposition, if any) and (B) the initial amount of such Restricted
Investment, plus (4) $10.0 million.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of subordinated Indebtedness or Equity Interests of the Company in
exchange for, or out of the net cash proceeds of the substantially concurrent
sale (other than to a Subsidiary of the Company) of, other Equity Interests of
the Company (other than Disqualified Stock); provided that the amount of any
such net cash proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from clause
(c)(2) of the preceding paragraph; (iii) the defeasance, redemption,
repurchase or other acquisition of subordinated Indebtedness with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the
payment of any dividend by a Restricted Subsidiary of the Company to the
holders of its common Equity Interests on a pro rata basis; and (v) the
repurchase, redemption or other acquisition or retirement for value of any
Equity Interests of the Company held by any member of the Company's (or any of
its Subsidiaries') management, board of directors or employee stock ownership
plan; provided that the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests shall not exceed $1.0 million
in any twelve-month period and no Default or Event of Default shall have
occurred and be continuing immediately after such transaction.
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The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any non-cash Restricted Payment shall be determined
by the Board of Directors whose resolution with respect thereto shall be
delivered to the Trustee, such determination to be based upon an opinion or
appraisal issued by an accounting, appraisal or investment banking firm of
national standing if such fair market value exceeds $5.0 million. Not later
than 30 days following the end of any fiscal quarter of the Company in which
the Company or any of its Restricted Subsidiaries have made any Restricted
Payments, the Company shall deliver to the Trustee an Officers' Certificate
stating that such Restricted Payments were permitted and setting forth the
basis upon which the calculations required by the covenant "Restricted
Payments" were computed, together with a copy of any fairness opinion or
appraisal required by the Indenture.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash)
in the Subsidiary so designated will be deemed to be Restricted Payments at
the time of such designation and will reduce the amount available for
Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the fair market value of such Investments at the time of such
designation. Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
Any such designation by the Board of Directors shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the Board Resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions. If, at any time, any
Unrestricted Subsidiary would fail to meet the definition of an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of the Company as of such
date (and, if such Indebtedness is not permitted to be incurred as of such
date under the covenant described under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock," the Company shall be in default
of such covenant). The Board of Directors of the Company may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if
(i) such Indebtedness is permitted under the covenant described under the
caption "--Incurrence of Indebtedness and Issuance of Preferred Stock,"
calculated on a pro forma basis as if such designation had occurred at the
beginning of the four-quarter reference period, and (ii) no Default or Event
of Default would be in existence immediately following such designation.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that (i) the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and (ii) the Company will not permit
any of its Restricted Subsidiaries to issue any shares of preferred stock
(other than to the Company or a Wholly Owned Restricted Subsidiary of the
Company); provided, however, that the Company and its Restricted Subsidiaries
may incur Indebtedness (including Acquired Debt) and the Company's Restricted
Subsidiaries may issue preferred stock if the Fixed Charge Coverage Ratio for
the Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which
such additional Indebtedness is incurred or such preferred stock is issued
would have been at least 2.0 to 1, determined on a pro forma basis (including
a pro forma application of the net proceeds therefrom), as if such additional
Indebtedness had been incurred or such preferred stock had been issued at the
beginning of such four-quarter period.
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The provisions of the first paragraph of this covenant will not apply to the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness pursuant to the New Credit Agreement;
(ii) the incurrence by the Company and its Restricted Subsidiaries of
Existing Indebtedness;
(iii) the incurrence by the Company and the Guarantors of Indebtedness
represented by the Notes or the Subsidiary Guarantees, as applicable,
in each case, in an aggregate amount not to exceed $200.0 million;
(iv) the incurrence by the Company or its Restricted Subsidiaries of
Indebtedness in connection with the acquisition of assets or a new
Restricted Subsidiary; provided that such Indebtedness was incurred by
the prior owner of such assets or such Restricted Subsidiary prior to
such acquisition by the Company and its Restricted Subsidiaries and
was not incurred in connection with, or in contemplation of, such
acquisition by the Company and its Restricted Subsidiaries; and
provided further that the aggregate amount of Indebtedness incurred
pursuant to this clause (iv) does not exceed $10.0 million at any one
time outstanding;
(v) the incurrence by the Company or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness (other
than intercompany Indebtedness) that was permitted by the Indenture to
be incurred under the first paragraph hereof or clauses (ii), (iii),
(iv) or (ix) of this paragraph;
(vi) the incurrence by the Company or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Restricted Subsidiaries; provided, however, that (a) any subsequent
issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than the Company or a
Restricted Subsidiary of the Company and (b) any sale or other
transfer of any such Indebtedness to a Person that is not either the
Company or a Restricted Subsidiary of the Company shall be deemed, in
each case, to constitute an incurrence of such Indebtedness by the
Company or such Subsidiary, as the case may be, that was not permitted
by this clause (vi);
(vii) the incurrence by the Company or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred for the purpose of fixing or
hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of the Indenture to be
outstanding;
(viii) the incurrence by the Company and its Restricted Subsidiaries of
additional Indebtedness in an aggregate amount not to exceed $15.0
million at any one time outstanding;
(ix) the incurrence by the Company or its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case incurred for
the purpose of financing all or any part of the purchase price or cost
of construction or improvement of property, plant or equipment used in
the business of the Company or such Restricted Subsidiary, in an
aggregate principal amount not to exceed $10.0 million at any time
outstanding; and
(x) the guarantee by the Company or any of its Restricted Subsidiaries of
Indebtedness of the Company or a Restricted Subsidiary of the Company
that was permitted to be incurred by another provision of this
covenant.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories
of Permitted Debt described in clauses (i) through (x) above or is entitled to
be incurred pursuant to the first paragraph of this covenant, the Company
shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant. Accrual of interest, accretion or
amortization of original issue discount and the payment of interest on any
Indebtedness in the form of additional Indebtedness with the same terms will
not be deemed to be an incurrence of Indebtedness for purposes of this
covenant; provided, in each such case, that the amount thereof is included in
Fixed Charges of the Company as accrued.
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Liens
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien on any asset now owned or hereafter acquired, or
any income or profits therefrom or assign or convey any right to receive
income therefrom, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Subsidiary to (i)(a) pay dividends or make any other
distributions to the Company or any of its Restricted Subsidiaries (1) on its
Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (b) pay any indebtedness owed to the Company
or any of its Restricted Subsidiaries, (ii) make loans or advances to the
Company or any of its Restricted Subsidiaries or (iii) transfer any of its
properties or assets to the Company or any of its Restricted Subsidiaries;
provided, however, that the foregoing restrictions will not apply to
encumbrances or restrictions existing under or by reason of (A) Existing
Indebtedness as in effect on the Closing Date, (B) the New Credit Agreement as
in effect as of the Closing Date, and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof, provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacement or
refinancings are no more restrictive, taken as a whole, with respect to such
dividend and other payment restrictions than those contained in the New Credit
Agreement as in effect on the Closing Date, (C) the Indenture and the Notes,
(D) applicable law, (E) any instrument governing Indebtedness or Capital Stock
of a Person acquired by the Company or any of its Restricted Subsidiaries as
in effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person, or
the property or assets of the Person, so acquired, provided that, in the case
of Indebtedness, such Indebtedness was permitted by the terms of the Indenture
to be incurred, (F) customary non-assignment provisions in leases entered into
in the ordinary course of business, (G) purchase money obligations for
property acquired in the ordinary course of business that impose restrictions
of the nature described in clause (iii) above on the property so acquired, (H)
any agreement for the sale of a Restricted Subsidiary that restricts
distributions by such Restricted Subsidiary pending its sale, (I) Permitted
Refinancing Indebtedness, provided that the restrictions contained in the
agreements governing such Permitted Refinancing Indebtedness are no more
restrictive, taken as a whole, than those contained in the agreements
governing the Indebtedness being refinanced, (J) secured Indebtedness
otherwise permitted to be incurred pursuant to the provisions of the covenant
described under the caption "--Liens" that limits the right of the debtor to
dispose of the assets securing such Indebtedness, (K) provisions with respect
to the disposition or distribution of assets or property in joint venture
agreements and other similar agreements entered into in the ordinary course of
business and (L) restrictions on cash or other deposits or net worth imposed
by customers under contracts entered into in the ordinary course of business.
Merger, Consolidation or Sale of Assets
The Indenture provides that neither the Company nor any Guarantor may
consolidate or merge with or into (whether or not the Company or such
Guarantor is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions, to another corporation, Person or
entity unless (i) the Company or such Guarantor is the surviving corporation
or the entity or the Person formed by or surviving any such consolidation or
merger (if other than the Company or such Guarantor) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (ii) the entity or
Person formed by or surviving any such consolidation or merger (if other than
the Company or such Guarantor) or the entity or Person to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made assumes all the obligations of the Company
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or such Guarantor under the Notes and the Indenture pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee and under the
Registration Rights Agreement; (iii) immediately after such transaction no
Default or Event of Default exists; and (iv) except in the case of a merger of
the Company with or into a Wholly Owned Subsidiary of the Company, the Company
or the entity or Person formed by or surviving any such consolidation or
merger (if other than the Company or such Guarantor), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (a) will have Consolidated Net Worth immediately after the transaction
equal to or greater than the consolidated net worth of the Company immediately
preceding the transaction and (b) will, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred at
the beginning of the aplicable four-quarter period, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant described under
the caption "--Incurrence of Indebtedness and Issuance of Preferred Stock."
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or such Restricted Subsidiary than those that
would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (ii) the Company delivers
to the Trustee (a) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause
(i) above and that such Affiliate Transaction has been approved by a majority
of the disinterested members of the Board of Directors and (b) with respect to
any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $10.0 million, an opinion as to
the fairness to the holders of such Affiliate Transaction from a financial
point of view issued by an accounting, appraisal or investment banking firm of
national standing. Notwithstanding the foregoing, the following items shall
not be deemed to be Affiliate Transactions: (i) any employment agreement,
employee benefit plan or stock option plan entered into by the Company or any
of its Restricted Subsidiaries in the ordinary course of business and the
payment of customary director fees by the Company or any of its Restricted
Subsidiaries; (ii) transactions between or among the Company and its
Restricted Subsidiaries; and (iii) Restricted Payments that are permitted by
the provisions of the Indenture described above under the caption "--
Restricted Payments."
Additional Subsidiary Guarantees
The Indenture provides that if (i) the Company or any of its Domestic
Restricted Subsidiaries shall acquire or create another Domestic Restricted
Subsidiary or (ii) an Unrestricted Subsidiary of the Company is redesignated
as a Restricted Subsidiary or otherwise ceases to be an Unrestricted
Subsidiary and thereafter is a Domestic Restricted Subsidiary, then such newly
acquired, created or redesignated Domestic Restricted Subsidiary shall execute
a supplemental indenture becoming a Guarantor in accordance with the terms of
the Indenture.
Senior Subordinated Debt
The Indenture provides that (i) the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt of the Company
and senior in any respect in right of payment to the Notes and (ii) no
Guarantor will incur, create, issue, assume, guarantee or otherwise become
liable for any Indebtedness that is subordinate or junior in right of payment
to any Senior Debt of such Guarantor and senior in any respect in right of
payment to such Guarantor's Subsidiary Guarantee; provided, however, that no
Indebtedness of the Company or any Guarantor shall be
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deemed to be contractually subordinated in right of payment to any other
Indebtedness of the Company or such Guarantor solely by virtue of being
unsecured. In addition, the Indenture will provide that no Restricted
Subsidiary may incur any Indebtedness that is subordinated or junior in right
of payment to any Senior Debt of such Restricted Subsidiary unless such
Restricted Subsidiary (a) is a Guarantor or (b) executes a supplemental
indenture becoming a Guarantor in accordance with the terms of the Indenture.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the
Company will furnish to the holders of Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file
such Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that describes the financial condition
and results of operations of the Company and its consolidated Subsidiaries
(showing in reasonable detail, either on the face of the financial statements
or in the footnotes thereto and in Management's Discussion and Analysis of
Financial Condition and Results of Operations, the financial condition and
results of operations of the Company and its Restricted Subsidiaries separate
from the financial information and results of operations of the Unrestricted
Subsidiaries of the Company) and, with respect to the annual information only,
a report thereon by the Company's certified independent accountants and (ii)
all current reports that would be required to be filed with the Commission on
Form 8-K if the Company were required to file such reports. In addition,
whether or not required by the rules and regulations of the Commission, the
Company will file a copy of all such information and reports with the
Commission for public availability (unless the Commission will not accept such
a filing) and make such information available to securities analysts and
prospective investors upon request. In addition, the Company will agree that,
for so long as any Notes remain outstanding, it will furnish to holders of the
Notes and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Act.
Payments for Consent
The Indenture provides that neither the Company nor any of its Restricted
Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any holder of
any Notes for or as an inducement to any consent, waiver or amendment of any
of the terms or provisions of the Indenture or the Notes unless such
consideration is offered to be paid or is paid to all holders of the Notes
that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest or
Liquidated Damages on the Notes (whether or not prohibited by the
subordination provisions of the Indenture); (ii) default in payment when due
of the principal of or premium, if any, on the Notes (whether or not
prohibited by the subordination provisions of the Indenture); (iii) failure by
the Company or any of its Restricted Subsidiaries to comply with the
provisions described under the captions "--Change of Control" "--Asset Sales,"
"--Restricted Payments," "--Incurrence of Indebtedness and Issuance of
Preferred Stock" or "--Merger, Consolidation or Sale of Assets"; (iv) failure
by the Company or any of its Restricted Subsidiaries for 60 days after notice
to comply with any of its other agreements in the Indenture or the Notes; (v)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for
money borrowed by the Company or any of its Restricted Subsidiaries (or the
payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries) whether such Indebtedness or guarantee now exists, or is created
after the date of the Indenture, which default (a) is caused by a failure to
pay principal of or premium or interest on such Indebtedness prior to the
expiration of the grace period provided in such Indebtedness on the date of
such default (a "Payment Default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case,
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the principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated, aggregates
$10.0 million or more; (vi) failure by the Company or any of its Restricted
Subsidiaries to pay final judgments aggregating in excess of $10.0 million,
which judgments are not paid, discharged or stayed for a period of 60 days;
(vii) default by any Guarantor in the performance of any covenant set forth in
its Subsidiary Guarantee, repudiation by any Guarantor of its obligations
under its Subsidiary Guarantee, or the unenforceability of any Subsidiary
Guarantee against a Guarantor for any reason; and (viii) certain events of
bankruptcy or insolvency with respect to the Company or certain of its
Restricted Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Subsidiary or any group of Restricted Subsidiaries that, taken together, would
constitute a Significant Subsidiary, all outstanding Notes will become due and
payable without further action or notice. Holders of the Notes may not enforce
the Indenture or the Notes except as provided in the Indenture. Subject to
certain limitations, holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
In the case of any Event of Default occurring on or after April 1, 2003 by
reason of any willful action (or inaction) taken (or not taken) by or on
behalf of the Company with the intention of avoiding payment of the premium
that the Company would have had to pay if the Company then had elected to
redeem the Notes pursuant to the optional redemption provisions of the
Indenture, an equivalent premium shall also become and be immediately due and
payable to the extent permitted by law upon the acceleration of the Notes. If
an Event of Default occurs prior to April 1, 2003 by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding the prohibition on redemption of the Notes prior to
such date, then the premium specified in the Indenture shall also become
immediately due and payable to the extent permitted by law upon the
acceleration of the Notes.
The holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of principal of or interest on the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATORS AND
STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes or the Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each holder of Notes by accepting a
Note waives and releases all such liability. The waiver and release are part
of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of holders of outstanding Notes to
receive payments in respect of the principal of and premium, interest and
Liquidated Damages on the Notes when such payments are due from the trust
referred to below, (ii) the Company's obligations with respect to the Notes
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concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights,
powers, trusts, duties and immunities of the Trustee, and the Company's
obligations in connection therewith and (iv) the Legal Defeasance provisions
of the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of and premium, interest and Liquidated
Damages on the outstanding Notes on the stated maturity or on the applicable
redemption date, as the case may be, and the Company must specify whether the
Notes are being defeased to maturity or to a particular redemption date; (ii)
in the case of Legal Defeasance, the Company shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that (a) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (b) since the date
of the Indenture, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that the holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default
or Event of Default resulting from the borrowing of funds to be applied to
such deposit) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after
the date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following the
deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the holders of Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and (viii) the Company must deliver to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
all conditions precedent provided for or relating to the Legal Defeasance or
the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note
selected for redemption. Also, the Company is not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
The registered holder of a Note will be treated as the owner of it for all
purposes.
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AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture and
the Notes may be amended or supplemented with the consent of the holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the holders of a majority in principal amount of the then
outstanding Notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting holder): (i) reduce the
principal amount of Notes whose holders must consent to an amendment,
supplement or waiver; (ii) reduce the principal of or change the fixed
maturity of any Note or alter the provisions with respect to the redemption of
the Notes (other than provisions relating to the covenants described under the
caption "--Repurchase at the Option of Holders"); (iii) reduce the rate of or
change the time for payment of interest on any Note; (iv) waive a Default or
Event of Default in the payment of principal of or premium, interest or
Liquidated Damages on the Notes (except a rescission of acceleration of the
Notes by the holders of at least a majority in aggregate principal amount of
the Notes and a waiver of the payment default that resulted from such
acceleration); (v) make any Note payable in money other than that stated in
the Notes; (vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of holders of Notes to receive payments
of principal of or premium, interest or Liquidated Damages on the Notes; (vii)
waive a redemption payment with respect to any Note (other than a payment
required by one of the covenants described under the caption "--Repurchase at
the Option of Holders"); or (viii) make any change in the foregoing amendment
and waiver provisions. In addition, any amendment to the subordination
provisions of the Indenture will require the consent of the holders of at
least 75% in aggregate principal amount of the Notes then outstanding if such
amendment would adversely affect the rights of holders of Notes.
Notwithstanding the foregoing, without the consent of any holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to holders of Notes in the case of a
merger or consolidation or sale of all or substantially all of the Company's
assets, to make any change that would provide any additional rights or
benefits to the holders of Notes or that does not adversely affect the legal
rights under the Indenture of any such holder, or to comply with requirements
of the Commission in order to effect or maintain the qualification of the
Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request of any holder of Notes, unless such holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
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ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain copies of the forms of
Indenture and Registration Rights Agreement without charge by writing to
Columbus McKinnon Corporation, 140 John James Audubon Parkway, Amherst, New
York 14228-1197, Attention: Corporate Secretary.
BOOK-ENTRY, DELIVERY AND FORM
The certificates representing the Exchange Notes will be issued in
registered, global form without interest coupons (the "Global Exchange Notes")
and will be deposited with, or on behalf of, the Depositary and registered in
the name of Cede & Co., as nominee of the Depositary (such nominee being
referred to herein as the "Global Exchange Note Holder"), in each case for
credit to an account of a direct or indirect participant as described below.
The Exchange Notes that are issued as described below under the caption "--
Certificated Securities" will be issued in the form of registered definitive
certificates (the "Certificated Securities"). Such Certificated Securities
may, unless the Global Exchange Notes have previously been exchanged for
Certificated Securities, be exchanged for an interest in a Global Exchange
Note representing the principal amount of Exchange Notes being transferred.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers, banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively,
the "Indirect Participants" or the "Depositary's Indirect Participants") that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly. Persons who are not Participants may beneficially own
securities held by or on behalf of the Depositary only thorough the
Depositary's Participants or the Depositary's Indirect Participants.
The Company expects that, pursuant to procedures established by the
Depositary, (i) upon deposit of the Global Exchange Notes, the Depositary will
credit the accounts of Participants with portions of the principal amount of
the Global Exchange Notes and (ii) ownership of the Exchange Notes evidenced
by the Global Exchange Notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the Depositary
(with respect to the interests of the Depositary's Participants), the
Depositary's Participants and the Depositary's Indirect Participants.
Prospective purchasers are advised that the laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer Exchange Notes evidenced by
the Global Exchange Notes will be limited to such extent. For certain other
restrictions on the transferability of the Exchange Notes, see "Notice to
Investors."
Beneficial interests in one Global Exchange Note may be transferred to a
person who takes delivery in the form of a beneficial interest in another
Global Exchange Note only upon receipt by the Trustee of a written
certification (in the form provided in the Indenture) to the effect that such
transfer is being made in accordance with the Indenture and with the
Securities Act and any applicable securities laws of any state of the United
States or any other jurisdiction. Any beneficial interest in one of the Global
Exchange Notes that is transferred to a person who takes delivery in the form
of a beneficial interest in another Global Exchange Note will, upon transfer,
cease to be a beneficial interest in such Global Exchange Note and become a
beneficial interest in the other Global Exchange Note and accordingly, will
thereafter be subject to all transfer restrictions, if any, and other
procedures applicable to beneficial interests in such other Global Exchange
Note for as long as it remains such a beneficial interest.
So long as the Global Exchange Note Holder is the registered owner of any
Exchange Notes, the Global Exchange Note Holder will be considered the sole
holder under the Indenture of any Notes evidenced by the
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Global Exchange Notes. Beneficial owners of Exchange Notes evidenced by the
Global Exchange Notes will not be considered the owners or holders thereof
under the Indenture for any purpose, including with respect to the giving of
any directions, instructions or approvals to the Trustee thereunder. Neither
the Company nor the Trustee will have any responsibility or liability for any
aspect of the records of the Depositary or for maintaining, supervising or
reviewing any records of the Depositary relating to the Exchange Notes.
Payments in respect of the principal of and premium, interest and Liquidated
Damages on any Exchange Notes registered in the name of the Global Exchange
Note Holder on the applicable record date will be payable by the Trustee to or
at the direction of the Global Exchange Note Holder in its capacity as the
registered holder under the Indenture. Under the terms of the Indenture, the
Company and the Trustee may treat the persons in whose names Exchange Notes,
including the Global Exchange Notes, are registered as the owners thereof for
the purpose of receiving such payments. Consequently, neither the Company nor
the Trustee has or will have any responsibility or liability for the payment
of such amounts to beneficial owners of Exchange Notes. The Company believes,
however, that it is currently the policy of the Depositary to immediately
credit the accounts of the relevant Participants with such payments, in
amounts proportionate to their respective holdings of beneficial interests in
the relevant security as shown on the records of the Depositary. Payments by
the Depositary's Participants and the Depositary's Indirect Participants to
the beneficial owners of Exchange Notes will be governed by standing
instructions and customary practice and will be the responsibility of the
Depositary's Participants or the Depositary's Indirect Participants.
Certificated Securities
Subject to certain conditions, any person having a beneficial interest in a
Global Exchange Note may, upon request to the Trustee, exchange such
beneficial interest for Exchange Notes in the form of Certificated Securities.
Upon any such issuance, the Trustee is required to register such Certificated
Securities in the name of, and cause the same to be delivered to, such person
or persons (or the nominee of any thereof). In addition, if (i) the Company
notifies the Trustee in writing that the Depositary is no longer willing or
able to act as a depositary and the Company is unable to locate a qualified
successor within 90 days or (ii) the Company, at its option, notifies the
Trustee in writing that it elects to cause the issuance of Exchange Notes in
the form of Certificated Securities under the Indenture, then, upon surrender
by the Global Exchange Note Holder of the Exchange Global Notes, Exchange
Notes in such form will be issued to each person that the Global Exchange Note
Holder and the Depositary identify as being the beneficial owner of the
related Exchange Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Exchange Note Holder or the Depositary in identifying the beneficial
owners of Notes and the Company and the Trustee may conclusively rely on, and
will be protected in relying on, instructions from the Global Exchange Note
Holder or the Depositary for all purposes.
Same-Day Settlement and Payment
The Indenture requires that payments in respect of the Exchange Notes
represented by the Global Exchange Notes (including principal, premium,
interest and Liquidated Damages, if any) be made by wire transfer of
immediately available funds to the accounts specified by the Global Exchange
Note Holder. With respect to Certificated Securities, the Company will make
all payments of principal, premium, interest and Liquidated Damages by wire
transfer of immediately available funds to the accounts specified by the
holders thereof or, if no such account is specified, by mailing a check to
each such holder's registered address.
The Exchange Notes represented by the Global Exchange Notes are expected to
be eligible to trade in the PORTAL market and to trade in the Depositary's
Same-Day Funds Settlement System, and any permitted secondary market trading
activity in such Notes will, therefore, be required by the Depositary to be
settled in immediately available funds. The Company expects that secondary
trading in the Certificated Securities will also be settled in immediately
available funds.
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REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Pursuant to the Registration Rights Agreement, the Company and the
Guarantors have agreed to file the Exchange Offer Registration Statement with
the Commission on the appropriate form under the Securities Act with respect
to the Exchange Notes. Upon the effectiveness of the Exchange Offer
Registration Statement, the Company will offer to holders of Transfer
Restricted Securities who are able to make certain representations the
opportunity to exchange their Transfer Restricted Securities for Exchange
Notes pursuant to the Exchange Offer. If (i) the Company and the Guarantors
are not required to file the Exchange Offer Registration Statement or
permitted to consummate the Exchange Offer because the Exchange Offer is not
permitted by applicable law or Commission policy or (ii) any holder of
Transfer Restricted Securities notifies the Company prior to the 20th day
following consummation of the Exchange Offer that (a) it is prohibited by law
or Commission policy from participating in the Exchange Offer, (b) it may not
resell the Exchange Notes acquired by it in the Exchange Offer to the public
without delivering a prospectus and the prospectus contained in the Exchange
Offer Registration Statement is not appropriate or available for such resales
or (c) it is a broker-dealer and owns Private Notes acquired directly from the
Company or an affiliate of the Company, the Company and the Guarantors will
file a Shelf Registration Statement with the Commission to cover resales of
the Private Notes by the holders thereof who satisfy certain conditions
relating to the provision of information in connection with the Shelf
Registration Statement. The Company and the Guarantors will use their best
efforts to cause the applicable registration statement to be declared
effective as promptly as possible by the Commission. For purposes of the
foregoing, "Transfer Restricted Securities" means each Private Note until (1)
the date on which such Private Note has been exchanged by a person other than
a broker-dealer for an Exchange Note in the Exchange Offer, (2) following the
exchange by a broker-dealer in the Exchange Offer of a Private Note for an
Exchange Note, the date on which such Exchange Note is sold to a purchaser who
receives from such broker-dealer on or prior to the date of such sale a copy
of the prospectus contained in the Exchange Offer Registration Statement, (3)
the date on which such Private Note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (4) the date on which such Note is distributed to the public
pursuant to Rule 144 under the Act.
The Registration Rights Agreement provides that (i) the Company and the
Guarantors will file an Exchange Offer Registration Statement with the
Commission on or prior to 60 days after the Closing Date, (ii) the Company and
the Guarantors will use their best efforts to have the Exchange Offer
Registration Statement declared effective by the Commission on or prior to 120
days after the Closing Date, (iii) unless the Exchange Offer would not be
permitted by applicable law or Commission policy, the Company and the
Guarantors will commence the Exchange Offer and use their best efforts to
issue Exchange Notes in exchange for all Private Notes tendered in the
Exchange Offer on or prior to 30 business days after the date on which the
Exchange Offer Registration Statement was declared effective by the Commission
and (iv) if obligated to file the Shelf Registration Statement, the Company
and the Guarantors will use their best efforts to file the Shelf Registration
Statement with the Commission on or prior 45 days after such filing obligation
arises and to cause the Shelf Registration to be declared effective by the
Commission on or prior to 120 days after such obligation arises. If (a) the
Company and the Guarantors fail to file any of the Registration Statements
required by the Registration Rights Agreement on or before the date specified
for such filing, (b) any of such Registration Statements is not declared
effective by the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), (c) the Company fails to
consummate the Exchange Offer within 30 business days of the Effectiveness
Target Date with respect to the Exchange Offer Registration Statement, or (d)
the Shelf Registration Statement or the Exchange Offer Registration Statement
is declared effective but thereafter ceases to be effective or usable in
connection with resales of Transfer Restricted Securities during the periods
specified in the Registration Rights Agreement (each such event referred to in
clauses (a) through (d) above a "Registration Default"), then the Company will
pay Liquidated Damages to each holder of Private Notes, with respect to the
first 90-day period immediately following the occurrence of the first
Registration Default in an amount equal to $.05 per week per $1,000 principal
amount of Private Notes held by such holder. The amount of the Liquidated
Damages will increase by an additional $.05 per week per $1,000 principal
amount of Private Notes with respect to each subsequent 90-day period until
all Registration Defaults have been cured, up to a
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maximum amount of Liquidated Damages for all Registration Defaults of $.50 per
week per $1,000 principal amount of Private Notes. Following the cure of all
Registration Defaults, the accrual of Liquidated Damages will cease.
Holders of Private Notes will be required to make certain representations to
the Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver certain
information to be used in connection with the Shelf Registration Statement and
to provide comments on the Shelf Registration Statement within the time
periods set forth in the Registration Rights Agreement in order to have their
Private Notes included in the Shelf Registration Statement and benefit from
the provisions regarding Liquidated Damages set forth above.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified
Person, including, without limitation, Indebtedness incurred in connection
with, or in contemplation of, such other Person merging with or into or
becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured
by a Lien encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the Voting Stock of a
Person shall be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback), other than sales of inventory in the ordinary course of business
(provided that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole will be governed by the provisions of the Indenture described
above under the caption "--Change of Control" and/or the provisions described
above under the caption "--Merger, Consolidation or Sale of Assets" and not by
the provisions of the Asset Sale covenant), and (ii) the issue or sale by the
Company or any of its Subsidiaries of Equity Interests of any of the Company's
Subsidiaries, in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $3.0 million or (b) for net proceeds in excess of
$3.0 million. Notwithstanding the foregoing, the following items shall not be
deemed to be Asset Sales: (i) a transfer of assets by the Company to a
Restricted Subsidiary or by a Restricted Subsidiary to the Company or to
another Restricted Subsidiary; (ii) an issuance of Equity Interests by a
Restricted Subsidiary to the Company or to a Wholly Owned Restricted
Subsidiary of the Company; (iii) the sale of businesses or assets identified
by the Company prior to the Closing Date as being held for sale; (iv) the sale
of excess or obsolete assets, consistent with past practices; (v) the
disposition of marketable securities by CM Insurance Company, Inc. solely to
satisfy any insurance claims required to be paid in connection with such
company's insurance policies and (vi) a Restricted Payment that is permitted
by the covenant described above under the caption "--Restricted Payments."
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
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"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof) having maturities of not
more than six months from the date of acquisition, (iii) certificates of
deposit and eurodollar time deposits with maturities of six months or less
from the date of acquisition, bankers' acceptances with maturities not
exceeding six months and overnight bank deposits, in each case with any
domestic commercial bank having capital and surplus in excess of $500 million
and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase obligations
with a term of not more than seven days for underlying securities of the types
described in clauses (ii) and (iii) above entered into with any financial
institution meeting the qualifications specified in clause (iii) above, (v)
commercial paper having the highest rating obtainable from Moody's Investors
Service, Inc. or Standard & Poor's Corporation and in each case maturing
within six months after the date of acquisition and (vi) money market funds
substantially all of the assets of which constitute Cash Equivalents of the
kinds described in clauses (i) through (v) of this definition.
"Closing Date" means the first date on which Notes are issued under the
Indenture.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus, to the extent
deducted in computing such Consolidated Net Income: (i) an amount equal to any
extraordinary loss plus any net loss realized in connection with an Asset
Sale; (ii) provision for taxes based on income or profits of such Person and
its Restricted Subsidiaries; (iii) consolidated interest expense of such
Person and its Restricted Subsidiaries, whether paid or accrued and whether or
not capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations); (iv) depreciation, amortization (including amortization of
goodwill and other intangibles but excluding amortization of prepaid cash
expenses that were paid in a prior period) and other non-cash expenses
(excluding any such non-cash expense to the extent that it represents an
accrual of or reserve for cash expenses in any future period or amortization
of a prepaid cash expense that was paid in a prior period) of such Person and
its Restricted Subsidiaries; less the amount of non-cash items increasing such
Consolidated Net Income for such period, in each case, on a consolidated basis
and determined in accordance with GAAP. Notwithstanding the foregoing, (a) the
provision for taxes on the income or profits of, and the depreciation and
amortization and other non-cash expenses of, a Restricted Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent that a corresponding amount would be
permitted at the date of determination to be dividended to the Company by such
Restricted Subsidiary without prior governmental approval (that has not been
obtained), and without direct or indirect restriction pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Restricted
Subsidiary or its stockholders, and (b) the Net Income of any Unrestricted
Subsidiary shall be excluded, whether or not distributed to the Company or one
of its Restricted Subsidiaries.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted Subsidiary
thereof, (ii) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of such Net Income is not at the
date of
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determination permitted without any prior governmental approval (that has not
been obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Subsidiary or its stockholders,
(iii) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded and (iv) the cumulative effect of a change in accounting principles
shall be excluded.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) Indebtedness outstanding under the New
Credit Agreement and (ii) any other Senior Debt permitted under the Indenture
the principal amount of which is $25.0 million or more and that has been
designated by the Company as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature; provided, however, that any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof have the
right to require the Company to repurchase such Capital Stock upon the
occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock.
"Domestic Restricted Subsidiary" of a Person means, at any date of
determination, any Restricted Subsidiary of such Person that (i) is organized
under the laws of the United States, any State thereof or the District of
Columbia as of such date or (ii) is not so organized but, due to an election
or otherwise, for any taxable year (or a portion thereof) that includes such
date (a) is treated as a domestic entity for United States federal income tax
purposes or (b) is treated as a partnership or a division of a domestic entity
for United States federal income tax purposes.
"Employee Stock Ownership Plan" means the Columbus McKinnon Corporation
Stock Ownership Plan, as amended from time to time in good faith by the Board
of Directors of the Company.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of the Company and its Restricted
Subsidiaries (other than Indebtedness under the New Credit Agreement and
Indebtedness being repaid with the net proceeds of the Offering) in existence
on the Closing Date, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person
and its Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), (ii) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period, (iii) any interest
expense on Indebtedness of another Person that is Guaranteed by such Person or
one of its Restricted Subsidiaries or secured by a Lien on assets of such
Person or one of its Restricted Subsidiaries (whether or not such Guarantee or
Lien is called upon) and (iv) the product of (a) all dividend payments,
whether or not in cash, on any series of preferred stock of such Person or any
of its Restricted Subsidiaries, other than dividend payments on Equity
Interests payable solely in Equity Interests of the Company (other than
Disqualified Stock) or to the Company or a Restricted Subsidiary of the
Company, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state and
local statutory tax rate of such Person, expressed as a decimal, in each case,
on a consolidated basis and in accordance with GAAP.
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"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period; provided, however, that
(i) in the event that the referent Person or any of its Restricted
Subsidiaries incurs, assumes, Guarantees or redeems any Indebtedness (other
than revolving credit borrowings) or issues or redeems preferred stock
subsequent to the commencement of the period for which the Fixed Charge
Coverage Ratio is being calculated but prior to the date on which the event
for which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, Guarantee or
redemption of Indebtedness, or such issuance or redemption of preferred stock,
as if the same had occurred at the beginning of the applicable four-quarter
reference period and (ii) for purposes of making the computation referred to
above, (a) acquisitions that have been made by the Company or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to the
Calculation Date shall be deemed to have occurred on the first day of the
four-quarter reference period and Consolidated Cash Flow for such reference
period shall be calculated without giving effect to clause (iii) of the
proviso set forth in the definition of Consolidated Net Income, (b) the
Consolidated Cash Flow attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, and (c) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded,
but only to the extent that the obligations giving rise to such Fixed Charges
will not be obligations of the referent Person or any of its Subsidiaries
following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all Indebtedness of others
secured by a Lien on any asset of such Person (whether or not such
Indebtedness is assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any indebtedness of any other
Person. The amount of any Indebtedness outstanding as of any date shall be (i)
the accreted value thereof, in the case of any Indebtedness issued with
original issue discount, and (ii) the principal amount thereof, together with
any interest thereon that is more than 30 days past due, in the case of any
other Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of
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Indebtedness, Equity Interests or other securities, together with all items
that are or would be classified as investments on a balance sheet prepared in
accordance with GAAP. If the Company or any Restricted Subsidiary of the
Company sells or otherwise disposes of any Equity Interests of any direct or
indirect Restricted Subsidiary of the Company such that, after giving effect
to any such sale or disposition, such Person is no longer a Restricted
Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair
market value of the Equity Interests of such Restricted Subsidiary not sold or
disposed of in an amount determined as provided in the final paragraph of the
covenant described under the caption "--Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Make-Whole Amount" means, with respect to any Note, an amount equal to the
excess, if any, of (i) the present value of the remaining principal, premium
and interest payments that would be payable with respect to such Note if such
Note were redeemed on April 1, 2003, computed using a discount rate equal to
the Treasury Rate plus 50 basis points, over (ii) the outstanding principal
amount of such Note.
"Make-Whole Average Life" means, with respect to any date of redemption of
Notes, the number of years (calculated to the nearest one-twelfth) from such
redemption date to April 1, 2003.
"Make-Whole Price" means, with respect to any Note, the greater of (i) the
sum of the principal amount of such Note and the Make-Whole Amount with
respect to such Note and (ii) the redemption price of such Note on April 1,
2003.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but
not loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b)
the disposition of any securities by such Person or any of its Subsidiaries or
the extinguishment of any Indebtedness of such Person or any of its
Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not loss),
together with any related provision for taxes on such extraordinary or
nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of
any non-cash consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), and any reserve for adjustment
in respect of the sale price of such asset or assets established in accordance
with GAAP.
"New Credit Agreement" means that certain Credit Agreement, to be dated as
of March 31, 1998, by and among the Company, certain lenders and other
financial institutions, and Fleet National Bank, as administrative agent for
such lenders and financial institutions, initially providing for up to $300.0
million of borrowings, but in no event shall such borrowings exceed $325.0
million at any one time outstanding, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, modified, restated, renewed, refunded,
replaced or refinanced from time to time, less the aggregate amount of all Net
Proceeds of Asset Sales that have been applied since the Closing Date to
permanently reduce any Indebtedness under the New Credit Agreement pursuant to
the covenant described above under the caption "--Repurchase at the Option of
Holders--Asset Sales."
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"Non-Recourse Debt" means Indebtedness: (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise) or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other
than the Notes) of the Company or any of its Restricted Subsidiaries to
declare a default on such other Indebtedness or cause the payment thereof to
be accelerated or payable prior to its stated maturity.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Investments" means (i) any Investment in the Company or in a
Restricted Subsidiary of the Company; (ii) any Investment in Cash Equivalents;
(iii) any Investment by the Company or any Restricted Subsidiary of the
Company in a Person if, as a result of such Investment, (a) such Person
becomes a Restricted Subsidiary of the Company or (b) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary of the Company; (iv) any Investment made as a result of
the receipt of non-cash consideration from an Asset Sale that was made
pursuant to and in compliance with the covenant described under the caption
"--Asset Sales"; (v) any Investments to the extent acquired in exchange for
the issuance of Equity Interests (other than Disqualified Stock) of the
Company; (vi) any Investment by the Company in CM Insurance Company, Inc. in
the ordinary course of business, consistent with past practices and (vii)
other Investments in an amount not to exceed $20.0 million.
"Permitted Junior Securities" of a Person means (i) Equity Interests in such
Person and (ii) debt securities of such Person that are subordinated to all
Senior Debt (and any debt securities issued in exchange for Senior Debt) of
such Person to substantially the same extent as, or to a greater extent than,
the Notes are subordinated to Senior Debt of the Company.
"Permitted Liens" means (i) Liens securing Senior Debt; (ii) Liens in favor
of the Company or any of its Wholly Owned Restricted Subsidiaries; (iii) Liens
on property of a Person existing at the time such Person is merged into or
consolidated with the Company or any Restricted Subsidiary of the Company;
provided that such Liens were in existence prior to the contemplation of such
merger or consolidation and do not extend to any assets other than those of
the Person merged into or consolidated with the Company; (iv) Liens on
property existing at the time of acquisition thereof by the Company or any
Restricted Subsidiary of the Company, provided that such Liens were in
existence prior to the contemplation of such acquisition; (v) Liens to secure
the performance of statutory obligations, surety or appeal bonds, performance
bonds or other obligations of a like nature incurred in the ordinary course of
business; (vi) Liens existing on the date of the Indenture; (vii) Liens for
taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded, provided that any
reserve or other appropriate provision as shall be required in conformity with
GAAP shall have been made therefor; and (viii) Liens incurred in the ordinary
course of business of the Company or any Restricted Subsidiary of the Company
with respect to obligations that do not exceed $5.0 million at any one time
outstanding and that (a) are not incurred in connection with the borrowing of
money or the obtaining of advances or credit (other than trade credit in the
ordinary course of business) and (b) do not in the aggregate materially
detract from the value of the property or materially impair the use thereof in
the operation of business by the Company or such Restricted Subsidiary.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or such Restricted Subsidiary (other
than intercompany Indebtedness); provided that: (i) the principal amount (or
accreted value, if applicable) of such Permitted Refinancing Indebtedness does
not exceed the principal amount of (or accreted value, if applicable), plus
accrued interest on, the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount
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<PAGE>
of reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date no earlier than the final
maturity date, and a Weighted Average Life to Maturity equal to or greater
than the Weighted Average Life to Maturity, of the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment to the Notes, such Permitted
Refinancing Indebtedness is subordinated in right of payment to the Notes on
terms at least as favorable to the holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either
by the Company or by the Restricted Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Debt" of any Person means (i) all Indebtedness of such Person under
the New Credit Agreement, (ii) any other Indebtedness of such Person permitted
to be incurred under the terms of the Indenture, unless the instrument under
which such Indebtedness is incurred expressly provides that it is subordinated
to any Senior Debt of such Person and (iii) all Obligations with respect to
the foregoing. Notwithstanding anything to the contrary in the foregoing,
Senior Debt will not include (a) any liability for federal, state, local or
other taxes owed or owing by such Person, (b) any Indebtedness of such Person
to any of its Subsidiaries or other Affiliates, (c) any trade payables or (d)
any Indebtedness that is incurred in violation of the Indenture.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the Closing Date.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the
date originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof).
"Treasury Rate" means, at any date of computation, the yield to maturity as
of such date (as compiled by and published in the most recent Federal Reserve
Statistical Release H.15 (519), which has become publicly available at least
two business days prior to the date of the redemption notice for which such
computation is being made, or if such Statistical Release is no longer
published, as reported in any publicly available source of similar market
data) of United States Treasury securities with a constant maturity most
nearly equal to the Make-Whole Average Life; provided, however, that if the
Make-Whole Average Life is not equal to the constant maturity of the United
States Treasury security for which a weekly average yield is given, the
Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given, except that if the Make-
Whole Average Life is less than one year, the weekly average yield on actually
traded United States treasury securities adjusted to a constant maturity of
one year shall be used.
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<PAGE>
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution, but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company; (c) is a Person with respect to
which neither the Company nor any of its Restricted Subsidiaries has any
direct or indirect obligation (1) to subscribe for additional Equity Interests
or (2) to maintain or preserve such Person's financial condition or to cause
such Person to achieve any specified levels of operating results; (d) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries; and (e) has
at least one director on its board of directors that is not a director or
executive officer of the Company or any of its Restricted Subsidiaries and has
at least one executive officer that is not a director or executive officer of
the Company or any of its Restricted Subsidiaries.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall
at the time be owned by such Person and its other Wholly Owned Restricted
Subsidiaries.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
considerations relating to the purchase, ownership and disposition of the
Notes, but does not purport to be a complete analysis of all the potential tax
considerations relating thereto. This summary is based on the Internal Revenue
Code of 1986, as amended (the "Code"), existing, temporary, and proposed
Treasury Regulations, and laws, rulings and decisions now in effect, all of
which are subject to change. This summary deals only with holders that will
hold Notes as "capital assets" (within the meaning of Section 1221 of the
Code). This summary does not address tax considerations applicable to
investors that may be subject to special tax rules, such as banks, tax-exempt
organizations, insurance companies, dealers in securities or currencies, or
persons that will hold Notes as a position in a hedging transaction,
"straddle" or "conversion transaction" for tax purposes.
For the purposes of this discussion, a "U.S. holder" means any holder of a
Note that is (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any state thereof (except, in the case of a
partnership, to the extent future Treasury Regulations provide otherwise),
(iii) an estate the income of which is subject to United States federal income
taxation regardless of its source, or (iv) a trust other than a "foreign
trust," as such term is defined in Section 7701(a)(31) of the Code. A "Non-
U.S. holder" means any holder of a Note that is not a U.S. holder.
THE FOLLOWING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, INVESTORS
CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME AND ESTATE TAX
LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING
UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR UNDER ANY
APPLICABLE TAX TREATY.
UNITED STATES FEDERAL INCOME TAXATION OF U.S. HOLDERS
Payment of Interest
Interest on a Note generally will be includable in the income of the U.S.
holder of such Note as ordinary income at the time such interest is received
or accrued, in accordance with such holder's method of accounting for United
States federal income tax purposes.
Original Issue Discount
In addition, the Notes will be treated as issued with original issue
discount ("OID"), if the amount of OID exceeds a de minimis amount. If so, all
U.S. holders, regardless of method of accounting for tax purposes, will be
required to include OID in income as it accrues. OID will generally be treated
as interest income to the U.S. holder and will accrue on a yield-to-maturity
basis over the life of the Notes, as discussed below. The amount of OID with
respect to a Note will be an amount equal to the excess of the stated
redemption price at maturity of such Note over the issue price of such Note.
The stated redemption price at maturity of each Note will include all cash
payments, including principal and interest, required to be made thereunder
until maturity other than qualified stated interest. Stated interest on the
Note will not qualify as qualified stated interest. The issue price of a Note
will be the first price at which a substantial portion of it is sold to the
holders for cash. The Company believes that the amount of OID on the Notes is
de minimis within the definition to the Code. Accordingly, OID on the Notes
would be disregarded for tax purposes.
Sale, Exchange or Retirement of the Notes
Upon the sale, exchange or redemption of a Note, a U.S. holder generally
will recognize capital gain or loss equal to the difference between (i) the
amount of cash proceeds and the fair market value of any property
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received on the sale, exchange or redemption (except to the extent such amount
is attributable to either Liquidated Damages, discussed below, or accrued
interest income not previously included in income which is taxable as ordinary
income) and (ii) such holder's adjusted tax basis in the Note. A holder's
adjusted tax basis in a Note generally will equal the cost of the Note to such
holder. Such capital gain or loss will be long-term capital gain or loss if
the holder's holding period in the Note is more than one year at the time of
sale, exchange or redemption. Under recently enacted legislation, the net
capital gain of an individual derived in respect of the Notes generally will
be taxed at a maximum rate of 28% if the holding period for the Notes was
greater than one year but not more than 18 months, or 20% if the holding
period was greater than 18 months.
Exchange of Notes for Exchange Notes
The exchange of Private Notes for Exchange Notes pursuant to the Exchange
Offer should not be considered a taxable exchange for federal income tax
purposes because the Exchange Notes should not constitute a material
modification of the terms of the Notes. Accordingly, such exchange should have
no federal income tax consequences to U.S. holders of Notes, and the basis of
such a holder in an Exchange Note will be the same as such holder's adjusted
tax basis in the Note exchanged therefor.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest on a Note and payments of the
proceeds of the sale of a Note to certain noncorporate holders, and a 31%
backup withholding tax may apply to such payments if the U.S. holder (i) fails
to furnish or certify his correct taxpayer identification number to the payer
in the manner required, (ii) is notified by the Internal Revenue Service that
he has failed to report payments of interest and dividends properly or (iii)
under certain circumstances, fails to certify that he has not been notified by
the Internal Revenue Service that he is subject to backup withholding for
failure to report interest and dividend payments. Any amounts withheld under
the backup withholding rules from a payment to a U.S. holder will be allowed
as a credit against such holder's United States federal income tax and may
entitle the holder to a refund, provided that the required minimum information
is furnished to the Internal Revenue Service.
Liquidated Damages
The Company believes that Liquidated Damages, if any, described above under
"Description of Notes--Registration Rights; Liquidated Damages" will be
taxable to the U.S. holder as ordinary income in accordance with the holder's
method of accounting for federal income tax purposes. The Internal Revenue
Service may take a different position, however, which could affect the timing
of a holder's income with respect to Liquidated Damages, if any.
UNITED STATES FEDERAL INCOME TAXATION OF NON-U.S. HOLDERS
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a person other than a U.S. holder generally
will not be subject to U.S. federal income tax provided (i) such gain is not
effectively connected with the conduct by such holder of a trade or business
in the United States, and (ii) in the case of gains derived by an individual,
such individual is not present in the United States for 183 days or more in
the taxable year of the disposition.
Payments of interest to a Non-U.S. holder with respect to a Note generally
will not be subject to U.S. federal income tax and a withholding tax if (a)
the interest is not effectively connected with the conduct by such holder of a
trade or business in the United States, (b) either (i) the beneficial owner of
the Note certifies to the Company or its agent, under penalties of perjury,
that it is not a U.S. person and provides its name and address on an Internal
Revenue Service Form W-8 (or a suitable substitute form) or (ii) a securities
clearing organization, bank or other financial organization that holds
customers' securities in the ordinary course of business (a "financial
institution") and holds the Note certifies under penalties of perjury that
such a Form W-8 (or suitable substitute
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<PAGE>
form) has been received from the beneficial owner by it or by a financial
institution between it and the beneficial owner and furnishes the payor with a
copy thereof, and (c) the person does not actually or constructively own 10%
or more of the voting power of all voting stock of the Company and is not a
controlled foreign corporation for U.S. tax purposes that is related to the
Company through stock ownership.
Recently finalized, Treasury regulations, which are generally effective with
respect to payments made after December 31, 1998 subject to certain transition
rules, provide alternative certification requirements and means by which a
holder of a Note could claim the exemption from U.S. federal income and
withholding tax.
If interest on the Notes is exempt from withholding of United States federal
income tax under the rules described above, the Notes will not be included in
the estate of a deceased Non-United States holder for United States federal
estate tax purposes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company will, where required, report to the holders of Notes and the
Internal Revenue Service the amount of any interest paid on the Notes in each
calendar year and the amounts of tax withheld, if any, with respect to such
payments.
In the case of payments of interest to Non-U.S. holders, Temporary Treasury
regulations provide that the 31% backup withholding tax and certain
information reporting will not apply to such payments with respect to which
either the requisite certification, as described above, has been received or
an exemption has otherwise been established; provided that neither the Company
nor its payment agent has actual knowledge that the holder is a United States
person or that the conditions of any other exemption are not in fact
satisfied. Under temporary Treasury regulations, these information reporting
and backup withholding requirements will apply, however, to the gross proceeds
paid to a Non-U.S. holder on the disposition of the Notes by or through a
United States office of a United States or foreign broker, unless the holder
certifies to the broker under penalties of perjury as to its name, address and
status as a foreign person or the holder otherwise establishes an exemption.
Information reporting requirements, but not backup withholding, will also
apply to a payment of the proceeds of a disposition of the Notes by or through
a foreign office of a United States broker or foreign brokers with certain
types of relationships to the United States unless such broker has documentary
evidence in its file that the holder of the Notes is not a United States
person, and such broker has no actual knowledge to the contrary, or the holder
establishes an exception. Neither information reporting nor backup withholding
generally will apply to a payment of the proceeds of a disposition of the
Notes by or through a foreign office of a foreign broker not subject to the
preceding sentence.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the Non-U.S.
holder's United States federal income tax liability, provided that the
required information is furnished to the Internal Revenue Service.
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PLAN OF DISTRIBUTION
Based on an interpretation by the staff of the Commission set forth in no-
action letters issued to third parties, the Company believes that the Exchange
Notes issued pursuant to the Exchange Offer in exchange for Private Notes may
be offered for resale, resold and otherwise transferred by a holder thereof
(other than (i) an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act, (ii) a broker-dealer who acquired Private Notes
directly from the Company to resell pursuant to Rule 144A or any other
available exemption under the Securities Act or (iii) a broker-dealer who
acquired Private Notes as a result of market making or other trading
activities), without compliance with the registration and prospectus delivery
requirements of the Securities Act; provided that the holder is acquiring
Exchange Notes in the ordinary course of its business and is not
participating, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes. Holders of Private
Notes wishing to accept the Exchange Offer must represent to the Company, as
required by the Registration Rights Agreement, that such conditions have been
met. The Company believes that none of the registered holders of the Private
Notes is an affiliate (as such term is defined in Rule 405 under the
Securities Act) of the Company.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Private Notes must acknowledge that it will deliver a prospectus
in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Private Notes, where
such Private Notes were acquired by such broker-dealer as a result of market-
making activities or other trading activities. The Company has agreed to make
this Prospectus (as it may be amended or supplemented) available to any
broker-dealer, upon request, for use in connection with any such resale, for a
period of two years after the Registration Statement is declared effective by
the Commission or until such earlier date on which all the Exchange Notes are
freely tradeable. However, any broker-dealer who acquired the Notes directly
from the Company may not fulfill its prospectus delivery requirements with
this Prospectus, but must comply with the registration and prospectus delivery
requirements of the Securities Act.
The Company will not receive any proceeds from any sale of the Exchange
Notes by broker-dealers or any other persons. Exchange Notes received by
broker-dealers for their own accounts pursuant to the Exchange Offer may be
sold for time to time in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the
Exchange Notes or a combination of such methods of resale, at market prices
prevailing at the time of such resale, at prices related to such prevailing
market prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer and/or
purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange
Notes that were received by it for its own account pursuant to the Exchange
Offer and any broker or dealer that participates in the distribution of such
Exchange Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of Exchange Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes pursuant to the Exchange Offer agrees that, upon receipt of
notice from the Company of the happening of any event which makes any
statement in the Prospectus untrue in any material respect or which requires
the making of any changes in the Prospectus in order to make the statements
therein not misleading (which notice the Company agrees to deliver promptly to
such broker-dealer), such broker-dealer will suspend use of the Prospectus
until the Company has amended or supplemented the Prospectus to correct such
misstatement or omission and has furnished copies of the amended or
supplemented Prospectus to such broker-dealer. If the Company shall give any
such notice to suspend the use of the Prospectus, it shall extend the two-year
period referred to above by the
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number of days during the period from and including the date of the giving of
such notice to and including the date when the broker-dealers shall have
received copies of the supplemented or amended Prospectus necessary to permit
resales of the Exchange Notes.
The Company has agreed to pay all expenses incident to the performance of,
or compliance with, the Registration Rights Agreement by the Company and the
Guarantors and will indemnify the holders (including any broker-dealers) and
certain parties related to the holders against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The legality of the securities being offered hereby will be passed upon for
the Company by Lippes, Silverstein, Mathias & Wexler LLP, Buffalo, New York,
counsel to the Company.
EXPERTS
The consolidated financial statements of Columbus McKinnon Corporation
appearing herein for the year ended March 31, 1998 have been audited by Ernst
& Young LLP, independent auditors, as set forth in their report included
herein. The consolidated financial statements of LICO, Inc. and Subsidiaries
for the year ended September 30, 1997 appearing in the Company's Current
Report on Form 8-K dated April 9, 1998 and incorporated by reference herein
also have been audited by Ernst & Young LLP as set forth in their report
thereon included therein. The consolidated financial statements of Spreckels
Industries Inc. and Subsidiaries (doing business as Yale International Inc.)
for the year ended June 30, 1996 herein incorporated by reference to the
Company's current report on Form 8-K/A dated December 31, 1996, have been
audited by Arthur Andersen LLP, independent public accountants, as set forth
in their report with respect thereto, and are incorporated by reference herein
in reliance upon the authority of said firm as experts in giving said report.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by the Company with the Commission can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's regional offices located at Seven World Trade Center, New
York, New York 10048, and Suite 1400, Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661. Copies of such materials can be
obtained from the Public Reference Section of the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission also maintains a web site (http://www.sec.com) that contains
reports, proxy and information statements regarding registrants, such as the
Company, that file electronically with the Commission.
Whether or not the Company is obligated under the Exchange Act to file such
reports, information and documents in the future, the Company, while any of
the Notes remain outstanding, will furnish to the holders of the Notes and
file with the Commission (unless the Commission will not accept such a filing)
(i) all quarterly and annual financial information that would be required to
be contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company were required to file such forms, including a "Management's Discussion
and Analysis of Results of Operations and Financial Condition" and, with
respect to the annual information only, a report thereon by the Company's
certified independent accountants and (ii) all reports that would be required
to be filed with the Commission on Form 8-K if the Company were required to
file such reports. In addition, while any Notes remain outstanding, the
Company will make available to any holder or prospective purchaser of the
Notes the information required pursuant to Rule 144A(d)(4) promulgated under
the Securities Act, during any period in which the Company is not subject to
Section 13 or 15 (d) of the Exchange Act.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
COLUMBUS MCKINNON CORPORATION
<TABLE>
<S> <C>
Audited Consolidated Financial Statements as of March 31, 1998:
Report of Independent Auditors............................................ F-2
Consolidated Balance Sheets............................................... F-3
Consolidated Statements of Income......................................... F-4
Consolidated Statements of Shareholders' Equity........................... F-5
Consolidated Statements of Cash Flows..................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Columbus McKinnon Corporation
We have audited the accompanying consolidated balance sheets of Columbus
McKinnon Corporation as of March 31, 1998 and 1997, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three years in the period ended March 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Columbus
McKinnon Corporation at March 31, 1998 and 1997, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended March 31, 1998 in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Buffalo, New York
May 15, 1998
F-2
<PAGE>
COLUMBUS MCKINNON CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 22,841 $ 8,907
Trade accounts receivable, less allowance for doubtful
accounts ($2,522 and $1,884 respectively)............... 113,509 74,446
Unbilled revenues........................................ 19,634 --
Inventories.............................................. 107,673 94,409
Net assets held for sale................................. 10,396 14,971
Prepaid expenses......................................... 9,969 13,638
-------- --------
Total current assets....................................... 284,022 206,371
Net property, plant, and equipment......................... 81,927 63,942
Goodwill and other intangibles, net........................ 368,137 250,062
Marketable securities...................................... 16,665 13,590
Deferred taxes on income................................... 7,534 8,935
Other assets............................................... 5,463 5,345
-------- --------
Total assets............................................... $763,748 $548,245
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks................................... $ 2,801 $ 1,562
Trade accounts payable................................... 53,901 28,330
Excess billings.......................................... 3,290 --
Accrued liabilities...................................... 43,065 35,761
Current portion of long-term debt........................ 1,456 22,344
-------- --------
Total current liabilities.................................. 104,513 87,997
Senior debt, less current portion.......................... 247,388 263,944
Subordinated debt.......................................... 199,468 --
Other non-current liabilities.............................. 45,857 46,148
-------- --------
Total liabilities.......................................... 597,226 398,089
-------- --------
Shareholders' equity:
Class A voting common stock; 50,000,000 shares
authorized; 13,755,858 and 13,748,358 shares issued..... 137 137
Additional paid-in capital............................... 96,544 95,254
Retained earnings........................................ 76,187 60,999
ESOP debt guarantee; 325,092 and 426,508 shares.......... (3,203) (4,201)
Unearned restricted stock; 134,550 and 134,550 shares.... (538) (821)
Net unrealized investment gains.......................... 1,598 1,040
Minimum pension liability adjustment..................... (988) (541)
Foreign currency translation adjustment.................. (3,215) (1,711)
-------- --------
Total shareholders' equity................................. 166,522 150,156
-------- --------
Total liabilities and shareholders' equity................. $763,748 $548,245
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
COLUMBUS MCKINNON CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales............................ $ 510,731 $ 359,424 $ 209,837
Cost of products sold................ 363,117 251,987 149,511
------------ ------------ ------------
Gross profit......................... 147,614 107,437 60,326
Selling expenses..................... 45,181 32,550 19,120
General and administrative expenses.. 24,342 24,636 13,941
Amortization of intangibles.......... 10,201 5,197 791
Environmental remediation costs...... -- -- 672
------------ ------------ ------------
79,724 62,383 34,524
------------ ------------ ------------
Income from operations............... 67,890 45,054 25,802
Interest and debt expense............ 23,975 11,930 5,292
Interest and other income............ 1,940 1,168 1,134
------------ ------------ ------------
Income before income taxes, minority
interest and extraordinary charge... 45,855 34,292 21,644
Income tax expense................... 22,434 15,617 8,657
------------ ------------ ------------
Income before minority interest and
extraordinary charge................ 23,421 18,675 12,987
Minority interest.................... -- (323) --
------------ ------------ ------------
Income before extraordinary charge... 23,421 18,352 12,987
Extraordinary charge for early debt
extinguishment...................... (4,520) (3,198) --
------------ ------------ ------------
Net income........................... $ 18,901 $ 15,154 $ 12,987
============ ============ ============
Earnings per share data, both basic
and diluted:
Income before extraordinary charge
for debt extinguishment........... $ 1.75 $ 1.39 $ 1.69
Extraordinary charge for debt
extinguishment.................... (0.34) (0.24) --
------------ ------------ ------------
Net income......................... $ 1.41 $ 1.15 $ 1.69
============ ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
COLUMBUS MCKINNON CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED COMMON ADDI- NET MINIMUM FOREIGN
STOCK AT STOCK TIONAL ESOP UNEARNED UNREALIZED PENSION CURRENCY
REDEMPTION ($.01 PAID-IN RETAINED DEBT RESTRICTED INVESTMENT LIABILITY TRANSLATION
VALUE PAR VALUE) CAPITAL EARNINGS GUARANTEE STOCK GAINS ADJUSTMENT ADJUSTMENT
---------- ---------- ------- -------- --------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March
31, 1995....... $100 $ 78 $11,876 $38,443 $(6,279) $(958) $ 273 $ (62) $ (543)
Earned 122,816
ESOP shares.... -- -- 222 -- 1,041 -- -- -- --
Issued 108,375
common shares
for purchase of
affiliated
company........ -- -- 319 -- -- -- -- -- --
Repurchase of
24,582 common
shares
held by ESOP... -- -- -- -- -- -- -- -- --
Restricted
common stock
canceled,
17,000 shares.. -- -- 9 -- -- 45 -- -- --
Restricted
common stock
granted,
14,450 shares.. -- -- 44 -- -- (183) -- -- --
Earned portion
of restricted
stock.......... -- -- -- -- -- 260 -- -- --
Restricted stock
market
value adjustment.. -- -- 45 -- -- -- -- -- --
Sold 850 common
shares......... -- -- 3 -- -- -- -- -- --
Exchanged 850
common shares
to retire
preferred shares.. (100) -- 2 -- -- -- -- -- --
Canceled
treasury
shares......... -- -- (1,304) -- -- -- -- -- --
Issued 6,037,500
common shares
under initial
public
offering....... -- 59 83,067 -- -- -- -- -- --
Net income
1996........... -- -- -- 12,987 -- -- -- -- --
Net unrealized
gain on
investments.... -- -- -- -- -- -- 449 -- --
Change in
minimum pension
liability adjustment.. -- -- -- -- -- -- -- (368) --
Change in
foreign
currency
translation adjustment.. -- -- -- -- -- -- -- -- 141
Preferred
dividends
declared
$75 per share.. -- -- -- (7) -- -- -- -- --
Common dividends
declared
$0.236 per share.. -- -- -- (2,037) -- -- -- -- --
---- ---- ------- ------- ------- ----- ------ ----- -------
Balance at March
31, 1996....... -- 137 94,283 49,386 (5,238) (836) 722 (430) (402)
Earned 105,601
ESOP shares.... -- -- 665 -- 1,037 -- -- -- --
Restricted
common stock
granted, 19,800
shares; net of
3,111 shares
canceled....... -- -- 289 -- -- (280) -- -- --
Earned portion
of restricted
stock.......... -- -- 17 -- -- 295 -- -- --
Net income
1997........... -- -- -- 15,154 -- -- -- -- --
Net unrealized
gain on
investments.... -- -- -- -- -- -- 318 -- --
Change in
minimum pension
liability adjustment.. -- -- -- -- -- -- -- (111) --
Change in
foreign
currency
translation adjustment.. -- -- -- -- -- -- -- -- (1,309)
Common dividends
declared
$0.27 per share.. -- -- -- (3,541) -- -- -- -- --
---- ---- ------- ------- ------- ----- ------ ----- -------
Balance at March
31, 1997....... -- 137 95,254 60,999 (4,201) (821) 1,040 (541) (1,711)
Earned 101,416
ESOP shares.... -- -- 1,270 -- 998 -- -- -- --
Earned portion
of restricted
stock.......... -- -- 20 -- -- 283 -- -- --
Net income
1998........... -- -- -- 18,901 -- -- -- -- --
Net unrealized
gain on
investments.... -- -- -- -- -- -- 558 -- --
Change in
minimum pension
liability adjustment.. -- -- -- -- -- -- -- (447) --
Change in
foreign
currency
translation adjustment.. -- -- -- -- -- -- -- -- (1,504)
Common dividends
declared
$0.28 per share.. -- -- -- (3,713) -- -- -- -- --
---- ---- ------- ------- ------- ----- ------ ----- -------
Balance at March
31, 1998....... $-- $137 $96,544 $76,187 $(3,203) $(538) $1,598 $(988) $(3,215)
==== ==== ======= ======= ======= ===== ====== ===== =======
<CAPTION>
TREASURY
STOCK
AT COST
---------
<S> <C>
Balance at March
31, 1995....... $(2,078)
Earned 122,816
ESOP shares.... --
Issued 108,375
common shares
for purchase of
affiliated
company........ 1,056
Repurchase of
24,582 common
shares
held by ESOP... (312)
Restricted
common stock
canceled,
17,000 shares.. (127)
Restricted
common stock
granted,
14,450 shares.. 139
Earned portion
of restricted
stock.......... --
Restricted stock
market
value adjustment.. --
Sold 850 common
shares......... 9
Exchanged 850
common shares
to retire
preferred shares.. 9
Canceled
treasury
shares......... 1,304
Issued 6,037,500
common shares
under initial
public
offering....... --
Net income
1996........... --
Net unrealized
gain on
investments.... --
Change in
minimum pension
liability adjustment.. --
Change in
foreign
currency
translation adjustment.. --
Preferred
dividends
declared
$75 per share.. --
Common dividends
declared
$0.236 per share.. --
---------
Balance at March
31, 1996....... --
Earned 105,601
ESOP shares.... --
Restricted
common stock
granted, 19,800
shares; net of
3,111 shares
canceled....... --
Earned portion
of restricted
stock.......... --
Net income
1997........... --
Net unrealized
gain on
investments.... --
Change in
minimum pension
liability adjustment.. --
Change in
foreign
currency
translation adjustment.. --
Common dividends
declared
$0.27 per share.. --
---------
Balance at March
31, 1997....... --
Earned 101,416
ESOP shares.... --
Earned portion
of restricted
stock.......... --
Net income
1998........... --
Net unrealized
gain on
investments.... --
Change in
minimum pension
liability adjustment.. --
Change in
foreign
currency
translation adjustment.. --
Common dividends
declared
$0.28 per share.. --
---------
Balance at March
31, 1998....... $ --
=========
</TABLE>
See accompanying notes.
F-5
<PAGE>
COLUMBUS MCKINNON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------
1998 1997 1996
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income........................................ $ 18,901 $ 15,154 $12,987
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary charge for early debt
extinguishment................................. 4,520 3,198 --
Minority interest............................... -- 323 --
Depreciation and amortization................... 19,089 11,285 5,228
Deferred income taxes........................... (2) 4,816 896
Other........................................... -- 15 254
Changes in operating assets and liabilities net
of effects from businesses purchased:
Trade accounts receivable..................... (8,512) (3,320) 567
Inventories................................... (4,244) (2,177) (2,365)
Prepaid expenses.............................. 3,906 (1,721) 1,373
Other assets.................................. 2,135 (949) 682
Trade accounts payable........................ 817 (586) (913)
Accrued and non-current liabilities........... 3,607 2,848 (371)
-------- -------- -------
Net cash provided by operating activities......... 40,217 28,886 18,338
-------- -------- -------
INVESTING ACTIVITIES:
Purchase of marketable securities, net............ (2,517) (2,098) (1,806)
Capital expenditures.............................. (10,501) (9,392) (6,988)
Purchase of businesses, net of cash acquired...... (168,051) (203,577) (64,927)
Net assets held for sale.......................... 4,575 (784) --
-------- -------- -------
Net cash used in investing activities............. (176,494) (215,851) (73,721)
-------- -------- -------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net....... -- -- 83,126
Net (payments) borrowings under revolving line-of-
credit agreements................................ 156,550 75,293 (2,956)
Repayment of debt................................. (196,967) (78,528) (62,944)
Proceeds from issuance of long-term debt, net..... 196,120 206,000 50,000
Deferred financing costs incurred................. (1,273) (10,000) (1,405)
Dividends paid.................................... (3,713) (4,390) (1,688)
Repurchase of stock............................... -- -- (391)
Change in ESOP debt guarantee..................... 998 (1,596) 1,041
-------- -------- -------
Net cash provided by financing activities......... 151,715 186,779 64,783
Effect of exchange rate changes on cash........... (1,504) (1,078) 384
-------- -------- -------
Net change in cash and cash equivalents........... 13,934 (1,264) 9,784
Cash and cash equivalents at beginning of year.... 8,907 10,171 387
-------- -------- -------
Cash and cash equivalents at end of year.......... $ 22,841 $ 8,907 $10,171
======== ======== =======
Supplementary cash flows data:
Interest paid................................... $ 25,666 $ 8,683 $ 5,256
Income taxes paid............................... $ 13,086 $ 14,993 $ 5,555
</TABLE>
See accompanying notes.
F-6
<PAGE>
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BUSINESS ACQUISITIONS
Columbus McKinnon Corporation (the Company) is a leading designer,
manufacturer and distributor of a broad range of material handling, lifting
and positioning products. The Company sells its products both domestically and
internationally, primarily to third-party distributors and, to a lesser
extent, directly to manufacturers and end-users for a wide range of
applications. During fiscal 1998, approximately 79% of sales were to customers
in the United States.
On March 31, 1998, the Company acquired all of the outstanding stock of
LICO, Inc. ("LICO"), a leading designer, manufacturer and installer of custom
conveyor and automated material handling systems primarily for the automotive
industry, and to a lesser extent, the steel, construction and other industrial
markets. The total cost of the acquisition, which was accounted for as a
purchase, was approximately $155 million of cash, which was financed by
proceeds from the Company's new revolving debt facility and a private
placement of senior subordinated notes, both of which also closed effective
March 31, 1998. The consolidated statement of income and the consolidated
statement of cash flows for the year ended March 31, 1998 do not include any
LICO activity.
On January 7, 1998, the Company acquired all of the outstanding stock of
Univeyor A/S ("Univeyor"), a Denmark-based designer, manufacturer and
distributor of automated material handling systems, and has accounted for the
acquisition as a purchase. The cost of the acquisition was approximately $15
million of cash financed by the Company's revolving debt facility, plus
certain debt. The consolidated statement of income and the consolidated
statement of cash flows for the year ended March 31, 1998 include Univeyor
activity since its January 7, 1998 acquisition by the Company.
On October 17, 1996, through a tender offer, the Company acquired
approximately 72% of the outstanding stock (on a fully diluted basis) of
Spreckels Industries, Inc., now known as Yale Industrial Products, Inc.
("Yale"), a manufacturer of a wide range of industrial products, including
hoists, scissor lift tables, mechanical jacks, rotating joints, actuators and
circuit protection devices. On January 3, 1997 the Company acquired the
remaining outstanding shares, effected a merger, and has accounted for the
acquisition as a purchase. The total cost of the acquisition was approximately
$270 million, consisting of $200 million of cash and $70 million of acquired
Yale debt. The consolidated statement of income and the consolidated statement
of cash flows for the year ended March 31, 1997 include Yale activity since
its October 17, 1996 acquisition by the Company. The minority interest share
of Yale's earnings since acquisition through January 3, 1997 has been
appropriately segregated from consolidated net income.
Included with the Yale acquired assets were real estate properties and
equipment retained from Yale's April 19, 1996 sale of two of its subsidiaries
in unrelated businesses. Certain assets were sold during fiscal 1998 and the
remaining assets held for sale are expected to be sold in fiscal 1999. They
have been recorded at their estimated realizable values net of disposal costs,
separately reflected on the consolidated balance sheet and amounting to
$10,396,000 and $14,971,000 as of March 31, 1998 and 1997, respectively.
On December 19, 1996, the Company acquired all of the outstanding stock of
Lister Bolt & Chain Ltd. and of Lister Chain & Forge, Inc. (together known as
"Lister"), a chain and forgings manufacturer, and has accounted for the
acquisition as a purchase. The total cost of the acquisition was approximately
$7 million of cash, which was financed by the Company's revolving debt
facility. The consolidated statement of income and the consolidated statement
of cash flows for the year ended March 31, 1997 include Lister activity since
its December 19, 1996 acquisition by the Company.
On November 1, 1995, the Company acquired all of the outstanding stock of
LTI Holdings, Inc., now known as Lift-Tech International ("Lift-Tech"), a
hoist manufacturer, and has accounted for the acquisition as a
F-7
<PAGE>
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. DESCRIPTION OF BUSINESS AND BUSINESS ACQUISITIONS--(CONTINUED)
purchase. The total cost of the acquisition was approximately $63 million,
consisting of $43 million in cash and $20 million for the refinancing of Lift-
Tech bank debt. The consolidated statement of income and consolidated
statement of cash flows for the year ended March 31, 1996 include Lift-Tech
activity since its November 1, 1995 acquisition by the Company.
The following table presents pro forma summary information, which is not
covered by the report of independent auditors, for the years ended March 31,
1998 and 1997, as if the LICO, Univeyor, Yale, and Lister acquisitions and
related borrowings and also the private placement of senior subordinated
notes, had occurred as of April 1, 1996 which is the beginning of fiscal 1997.
The pro forma information is provided for informational purposes only. It is
based on historical information and does not necessarily reflect the actual
results that would have occurred nor is it necessarily indicative of future
results of operations of the combined enterprise:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------
1998 1997
----------- -----------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Pro forma:
Net sales........................................ $ 693,269 $ 627,107
Income from operations........................... 80,673 55,340
Income before extraordinary charge............... 23,508 7,035
Net income....................................... 18,988 3,837
Earnings per share, both basic and diluted:
Income before extraordinary charge............... 1.75 0.53
Extraordinary charge............................. (0.34) (0.24)
Net income....................................... 1.41 0.29
</TABLE>
2. ACCOUNTING PRINCIPLES AND PRACTICES
Consolidation
These consolidated financial statements include the accounts of the Company
and its domestic and foreign subsidiaries; all significant intercompany
accounts and transactions have been eliminated.
Foreign Currency Translations
The Company translates foreign currency financial statements as described in
Financial Accounting Standards (FAS) No. 52. Under this method, all items of
income and expense are translated at average exchange rates for the year. All
assets and liabilities are translated at the year-end exchange rate. Gains or
losses on translations are accumulated in the shareholders' equity section of
the balance sheet.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenue and
expenses. Actual results could differ from those estimates.
Revenue Recognition and Concentration of Credit Risk
Sales are recorded when products are shipped to a customer. The Company
performs ongoing credit evaluations of its customers' financial condition, but
generally does not require collateral to support customer receivables. The
credit risk is controlled through credit approvals, limits and monitoring
procedures. The
F-8
<PAGE>
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. ACCOUNTING PRINCIPLES AND PRACTICES--(CONTINUED)
Company established an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends and other
factors.
LICO and Univeyor recognize contract revenues under the percentage of
completion method, measured by comparing direct costs incurred to total
estimated direct costs. Changes in job performance, job conditions and
estimated profitability, including those arising from final contract
settlements, may result in revisions to costs and income and are recognized in
the period in which the revisions are determined. In the event that a loss is
anticipated on an uncompleted contract, a provision for the estimated loss is
made at the time it is determined. Billings on contracts may precede or lag
revenues earned, and such differences are reported in the balance sheet as
current liabilities (excess billings) and current assets (unbilled revenues),
respectively.
As of March 31, 1998, approximately $26 million of trade accounts receivable
was concentrated in the automotive industry, including retainages amounting to
$7,870,000. The accounts receivable included $13,840,000 due from General
Motors.
Concentrations of Labor
Approximately 35% of the Company's employees are represented by twelve
separate domestic and Canadian collective bargaining agreements which
terminate at various times between August 22, 1998 and April 30, 2003.
Approximately 5% of the labor force is covered by collective bargaining
agreements that will expire within one year. In addition, the Company hires
union production workers for field installation under its material handling
systems contracts.
Cash and Cash Equivalents
The Company considers as cash equivalents all highly liquid investments with
an original maturity of three months or less.
Inventories
Inventories are valued at the lower of cost or market. Costs of
approximately 53% and 60% of inventories at March 31, 1998 and 1997,
respectively, have been determined using the LIFO (last-in, first-out) method.
Costs of other inventories have been determined using the FIFO (first-in,
first-out) or average cost method. FIFO cost approximates replacement cost.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost and depreciated
principally using the straight-line method over their respective estimated
useful lives (buildings and building equipment--15 to 40 years; machinery and
equipment--3 to 18 years). When depreciable assets are retired, or otherwise
disposed of, the cost and related accumulated depreciation are removed from
the accounts and any resulting gain or loss is reflected in operating results.
Goodwill
It is the Company's policy to account for goodwill and other intangible
assets at the lower of amortized cost, or fair value if indicators of
impairment exist.
As a result of the Lift-Tech, Yale, Lister, Univeyor and LICO acquisitions,
the Company recorded approximately $42 million, $200 million, $2 million, $9
million and $123 million of goodwill, respectively, which is being amortized
on a straight-line basis over twenty-five years. At March 31, 1998 and 1997
accumulated amortization was $14,979,000 and $5,644,000, respectively.
F-9
<PAGE>
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. ACCOUNTING PRINCIPLES AND PRACTICES--(CONTINUED)
Marketable Securities
All of the Company's investments, which consist of equity securities and
corporate and governmental obligations, have been classified as available-for-
sale securities and are therefore recorded at their fair values with the
unrealized gains and losses, net of tax, reported in a separate component of
shareholders' equity. Estimated fair value is based on published trading
values at the balance sheet dates. The amortized cost of debt securities is
adjusted for amortization of premiums and accretion of discounts to maturity.
The cost of securities sold is based on the specific identification method.
Interest and dividend income are included in interest and other income on the
consolidated statements of income.
The marketable securities are carried as long-term assets since they are
retained for the settlement of a portion of the Company's general liability
and products liability insurance claims filed through CM Insurance Company,
Inc., a wholly owned captive insurance subsidiary.
Fair Value of Financial Instruments
The fair value of interest rate swap and cap agreements is the amount that
the Company would receive or pay to terminate the agreements, based on quoted
market prices and considering current interest rates and remaining maturities.
Research and Development
Research and development costs as defined in FAS No. 2, for the years ended
March 31, 1998, 1997 and 1996 were $1,497,000, $1,283,000 and $662,000,
respectively.
3. UNBILLED REVENUES AND EXCESS BILLINGS
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------
(IN THOUSANDS)
<S> <C>
Costs incurred on uncompleted contracts....................... $194,359
Estimated earnings............................................ 38,255
--------
Revenues earned to date....................................... 232,614
Less billings to date......................................... 216,270
--------
$ 16,344
========
The net amount above is included in the consolidated balance sheet at March
31 under the following captions:
Unbilled revenues............................................. $ 19,634
Excess billings............................................... (3,290)
--------
$ 16,344
========
</TABLE>
F-10
<PAGE>
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1998 1997
-------- -------
(IN THOUSANDS)
<S> <C> <C>
At cost--FIFO basis:
Raw materials........................................... $ 52,158 $43,526
Work-in-process......................................... 22,188 17,206
Finished goods.......................................... 37,089 36,633
-------- -------
111,435 97,365
LIFO cost less than FIFO cost............................. (3,762) (2,956)
-------- -------
Net inventories........................................... $107,673 $94,409
======== =======
</TABLE>
5. MARKETABLE SECURITIES
Marketable securities are retained for the settlement of a portion of the
Company's general liability and products liability insurance claims filed
through CM Insurance Company, Inc. (see Notes 2 and 13). The following is a
summary of available-for-sale securities at March 31, 1998:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Government securities................ $10,180 $ 285 $13 $10,452
U. S. corporate securities........... 1,107 36 1 1,142
------- ------ --- -------
Total debt securities.............. 11,287 321 14 11,594
Equity securities.................... 2,847 2,247 23 5,071
------- ------ --- -------
$14,134 $2,568 $37 $16,665
======= ====== === =======
The following is a summary of available-for-sale securities at March 31,
1997:
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Government securities................ $ 9,039 $ 74 $75 $ 9,038
U. S. corporate securities........... 738 7 3 742
------- ------ --- -------
Total debt securities.............. 9,777 81 78 9,780
Equity securities.................... 2,213 1,600 3 3,810
------- ------ --- -------
$11,990 $1,681 $81 $13,590
======= ====== === =======
</TABLE>
F-11
<PAGE>
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. MARKETABLE SECURITIES--(CONTINUED)
The amortized cost and estimated fair value of debt and equity securities at
March 31, 1998, by contractual maturity, are shown below:
<TABLE>
<CAPTION>
ESTIMATED
FAIR
COST VALUE
------- ---------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less.................................... $ 880 $ 880
Due after one year through three years..................... 1,101 1,108
Due after three years...................................... 9,306 9,606
------- -------
11,287 11,594
Equity securities.......................................... 2,847 5,071
------- -------
$14,134 $16,665
======= =======
</TABLE>
Net unrealized gains included in the balance sheet amounted to $2,531,000
and $1,600,000 at March 31, 1998 and 1997, respectively. The amounts, net of
related income taxes of $933,000 and $560,000 at March 31, 1998 and 1997,
respectively, are reflected as a separate component of equity.
6. PROPERTY, PLANT, AND EQUIPMENT
Consolidated property, plant, and equipment of the Company consisted of the
following:
<TABLE>
<CAPTION>
MARCH 31,
----------------
1998 1997
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Land and land improvements................................. $ 4,073 $ 2,892
Buildings.................................................. 26,706 14,986
Machinery, equipment, and leasehold improvements........... 78,862 65,431
Construction in progress................................... 3,162 3,003
-------- -------
112,803 86,312
Less accumulated depreciation.............................. 30,876 22,370
-------- -------
Net property, plant, and equipment......................... $ 81,927 $63,942
======== =======
</TABLE>
7. ACCRUED LIABILITIES AND OTHER NON-CURRENT LIABILITIES
Consolidated accrued liabilities of the Company included the following:
<TABLE>
<CAPTION>
MARCH 31,
---------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued payroll............................................. $16,713 $12,298
Accrued pension cost........................................ 5,195 5,489
Income taxes payable........................................ 5,730 2,875
Other accrued liabilities................................... 15,427 15,099
------- -------
$43,065 $35,761
======= =======
</TABLE>
F-12
<PAGE>
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. ACCRUED LIABILITIES AND OTHER NON-CURRENT LIABILITIES--(CONTINUED)
Consolidated other non-current liabilities of the Company included the
following:
<TABLE>
<CAPTION>
MARCH 31,
---------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation............... $17,154 $17,057
Accrued general and product liability costs................. 11,688 11,874
Other non-current liabilities............................... 17,015 17,217
------- -------
$45,857 $46,148
======= =======
</TABLE>
8. LONG-TERM DEBT
Consolidated long-term debt payable to banks (except as noted) of the
Company consisted of the following:
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revolving Credit Facility with availability up to $300
million, due March 31, 2003 with interest payable at
varying Eurodollar rates based on LIBOR plus a spread
determined by the Company's leverage ratio, amounting
to 125 basis points at March 31, 1998 (7.0% at
March 31, 1998)........................................ $240,000 $ --
Term Loan A, Term Loan B and revolving credit facility
repaid and retired March 31, 1998...................... -- 277,750
Industrial Development Revenue Bonds payable annually at
$625,000 through 1999, $620,000 thereafter through
2001, $315,000 in 2002, and $52,000 in 2003 in
quarterly sinking fund installments plus interest
payable at varying effective rates (3.98% and 3.81% at
March 31, 1998 and 1997)............................... 2,232 2,857
Employee Stock Ownership Plan term loans payable in
quarterly installments of $148,000 plus an annual
minimum of $23,000 through July 1999 and $2,854,000 in
October 1999 plus interest payable at a Eurodollar rate
based on LIBOR plus a spread determined by the
Company's leverage ratio (7.34% and 8.06% at March 31,
1998 and 1997)......................................... 3,765 4,682
Other senior debt....................................... 2,847 999
-------- --------
Total senior debt....................................... 248,844 286,288
8 1/2% Senior Subordinated Notes due March 31, 2008 with
interest payable in semi-annual installments at 8.45%
effective rate, recorded net of unamortized discount of
$532,000............................................... 199,468 --
-------- --------
Total................................................... 448,312 286,288
Less current portion.................................... 1,456 22,344
-------- --------
$446,856 $263,944
======== ========
</TABLE>
On March 31, 1998, the Company entered into a new revolving credit facility
("1998 Revolving Credit Facility") with a group of financial institutions.
Concurrently, the Company issued $200 million of 8 1/2% Senior Subordinated
Notes ("the 8 1/2% Notes") due March 31, 2008. Proceeds from both the bank
refinancing and the note offering were used to finance the acquisition of
LICO, and to repay the outstanding balances and retire the Company's then
existing Term Loan A, Term Loan B and revolving credit facility.
F-13
<PAGE>
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. LONG-TERM DEBT--(CONTINUED)
The 1998 Revolving Credit Facility is secured by all equipment, inventory,
receivables and subsidiary stock (limited to 65% for foreign subsidiaries).
The corresponding credit agreement places certain debt covenant restrictions
on the Company including, but not limited to, maximum annual cash dividends of
$10 million. Upon refinancing its bank debt, the Company wrote off unamortized
financing costs of $7,532,000 and recorded an extraordinary charge of
$4,520,000, which is net of $3,012,000 of tax.
To manage its exposure to interest rate fluctuations, the Company has
interest rate swaps with a notional amount of $22 million through January 2,
1999 and $3.5 million from January 2, 1999 through July 2, 2000, both based on
LIBOR at 5.9025%. In order to comply with its credit agreements, the Company
also has LIBOR-based interest rate caps on $40 million of debt through
December 16, 1998 and on an additional $49.5 million of debt through December
16, 1999 at 9% and 10%, respectively. Net payments or receipts under the swap
and cap agreements are recorded as adjustments to interest expense. The
carrying amount of the Company's debt instruments approximates the fair
values.
The Industrial Development Revenue Bonds are held by institutional investors
and are guaranteed by a bank letter of credit (IDRB letter of credit), which
is collateralized by the assets also securing the 1998 Revolving Credit
Facility. The Employee Stock Ownership Plan term loans (ESOP loans) are
guaranteed by the Company and are collateralized by an equivalent number of
shares of Company common stock. The ESOP loans are not further collateralized.
Provisions of the 8 1/2% Notes include, without limitation, restrictions of
liens, indebtedness, asset sales, and dividends and other restricted payments.
Prior to April 1, 2003, the 8 1/2% Notes are redeemable at the option of the
Company, in whole or in part, at the Make-Whole Price (as defined in the 8
1/2% Notes agreement). On or after April 1, 2003, they are redeemable at
prices declining annually to 100% on and after April 1, 2006. In addition, on
or prior to April 1, 2001, the Company may redeem up to 35% of the outstanding
notes at a redemption price of 108.5% with the proceeds of equity offerings,
subject to certain restrictions. In the event of a Change of Control (as
defined in the indenture for such notes), each holder of the 8 1/2% Notes may
require the Company to repurchase all or a portion of such holder's 8 1/2%
Notes at a purchase price equal to 101% of the principal amount thereof. The 8
1/2% Notes are guaranteed by certain existing and future domestic subsidiaries
and are not subject to any sinking fund requirements.
The principal payments expected to be made as of March 31, 1998 on the above
debt, for the next five annual periods subsequent thereto, are as follows
(dollars in thousands):
<TABLE>
<S> <C>
1999.......................................... $ 1,456
2000.......................................... 3,973
2001.......................................... 1,299
2002.......................................... 486
2003.......................................... 240,223
</TABLE>
In December 1996, the Company tendered to purchase the outstanding Yale
Senior Secured Notes at a premium and redeemed $69,480,000 of the $70,000,000
face value which was outstanding. The Company recorded an extraordinary charge
of $5,331,000 ($3,198,000 net of taxes), consisting of redemption premiums,
costs to exercise the tender offer, and write-off of deferred financing costs
related to early retirement of debt. The debt extinguishment was funded by the
Company's revolving credit facility.
As of March 31, 1998, the Company had letters of credit outstanding of $7.0
million, including those issued as security for the IDRBs as referred to
above.
F-14
<PAGE>
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. RETIREMENT PLANS
Most domestic employees of the Company, excluding Lift-Tech and Lister union
employees and LICO employees, are covered under defined benefit retirement
plans and most domestic non-union employees, excluding Yale and LICO
employees, are included in an Employee Stock Ownership Plan (See Note 10).
Benefits under the plans vary, based on formulas applied to career earnings,
compensation for a period immediately prior to retirement, compensation at the
date benefits are earned, or pre-established benefit rates.
The Company's funding policy with respect to the plans is to contribute
annually at least the minimum amount required by the Employee Retirement
Income Security Act of 1974 (ERISA).
At March 31, 1998, eight (six at March 31, 1997) of the Company's plans had
market values of plan assets in excess of the accumulated benefits of those
respective plans; the Company's remaining five plans (seven at March 31, 1997)
had accumulated benefits in excess of plan assets. The following table sets
forth the plans' funded status and amounts recognized in the Company's balance
sheets:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------------------------------------
1998 1998 1997 1997
---------------- ---------------- ---------------- ----------------
PLANS WITH PLANS WITH PLANS WITH PLANS WITH
ASSETS IN EXCESS ACCUMULATED ASSETS IN EXCESS ACCUMULATED
OF ACCUMULATED BENEFITS IN OF ACCUMULATED BENEFITS IN
BENEFITS EXCESS OF ASSETS BENEFITS EXCESS OF ASSETS
---------------- ---------------- ---------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value
of obligations:
Accumulated benefit
obligation, vested.... $(49,746) $(10,719) $(24,551) $(26,825)
Accumulated benefit
obligation,
non-vested............ (1,530) (592) (1,190) (766)
-------- -------- -------- --------
Accumulated benefit
obligation............ $(51,276) $(11,311) $(25,741) $(27,591)
-------- -------- -------- --------
Projected benefit
obligation............. $(57,530) $(12,150) $(32,150) $(30,172)
Plan assets at fair
value.................. 60,113 9,090 30,861 23,986
-------- -------- -------- --------
Plan assets in excess
of (less than)
projected benefit
obligation............ 2,583 (3,060) (1,289) (6,186)
Unrecognized transition
assets................. (113) -- -- (142)
Unrecognized net (gain)
loss from past
experience different
from that assumed...... (4,757) 1,720 958 1,356
Unrecognized prior
service cost........... 305 550 300 1,286
Adjustment required to
recognize additional
minimum liability...... -- (2,423) -- (1,772)
-------- -------- -------- --------
Accrued pension cost
included in accrued
liabilities........... $ (1,982) $ (3,213) $ (31) $ (5,458)
======== ======== ======== ========
</TABLE>
F-15
<PAGE>
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. RETIREMENT PLANS--(CONTINUED)
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service costs-benefits earned during the
period........................................ $ 3,244 $ 2,354 $ 1,129
Interest cost on projected benefit obligation.. 4,787 2,744 1,011
Actual return on plan assets................... (6,670) (2,966) (1,439)
Net amortization............................... 1,951 475 759
------- ------- -------
Net periodic pension cost...................... $ 3,312 $ 2,607 $ 1,460
======= ======= =======
</TABLE>
The weighted-average discount rate used in determining the actuarial present
value of the projected benefit obligation of all of the defined benefit plans
was 7 1/2% and 8% as of March 31, 1998 and 1997, respectively. Future average
compensation increases are assumed to be 4.3% and 5 1/4% per year as of March
31, 1998 and 1997, respectively. The weighted-average expected long-term rate
of return on plan assets used in determining the expected return on plan
assets included in net periodic pension cost was 8 7/8%, 8 7/8%, and 8 1/2%
for the years ended March 31, 1998, 1997 and 1996, respectively. Plan assets
consist of equities, corporate and government securities, and fixed income
annuity contracts.
10. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The AICPA Statement of Position 93-6, "Employers' Accounting for Employee
Stock Ownership Plans" requires that compensation expense for ESOP shares be
measured based on the fair value of those shares when committed to be released
to employees, rather than based on their original cost. Also, dividends on
those ESOP shares that have not been allocated or committed to be released to
ESOP participants are not reflected as a reduction of retained earnings.
Rather, since those dividends are used for debt service, a charge to
compensation expense is recorded. Furthermore, ESOP shares that have not been
allocated or committed to be released are not considered outstanding for
purposes of calculating earnings per share.
The obligation of the ESOP to repay borrowings incurred previously to
purchase shares of the Company's common stock is guaranteed by the Company;
the unpaid balance of such borrowings, therefore, has been reflected in the
accompanying consolidated balance sheet as a liability. An amount equivalent
to the cost of the collateralized common stock and representing deferred
employee benefits has been recorded as a deduction from shareholders' equity.
Substantially all of the Company's domestic non-union employees, excluding
Yale and LICO employees, are participants in the ESOP. Contributions to the
plan result from the release of collateralized shares as debt service payments
are made. Compensation expense amounting to $2,268,000, $1,704,000 and
$1,120,000 in fiscal 1998, 1997 and 1996, respectively, is recorded based on
the guarantee release of the ESOP shares at their fair market value. Dividends
on allocated ESOP shares are recorded as a reduction of retained earnings and
are applied toward debt service.
At March 31, 1998 and 1997, 855,337 and 798,528 of ESOP shares,
respectively, were allocated or available to be allocated to participants'
accounts. At March 31, 1998 and 1997, 325,092 and 426,508 of ESOP shares were
pledged as collateral to guarantee the ESOP term loans.
The fair market value of unearned ESOP shares at March 31, 1998 amounted to
$8,940,000.
F-16
<PAGE>
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. POSTRETIREMENT BENEFIT OBLIGATION
The Company sponsors defined benefit postretirement health care plans that
provide medical and life insurance coverage to Yale domestic retirees and
their dependents. Prior to the acquisition of Yale, the Company did not
sponsor any postretirement benefit plans. The Company pays the majority of the
medical costs for retirees and their spouses who are under age 65. For
retirees and dependents of retirees who retired prior to January 1, 1989, and
are age 65 or over, the Company contributes 100% toward the American
Association of Retired Persons ("AARP") premium frozen at the 1992 level. For
retirees and dependents of retirees who retired after January 1, 1989, the
Company contributes $35 per month toward the AARP premium. The life insurance
plan is noncontributory.
The Company's postretirement health benefit plans are not funded. In
accordance with FAS No. 106 "Employers' Accounting for Postretirement Benefits
Other Than Pensions," the following table sets forth the plans' combined
accumulated postretirement health benefit obligation recognized in the
Company's balance sheets:
<TABLE>
<CAPTION>
MARCH 31,
------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postemployment benefit obligation:
Current retirees..................................... $(10,380) $(10,211)
Employees eligible to retire......................... (2,315) (2,159)
Active employees not eligible to retire.............. (3,814) (4,687)
-------- --------
(16,509) (17,057)
Unrecognized (gains)/losses............................ (645) --
-------- --------
Total accumulated postretirement benefit obligation,
included in other non-current liabilities............. $(17,154) $(17,057)
======== ========
</TABLE>
Net periodic postretirement benefit cost included the following components
since the October 17, 1996 Yale acquisition:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
---------------
1998 1997
-------- ------
(IN THOUSANDS)
<S> <C> <C>
Service cost-benefits attributed to service during the
period................................................ $ 348 $ 187
Interest cost.......................................... 1,203 609
-------- ------
Net periodic postretirement benefit cost............. $ 1,551 $ 796
======== ======
</TABLE>
For measurement purposes, a 7% annual rate of increase in the per capita
cost of postretirement medical benefits was assumed at the beginning of the
period; the rate was assumed to decrease 0.5% per year to 5.5% by 2001. A 1%
increase in this annual trend rate would have increased the accumulated
postretirement benefit obligation at March 31, 1998 by $997,000 with a
corresponding increase in the 1998 postretirement benefit expense of $120,000.
The discount rate used in determining the accumulated postretirement benefit
obligation was 7 1/2% and 8% as of March 31, 1998 and 1997, respectively.
F-17
<PAGE>
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. COMMON STOCK, EARNINGS PER SHARE AND STOCK PLANS
Common Stock
Effective February 22, 1996, the Company issued 6,037,500 shares of its
common stock at $15.00 per share in an initial public offering. Proceeds from
the offering, net of commissions and other related expenses totaling
approximately $7.5 million, were approximately $83.1 million. The proceeds
were primarily used to reduce the Company's outstanding indebtedness, a
significant portion of which arose from the Lift-Tech acquisition.
Earnings per Share
In 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (FAS No. 128).
FAS No. 128 replaced the previously reported primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants, and convertible securities. Diluted earnings per share is
very similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented, and where
necessary, restated to conform to the FAS No. 128 requirements. The following
table sets forth the computation of basic and diluted earnings per share
before extraordinary charge for debt extinguishment:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Numerator for basic and diluted earnings per share:
Income before extraordinary charge................. $23,421 $18,352 $12,987
======= ======= =======
Denominators:
Weighted-average common stock outstanding--
denominator for basic EPS......................... 13,363 13,210 7,662
Effect of dilutive employee stock options.......... 58 5 --
------- ------- -------
Adjusted weighted-average common stock outstanding
and assumed conversions--denominator for diluted
EPS............................................... 13,421 13,215 7,662
======= ======= =======
</TABLE>
The weighted-average common stock outstanding shown above is net of
unallocated ESOP shares (see Note 10).
Stock Plans
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) in accounting for its
employee stock options because, as discussed below, the alternative fair value
accounting provided for under FAS No. 123, "Accounting for Stock-Based
Compensation," requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the grant date, no compensation expense is recognized.
The Company maintains two stock option plans, a Non-Qualified Stock Option
Plan ("Non-Qualified Plan") and an Incentive Stock Option Plan ("Incentive
Plan"). At March 31, 1998, 250,000 shares and 1,050,000 shares were reserved
for grant under the Non-Qualified Plan and Incentive Plan, respectively. Under
the Non-Qualified Plan, options may be granted to officers and other key
employees of the Company as well as to non-employee directors and advisors.
The Company has not granted any options under the Non-Qualified Plan. Options
granted under the Incentive Plan become exercisable over a four-year period at
the rate of 25% per year commencing one year from the date of grant at an
exercise price of not less than 100% of the fair market value
F-18
<PAGE>
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. COMMON STOCK, EARNINGS PER SHARE AND STOCK PLANS--(CONTINUED)
of the common stock on the date of grant. Any option granted under this plan
may be exercised not earlier than one year and not later than ten years from
the date such option is granted. During 1997, the Company granted 200,000
options at an exercise price of $15.50 per share which was the market value on
the grant date, representing the only options outstanding at March 31, 1998
and 1997. Twenty-five percent of those options became exercisable January 1,
1998 and will expire January 1, 2007; none were exercised during the year
ended March 31, 1998.
Pro forma information regarding net income and earnings per share is
required by FAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for those options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for the options issued in fiscal 1997: risk-free interest rate of
5.5%, dividend yield of 1.8%, volatility factor of the expected market price
of the Company's common stock of .245, and a weighted-average expected life of
the option of 4 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------
1998 1997
---------- ----------
(IN THOUSANDS,
EXCEPT FOR EARNINGS
PER SHARE DATA)
<S> <C> <C>
Pro forma net income................................. $ 18,791 $ 15,127
Pro forma earnings per share, both basic and
diluted............................................. 1.40 1.14
</TABLE>
The Company maintains a Restricted Stock Plan, under which the Company has
reserved 80,200 shares at March 31, 1998. The Company charges unearned
compensation, a component of shareholders' equity, for the market value of
shares, as they're issued. It is then ratably amortized over the restricted
period. Grantees who remain continuously employed with the Company become
vested in their shares five years after the date of the grant.
13. LOSS CONTINGENCIES
General and Product Liability--$9,688,000 of the accrued general and product
liability costs which are included in other non-current liabilities at March
31, 1998 ($8,262,000 at March 31, 1997) are the actuarial present value of
estimated reserves based on an amount determined from loss reports and
individual cases filed with the Company and an amount, based on past
experience, for losses incurred but not reported. The accrual in these
consolidated financial statements was determined by applying a discount factor
based on interest rates customarily used in the insurance industry, between
6.33% and 8.42%, to the undiscounted reserves of $12,685,000 and $11,154,000
at March 31, 1998 and 1997, respectively. This liability is funded by
investments in marketable securities (see Notes 2 and 5).
F-19
<PAGE>
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. LOSS CONTINGENCIES--(CONTINUED)
Prior to its acquisition by the Company, Yale was self-insured for product
liability claims up to a maximum of $500,000 per occurrence and maintained
product liability insurance with a $100 million cap per occurrence. The
Company has been advised that a customer has alleged that one of Yale's
products was the cause of a fire which occurred in January 1995 at a
manufacturing facility, resulting in losses in excess of Yale's policy limits.
A formal complaint has been filed seeking damages in excess of $500 million.
However, it is the opinion of management that there was no manufacturing
defect and that the claim will in all likelihood be settled within the
Company's policy limits.
14. INCOME TAXES
The following is a reconciliation of the difference between the effective
tax rate and the statutory federal tax rate:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------
1998 1997 1996
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed statutory provision....................... $16,049 $12,002 $7,575
State income taxes net of federal benefit.......... 1,983 1,700 743
Nondeductible goodwill amortization................ 2,858 1,961 --
Foreign taxes greater than statutory provision..... 904 301 332
Other.............................................. 640 (347) 7
------- ------- ------
Actual tax provision............................... $22,434 $15,617 $8,657
======= ======= ======
The provision for income tax expense consisted of the following:
<CAPTION>
YEAR ENDED MARCH 31,
------------------------
1998 1997 1996
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current income tax expense:
Federal taxes.................................... $16,169 $ 8,399 $6,336
State taxes...................................... 3,082 1,124 975
Foreign.......................................... 3,185 1,278 450
Deferred income tax (benefit) expense:
Domestic......................................... (248) 4,736 627
Foreign.......................................... 246 80 269
------- ------- ------
$22,434 $15,617 $8,657
======= ======= ======
</TABLE>
The Company applies the liability method of accounting for income taxes as
required by FAS Statement No. 109, "Accounting for Income Taxes."
F-20
<PAGE>
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. INCOME TAXES--(CONTINUED)
The gross composition of the net current deferred tax asset, included in
prepaid expenses within the consolidated balance sheet, is as follows:
<TABLE>
<CAPTION>
MARCH 31,
----------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Inventory................................................. $(5,557) $(5,177)
Accrued vacation and incentive costs...................... 1,724 2,157
Other..................................................... 4,749 3,562
------- -------
Net current deferred tax asset.......................... $ 916 $ 542
======= =======
The gross composition of the net non-current deferred tax asset is as
follows:
<CAPTION>
MARCH 31,
----------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Insurance reserves........................................ $11,087 $11,711
Property, plant, and equipment............................ (7,620) (8,010)
Other..................................................... 4,067 5,234
------- -------
Net non-current deferred tax asset...................... $ 7,534 $ 8,935
======= =======
</TABLE>
Income before income taxes, minority interest and extraordinary charge
includes foreign subsidiary income of $7,220,000, $3,650,000 and $1,188,000
for the years ended March 31, 1998, 1997, and 1996 respectively. United States
income taxes have not been provided on unremitted earnings of the Company's
foreign subsidiaries as such earnings are considered to be permanently
reinvested.
15. RENTAL EXPENSE AND LEASE COMMITMENTS
Rental expense for the years ended March 31, 1998, 1997 and 1996 was
$3,714,000, $2,805,000 and $1,668,000, respectively. The following amounts
represent future minimum payment commitments as of March 31, 1998 under non-
cancelable operating leases extending beyond one year (in thousands):
<TABLE>
<CAPTION>
VEHICLES AND
YEAR ENDED MARCH 31, REAL PROPERTY EQUIPMENT TOTAL
-------------------- ------------- ------------ ------
<S> <C> <C> <C>
1999....................................... $1,954 $1,429 $3,383
2000....................................... 1,895 1,284 3,179
2001....................................... 1,671 956 2,627
2002....................................... 1,585 568 2,153
2003....................................... 1,399 29 1,428
</TABLE>
F-21
<PAGE>
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. SUMMARY FINANCIAL INFORMATION
The summary financial information of the parent, domestic subsidiaries
(guarantors) and foreign subsidiaries (nonguarantors) of the 8 1/2% senior
subordinated notes follows:
<TABLE>
<CAPTION>
DOMESTIC FOREIGN
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
As of March 31, 1998:
Current assets:
Cash.................. $ 18,035 $ 768 $ 4,038 $ 22,841
Trade accounts
receivable........... 41,651 71,244 20,248 133,143
Inventories........... 47,201 36,912 23,712 (152) 107,673
Other current assets.. 5,050 12,505 2,810 20,365
-------- --------- -------- --------- --------
Total current
assets............. 111,937 121,429 50,808 (152) 284,022
Net property, plant, and
equipment.............. 32,159 32,135 17,633 81,927
Goodwill and other
intangibles, net....... 43,404 275,470 49,263 368,137
Intercompany balances... 237,011 (400,381) (66,353) 229,723 --
Other noncurrent
assets................. 214,997 166,167 494 (351,996) 29,662
-------- --------- -------- --------- --------
Total assets........ $639,508 $ 194,820 $ 51,845 $(122,425) $763,748
======== ========= ======== ========= ========
Current liabilities..... $ 35,854 $ 47,240 $ 21,158 $ 261 $104,513
Long-term debt, less
current portion........ 444,225 483 2,148 446,856
Other non-current
liabilities............ 10,576 30,465 4,816 45,857
-------- --------- -------- --------- --------
Total liabilities... 490,655 78,188 28,122 261 597,226
Shareholders' equity.... 148,853 116,632 23,723 (122,686) 166,522
-------- --------- -------- --------- --------
Total liabilities
and shareholders'
equity............. $639,508 $ 194,820 $ 51,845 $(122,425) $763,748
======== ========= ======== ========= ========
For the Year Ended March
31, 1998:
Net sales............... $269,677 $ 171,173 $ 82,515 $ (12,634) $510,731
Cost of products sold... 192,686 124,958 58,107 (12,634) 363,117
-------- --------- -------- --------- --------
Gross profit............ 76,991 46,215 24,408 -- 147,614
Selling, general and
administrative
expenses............... 36,804 17,805 14,914 69,523
Amortization of
intangibles............ 1,892 6,382 1,927 10,201
-------- --------- -------- --------- --------
38,696 24,187 16,841 -- 79,724
-------- --------- -------- --------- --------
Income from operations.. 38,295 22,028 7,567 -- 67,890
Interest and debt
expense................ 24,125 (332) 182 23,975
Interest and other
income................. 1,764 7 169 1,940
-------- --------- -------- --------- --------
Income before income
taxes and extraordinary
charge................. 15,934 22,367 7,554 -- 45,855
Income tax expense...... 7,326 11,524 3,584 22,434
-------- --------- -------- --------- --------
Income before
extraordinary charge... 8,608 10,843 3,970 -- 23,421
Extraordinary charge for
early debt
extinguishment......... (4,520) -- -- (4,520)
-------- --------- -------- --------- --------
Net income.............. $ 4,088 $ 10,843 $ 3,970 $ -- $ 18,901
======== ========= ======== ========= ========
</TABLE>
F-22
<PAGE>
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. SUMMARY FINANCIAL INFORMATION--(CONTINUED)
<TABLE>
<CAPTION>
DOMESTIC FOREIGN
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
For the Year Ended March
31, 1998:
OPERATING ACTIVITIES:
Cash provided by (used
in) operating
activities............. $ 40,272 $(3,725) $ 3,019 $ 651 $ 40,217
INVESTING ACTIVITIES:
Purchase of marketable
securities, net........ (2,517) -- -- (2,517)
Capital expenditures.... (6,518) (2,259) (1,724) (10,501)
Purchase of businesses,
net of cash acquired... (170,277) 1,716 510 (168,051)
Net assets held for
sale................... -- 4,575 -- 4,575
--------- ------- ------- ----- ---------
Net cash (used in)
provided by investing
activities............. (179,312) 4,032 (1,214) -- (176,494)
FINANCING ACTIVITIES:
Net (payments)
borrowings under
revolving line-of-
credit agreements...... 157,058 -- (508) 156,550
Repayment of debt....... (196,353) (50) (564) (196,967)
Proceeds from issuance
of long-term debt,
net.................... 196,120 -- -- 196,120
Dividends paid.......... (3,713) -- -- (3,713)
Other................... (275) -- 561 (561) (275)
--------- ------- ------- ----- ---------
Net cash provided by
(used in) financing
activities............. 152,837 (50) (511) (561) 151,715
Effect of exchange rate
changes on cash........ -- -- (1,414) (90) (1,504)
--------- ------- ------- ----- ---------
Net change in cash and
cash equivalents....... 13,797 257 (120) -- 13,934
Cash and cash
equivalents at
beginning of year...... 4,238 511 4,158 8,907
--------- ------- ------- ----- ---------
Cash and cash
equivalents at end of
year................... $ 18,035 $ 768 $ 4,038 $ -- $ 22,841
========= ======= ======= ===== =========
</TABLE>
F-23
<PAGE>
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. FOREIGN OPERATIONS
<TABLE>
<CAPTION>
UNITED ELIMIN- CONSOLI-
STATES CANADA EUROPE MEXICO ATIONS DATED
-------- ------- ------- ------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Year ended March 31,
1998:
Sales to unaffiliated
customers.............. $429,792 $36,603 $39,208 $5,128 $ -- $510,731
Transfers between
geographic areas....... 10,949 1,574 -- -- (12,523) --
-------- ------- ------- ------ -------- --------
Total net sales......... $440,741 $38,177 $39,208 $5,128 $(12,523) $510,731
======== ======= ======= ====== ======== ========
Income from operations.. $ 60,311 $ 3,124 $ 3,869 $ 586 $ -- $ 67,890
Net income.............. 14,910 2,021 1,620 350 -- 18,901
Identifiable and total
assets................. 645,555 23,960 90,036 4,197 -- 763,748
Total liabilities....... 569,109 3,268 23,576 1,273 -- 597,226
Year ended March 31,
1997:
Sales to unaffiliated
customers.............. $313,705 $27,951 $14,146 $3,622 $ -- $359,424
Transfers between
geographic areas....... 10,411 547 -- -- (10,958) --
-------- ------- ------- ------ -------- --------
Total net sales......... $324,116 $28,498 $14,146 $3,622 $(10,958) $359,424
======== ======= ======= ====== ======== ========
Income from operations.. $ 41,190 $ 1,955 $ 1,548 $ 361 $ -- $ 45,054
Net income.............. 13,073 1,129 730 222 -- 15,154
Identifiable and total
assets................. 457,501 26,191 61,696 2,857 -- 548,245
Total liabilities....... 382,762 4,600 9,949 778 -- 398,089
Year ended March 31,
1996:
Sales to unaffiliated
customers.............. $191,178 $18,659 $ -- $ -- $ -- $209,837
Transfers between
geographic areas....... 5,453 1,278 -- -- (6,731) --
-------- ------- ------- ------ -------- --------
Total net sales......... $196,631 $19,937 $ -- $ -- $ (6,731) $209,837
======== ======= ======= ====== ======== ========
Income from operations.. $ 24,451 $ 1,351 $ -- $ -- $ -- $ 25,802
Net income.............. 12,489 498 -- -- -- 12,987
Identifiable and total
assets................. 177,055 11,679 -- -- -- 188,734
Total liabilities....... 47,233 3,879 -- -- -- 51,112
</TABLE>
U.S. operations' sales to unaffiliated customers include $26,599,000,
$23,075,000 and $15,074,000 for the years ended March 31, 1998, 1997 and 1996,
respectively, for export. Transfers between geographic areas are recorded at
amounts generally above cost and in accordance with the rules and regulations
of the respective governing tax authorities.
18. EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income," which the
Company will adopt for the year ended March 31, 1999. Statement No. 130
establishes new rules for the reporting and display of comprehensive income
and its components. This includes unrealized gains or losses on the Company's
available-for-sale securities, foreign currency translation adjustments, and
minimum pension liability adjustments, which currently are reported in
shareholders' equity, and will be included and disclosed in total
comprehensive income upon adoption of the Statement. The impact of compliance
with this Statement will not impact the financial position, net income or cash
flows.
F-24
<PAGE>
COLUMBUS MCKINNON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS--(CONTINUED)
The FASB also issued FAS Statement No. 131 "Disclosures about Segments of an
Enterprise and Related Information," which the Company will adopt for the year
ended March 31, 1999. Statement No. 131 superseded FAS Statement No. 14
"Financial Reporting for Segments of a Business Enterprise." Statement No. 131
established new standards for determining segment criteria and annual and
interim reporting of that data. It also established new disclosures about
products, geographic areas and major customers. Currently, the Company reports
one operating segment under Statement No. 14 and, while the impact of
compliance with Statement No. 131 has not yet been determined, the Company may
be required to report more than one segment upon its adoption.
19. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------- YEAR ENDED
JUNE 29, SEPTEMBER 28, DECEMBER 28, MARCH 31, MARCH 31,
1997 1997 1997 1998(A) 1998(A)
-------- ------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales............... $124,442 $123,907 $124,093 $138,289 $510,731
Gross profit............ 35,203 35,836 35,413 41,162 147,614
Income from operations.. 15,146 16,670 15,610 20,464 67,890
Income before extraordi-
nary charge............ 4,431 5,630 5,485 7,875 23,421
Net income.............. 4,431 5,630 5,485 3,355(b) 18,901(b)
Income per share before
extraordinary charge... 0.33 0.42 0.41 0.58 1.75
Net income per share.... 0.33 0.42 0.41 0.25(b) 1.41(b)
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------- YEAR ENDED
JUNE 30, SEPTEMBER 29, DECEMBER 29, MARCH 31, MARCH 31,
1996 1996 1996(C, D) 1997(C, D) 1997(C, D)
-------- ------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales............... $ 65,735 $ 64,426 $103,393 $125,870 $359,424
Gross profit............ 20,017 19,184 30,104 38,132 107,437
Income from operations.. 8,681 8,910 11,240 16,223 45,054
Income before extraordi-
nary charge............ 5,032 5,211 3,219 4,890 18,352
Net income.............. 5,032 5,211 118(e) 4,793(e) 15,154(e)
Income per share before
extraordinary charge... 0.38 0.39 0.24 0.37 1.39
Net income per share.... 0.38 0.39 0.01(e) 0.36(e) 1.15(e)
</TABLE>
- --------
(a) Includes the results of operations of Univeyor since its acquisition on
January 7, 1998 and related interest on revolver borrowings to finance the
acquisition.
(b) Includes extraordinary charges for early debt extinguishment amounting to
$4,520 in the quarter ended March 31, 1998, net of the tax effect.
(c) Includes the results of operations of Yale since its acquisition on
October 17, 1996, except for the minority interest share of earnings
amounting to $323 in the quarter ended December 29, 1996; also reflects
the related interest and debt expense on borrowings to finance the
acquisition.
(d) Includes the results of operations of Lister since its acquisition on
December 19, 1996 and related interest on revolver borrowings to finance
the acquisition.
(e) Includes extraordinary charges for early debt extinguishment amounting to
$3,101 and $97 in the quarters ended December 29, 1996 and March 31, 1997,
respectively, net of the tax effect.
F-25
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................................. S-2
Schedule II--Valuation and Qualifying Accounts............................. S-3
</TABLE>
S-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Columbus McKinnon
Corporation as of March 31, 1998 and 1997, and for each of the three years in
the period ended March 31, 1998 and have issued our report thereon dated May
15, 1998 (included elsewhere in this Registration Statement). Our audits also
included the financial statement schedule listed in Item 21(b) of this
Registration Statement. This schedule is the responsibility of management of
Columbus McKinnon Corporation. Our responsibility is to express an opinion
based on our audits. In our opinion, the financial statement schedule referred
to above, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
/s/ Ernst & Young LLP
Buffalo, New York
May 15, 1998
S-2
<PAGE>
COLUMBUS MCKINNON CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
MARCH 31, 1998, 1997 AND 1996
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
ADDITIONS
-------------------
BALANCE AT CHARGED TO CHARGED BALANCE AT
BEGINNING COSTS AND TO OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended March 31,
1998:
Deducted from assets
accounts:
Allowance for doubtful
accounts............. $ 1,884 $1,381 $ 225(4) $ 968(1) $ 2,522
Slow-moving and
obsolete inventory... 3,356 1,115 335(4) 641(2) 4,165
Reserve against non-
current receivable... 600 600
------- ------ ------ ------ -------
Total............... $ 5,840 $2,496 $ 560 $1,609 $ 7,287
======= ====== ====== ====== =======
Reserves on balance
sheet:
Accrued general and
product liability
costs................ $11,973 $1,522 $ -- $1,807(3) $11,688
======= ====== ====== ====== =======
Year ended March 31,
1997:
Deducted from assets
accounts:
Allowance for doubtful
accounts............. $ 917 $ 905 $1,189(4) $1,127(1) $ 1,884
Slow-moving and
obsolete inventory... 2,467 325 1,770(4) 1,206(2) 3,356
Reserve against non-
current receivable... 600 600
------- ------ ------ ------ -------
Total............... $ 3,984 $1,230 $2,959 $2,333 $ 5,840
======= ====== ====== ====== =======
Reserves on balance
sheet:
Accrued general and
product liability
costs................ $ 7,110 $1,775 $3,806(4) $ 718(3) $11,973
======= ====== ====== ====== =======
Year ended March 31,
1996:
Deducted from assets
accounts:
Allowance for doubtful
accounts............. $ 537 $ 358 $ 289(4) $ 267(1) $ 917
Slow-moving and
obsolete inventory... 1,815 487 370(4) 205(2) 2,467
Reserve against non-
current receivable... 600 600
------- ------ ------ ------ -------
Total............... $ 2,352 $1,445 $ 659 $ 472 $ 3,984
======= ====== ====== ====== =======
Reserves on balance
sheet:
Accrued general and
product liability
costs................ $ 5,758 $1,555 $ -- $ 203(3) $ 7,110
======= ====== ====== ====== =======
</TABLE>
- --------
(1)Uncollectible accounts written off, net of recoveries
(2)Obsolete inventory disposals
(3)Insurance claims and expenses paid
(4)Reserves at date of acquisition of subsidiaries
S-3
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS NOT IN THIS PROSPECTUS AND, IF GIVEN OR MADE, MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITY OTHER THAN THE EXCHANGE NOTES OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
EXCHANGE NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT WOULD
BE UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN A CHANGE IN THE INFORMATION CONTAINED
IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 14
Exchange Offer........................................................... 20
Use of Proceeds.......................................................... 28
Capitalization........................................................... 28
Selected Financial Information........................................... 29
Management's Discussion and Analysis of Results of Operations and
Financial Condition..................................................... 30
Business................................................................. 35
Management............................................................... 49
Principal Shareholders................................................... 51
Description of Other Indebtedness........................................ 52
Description of Notes..................................................... 53
Certain United States Federal Income Tax Considerations.................. 78
Plan of Distribution..................................................... 81
Legal Matters............................................................ 82
Experts.................................................................. 82
Available Information.................................................... 82
Index to Consolidated Financial Statements............................... F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
COLUMBUS MCKINNON CORPORATION
OFFER TO EXCHANGE
8 1/2% SENIOR SUBORDINATED
NOTES DUE 2008
FOR ANY AND ALL OUTSTANDING
8 1/2% SENIOR SUBORDINATED
NOTES DUE 2008
-------------
PROSPECTUS
-------------
JULY 1, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation provides that a director will not be
personally liable for damages to the Company or its shareholders for breach of
duty as a director, except to the extent that such exemption or limitation is
not permitted under the New York Business Corporation Law (the "NYBCL"). The
NYBCL does not permit indemnification for liability arising from (i) acts or
omissions not in good faith or that involve intentional misconduct or a
knowing violation of law; (ii) any transaction from which the director derived
financial profit or other advantage to which he was not legally entitled;
(iii) payment of a dividend or approval a stock repurchase in violation of
NYBCL Section 510 (which, among other things, requires that dividends be paid
only out of earned surplus and prohibits dividend payments when a corporation
is insolvent or would thereby be made insolvent) or NYBCL Section 513 (which,
among other things, prohibits a corporation from purchasing or redeeming its
shares out of surplus if the corporation is insolvent or would thereby be made
insolvent and places certain restrictions on the purchase price payable by a
corporation in purchasing or redeeming its shares); (iv) distribution of
assets to shareholders after dissolution without provision for all known
liabilities; or (v) extension of any loan to directors in violation of NYBCL
Section 714 (which requires any loss from a corporation to a director to be
authorized by vote of the shareholders).
The Certificate of Incorporation also provides that each person, and his or
her heirs, executors, or administrators, who was or is a party or is
threatened to be made a party to, or is involved in any threatened or pending
or completed action, suit, or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person is or
was a director or officer of the Company or is or was serving at the request
of the Company as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise, will be indemnified and held
harmless by the Company to the fullest extent permitted by the NYBCL. The
Certificate further provides that the right to indemnification includes the
right to be paid by the Company for expenses incurred in connection with any
such proceeding before its final disposition to the fullest extent permitted
by the NYBCL and the right to indemnification conferred thereunder is a
contract right.
The Certificate of Incorporation further provides that the Company may, by
action of the Board of Directors, provide indemnification to such of the
employees and agents of the Company and such other persons serving at the
request of the Company as employees or agents of another corporation,
partnership, joint venture, trust or other enterprise to such extent and to
such effect as is permitted by the NYBCL and the Board of Directors.
Under the Certificate of Incorporation, (i) the rights and authority
described above are not exclusive of any other right that any person otherwise
may have or acquire and (ii) no amendment, modification or repeal of the
Certificate of Incorporation or Bylaws will eliminate or reduce the effect of
the provisions in the Certificate of Incorporation limiting liability or
indemnifying certain persons or adversely affect any right or protection then
existing thereunder in respect to any acts or omissions occurring before such
amendments, modification, repeal or adoption.
Sections 721, 722 and 726 of the NYBCL provide that a corporation may
indemnify any person, including officers and directors who are, or are
threatened to be made, parties to any action or proceeding, except a
derivative action, whether civil or criminal, by reason of their being
officers or directors or serving at the request of the corporation as a
director or officer of any other corporation or any partnership, joint
venture, trust, employee benefit plan or other enterprise, against judgments,
fines, amounts paid in settlement and reasonable expenses, including
attorneys' fees; provided that the officer or director acted in good faith,
for a purpose that such officer or director reasonably believed to be in (or
in case of service for any other corporation or any partnership, joint
venture, trust, employee benefit plan or other enterprise, not opposed to) the
best interests of the corporation. In the case of criminal actions or
proceedings, indemnification is allowed if the officer or director had no
reasonable cause to believe that his or her conduct was unlawful. An officer
or director who is successful in defense of such civil or criminal action or
proceeding is entitled to indemnification.
II-1
<PAGE>
A corporation may indemnify any person made, or threatened to be made, a
party to a derivative action by reason of the fact that such person is or was
a director or officer of the corporation or was serving at the request of the
corporation as a director or officer of any corporation or any partnership,
joint venture, trust, employee benefit plan or other enterprise, against
amounts paid in settlement and reasonable expenses, including attorneys' fees,
provided that such director or officer acted in good faith, for a purpose
which he reasonably believed to be in (or in the case of service for another
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise, not opposed to) the best interests of the corporation,
except that no indemnification is permitted in respect to a threatened action
or a pending action which is settled or otherwise disposed of or in respect of
any claim, issue or matter as to which such person shall have been adjudged to
be liable to the corporation, except to the extent that a court may otherwise
determine.
A person who has been successful in the defense of a civil or criminal
action or proceeding of the character described above is entitled to
indemnification to the extent described above. Otherwise, absent court
approval, indemnification in the specific case must be authorized either (i)
by the board of directors acting by a quorum consisting of directors who are
not parties to the action; or (ii) by the board upon the opinion of
independent legal counsel that the indemnification is proper under the
circumstances; or (iii) by the shareholders.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
4.1 Indenture among Columbus McKinnon Corporation, the guarantors named on
the signature pages thereto and State Street Bank and Trust Company,
N.A., as trustee (incorporated by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K dated April 9, 1998).
4.2 Supplemental Indenture among LICO, Inc., Automatic Systems, Inc., LICO
Steel, Inc., Columbus McKinnon Corporation, Yale Industrial Products,
Inc., Mechanical Products, Inc., Minitec Corporation and State Street
Bank and Trust Company, N.A., as trustee, dated March 31, 1998
(incorporated by reference to Exhibit 4.3 to the Company's Current
Report on form 8-K dated April 9, 1998.
4.3 Form of Exchange Note (incorporated by reference to Exhibit 4.1 to the
Company's Current report on Form 8-K dated April 9, 1998).
4.4 A/B Registration Rights Agreement among Columbus McKinnon Corporation,
the guarantors named on the signature pages thereto and Bear, Stearns
& Co., Inc. and Goldman, Sachs & Co., as initial purchasers
(incorporated by reference to Exhibit 4.2 to the Company's Current
Report on Form 8-K dated April 9, 1998).
4.5 Form of Subsidiary Guarantee (included in Exhibit 4.1)
*5.1 Opinion of Lippes, Silverstein, Mathias & Wexler LLP as to the
legality of the Exchange Notes to be issued by Columbus McKinnon
Corporation
10.1 Credit Agreement, dated as of March 31, 1998, among Columbus McKinnon
Corporation, as Borrower, the banks, financial institutions and other
institutional lenders named therein, as Initial Lenders, Fleet
National Bank, as the Initial Issuing Bank, Fleet National Bank, as
the Swing Line Bank, and Fleet National Bank, as the Administrative
Agent (incorporated by reference to Exhibit 10.2 to the Company's
Current Report on Form 8-K dated April 9, 1998).
10.2 Stock Purchase Agreement, dated as of March 11, 1998, among Columbus
McKinnon Corporation and the shareholders of LICO, Inc. identified on
the signature pages thereto (incorporated by reference to Exhibit 10.1
to the Company's Current Report on Form 8-K dated April 9, 1998).
*12.1 Statement regarding computation of earnings to fixed charges.
**23.1 Consent of Ernst & Young LLP
**23.2 Consent of Arthur Andersen LLP
*23.3 Consent of Lippes, Silverstein, Mathias & Wexler LLP (included in
Exhibit 5.1)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
*25.1 Form T-1 Statement of Eligibility of State Street Bank and Trust
Company, N.A to act as Trustee under the Indenture
*99.1 Form of Letter of Transmittal
*99.2 Form of Notice of Guaranteed Delivery
*99.3 Form of Letter to Nominees
*99.4 Form of Letter to Clients
*99.5 Form of Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9
</TABLE>
- --------
* Filed previously
** Filed herewith
(B) FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE
NUMBER DESCRIPTION OF SCHEDULE
-------- -----------------------
<S> <C>
II Valuation and Qualifying Accounts
</TABLE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement 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.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
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, 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.
(c) The undersigned registrant hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF BUFFALO, STATE OF NEW YORK ON JUNE 30, 1998.
Columbus McKinnon Corporation
/s/ Herbert P. Ladds, Jr.
By: _________________________________
HERBERT P. LADDS, JR. CHAIRMAN OF
THE BOARD OF DIRECTORS AND CHIEF
EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Herbert P. Ladds, Jr. Chairman of the
- ------------------------------------- Board of Directors June 30, 1998
HERBERT P. LADDS, JR. (Principal
Executive Officer)
/s/ Timothy T. Tevens President, Chief
- ------------------------------------- Operating Officer June 30, 1998
TIMOTHY T. TEVENS and Director
/s/ Robert L. Montgomery, Jr. Executive Vice
- ------------------------------------- President, Chief June 30, 1998
ROBERT L. MONTGOMERY, JR. Financial Officer
and Director
(Principal
Financial Officer
and Principal
Accounting Officer)
/s/ Edward W. Duffy Director
- ------------------------------------- June 30, 1998
EDWARD W. DUFFY
/s/ Randolph A. Marks Director
- ------------------------------------- June 30, 1998
RANDOLPH A. MARKS
/s/ L. David Black Director
- ------------------------------------- June 30, 1998
L. DAVID BLACK
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF KANSAS CITY, STATE OF MISSOURI ON JUNE 30, 1998.
Automatic Systems, Inc.
/s/ Robert A. Hoehn
By: _________________________________
ROBERT A. HOEHN PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Robert A. Hoehn President (Principal
- ------------------------------------- Executive Officer) June 30, 1998
ROBERT A. HOEHN
/s/ Robert L. Montgomery, Jr. Treasurer and
- ------------------------------------- Director (Principal June 30, 1998
ROBERT L. MONTGOMERY, JR. Financial Officer
and Principal
Accounting Officer)
/s/ Lois H. Demler Director
- ------------------------------------- June 30, 1998
LOIS H. DEMLER
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF KANSAS CITY, STATE OF MISSOURI ON JUNE 30, 1998.
LICO, Inc.
/s/ Robert A. Hoehn
By: _________________________________
ROBERT A. HOEHN PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Robert A. Hoehn President (Principal
- ------------------------------------- Executive Officer) June 30, 1998
ROBERT A. HOEHN
/s/ Robert L. Montgomery, Jr. Treasurer and
- ------------------------------------- Director (Principal June 30, 1998
ROBERT L. MONTGOMERY, JR. Financial Officer
and Principal
Accounting Officer)
/s/ Lois H. Demler Director
- ------------------------------------- June 30, 1998
LOIS H. DEMLER
/s/ Annabelle V. Irey Director
- ------------------------------------- June 30, 1998
ANNABELLE V. IREY
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF KANSAS CITY, STATE OF MISSOURI ON JUNE 30, 1998.
LICO Steel, Inc.
/s/ Robert A. Hoehn
By: _________________________________
ROBERT A. HOEHN PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Robert A. Hoehn President (Principal
- ------------------------------------- Executive Officer) June 30, 1998
ROBERT A. HOEHN
/s/ Robert L. Montgomery, Jr. Treasurer and
- ------------------------------------- Director (Principal June 30, 1998
ROBERT L. MONTGOMERY, JR. Financial Officer
and Principal
Accounting Officer)
/s/ Lois H. Demler Director
- ------------------------------------- June 30, 1998
LOIS H. DEMLER
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF JACKSON, STATE OF MICHIGAN ON JUNE 30, 1998.
Mechanical Products, Inc.
/s/ William J. Ellison
By: _________________________________
WILLIAM J. ELLISON PRESIDENT AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ William J. Ellison President and Chief
- ------------------------------------- Executive Officer June 30, 1998
WILLIAM J. ELLISON (Principal
Executive Officer)
/s/ Herbert P. Ladds, Jr. Chairman of the
- ------------------------------------- Board of Directors June 30, 1998
HERBERT P. LADDS, JR.
/s/ Robert L. Montgomery, Jr. Treasurer and
- ------------------------------------- Director (Principal June 30, 1998
ROBERT L. MONTGOMERY, JR. Financial Officer
and Principal
Accounting Officer)
/s/ Timothy T. Tevens Director
- ------------------------------------- June 30, 1998
TIMOTHY T. TEVENS
II-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF JACKSON, STATE OF MICHIGAN ON JUNE 30, 1998.
Minitec Corporation
/s/ William J. Ellison
By: _________________________________
WILLIAM J. ELLISON PRESIDENT AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ William J. Ellison President and Chief
- ------------------------------------- Executive Officer June 30, 1998
WILLIAM J. ELLISON (Principal
Executive Officer)
/s/ Herbert P. Ladds, Jr. Chairman of the
- ------------------------------------- Board of Directors June 30, 1998
HERBERT P. LADDS, JR.
/s/ Robert L. Montgomery, Jr. Treasurer and
- ------------------------------------- Director (Principal June 30, 1998
ROBERT L. MONTGOMERY, JR. Financial Officer
and Principal
Accounting Officer)
/s/ Timothy T. Tevens Director
- ------------------------------------- June 30, 1998
TIMOTHY T. TEVENS
II-9
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF BUFFALO, STATE OF NEW YORK ON JUNE 30, 1998.
Yale Industrial Products, Inc.
/s/ Herbert P. Ladds, Jr.
By: _________________________________
HERBERT P. LADDS, JR. CHAIRMAN OF
THE BOARD OF DIRECTORS, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Herbert P. Ladds, Jr. Chairman of the
- ------------------------------------- Board of Directors, June 30, 1998
HERBERT P. LADDS, JR. President, Chief
Executive Officer
and Director
(Principal
Executive Officer)
/s/ Robert L. Montgomery, Jr. Treasurer and
- ------------------------------------- Director (Principal June 30, 1998
ROBERT L. MONTGOMERY, JR. Financial Officer
and Principal
Accounting Officer)
/s/ Timothy T. Tevens Director
- ------------------------------------- June 30, 1998
TIMOTHY T. TEVENS
/s/ Ned T. Librock Director
- ------------------------------------- June 30, 1998
NED T. LIBROCK
/s/ Lois H. Demler Director
- ------------------------------------- June 30, 1998
LOIS H. DEMLER
II-10
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts", and the
use of our reports dated May 15, 1998 in Amendment No. 1 to the Registration
Statement (Form S-4 No. 333-53759) and related Prospectus of Columbus McKinnon
Corporation for the registration of $200,000,000 of its senior subordinated
notes.
We also consent to the incorporation by reference therein of our report
dated November 21, 1997 (except Note 11, as to which the date is February 13,
1998) with respect to the Consolidated Financial Statements of LICO, Inc. and
Subsidiaries included in the Current Report dated April 9, 1998 (Form 8-K) of
Columbus McKinnon Corporation filed with the Securities Exchange Commission.
/s/ Ernst & Young LLP
Buffalo, New York
June 30, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement (No. 333-53759) on Form S-4/A of our
report dated August 24, 1996 incorporated by reference in Columbus McKinnon
Corporation's current report on Form 8K, dated October 17, 1996, as amended on
December 31, 1996, and to all references to our Firm included in this
registration statement.
/s/ Arthur Andersen LLP
Charlotte, North Carolina
June 30, 1998
