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As filed with the Securities and Exchange Commission on October 26, 1999
Registration No. 333-88759
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1
to
Form S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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WOODS EQUIPMENT COMPANY
(Exact name of Registrant as specified in its charter)
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Delaware 3523 36-3868249
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
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WEC COMPANY
(Exact name of Registrant as specified in its charter)
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Delaware 3523 36-3868248
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
6944 Newburg Road Thomas J. Laird
Rockford, Illinois 61108 President and Chief Executive Officer
Telephone: (815) 732-2141 Woods Equipment Company
(Address, including zip code, and 6944 Newburg Road
telephone number, Rockford, Illinois 61108
including area code, of Registrants' Telephone: (815) 732-2141
principal offices) (Address, including zip code, and
telephone number,
Copy to:
including area code, of Agent for
Service)
Dennis M. Myers, Esq.
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Telephone: (312) 861-2000
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Approximate date of commencement of proposed sale to the public: The
exchange will occur as soon as practicable after the effective date of this
Registration Statement.
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, please check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
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The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
file a further amendment which specifically states that this Registration
Statement will thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement becomes
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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PROSPECTUS
Woods Equipment Company
Exchange Offer for
$51,927,000 at Maturity of
15.0% Senior Discount Debentures due 2011
WEC Company
Exchange Offer for
$130,000,000 of
12.0% Senior Notes due 2009
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Material Terms of Exchange Offers
. We will not receive any proceeds
. The exchange offers will expire at from the exchange offers.
5:00 p.m., New York City time,
November 29, 1999, unless
extended.
. The terms of the securities to be
issued in the exchange offers are
substantially identical to the
outstanding securities, except for
transfer restrictions and
registration rights relating to
the outstanding securities.
. We will exchange all debentures
and notes that you validly tender
and do not validly withdraw.
. The exchange offers are not
subject to any condition other
than they not violate applicable
law or any applicable
interpretation of the Staff of the
SEC.
. There is no existing public market
exists for the outstanding
securities or the exchange
securities. We do not intend to
list the exchange securities on
any securities exchange or seek
approval for quotation through any
automated trading system.
. You may withdraw your tender of
debentures or notes any time prior
to the expiration of the exchange
offers.
. Based on the advice of our
counsel, we believe that the
exchange of securities will not be
a taxable exchange for U.S.
federal income tax purposes.
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Each broker-dealer that receives exchange securities for its own account
pursuant to the exchange offers must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange securities. 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 securities received
in exchange for outstanding securities where such outstanding securities were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. We have agreed that, for a period of 180 days after the
expiration date of the exchange offers, we will make this prospectus available
to any broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
For a discussion of certain factors that you should consider before
participating in the exchange offers, see "Risk Factors" beginning on page 16
of this prospectus.
Neither the SEC nor any state securities commission has approved the
securities to be distributed in the exchange offers, nor have any of these
organizations determined that this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The date of this prospectus is October 26, 1999.
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TABLE OF CONTENTS
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Prospectus Summary.........................1
Risk Factors..............................16.
The Exchange Offers.......................25.
Forward-Looking Statements................35.
Use of Proceeds...........................36.
Capitalization............................37.
Unaudited Pro Forma Financial Data........38.
Selected Historical Financial Data........50.
Management's Discussion and Analysis of
Financial Condition and Results of
Operations...............................54.
Business..................................61.
Management................................78.
Principal Stockholders....................82.
Certain Relationships and Related
Transactions.............................83.
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Description of Other Financing Arrangements........................... 86
Description of the Exchange Debentures................................ 88
Description of the Exchange Notes..................................... 118
Description of Capital Stock.......................................... 152
United States Federal Income Tax Consequences......................... 156
Plan of Distribution.................................................. 156
Legal Matters......................................................... 157
Experts............................................................... 157
Where You Can Find More Information................................... 158
Index to Financial Statements......................................... F-1
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As used in this prospectus, references to "we," "our," "us" and "Woods"
refer to Woods Equipment Company and its operating subsidiary, WEC Company. In
those situations where it is important to distinguish between Woods Equipment
Company and WEC Company, we use the term "Parent" to refer only to Woods
Equipment Company and the term "WEC" to refer only to WEC Company. Woods
recently acquired three separate businesses. For ease of reference, we use the
following terms to identify these businesses in this prospectus:
"TISCO" refers to Tru-Part Manufacturing Corporation and its principal
operating subsidiary, Tractor Implement Supply Company;
"Central Fabricators" refers to Central Fabricators, Inc.; and
"Alitec Attachments Division" refers to the attachments division of
Alitec Corporation.
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PROSPECTUS SUMMARY
This summary may not contain all of the information that may be important to
you. You should read the entire prospectus, including the financial data and
related notes, before making an investment decision. You should pay special
attention to the "Risk Factors" section beginning on page 16 of this prospectus
to determine whether you wish to participate in the exchange offers.
Our Business
Overview
Woods is a leading manufacturer of attachments for a variety of mowing,
cutting and clearing, construction, material handling, landscaping and grounds
maintenance applications. In July 1999, Woods acquired three separate
businesses:
. TISCO--one of the leading independent distributors of replacement parts
in the United States primarily for tractors over ten years old;
. Central Fabricators--one of the leading independent manufacturers of
pin-on excavator buckets for the U.S. construction industry; and
. Alitec Attachments Division--a manufacturer of patented hydraulic
powered attachments for the rapidly growing U.S. skid steer market.
As a result of these acquisitions, Woods enhanced its position as one of the
largest independent attachments manufacturers in the United States as well as
gained a new platform in the replacement parts business for tractors.
Our Management Team
Woods is managed by Thomas J. Laird and his executive management team. Mr.
Laird joined Woods in 1993 and has assembled an executive management team with
significant manufacturing and industry experience. Since 1993, Woods' executive
management team has transformed Woods from a manufacturer of niche agricultural
and landscaping products into a leading, diversified attachments manufacturer
through the successful introduction of new products and implementation of a
strategic acquisition program. From 1993 to 1998, Woods has completed and fully
integrated seven acquisitions. As a result of such acquisitions and new product
introductions, Woods' sales have increased from $57.6 million in 1992 to
approximately $154.7 million in 1998, representing a compound annual growth
rate of approximately 21.8%. In addition to increasing sales, Woods' executive
management team has also been successful in improving Woods' manufacturing
processes by implementing new operating procedures designed to increase
productivity, shorten manufacturing lead times and reduce costs and inventory
levels. As a result of the implementation of these operating procedures, Woods
generated approximately $22.0 million in cash through increasing its inventory
turns from 2.6 times in 1993 to 5.3 times in 1998.
Our Products
Woods' products are used in a variety of applications to enhance the
productivity and versatility of prime movers, which include tractors,
excavators, tractor loader backhoes and skid steers. Our products include
rotary cutting and finish mowing attachments, front end loaders, backhoes,
coupler systems, buckets, scrapers and other implements. We also offer a full
line of replacement parts for our increasing installed base of attachments as
well as replacement parts for tractors. The average lifespan of our attachments
range from one to five years due to the severe and wearing nature of the
applications for which they are used. In most instances, a prime mover will be
used for several different types of applications, each of which requires a
separate attachment. For example, a prime mover can be used in conjunction with
a mower, front end loader, backhoe or scraper, depending on the desired
application. Most of our products range in price from $1,000 to $10,000. Our
products are sold through our large and extensive dealer network and directly
to original equipment manufacturers. Our products are used by a variety of end-
users, including construction companies and
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contractors, utility contractors, landscaping and groundscare companies,
farmers, ranchers, homeowners and governmental agencies. No single customer
accounted for more than 3% of our pro forma net sales in 1998.
Our Markets
We sell our products to end-users located primarily in the United States.
The attachments market in the United States is very large and fragmented. We
believe the market for attachments in the United States had sales in excess of
$4.0 billion in 1998 and historically has grown at a rate of 2% to 4% annually.
With the acquisition of TISCO, we also operate in the $8 billion capital
equipment replacement parts market in the United States. For the most part, the
U.S. attachments and replacement parts markets are comprised of several hundred
small, regional manufacturers and distributors that offer a limited number of
products as well as a small number of national and international companies that
offer a broad range of products. In recent years, there has been a trend
towards consolidation among attachments manufacturers and parts suppliers in
order to achieve operating efficiencies and to better serve the needs of their
end-users. Similarly, there has been significant consolidation among dealers,
who are increasingly seeking suppliers, such as our company, who are able to
offer broad product lines, national distribution capabilities, innovative
products and reliable service.
When compared to original equipment manufacturers of prime movers, we
believe that the overall demand for our products is relatively stable and is
not dependent to any significant degree on the business cycle of any single
industry. We attribute this relative stability to:
. the diversity and balance of the end-users and applications of our
products;
. the required maintenance and ground engaging nature of our product
applications, which limits the end-user's ability to defer purchases and
encourages ongoing replacement;
. our large and geographically diverse customer base;
. the relative low cost of our products as compared to the cost of a prime
mover; and
. our significant replacement parts business.
Competitive Strengths
We believe that our success is attributable to the following competitive
strengths:
Proven Management Team with Significant Industry and Operational
Experience. Woods is operated under the leadership of Thomas J. Laird. Mr.
Laird joined Woods in 1993 and has over 25 years of manufacturing, marketing
and general management experience, including 21 years of experience at General
Electric Company. The eight member senior management team assembled at Woods by
Mr. Laird has over 150 years of combined manufacturing and industry experience
from world-class manufacturing companies.
Strong Operational Focus. Woods' management is focused on improving
profitability through a Total Cost Productivity program designed to achieve
continuous productivity gains, shorten manufacturing lead times and reduce
costs and inventory levels. In 1995, as part of the Total Cost Productivity
program, Woods began to implement continuous flow manufacturing and total
quality management techniques at certain of its manufacturing facilities. To
date, Woods has implemented continuous flow manufacturing and total quality
management at three of its facilities. As a result of these techniques, Woods
has successfully decreased its overall working capital requirements by
increasing inventory turnover from 2.6 times in 1993 to 5.3 times in 1998 and
reducing order-to-delivery times from 35 days to 16 days over the same period.
Extensive Distribution Network. Our extensive dealer network provides
geographical and customer diversification and facilitates the successful
introduction of new products and the cross-selling of acquired product lines.
Our distribution network includes dealers that have affiliations with all the
principal original equipment manufacturers of prime movers, such as New
Holland, Deere & Co., Case Corporation, AGCO Corporation, Ingersoll-Rand
Company, which manufacturers the Bobcat brand of skid steer, Caterpillar Inc.
and Kubota Corporation, as well as a number of independent dealers.
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Strong Brand Recognition and Product Breadth. Woods' well-known brands
include Woods(R), Wain-Roy(R), Gannon(R), Alloway(R) and Gill(R). Management
believes that Woods has the most comprehensive product line of tractor-mounted
attachments in the industry with 24 product categories. Our recent acquisitions
have provided us with a number of additional well-known brands, including
Central Fabricators(R), Tru-Part(R), TRU-POWER(R), TISCO(R) and CALCO(R).
Versatile Mounting Systems. Woods has developed a large number of mounting
systems that enable their products to be attached to all of the major brands of
prime movers. For example, Woods' mounting systems enable its front end loaders
to be attached to approximately 317 tractor models and its backhoes to be
attached to 243 tractor models. We believe that these mounting systems create
customer loyalty as end-users are reluctant to purchase attachments from other
manufacturers because doing so would also require the purchase of a new
mounting system at an additional cost.
Successful New Product Introductions. Woods has a successful product
development record and a strong research and development team. Over the last
four years, Woods has made substantial investments to support new product
development, including the purchase of 3-D solid modeling and CAD-CAM systems
to facilitate product design and the implementation of finite element analysis
testing for proposed prototypes. Woods' 37 engineering professionals in design,
testing and new product support have introduced over 90 new products since
1993, which accounted for approximately $31.8 million, or 20.6% of Woods' net
sales in 1998.
Acquisition Integration Capability. From 1993 to 1998, Woods' management
team has successfully integrated seven strategic acquisitions. With these
acquisitions, Woods has increased and leveraged its existing distribution
network, eliminated redundant corporate functions, increased sales and reduced
costs. Over the last five years, Woods' management increased Woods' product
categories from 7 to 24 through new product introductions and strategic
acquisitions.
Growth Strategy
Our strategy is to increase market share and profitability through the
following initiatives:
Capitalize on the Anticipated Benefits of the Acquisitions. Management
believes that the combination of Woods, TISCO, Central Fabricators and the
Alitec Attachments Division will provide several strategic benefits, including:
. expanded product offerings;
. increased distribution capabilities and cross-selling opportunities;
. improved relationships with original equipment manufacturers;
. anticipated cost savings; and
. complementary technology.
Continue to Implement Total Cost Productivity Initiatives. We intend to
continue to implement our Total Cost Productivity program in an effort to
become the lowest cost producer of attachments in each of our product
categories. Continuous flow manufacturing and total quality management are
important components of our strategy to improve productivity, shorten
manufacturing lead times and reduce costs and inventory levels.
Develop New and Enhance Existing Products. Management believes it can
continue to generate internal growth and increase our overall market share
through product innovation and new product development. We work closely with
dealers and customers to identify customer needs and product opportunities.
Management believes that our engineering department of 46 professionals will
provide us with the design, product development and technical expertise needed
to continue to successfully introduce new products and product improvements.
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Increase Depth of Product Penetration at Dealers. Woods is currently in the
process of reducing the size of its dealer network from approximately 4,000 to
under 3,000. The remaining dealers will represent those with greater than
$25,000 in annual sales of Woods' products. We believe our remaining dealers
will carry more of our products because they will be the predominant Woods
dealer in their county and we will be able to provide them with additional
marketing and logistical support. In addition, we should be able to achieve
transportation cost savings by increasing delivery sizes and reducing the
number of absolute deliveries.
Acquire Complementary Businesses. Management believes that it can continue
to expand our product offerings, further expand our dealer network and
supplement our internal growth through strategic acquisitions. In pursuing our
acquisition strategy, we intend to focus our efforts on acquiring businesses
with product lines that can be sold through our extensive dealer network.
Management believes that the highly fragmented nature of the U.S. attachments
industry provides a favorable environment for such acquisitions and the
continued success of our consolidation efforts.
Recent Acquisitions
TISCO. On July 28, 1999, we acquired substantially all of the assets of
TISCO for approximately $37.2 million in cash plus noncompete payments of an
aggregate of $0.5 million to its former owners to be made on a quarterly basis
over a two year period. TISCO had net sales of $65.0 million for the twelve
months ended May 21, 1999.
Central Fabricators. On July 28, 1999, we acquired Central Fabricators for
approximately $28.7 million in cash plus noncompete payments of an aggregate of
$0.6 million to its former owners to be made on a quarterly basis over a three
year period. Central Fabricators had net sales of $22.4 million for the twelve
months ended June 30, 1999.
Alitec. On July 29, 1999, Woods acquired the Alitec Attachments Division for
approximately $10.9 million in cash, subject to a possible earn-out payment of
up to $3.0 million if the acquired business has net sales in 1999 of
approximately $11.0 million or more. The Alitec Attachments Division had net
sales of $9.0 million for the twelve months ended June 30, 1999.
For ease of reference, we collectively refer to the foregoing acquisitions
in this prospectus as the "Acquisitions."
The Recapitalization
On August 7, 1998, Parent completed a recapitalization of its equity
structure, pursuant to which, among other things, Madison Dearborn Capital
Partners II, L.P. ("MDCP") and Woods' senior management acquired substantially
all of the outstanding capital stock of Parent. Woods used $155.0 million to
complete the recapitalization, including the payment of related fees and
expenses. The recapitalization was financed through:
. borrowings of $85.0 million under a new $110 million multi-tranche senior
secured credit facility;
. borrowings of $25.0 million under a subordinated bridge loan provided by
MDCP;
. the assumption of approximately $5.8 million of existing indebtedness of
Woods;
. an equity investment in Parent of approximately $39.8 million by MDCP,
senior management and certain other investors; and
. cash on hand of approximately $1.7 million.
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Parent and WEC were incorporated under the laws of the State of Delaware on
January 28, 1993. Woods' origins date back to 1947 when its predecessor began
to manufacture rotary cutters for the agricultural industry. Our principal
executive office is located at 6944 Newburg Road, Rockford, Illinois 61108, and
our telephone number is (815) 732-2141.
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Summary of the Exchange Offers
Registration Rights We sold both the outstanding notes and the
Agreement.............. outstanding debentures on July 28, 1999 to Credit
Suisse First Boston Corporation, who we refer to in
this prospectus as the "initial purchaser." The
initial purchaser subsequently resold there
securities to:
. qualified institutional buyers pursuant to Rule
144A under the Securities Act and
. with respect to the notes only, qualified buyers
outside the United States in reliance upon
Regulation S under the Securities Act.
Simultaneously with the completion of the initial
offerings, we entered into registration rights
agreement with the initial purchaser, which provides
for the exchange offers. The exchange offers are
intended to satisfy your rights under the
registration rights agreement. After the exchange
offers are complete, you will generally no longer be
entitled to any exchange or registration rights with
respect to your outstanding securities.
The Exchange Offers:
15.0% Senior Discount
Debentures..............
We are offering to exchange $51,927,000 aggregate
principal amount at maturity of 15.0% senior discount
debentures due 2011, which have been registered under
the Securities Act for your existing 15.0% senior
discount debentures, which were issued on July 28,
1999 in a private offering.
12.0% Senior Notes...... We are offering to exchange $130,000,000 aggregate
principal amount of 12.0% senior notes due 2009,
which have been registered under the Securities Act
for your existing 12.0% senior notes, which were
issued on July 28, 1999 in a private offering.
In order to be exchanged, an outstanding security
must be properly tendered and accepted. All
outstanding securities that are validly tendered and
not validly withdrawn will be exchanged. We will
issue exchange securities promptly after the
expiration of the exchange offers.
Resale of the Exchange We believe that the exchange securities issued in the
Securities.............. exchange offers may be offered for resale, resold and
otherwise transferred by you without compliance with
the registration and prospectus delivery provisions
of the Securities Act. We have based this belief on
letters issued in connection with past offerings of
this kind in which the Staff of the SEC has
interpreted the laws and regulations relating to the
resale of notes to the public without the requirement
of further registration under the Securities Act. See
Shearman & Sterling (available July 2, 1993); Morgan
Stanley & Co. Incorporated (available June 5, 1991);
and Exxon Capital Holdings Corporation (available May
13, 1989). In order for the exchange securities to be
offered for resale, resold or otherwise transferred:
. you must acquire the exchange securities in the
ordinary course of your business;
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. you must not be participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate, in
the distribution of the exchange securities
issued to you in the exchange offers;
. you must not be a broker-dealer who purchased
your outstanding securities directly from us for
resale under Rule 144A or any other available
exemption under the Securities Act; and
. you are not an "affiliate" of Woods with the
meaning of Rule 405 under the Securities Act.
If any of these conditions are not satisfied, you may
incur liability under the Securities Act if you
transfer any exchange securities issued to you in the
exchange offers without delivering a prospectus
meeting the requirements of the Securities Act or
without an exemption from registration of your
exchange securities from such requirements. We do not
assume or indemnify you against any such liability.
If you are a broker-dealer and you acquired
outstanding securities as a result of your market-
making or other trading activities, you must
acknowledge that you will deliver a prospectus
meeting the requirements of the Securities Act in
connection with any resale of the exchange securities
that you acquire for your own account in exchange for
the outstanding securities. You may use this
prospectus for an offer to resell, resale or other
retransfer of the exchange securities issued to you
in the exchange offers. See "Plan of Distribution."
We are not offering to exchange with you, and will
not accept surrenders for exchange from you, in any
jurisdiction in which this exchange offer or its
acceptance would not comply with the securities or
blue sky laws of that jurisdiction. Furthermore, if
you acquire the exchange notes, you are responsible
for compliance with securities or blue sky laws
regarding resales. We assume no responsibility for
compliance with these requirements.
Record Date.............
We mailed this prospectus and the applicable exchange
offer documents to registered holders of outstanding
securities on October 25, 1999.
Expiration Date.........
The exchange offers will expire at 5:00 p.m., New
York City time, November 29, 1999, unless we decide
to extend the expiration date.
Conditions to the
Exchange Offers........
The exchange offers are not subject to any condition
other than that the exchange offers not violate
applicable law or any applicable interpretation of
the Staff of the SEC.
Procedures for
Tendering Outstanding
Securities............. If you wish to tender your securities for exchange in
these exchange offers, you must transmit to the
exchange agent on or before the expiration date
either:
. an original or a facsimile of a properly
completed and duly executed copy of the letter of
transmittal, which accompanies this prospectus,
together with your outstanding securities and any
other
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documentation required by the letter of
transmittal, at the address provided on the cover
page of the letter of transmittal; or
. if the securities you own are held of record by
The Depository Trust Company in book-entry form
and you are making delivery by book-entry
transfer, a computer-generated message
transmitted by means of the Automated Tender
Offer Program System of The Depository Trust
Company in which you acknowledge and agree to be
bound by the terms of the letter of transmittal
and which, when received by the exchange agent,
forms a part of a confirmation of book-entry
transfer. As part of the book-entry transfer, The
Depository Trust Company will facilitate the
exchange of your securities and update your
account to reflect the issuance of the exchange
securities to you. The Automated Tender Offer
Program allows you to electronically transmit
your acceptance of the applicable exchange offer
to The Depository Trust Company instead of
physically completing and delivering a letter of
transmittal to the exchange agent.
In addition, you must deliver to the exchange agent
on or before the expiration date:
. if you are effecting delivery by book-entry
transfer, a timely confirmation of book-entry
transfer of your outstanding securities into the
account of the exchange agent at The Depository
Trust Company; or
. if necessary, the documents required for
compliance with the guaranteed delivery
procedures.
By executing and delivering the letter of transmittal
or effecting delivery by book-entry transfer, you are
representing to us that, among other things:
. the person receiving the exchange securities in
the exchange offers, whether or not that person
is the holder, is receiving them in the ordinary
course of business;
. neither you nor any other person receiving your
exchange securities in the exchange offers has an
arrangement or understanding with any person to
participate in the distribution of the exchange
securities and that you are not engaged in, and
do not intend to engage in, a distribution of the
exchange securities; and
. neither you nor any other person receiving your
exchange securities in the exchange offers is an
"affiliate" of ours within the meaning of Rule
405 under the Securities Act.
Special Procedures for
Beneficial Owners......
If you are the beneficial owner of book-entry
interests and your name does not appear on a security
position listing of The Depositary Trust Company as
the holder of such book-entry interests or if you are
a beneficial owner of outstanding securities that are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
you wish to tender such book-entry interest or
outstanding securities in the exchange offers, you
should contact such person in whose name
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your book-entry interests or outstanding securities
are registered promptly and instruct such person to
tender on your behalf.
Guaranteed Delivery If you wish to tender your outstanding securities
Procedures............. and:
. time will not permit your securities or other
required documents to reach the securities
exchange agent by the expiration date; or
. the procedure for book-entry transfer cannot be
completed on time;
you may tender your securities by completing a notice
of guaranteed delivery and complying with the
guaranteed delivery procedures.
Withdrawal Rights.......
You may withdraw the tender of your outstanding
securities at any time prior to 5:00 p.m., New York
City time on November 29, 1999.
Federal Income Tax
Considerations.........
Based upon the advice of our counsel, we believe that
the exchange of outstanding securities for the
exchange securities will not be a taxable event for
United States federal income tax purposes. See
"United States Federal Income Tax Consequences."
Use of Proceeds......... We will not receive any proceeds from the issuance of
exchange securities pursuant to the exchange offers.
We will pay all of the expenses incident to the
exchange offers.
Exchange Agent.......... United States Trust Company of New York is serving as
the exchange agent in connection with the exchange
offers.
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Summary of Terms of the Exchange Securities
The form and terms of the exchange securities are the same as the form and
terms of the outstanding securities, except that the exchange securities will
be registered under the Securities Act. As a result, the exchange securities
will not bear legends restricting their transfer and will not be subject to the
registration rights and liquidated damage provisions contained in the
outstanding securities. The exchange securities represent the same debt as the
outstanding securities. Both the outstanding securities and the exchange
securities are governed by the same applicable indenture. For case of
reference, we use the term "debentures" in this prospectus to refer to both the
outstanding debentures and the exchange debentures and the term "notes" to
refer to both the outstanding notes and the exchange notes.
The Senior Discount Debentures
Issuer.................. Woods Equipment Company.
Securities Offered...... $51,927,000 aggregate principal amount at maturity of
15% senior discount debentures due 2011.
Maturity................ July 15, 2011.
Yield and Interest...... The outstanding debentures were sold at a substantial
discount from their principal amount at maturity and
there will not be any cash payment of interest on the
debentures prior to October 15, 2004. From and after
July 15, 2004, the debentures will bear interest,
which will be payable quarterly in cash, at a rate of
15% per annum on each January 15th, April 15th, July
15th and October 15th, commencing October 15, 2004.
Ranking................. The debentures are general unsecured obligations of
Parent. The debentures will not be guaranteed by any
of the Parent's existing or future subsidiaries.
The debentures:
. effectively rank junior to all of Parent's secured
indebtedness to the extent of the value of the
assets securing such indebtedness;
. rank equally with all of Parent's existing and
future unsubordinated, unsecured indebtedness that
does not expressly provide that it is subordinated
to the debentures;
. rank ahead of all of Parent's future indebtedness
that expressly provides that it is subordinated to
the debentures; and
. are structurally subordinated in right of payment
to all existing and future indebtedness of Parent's
subsidiaries, including WEC.
As of July 3, 1999, after giving pro forma effect to
the Acquisitions and the initial offerings, Parent
would have had no indebtedness other than the
debentures and its guaranties of WEC's obligations
under the senior credit facility and the notes and
WEC would have had total liabilities of approximately
$174.0 million.
Optional Redemption..... Parent cannot redeem the debentures until July 15,
2004, except as described immediately below.
Thereafter, Parent can redeem some or all of the
debentures at the redemption prices listed in the
"Description of the Exchange Debentures--Optional
Redemption" section of this prospectus, plus accrued
interest.
9
<PAGE>
Optional Redemption
after Equity
Offerings..............
At any time before July 15, 2002, Parent can choose
to redeem all of the outstanding debentures with
money that it raises in certain equity offerings, as
long as:
. it pays to holders of the debentures a redemption
price of 115% of the accreted value of the
debentures it redeems, plus accrued interest; and
. it redeems the debentures within 60 days of
completing such equity offering.
Change of Control If a change of control of Parent occurs, Parent must
Offer.................. give holders of the debentures the opportunity to
sell to it their debentures at a purchase price of
101% of their face amount, plus accrued interest. The
term "change of control" is defined in the
"Description of the Exchange Debentures--Change of
Control" section of this prospectus.
Certain Covenants....... The indenture governing the debentures, which we
refer to as the "debenture indenture," contains
covenants that limit the ability of Parent and that
of its subsidiaries to:
. incur additional indebtedness;
. pay dividends or distributions on, or redeem or
repurchase, our capital stock;
. make investments;
. issue or sell preferred stock of subsidiaries;
. engage in transactions with affiliates;
. create liens on our assets to service certain debt;
. transfer or sell assets;
. guarantee indebtedness;
. restrict dividend or other payments to Parent;
. consolidate, merge or transfer all or substantially
all of Parent's assets and the assets of its
subsidiaries; and
. engage in unrelated businesses.
These covenants are subject to important exceptions
and qualifications, which are described in the
"Description of the Exchange Debentures" section of
this prospectus.
Senior Notes
Issuer.................. WEC Company.
Securities Offered...... $130.0 million aggregate principal amount of 12%
senior notes due 2009.
Maturity................ July 15, 2009.
Interest Rate........... 12% per year.
Interest Payment Dates.. January 15th and July 15th of each year, commencing
January 15, 2000.
10
<PAGE>
Ranking and Guaranties.. The notes are general unsecured obligations of WEC
and are unconditionally guaranteed by Parent and by
any future domestic subsidiary of WEC. WEC does not
currently have any subsidiaries.
The notes:
. effectively rank junior to all of WEC's secured
indebtedness to the extent of the value of the
assets securing such indebtedness;
. rank equally with all of WEC's existing and future
unsubordinated, unsecured indebtedness that does
not expressly provide that it is subordinated to
the notes; and
. rank ahead of all of WEC's future indebtedness that
expressly provides that it is subordinated to the
notes.
The Parent guaranty is a general unsecured obligation
of Parent and effectively ranks junior to all of
Parent's secured indebtedness to the extent of the
value of assets securing such indebtedness. The
Parent guaranty ranks equally with all of Parent's
existing and future unsubordinated, unsecured
indebtedness that does not expressly provide that it
is subordinated to the Parent guaranty.
Any future subsidiary guaranty will effectively rank
junior to all of the subsidiary guarantor's secured
indebtedness to the extent of the value of the assets
securing such indebtedness and will rank equally with
all of the subsidiary guarantor's existing and future
unsubordinated, unsecured indebtedness that does not
expressly provide that it is subordinated to the
subsidiary guaranty.
As of July 3, 1999, after giving pro forma effect to
the Acquisitions and the initial offerings, WEC would
have had secured indebtedness of approximately $15.6
million.
Optional Redemption..... WEC cannot redeem the notes until July 15, 2004,
except as described immediately below. Thereafter,
WEC can redeem some or all of the notes at the
redemption prices listed in the "Description of the
Exchange Notes--Optional Redemption" section of this
prospectus, plus accrued interest.
Optional Redemption
after Equity At any time on one or more occasions before July 15,
Offerings.............. 2002, WEC can choose to redeem up to 35% of the
original principal amount of the notes with money
that it raises in certain equity offerings, as long
as:
. it pays to holders of the notes a redemption price
of 112% of the face amount of the notes it redeems,
plus accrued interest;
. it redeems the notes within 120 days of completing
such equity offering; and
. at least 65% of the original aggregate principal
amount of notes issued remains outstanding
afterwards.
11
<PAGE>
Change of Control If a change of control of WEC or Parent occurs, WEC
Offer.................. must give holders of the notes the opportunity to
sell to it their notes at a purchase price of 101% of
their face amount, plus accrued interest. The term
"change of control" is defined in the "Description of
the Exchange Notes--Change of Control" section of
this prospectus.
Certain Covenants.......
The indenture governing the notes, which we refer to
as the "notes indenture," contains covenants that
limit the ability of WEC and any future subsidiary
to:
. incur additional indebtedness;
. pay dividends or distributions on, or redeem or
repurchase, WEC's capital stock;
. make investments;
. issue or sell preferred stock of subsidiaries;
. engage in transactions with affiliates;
. create liens on their assets to service certain
debt;
. transfer or sell assets;
. guarantee indebtedness;
. restrict dividend or other payments to WEC;
. consolidate, merge or transfer all or substantially
all of WEC's assets and the assets of its
subsidiaries; and
. engage in unrelated businesses.
These covenants are subject to important exceptions
and qualifications, which are described in the
"Description of the Exchange Notes" section of this
prospectus.
Risk Factors
Participating in the exchange offers involves substantial risks. See the
"Risk Factors" section of this prospectus for a description of certain of the
risks you should carefully consider before participating in the exchange
offers.
12
<PAGE>
Our Summary Unaudited Pro Forma Financial Data
The following unaudited pro forma financial data with respect to Woods
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the historical consolidated
financial statements of Woods, TISCO, Central Fabricators and the Alitec
Attachments Division and the related notes included elsewhere in this
prospectus. The pro forma data have been derived from the unaudited pro forma
financial data of Woods included elsewhere in this prospectus. The unaudited
pro forma financial data do not purport to represent what Woods' financial
position or results of operations actually would have been if the transactions
referred to therein had been consummated on the date or for the periods
indicated, or what such results will be for any future date or any future
period.
<TABLE>
<CAPTION>
Twelve
Six Months Ended, Months
Fiscal Year ------------------ Ended
Ended January 2, June 27, July 3, July 3,
1999(1) 1998(1) 1999(1) 1999(1)
---------------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Statements of Operations Data:
Net sales..................... $252,401 $136,264 $137,066 $253,203
Costs of goods sold........... 176,422 94,014 94,832 177,240
-------- -------- -------- --------
Gross profit.................. 75,979 42,250 42,234 75,963
Selling, general and
administrative expenses...... 57,042 27,444 28,976 58,574
Noncash stock option
compensation charge.......... 4,310 -- -- 4,310
-------- -------- -------- --------
Income from operations........ 14,627 14,806 13,258 13,079
Interest and other expense,
net.......................... 21,320 10,155 10,180 21,345
-------- -------- -------- --------
Income (loss) before provision
(benefit) for income taxes... (6,693) 4,651 3,078 (8,266)
Provision (benefit) for income
taxes........................ (2,038) 2,082 1,839 (2,281)
-------- -------- -------- --------
Income (loss) from continuing
operations................... $ (4,655) $ 2,569 $ 1,239 $ (5,985)
======== ======== ======== ========
Other Data:
Depreciation and amortization. $ 10,239 $ 5,047 $ 5,187 $ 10,379
Capital expenditures.......... 3,970 1,432 2,820 5,358
EBITDA (2).................... 29,278 19,908 18,478 27,848
Ratio of earnings to fixed
charges (3).................. -- 1.4x 1.3x --
Balance Sheet Data (at end of
period):
Working capital............... $ 60,881
Total assets.................. 198,408
Total debt.................... 175,354
Stockholders' deficit......... (49,607)
</TABLE>
See Notes to Summary Unaudited Pro Forma Financial Data.
13
<PAGE>
Notes to Summary Unaudited Pro Forma Financial Data
(1) The pro forma statements of operations data for the fiscal year ended
January 2, 1999, the six months ended June 27, 1998 and the twelve months
ended July 3, 1999 give effect to the following transactions as if each had
been consummated at the beginning of the earliest period presented:
(A) the recapitalization;
(B) the Acquisitions;
(C) the initial offerings; and
(D) a $25.0 million equity investment by MDCP.
The pro forma statements of operations data for the six months ended July 3,
1999 give effect to items (B), (C) and (D) as if each had been consummated
at the beginning of the earliest period presented. The pro forma balance
sheet data give effect to items (B), (C) and (D) as if these transactions
had been consummated as of July 3, 1999. See "Unaudited Pro Forma Financial
Data."
(2) EBITDA is defined as operating income plus depreciation, amortization, and
the noncash stock option compensation charge and is presented because it is
generally accepted as providing useful information regarding a company's
ability to service debt. EBITDA should not be considered in isolation or as
a substitute for net income, cash flows from operating activities or other
cash flow statement data prepared in accordance with generally accepted
accounting principles or as a measure of profitability or liquidity.
(3) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges. Fixed charges consist of
interest expense, which includes amortization of deferred finance costs,
and one-third of rental expense, deemed representative of that portion of
rental expense estimated to be attributable to interest. Earnings were
insufficient to cover fixed charges by approximately $6,693 and $8,266 for
the fiscal year ended January 2, 1999 and the twelve months ended July 3,
1999, respectively.
14
<PAGE>
Summary Consolidated Financial Data of Woods Equipment Company
The following table presents summary historical consolidated statements of
operations, balance sheet data and other data for Woods for the periods
presented and should only be read in conjunction with the audited and unaudited
consolidated financial statements of Woods, and the related notes thereto,
"Selected Historical Financial Data," and "Management's Discussion and Analysis
of Financial Condition and Results of Operations," all included elsewhere in
this prospectus. The data as of and for each of the three fiscal year periods
ended January 2, 1999 have been derived from the audited consolidated financial
statements of Woods. The data as of and for the six month periods ended June
27, 1998 and July 3, 1999 have been derived from the unaudited consolidated
financial statements of Woods which, in the opinion of management of Woods,
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation. Results of operations for an interim period
are not necessarily indicative of results for a full year.
<TABLE>
<CAPTION>
Fiscal Year Ended, Six Months Ended,
------------------------------------ ------------------
December 28, December 27, January 2, June 27, July 3,
1996 1997(1) 1999 1998 1999
------------ ------------ ---------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Net sales.............. $129,427 $137,924 $154,734 $ 83,694 $ 85,797
Costs of goods sold.... 97,025 104,983 113,205 59,674 61,588
-------- -------- -------- -------- --------
Gross profit........... 32,402 32,941 41,529 24,020 24,209
Selling, general and
administrative
expenses (2).......... 20,453 24,521 29,699 13,785 14,876
Noncash stock option
compensation charge... -- -- 4,310 -- --
-------- -------- -------- -------- --------
Income from operations. 11,949 8,420 7,520 10,235 9,333
Interest and other
expense, net.......... 7,326 7,831 10,261 3,964 5,585
-------- -------- -------- -------- --------
Income (loss) before
provision for income
taxes and
extraordinary loss.... 4,623 589 (2,741) 6,271 3,748
Provision (benefit) for
income taxes.......... 1,971 494 (438) 2,662 1,826
-------- -------- -------- -------- --------
Income (loss) before
extraordinary loss.... 2,652 95 (2,303) 3,609 1,922
Extraordinary loss (3). -- 290 795 -- --
-------- -------- -------- -------- --------
Net income (loss)...... $ 2,652 $ (195) $ (3,098) $ 3,609 $ 1,922
======== ======== ======== ======== ========
Other Data:
Depreciation and
amortization.......... $ 3,409 $ 4,412 $ 6,196 $ 3,024 $ 3,267
Capital expenditures... 4,662 4,678 3,212 1,255 2,620
EBITDA (2) (4)......... 15,358 12,832 18,026 13,259 12,600
Net cash provided by
(used in):
Operating activities... 11,226 7,000 3,762 3,304 5,644
Investing activities... (1,872) (25,520) (3,182) (1,227) (2,620)
Financing activities... (9,297) 21,159 (1,944) (4,793) (4,376)
Ratio of earnings to
fixed charges (5)..... 1.6x 1.1x -- 2.4x 1.6x
Balance Sheet Data (at
end of period):
Working capital........ $ 29,838 $ 35,604 $ 39,679 $ 35,658 $ 36,869
Total assets........... 81,628 105,440 108,665 107,016 109,166
Total debt............. 58,623 82,367 119,161 78,126 114,838
Stockholders' equity
(deficit)............. 3,379 2,856 (54,224) 6,156 (53,513)
</TABLE>
- --------
(1) Woods acquired Baerts Metal Products in April 1997 and Wain-Roy in October
1997.
(2) Includes $0.6 million and $1.1 million of expenses incurred by Woods in the
fiscal year ended January 2, 1999 and the six months ended July 3, 1999,
respectively, relating to the failed acquisition of Alamo Group, Inc.
Excluding these expenses, EBITDA for the fiscal year ended January 2, 1999
and the six months ended July 3, 1999 would have been $18,588 and $13,738,
respectively.
(3) Extraordinary loss, net of income tax benefit, represents the write-off of
unamortized deferred finance costs on the early extinguishment of debt.
(4) EBITDA is defined as operating income plus depreciation, amortization and
the noncash stock option compensation charge and is presented because it is
generally accepted as providing useful information regarding a company's
ability to service debt. EBITDA should not be considered in isolation or as
a substitute for net income, cash flows from operating activities or other
cash flow statement data prepared in accordance with generally accepted
accounting principles or as a measure of profitability or liquidity.
(5) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges. Fixed charges consist of
interest expense, which includes amortization of deferred finance costs,
and one-third of rental expense, deemed representative of that portion of
rental expense estimated to be attributable to interest. Earnings were
insufficient to cover fixed charges by approximately $2,741 the fiscal year
ended January 2, 1999.
15
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making a
decision to participate in the exchange offers. The risks described below are
not the only ones facing Woods. Additional risks not presently known to us or
that we currently deem immaterial may also impair our business operations.
Risks Relating to the Exchange Securities
Substantial Leverage; Ability to Service Debt-Wood's substantial indebtedness
could have a negative impact on its financial health and prevent it from
fulfilling its obligations under the notes and the debentures.
Woods incurred a significant amount of indebtedness in connection with the
recapitalization and the initial offerings. The following charts show certain
important credit statistics for WEC and Woods and are presented assuming we had
completed the recapitalization, the Acquisitions and the initial offerings as
of the date or at the beginning of the period specified below and applied the
net proceeds as intended:
<TABLE>
<CAPTION>
At July 3, 1999
----------------------
WEC Company
----------- (dollars in thousands)
<S> <C> <C>
Total indebtedness................................... $151,085
Stockholder's equity................................. $ 24,367
<CAPTION>
Woods Equipment Company
-----------------------
<S> <C> <C>
Total indebtedness................................... $175,354
Stockholders' deficit................................ $(49,607)
<CAPTION>
Fiscal Year Ended Six Months Ended
January 2, 1999 July 3, 1999
----------------- ----------------------
<S> <C> <C>
Pro forma ratio of earnings to
fixed charges of WEC (1).......... -- 1.5x
Pro forma ratio of earnings to
fixed charges of Woods (1)........ -- 1.3x
</TABLE>
- --------
(1) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges. Fixed charges consists of
interest expense, which includes amortization of deferred financing costs
and debt issuance costs, and one-third of rental expenses, deemed
representative of that portion of rental expense estimated to be
attributable to interest.
Earnings of WEC and Woods were insufficient to cover fixed charges by
approximately $2.3 million and $6.7 million, respectively, for the fiscal year
ended January 2, 1999 on a pro forma basis.
The ability of WEC and Parent, as the case may be, to make scheduled
payments of principal or interest on, or to refinance, their indebtedness will
depend on future operating performance and cash flow, which are subject to
prevailing economic conditions, prevailing interest rate levels and financial,
competitive, business and other factors beyond their control. The degree to
which Woods is leveraged could have important consequences to holders of the
notes and the debentures, including the following:
. Woods' ability to obtain additional financing for working capital,
capital expenditures, acquisitions or general corporate purposes may be
impaired;
. a substantial portion of Woods' cash flow from operations must be
dedicated to the payment of interest on the notes, and interest on other
existing indebtedness, thereby reducing the funds available to Woods for
other purposes;
. the agreements governing the Woods' long-term indebtedness, including
the senior credit facility, the notes indenture and the debenture
indenture contain certain restrictive financial and operating covenants;
. the indebtedness under the senior credit facility will be at variable
rates of interest, which will cause Woods to be vulnerable to increases
in interest rates;
16
<PAGE>
. the indebtedness outstanding under the senior credit facility is secured
by all inventory, accounts receivable and general intangibles of WEC and
becomes due prior to the time the principal on the notes and the
debentures becomes due;
. Woods is substantially more leveraged than certain of its competitors,
which might place it at a competitive disadvantage;
. Woods may be hindered in its ability to adjust rapidly to changing
market conditions;
. Woods' substantial degree of leverage may negatively affect certain
suppliers' willingness to give Woods favorable payment terms; and
. Woods' substantial degree of leverage could make it more vulnerable in
the event of a downturn in general economic conditions or in its
business.
If operating cash flow of WEC and Parent is insufficient to meet their
operating expenses or to service their debt requirements as they become due,
WEC and Parent may be required to refinance a portion of the principal of the
notes and the debentures prior to their maturity. If WEC and Parent are unable
to service their indebtedness, they will be forced to take actions such as
reducing or delaying capital expenditures, selling assets, restructuring or
refinancing their indebtedness or seeking additional equity capital. We cannot
assure you that any of these remedies can be effected on satisfactory terms, if
at all. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
Additional Borrowings Available--Despite its current level of indebtedness,
Woods may still be able to incur substantially more debt. This could further
exacerbate the risks described above.
Woods may be able to incur substantial additional indebtedness in the
future. The terms of the notes indenture and the debenture indenture do not
fully prohibit Parent or WEC or their respective subsidiaries from doing so.
The senior credit facility permits additional borrowings of up to $40.0
million, and all of those borrowings are secured. If new debt is added to
Woods' current debt levels, the related risks that it now faces could
intensify. See "Capitalization," "Selected Historical Financial Data,"
"Description of the Debentures" and "Description of the Notes."
Substantial Restrictions and Covenants--The senior credit facility, the notes
indenture and the debenture indenture contain various covenants which limit our
management's discretion in the operation of our business.
The senior credit facility, the notes indenture and the debenture indenture
contain numerous restrictive covenants, including, but not limited to,
covenants that restrict the ability of Parent and/or WEC to incur indebtedness,
pay dividends, create liens, sell assets, engage in certain mergers and
acquisitions and refinance indebtedness. In addition, the senior credit
facility also requires WEC to maintain financial ratios. The ability of Woods
to comply with the covenants and other terms of the senior credit facility, the
notes indenture and the debenture indenture, to make cash payments with respect
to the notes and the debentures, and to satisfy its other respective debt
obligations, including borrowings and other obligations under the senior credit
facility, will depend on the future operating performance of Woods. In the
event Woods fails to comply with the various covenants contained in the senior
credit facility, the notes indenture and the debenture indenture, it would be a
default thereunder, and in any such case, the maturity of substantially all of
its long-term indebtedness could be accelerated.
A default under the notes indenture or debenture indenture would also
constitute an event of default under the senior credit facility. In addition,
the lenders under the senior credit facility could elect to declare all amounts
borrowed thereunder, together with accrued interest, to be due and payable. If
Woods was unable to repay such borrowings, such lenders could proceed against
the assets of Woods securing its borrowings under the senior credit facility.
If the indebtedness under the senior credit facility were to be accelerated,
the assets of Woods may not be sufficient to repay such indebtedness and the
notes and the debentures in full. The senior credit facility will prohibit the
repayment, purchase, redemption, defeasance or other payment of any of the
principal of the notes and the debentures at any time prior to their stated
maturity. See "Description of the Debentures" and "Description of the Notes."
17
<PAGE>
Ranking of the Notes, the Guaranties and the Debentures--The notes and
guaranties will be effectively subordinated to the secured indebtedness of WEC
and the guarantors, as applicable, and the debentures will be effectively
subordinated to the secured indebtedness of Parent and structurally
subordinated to all current and future liabilities of Parent's subsidiaries.
The indebtedness evidenced by the notes are unsecured obligations of WEC,
the indebtedness evidenced by the Parent's Guaranty will be an unsecured
obligation of the Parent and the indebtedness evidenced by each subsidiary
guaranty, if any, will be an unsecured obligation of the relevant subsidiary
guarantor. The payment of principal, premium, if any, and interest on the notes
and the payment of the Parent guaranty or any subsidiary guaranty, if any, will
be effectively subordinated in right of payment to any secured indebtedness of
WEC, Parent or the relevant subsidiary guarantor, as the case may be, including
all indebtedness and obligations of WEC under the senior credit facility and
Parent's guaranty of such obligations. The indebtedness evidenced by the
debentures will be unsecured obligations of Parent and will be effectively
subordinated to the secured indebtedness of Parent and structurally
subordinated in right of payment to all existing and future indebtedness of
Parent's subsidiaries, including WEC, which is the issuer of the notes. As of
July 3, 1999, after giving pro forma effect to the Acquisitions and the initial
offerings, the notes would have been effectively subordinated to approximately
$15.6 million of secured indebtedness of WEC and the debentures would have been
structurally subordinated to liabilities of WEC of approximately $174.0
million. In addition, after giving pro forma effect to the Acquisitions and the
initial offerings, WEC would have had approximately $23.4 million available
under the senior credit facility and all borrowings under such facility are
guaranteed by Parent and secured by substantially all of WEC's assets and a
pledge by Parent of all the capital stock of WEC. Subject to certain
restrictions under the senior credit facility, the notes indenture and the
debenture indenture, WEC may incur additional indebtedness, including
additional secured indebtedness and senior indebtedness, from time to time.
In the event of insolvency, liquidation, reorganization, dissolution or
other winding-up of WEC, Parent or a subsidiary guarantor, holders of secured
indebtedness of WEC, Parent or a subsidiary guarantor, as the case may be, will
generally be entitled to payment of their claims from the assets serving as
collateral before WEC makes payments in respect of the notes, Parent makes
payments in respect of the Parent guaranty or the debentures or such subsidiary
guarantor makes payments in respect of its subsidiary guaranty. Accordingly,
there may be insufficient assets remaining after such payments to pay amounts
due on the notes, the guaranties or the debentures. See "Description of the
Debentures--Ranking."
Risks Associated with Holding Company Structure--Parent is a holding company
and is dependent on dividends and other intercompany transfers of funds from
WEC to meet its obligations under the Parent guaranty and the debentures.
Parent is a holding company that conducts substantially all of its business
through WEC. As a holding company, Parent is dependent on dividends or other
intercompany transfers of funds from WEC to meet its debt service and other
obligations, including its obligations under the Parent guaranty and the
debentures. The senior credit facility and the notes indenture contain certain
restrictions on the ability of WEC to make dividends and other distributions to
Parent. In addition, under the terms of the notes indenture and the debenture
indenture, WEC may incur certain indebtedness pursuant to agreements that may
restrict the ability to make such dividends or other intercompany transfers
necessary to service Parent's debt obligations. Any failure by Parent to
satisfy its obligations with respect to the debentures at maturity, with
respect to payments of principal, or prior thereto, with respect to payments of
interest or required repurchases, would constitute a default under the
debenture indenture and could cause a default under agreements governing other
indebtedness of Parent and WEC, including the senior credit facility and the
notes indenture.
Limitations on Repurchases of the Notes or the Debentures upon a Change of
Control-Woods may not have the ability to raise the funds necessary to finance
the change of control offer required by the notes indenture and the debenture
indenture.
Upon the occurrence of certain specific types of change of control events,
each holder of notes and debentures will have the right to require WEC or
Parent, as the case may be, to purchase all or part of such
18
<PAGE>
holder's notes or debentures, as the case may be, at a repurchase price equal
to 101% of the aggregate principal amount or accreted value, as the case may
be, plus accrued and unpaid interest. The repurchase of the notes or the
debentures as a result of a change of control would constitute a default under
the senior credit facility. In addition, the change of control purchase feature
of the notes and the debentures may in certain circumstances discourage or make
more difficult a sale or takeover of WEC or Parent and, thus, the removal of
incumbent management.
The holders of the notes and the debentures have limited rights to require
the repurchase or redemption of the notes and the debentures in the event of a
takeover, recapitalization or similar restructuring, including a
recapitalization or similar transaction with management. Consequently, the
change of control provisions will not afford any protection in a highly
leveraged transaction, including such a transaction initiated by WEC or Parent,
management of WEC or Parent or an affiliate of WEC or Parent, if such
transaction does not result in a change of control. In addition, the senior
credit facility provides that certain change of control events with respect to
Parent and/or WEC constitute a default thereunder permitting the lending
parties thereto to accelerate the indebtedness thereunder. In addition, certain
events that may obligate WEC or Parent to offer to repay all outstanding
obligations under the senior credit facility may not constitute a change of
control under the notes indenture or the debenture indenture. Furthermore,
neither WEC nor Parent may have sufficient resources to repay indebtedness
under the senior credit facility and may have insufficient resources to
repurchase tendered securities.
In the event a change of control occurs at a time when WEC and/or Parent is
directly or indirectly prohibited from purchasing these securities, WEC and/or
Parent could seek the consent of its creditors to the purchase of the
securities or could attempt to refinance the indebtedness that contains such
prohibition. If WEC and/or Parent do not obtain such a consent or refinance
such indebtedness, the purchase of the securities would remain prohibited. The
failure by WEC or Parent, as the case may be, to purchase tendered securities
would constitute a breach of the notes indenture and/or the debenture indenture
which would, in turn, constitute a default under the senior credit facility and
could lead to the acceleration of the indebtedness thereunder.
Fraudulent Conveyance Statutes--Federal and state laws allow courts, under
specific circumstances, to void debts and require holders of some high yield
securities to return payments received from debtors.
Woods believes that the indebtedness incurred by WEC in connection with the
issuance of the notes and Parent in connection with the issuance of the
debentures and the Parent guaranty were incurred for proper purposes and in
good faith and that, based on present forecasts, asset valuations and other
financial information, WEC and Parent is, and after the consummation of the
initial offerings was, solvent, had sufficient capital for carrying on its
business and is able to pay its debts as they mature. However, if a court of
competent jurisdiction were to find that WEC or Parent did not receive fair
consideration or reasonably equivalent value for incurring such indebtedness or
obligation, including any guarantee thereof, and, at the time of such
incurrence, WEC or Parent:
(1) was insolvent,
(2) was rendered insolvent by reason of such incurrence or the
Acquisitions,
(3) was engaged in a business or transaction for which the assets
remaining in WEC or Parent, as the case may be, constituted unreasonably
small capital, or
(4) intended to incur or believed it would incur debts beyond its
ability to pay such debts as they mature,
such court, subject to applicable statutes of limitation, could, among other
things, (a) invalidate, in whole or in part, such indebtedness and obligation,
including any guarantee thereof, as fraudulent conveyances, the effect of which
could be that the holders of, the notes or the debentures may not be repaid in
full, and/or (b) subordinate such indebtedness and obligation, including any
guarantee thereof, to existing or future creditors of WEC or
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Parent, as the case may be, the effect of which would be to entitle such other
creditors to be paid in full before any payment could be made on the notes or
the debentures. If a court were to find that WEC or Parent, as the case may be,
satisfied the measures of insolvency or capital inadequacy described in (1)
through (4) above, such court could void any previous distribution by such
entity in respect of such indebtedness, including, without limitation, any
payment of principal or interest, or obligation, including any guarantee
thereof, and order that it be returned to WEC or Parent, as the case may be, or
to a fund for the benefit of the creditors of such entity.
With respect to the Parent guaranty, a court may compare its estimate of the
value received by Parent with the magnitude of its obligation under such Parent
guaranty. If the value received by Parent is found to be disproportionately
small as compared with its obligation under such Parent guaranty, then, to that
extent, there would be a lack of fair consideration for the giving of the
Parent guaranty and if the Parent guaranty came within any of the foregoing
clauses (1) through (4) above, such Parent guaranty could be held invalid to
such extent. The obligation of Parent under its Parent guaranty will be limited
in a manner intended to avoid it being deemed a fraudulent conveyance under
applicable law.
The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction being applied. Generally, however, WEC or Parent
would be considered insolvent at a particular time if the sum of its debts was
then greater than all of its property at a fair valuation or if the present
fair saleable value of its assets was then less than the amount that would be
required to pay its probable liabilities on its existing debts as they became
absolute and matured. Woods believes, based upon the financial information
contained elsewhere in this prospectus, the recent operating history as
discussed in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and other factors, that, after giving effect to the
issuance of the notes by WEC and the debentures and the Parent guaranty by
Parent, neither WEC nor Parent will be rendered insolvent and each such entity
will have sufficient capital for the businesses in which it is engaged and will
be able to pay its debts as they mature. While Woods believes that WEC is and
Parent is, and after the consummation of the Offerings will be, solvent, there
can be no assurance as to whether a court would concur with such beliefs.
Risks Relating to Our Business
Implementation of Business Strategy; Failure to Achieve Anticipated Cost
Savings-We may not be able to successfully implement our business strategy.
Woods' business strategy includes plans to:
. capitalize on the anticipated benefits of the Acquisitions;
. continue to reduce manufacturing and operating costs;
. develop new and enhance existing products; and
. continue to acquire complementary businesses.
Our strategic plan should be considered in light of the risks and expenses
associated with implementing these strategies. Successful implementation of
these strategies will depend on numerous factors, many of which are beyond our
control, including economic, competitive and other conditions and uncertainties
and the ability to retain qualified management personnel. We cannot assure you
that we will be successful in implementing our business strategy.
In addition, as discussed under "Prospectus Summary," "Business" and
elsewhere in this prospectus, we have adopted a detailed integration plan for
the Acquisitions through which we expect to achieve cost savings. The estimates
of these cost savings contained in this prospectus constitute forward-looking
information and involve known and unknown risks, uncertainties and other
factors that may cause the actual cost savings generated to be materially
different from the foregoing estimate. In addition to the general factors
discussed
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under "Forward-Looking Statements," such estimates are based on a variety of
other factors and were derived utilizing numerous important assumptions,
including:
. achieving estimated reductions in personnel at currently projected
severance cost levels, while maintaining historical sales levels;
. achieving a sufficient level of sales necessary to yield planned
production efficiencies and absorption of fixed costs;
. eliminating certain components of fixed overhead without affecting our
ability to manage the downsized production facility efficiently;
. no disruption to planned production schedules; and
. achieving operating improvements at these facilities similar to those
achieved by Woods at certain of its facilities as a result of the
implementation of continuous flow manufacturing and total quality
management.
The failure of one or more of these assumptions to be realized may cause the
actual annual cost savings to differ materially from the estimates contained in
this prospectus.
Integration of Acquisitions--We may make acquisitions which could subject us to
a number of operational risks.
In order to expand our markets and to broaden our product portfolio, Woods'
growth strategy includes making acquisitions of complementary businesses. We
are continually investigating opportunities for domestic and foreign
acquisitions. We cannot assure you, however, that future acquisitions can be
consummated on acceptable terms or that any acquired companies can be
successfully integrated into our operations. Our ability to make future
acquisitions may also be constrained by our ability to obtain financing.
Future acquisitions may also involve a number of special risks, including:
. initial reductions in our operating results;
. diversion of management's attention;
. unanticipated problems or legal liabilities; and
. a possible reduction in earnings due to amortization of acquired
intangible assets in the event that such acquisitions are made at levels
that exceed the fair market value of net tangible assets.
Some or all of these items could have a negative impact on our business. We
cannot assure you that businesses acquired in the future will achieve sales and
profitability that justify our investment. In addition, to the extent that
consolidation becomes more prevalent in the industry, the prices for attractive
acquisition candidates may increase to unacceptable levels.
The Acquisitions significantly increased our size in terms of net sales. The
full benefits of the Acquisitions will require the integration of Woods and
certain of the acquired companies' respective administrative, finance,
manufacturing, engineering and sales and marketing organizations, the
coordination of sales efforts and the implementation of appropriate operations,
financial and management systems and controls. We cannot assure you that we
have sufficient financial and management resources to accomplish this
integration, or that we will not experience difficulties with customers,
personnel or other factors. We initiated a rationalization of our production
operations following the Acquisitions, which involves the closing of certain
facilities. These transition and integration activities will require
substantial attention from our management team. The diversion of management
attention, as well as any other difficulties which may be encountered in the
transition and integration process, could have a negative impact on our
revenues and operating results. We cannot assure you that we will be able to
successfully integrate the operations of the acquired companies or that any
expected cost reductions will be achieved.
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In addition, Woods expects that it will have to upgrade its management
information systems in order to facilitate the integration of the acquired
companies. These systems will significantly affect many aspects of our
business, including our manufacturing, sales and marketing, and accounting
functions, and the successful implementation of these systems will be important
to Woods' current operations and to facilitate future growth. Integration of
the management information systems could cause significant disruption in
operations. If we are not successful in integrating our systems or if we
experience difficulties in such integration, we could experience problems with
the delivery of our products or a negative impact on our ability to access
timely and accurate financial and operating information.
Current Industry Conditions--Our business may be negatively impacted by market
conditions.
Our products are sold to a wide variety of end-users, including construction
companies and contractors, utility contractors, landscaping and groundscare
companies, farmers, ranchers, homeowners and governmental agencies. All of
these end-users are affected by general economic conditions and other factors
such as consumer spending patterns, weather patterns, interest rates,
government policies, commodities prices and the availability of financing.
Approximately 2% of our pro forma net sales in the fiscal year ended January
2, 1999 and in the six months ended July 3, 1999 were derived from the sale of
specialty agricultural products, such as sugar beet defoliators, harvesters and
cultivators. Demand for these products closely correlates with the demand for
agricultural equipment in general. In recent months, many agricultural
equipment companies have forecasted softness in agricultural markets through
1999 due to strong harvests, low commodity prices, weak export markets and
recent unfavorable weather conditions. See "Business--Industry Overview."
Competition--Our business is very competitive and increased competition could
adversely affect us.
The attachments and capital equipment replacement parts industries are
highly competitive. In both industries, we compete with the major original
equipment manufacturers of prime movers as well as with several hundred
companies producing one or more models of attachments. Price, quality, service,
brand name and product availability are all factors in product selection. Some
of our competitors are significantly larger than we are and have substantially
greater financial and other resources at their disposal. We cannot assure you
that such competitors will not substantially increase the resources devoted to
the development and marketing of products competitive with our products.
Accordingly, we cannot be sure that we will be able to maintain our market
share relative to our competition. See "Business--Competition."
Consolidation Among Attachments Dealers--Continued consolidation in our
industry could have a negative impact on our business.
Our attachment products are sold primarily through independent dealers. In
recent years, there has been significant consolidation among attachments
dealers. In the event that such consolidation continues, we may face increased
pricing pressures on our products and become more dependent on individual
dealers. As a result, continued consolidation could have a negative impact on
our business, financial condition or results of operations.
Year 2000 Compliance--Any year 2000 information systems problem in our or any
of our principal vendor's operational software could have a negative impact on
our business.
During the next few months, most large companies will face a potentially
serious information systems problem because many software applications and
operational programs written in the past may not properly recognize calendar
dates beginning in the year 2000. This problem could force information systems
to either shut down or provide incorrect data or information. Woods began the
process of identifying the necessary changes to its computer programs and
hardware as well as assessing the progress of its significant vendors in their
remediation efforts in 1998. Based upon its assessment to date, Woods believes
that all of its computer programs and hardware is Year 2000 compliant. To date,
the aggregate cost to Woods to achieve Year 2000
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compliance has not been material. Based on its assessment to date, Woods
believes that its principal vendors are already Year 2000 compliant. We cannot
assure you, however, that Woods or its principal vendors will not experience
unforeseen difficulties with respect to Year 2000 compliance or that such
difficulties will not have a negative impact on our business, financial
condition or results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Year 2000 Compliance."
Environmental Risks--The nature of our business exposes us to the risk of
liabilities or claims relating to environmental matters.
Our operations and properties are subject to federal, state, local and
foreign laws, regulations and ordinances relating to the use, storage,
handling, generation, transportation, treatment, emission, release, discharge
and disposal of certain materials, substances and wastes. The nature of our
operations exposes us to the risk of liabilities or claims with respect to
environmental matters, including off-site disposal matters, and we cannot
assure you that we will not incur significant costs in connection with such
liabilities or claims or that the indemnities provided by the sellers of the
various businesses acquired will be applicable or available.
We believe that we are in material compliance with all relevant
environmental regulations and that our reserves are sufficient to cover any
known environmental claims related to our properties. Based upon our experience
to date, we believe that the future cost of compliance with existing
environmental laws, regulations and ordinances or liability for known
environmental claims will not have a material adverse effect on our business,
financial condition or results of operations. However, future events, such as
changes in existing laws and regulations or their interpretation, may give rise
to additional compliance costs or liabilities that could have a negative impact
on our business, financial condition or results of operations. Compliance with
more stringent laws or regulations, as well as more vigorous enforcement
policies of regulatory agencies or stricter or different interpretations of
existing laws, may require additional expenditures by Woods.
Product Liability--The nature of our business exposes us to risk of personal
injury claims relating to our products.
Due to the nature of our business, we are subject to product liability
claims for personal injuries allegedly relating to our products. Although we
currently maintain insurance coverage for product liability losses, we cannot
assure you that our insurance coverage will be sufficient to cover one or more
large claims or that an insurer will be solvent at the time of any covered
loss. Further, we cannot assure you that we will be able to obtain insurance
coverage at acceptable levels and costs in the future. Successful assertion
against us of one or a series of claims exceeding insurance coverage could have
a negative impact on our business, financial condition or result of operations.
Governmental Regulation--Regulatory matters could impact our ability to conduct
our business.
We are subject to various federal, state, and local laws affecting our
business, as well as a variety or regulations relating to such matters as
working conditions, equal employment opportunities, product safety, and our
relationship with our dealers. It is our policy to comply with all applicable
laws and regulations, and we believe we currently are in material compliance
with all such applicable laws and regulations. However, should we be found out
of compliance with existing laws or regulations or should these laws or
regulations change, this could have a negative impact on our business,
financial condition or results of operations.
Control by Principal Stockholder--We are controlled by a principal stockholder
and its interests may conflict with your interests.
MDCP owns approximately 90% of the outstanding voting stock of Parent.
Parent owns all of the outstanding capital stock of WEC. Consequently, Madison
Dearborn Partners, as the sole general partner of MDCP, has the ability to
control the business and affairs of WEC and Parent, by virtue of its ability to
elect a majority of Parent's and WEC's respective board of directors and its
voting power with respect to actions requiring stockholder approval. In
addition, three representatives of Madison Dearborn Partners currently serve
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on Parent's board of directors, which is currently comprised of six members.
Some decisions regarding our operations or financial structure may present
conflicts of interest between Madison Dearborn Partners and the holders of our
debt securities. For example, Madison Dearborn Partners may be willing to
approve acquisitions, divestures or other transactions undertaken by us that it
believes could increase the value of its equity investment. These type of
transactions, however, could increase the financial risk to the holders of our
debt securities. See "Principal Stockholders" and "Certain Relationships and
Related Transactions."
Risks Associated with the Exchange Offers
Lack of Public Market for the Exchange Securities--You may not be able to sell
your exchange securities.
The outstanding securities were not registered under the Securities Act or
under the securities laws of any state and may not be resold unless they are
subsequently registered or an exemption from the registration requirements of
the Securities Act and applicable state securities laws is available. The
exchange securities will be registered under the Securities Act, but will
constitute a new issue of securities with no established trading market, and
there can be no assurance as to:
. the liquidity of any such market that may develop;
. the ability of holders to sell their exchange securities; or
. the price at which the holders would be able to sell their exchange
securities.
If such a market were to exist, the exchange securities may trade at higher or
lower prices than their principal amount or purchase price, depending on many
factors, including prevailing interest rates, the market for similar debentures
and the financial performance of Woods.
We understand that the initial purchaser presently intend to make a market
in the exchange securities. However, it is not obligated to do so, and any
market-making activity with respect to the exchange securities may be
discontinued at any time without notice. In addition, such market-making
activity will be subject to the limits imposed by the Securities Act and the
Securities Exchange Act, and may be limited during the exchange offers or the
pendency of an applicable shelf registration statement. There can be no
assurance that an active trading market will exist for the securities or that
such trading market will be liquid.
Consequences of a Failure to Exchange the Outstanding Securities--Your
outstanding securities will continue to be subject to transfer restrictions.
Outstanding securities that are not tendered or are tendered but not
accepted will, following the consummation of the exchange offers, continue to
be subject to the existing restrictions upon transfer thereof, and, upon
consummation of the exchange offers, certain registration rights with respect
to the outstanding securities will terminate. In addition, any outstanding
security holder who tenders in the exchange offers for the purpose of
participating in a distribution of the exchange securities 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 transaction. To the extent that outstanding
securities are tendered and accepted in the exchange offers, the trading market
for untendered and tendered but unaccepted outstanding securities could be
adversely affected.
No Obligation to Notify--We are not obligated to notify you of untimely or
defective tenders of outstanding securities.
We will issue exchange securities pursuant to this exchange offers only
after a timely receipt of your outstanding securities, a properly completed and
duly executed letter of transmittal and all other required documents.
Therefore, if you want to tender your outstanding securities, please allow
sufficient time to ensure timely delivery. We are under no duty to give
notification of defects or irregularities with respect to the tenders of
outstanding securities for exchange.
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THE EXCHANGE OFFERS
Purpose and Effect of the Exchange Offers
We originally sold the outstanding securities on July 28, 1999 to the
initial purchaser, who subsequently resold the outstanding securities to: (1)
qualified institutional buyers in reliance on Rule 144A under the Securities
Act and (2) with respect to the notes only, qualified buyers outside the United
States in reliance upon Registration S under the Securities Act.
Simultaneously with the initial sale of the outstanding securities, we
entered into the registration rights agreement with the initial purchaser. The
registration rights agreement provides that we will:
(1) prior to October 26, 1999, file a registration statement with the
SEC with respect to a registered offer to exchange the outstanding
securities for new securities having terms substantially identical in all
material respects to the outstanding securities, except that the exchange
securities will not contain terms with respect to transfer restrictions;
(2) use our reasonable best efforts to cause the exchange offer
registration statement to be declared effective under the Securities Act
prior to January 24, 2000;
(3) as soon as reasonably practicable after the effectiveness of the
exchange offer registration statement, offer the exchange securities in
exchange for surrender of the outstanding securities; and
(4) to keep the exchange offers open for not less than 30 days, or
longer if required by applicable law, after the date notice of the
applicable exchange offer is mailed to the holders of the outstanding
securities.
For each outstanding security surrendered to us pursuant to the exchange
offers, the holder of such outstanding security will receive an exchange
security having a principal amount equal to that of the surrendered note.
Interest on each outstanding security will accrue or accrete, as the case may
be, from the last interest payment date on which interest was paid on the
outstanding security surrendered in exchange therefor or, if no interest has
been paid on such outstanding security, from the date of its original issue.
Interest on each exchange security will accrue or accrete, as the case may be,
from the date of its original issue.
Under existing interpretations of the Staff of the SEC contained in several
no-action letters to third parties, we believe that the exchange securities
will in general be freely tradeable after the exchange offers without further
registration under the Securities Act. See Sherman & Sterling (available July
2, 1993); Morgan Stanley & Co. Incorporated (available June 5, 1991); and Exxon
Capital Holdings Corporation (available May 13, 1989). However, any purchaser
of outstanding securities who is our "affiliate," within the meaning of Rule
405 under the Securities Act, or who intends to participate in the exchange
offers for the purpose of distributing the exchange securities:
(1) will not be able to rely on the interpretation of the Staff of the
SEC;
(2) will not be able to tender its outstanding securities in the
exchange offers; and
(3) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or transfer
of the exchange securities, unless such sale or transfer is made pursuant
to an exemption from such requirements.
As contemplated by these no-action letters and the registration rights
agreement, each holder accepting the exchange offers is required to represent
to us in the letter of transmittal or through a message transmitted pursuant to
the Automated Tender Offer Program System of The Depositary Trust Company that:
(1) the exchange securities are to be acquired by the holder or the
person receiving such exchange securities, whether or not such person is
the holder, in the ordinary course of business;
(2) the holder or any such other person, other than a broker-dealer
referred to in the next sentence, is not engaging and does not intend to
engage, in distribution of the exchange securities;
(3) the holder or any such other person has no arrangement or
understanding with any person to participate in the distribution of the
exchange securities;
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(4) neither the holder nor any such other person is our "affiliate"
within the meaning of Rule 405 under the Securities Act; and
(5) the holder or any such other person acknowledges that if such
holder or any other person participates in the exchange offers for the
purpose of distributing the exchange securities it must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the exchange securities and cannot rely on
those no-action letters.
As indicated above, each participating broker-dealer that receives an exchange
security for its own account in exchange for outstanding securities must
acknowledge that it:
(1) acquired the outstanding securities for its own account as a result
of market-making activities or other trading activities;
(2) has not entered into any arrangement or understanding with us or
any of our "affiliates," within the meaning of Rule 405 under the
Securities Act, to distribute the exchange securities to be received in the
exchange offers; and
(3) will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such exchange securities.
For a description of the procedures for resales by participating broker-
dealers, see "Plan of Distribution."
In the event that applicable interpretations of the staff of the SEC do not
permit us to effect the exchange offers, or if for any other reason the
exchange offers are not consummated prior to February 23, 2000, or if the
initial purchaser so requests with respect to outstanding securities not
eligible to be exchanged for exchange securities in the exchange offers, or if
any holder of outstanding securities is not eligible to participate in the
exchange offers or does not receive freely tradeable exchange securities in the
exchange offers, we have agreed, at our cost, to:
(1) as promptly as reasonably practicable, file a shelf registration
statement covering resales of the outstanding securities or exchange
securities, as the case may be;
(2) use our reasonable best efforts to cause the shelf registration
statement to be declared effective under the Securities Act; and
(3) keep the shelf registration statement effective until the time when
the securities covered by the shelf registration statement can be sold
pursuant to Rule 144 without any limitations under clauses (c), (e), (f)
and (h) of Rule 144.
We will, in the event of the filing of the shelf registration statement,
provide to each applicable holder of the outstanding securities copies of the
prospectus which is a part of the shelf registration statement, notify each
such holder when the shelf registration statement has become effective and take
certain other actions as are required to permit unrestricted resale of the
outstanding securities. A holder of the outstanding securities that sells such
outstanding securities pursuant to the shelf registration statement:
. will be required to be named as a selling security holder in the related
prospectus and to deliver a prospectus to purchasers;
. will be subject to certain of the civil liability provisions under the
Securities Act in connection with such sales; and
. will be bound by the provisions of the registration rights agreement
which are applicable to such a holder, including certain indemnification
obligations.
In addition, each holder of the outstanding securities will be required to
deliver information to be used in connection with the shelf registration
statement and to provide comments on the shelf registration statement within
the time periods set forth in the registration rights agreement in order to
have its outstanding securities
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included in the shelf registration statement and to benefit from the provisions
set forth in the following paragraph.
If:
(1) by October 26, 1999, neither the exchange offer registration
statement nor the shelf registration statement has been filed with the SEC;
(2) by February 23, 2000, the exchange offers are not consummated and,
if applicable, the shelf registration statement is not declared effective;
or
(3) after either the exchange offer registration statement or the shelf
registration statement is declared effective, such registration statement
thereafter ceases to be effective or usable, subject to limited exceptions,
in connection with resales of outstanding securities or exchange securities
in accordance with and during the periods specified in the registration
rights agreement.
Each such event referred to in clauses (1) through (3) above is referred to in
this prospectus as a "registration default."
Additional interest will accrue on the applicable securities and the exchange
securities at the rate of 0.50% per annum from and including the date on which
any such registration default will occur to but excluding the date on which all
registration defaults have been cured. Such interest is payable in addition to
any other interest payable from time to time with respect to the securities and
the exchange securities.
Following the consummation of the exchange offers, holders of the
outstanding securities who were eligible to participate in the exchange offers
but who did not tender its outstanding securities will not have any further
registration rights and such outstanding securities will continue to be subject
to certain restrictions on transfer. Accordingly, the liquidity of the market
for such outstanding securities could be adversely affected.
Terms of the Exchange Offers
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all outstanding
securities validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the expiration date. We will issue $1,000 principal amount of exchange
securities in exchange for each $1,000 principal amount of outstanding
securities accepted in the exchange offers. Holders may tender some or all of
its outstanding securities pursuant to the exchange offers. However,
outstanding securities may be tendered only in integral multiples of $1,000.
The form and terms of the exchange securities are the same as the form and
terms of the outstanding securities except that:
(1) the exchange securities bear a Series B designation and a different
CUSIP number from the outstanding securities;
(2) the exchange securities have been registered under the Securities
Act and therefore will not bear legends restricting their transfer; and
(3) the holders of the exchange securities will not be entitled to the
rights under the registration rights agreement, including the provisions
providing for an increase in the interest rate on the outstanding
securities in certain circumstances relating to the timing of the exchange
offers, all of which rights will terminate when the exchange offers are
terminated.
The exchange securities will evidence the same debt as the outstanding
securities and will be entitled to the benefits of the applicable indenture. As
of the date of this prospectus, $130,000,000 aggregate principal amount of
senior notes and $51,927,000 aggregate principal amount at maturity of senior
discount debentures were outstanding. We have fixed the close of business on
October 25, 1999 as the record date for the exchange offers for purposes of
determining the persons to whom this prospectus and the letter of transmittal
will be mailed initially.
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Holders of outstanding securities do not have any appraisal or dissenters'
rights under the General Corporation Law of Delaware, or the applicable
indenture in connection with the exchange offers. We intend to conduct the
exchange offers in accordance with the applicable requirements of the
Securities Exchange Act and the rules and regulations of the SEC thereunder.
We will be deemed to have accepted validly tendered outstanding securities
when, as and if we have given oral or written notice thereof to the exchange
agent. The exchange agent will act as agent for the tendering holders for the
purpose of receiving the exchange securities from us.
If any tendered outstanding securities are not accepted for exchange because
of an invalid tender, the occurrence of certain other events set forth in this
prospectus or otherwise, the certificates for any such unaccepted outstanding
securities will be returned, without expense, to the tendering holder thereof
as promptly as practicable after the expiration date.
Holders who tender outstanding securities in the exchange offers 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
outstanding securities pursuant to the exchange offers. We will pay all charges
and expenses, other than transfer taxes in certain circumstances, in connection
with the exchange offers. See "--Fees and Expenses."
Expiration Date; Extensions; Amendments
The term "expiration date" will mean 5:00 p.m., New York City time, on
November 29, 1999, unless we, in our sole discretion, extend one or both of the
exchange offers, in which case the term "expiration date" will mean the latest
date and time to which the applicable exchange offer is extended.
In order to extend one or both of the exchange offers, we will notify the
exchange agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
We reserve the right, in our sole discretion, (1) to delay accepting any
outstanding securities, to extend one or both of the exchange offers or to
terminate one or both of the exchange offers if any of the conditions set forth
below under "--Conditions" will not have been satisfied, by giving oral or
written notice of such delay, extension or termination to the exchange agent or
(2) to amend the terms of one or both of the exchange offers in any manner. 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.
Interest on the Exchange Securities
Senior Notes
The senior exchange notes will bear interest from their date of issuance.
Holders of outstanding senior notes that are accepted for exchange will
receive, in cash, accrued interest thereon to, but not including, the date of
issuance of the senior exchange notes. Such interest will be paid with the
first interest payment on the senior exchange notes on January 15, 2000.
Interest on the outstanding senior notes accepted for exchange will cease to
accrue upon issuance of the senior exchange notes. Interest on the new senior
notes is payable semi-annually on each January 15 and July 15, commencing on
January 15, 2000.
Senior Discount Debentures
The outstanding senior discount debentures will continue to accrete at the
rate of 15% per annum to, but excluding the date of issuance of the exchange
debentures and will cease to accrete upon cancellation of the outstanding
senior discount debentures and issuance of the exchange debentures. Any
outstanding senior discount debentures not tendered or accepted for exchange
will continue to accrete at the rate of 15% per annum in accordance with their
terms. From and after the date of issuance of the exchange debentures, the
exchange debentures shall accrete at the rate of 15% per annum, but no cash
interest will be payable in respect of the senior discount debentures prior to
July 15, 2004. From and after July 15, 2004, interest on the senior discount
debentures will accrue on the principal amount at maturity at the rate of 15%
per annum and will be payable quarterly on each January 15, April 15, July 15
and October 15 commencing October 15, 2004.
28
<PAGE>
Procedures for Tendering
Only a holder of outstanding securities may tender such outstanding
securities in the exchange offers. To tender in the exchange offers, a holder
must complete, sign and date the letter of transmittal, or a facsimile thereof,
have the signatures thereon guaranteed if required by the letter of transmittal
or transmit an "agent's message" in connection with a book-entry transfer, and
mail or otherwise deliver such letter of transmittal or such facsimile,
together with the outstanding securities and any other required documents, to
the exchange agent prior to 5:00 p.m., New York City time, on the expiration
date. To be tendered effectively, the outstanding securities, letter of
transmittal or an agent's message and other required documents must be
completed and received by the exchange agent at the address set forth below
under "Exchange Agent" prior to 5:00 p.m., New York City time, on the
expiration date. Delivery of the outstanding securities may be made by book-
entry transfer in accordance with the procedures described below. Confirmation
of such book-entry transfer must be received by the exchange agent prior to the
expiration date.
The term "agent's message" means a message, transmitted by a book-entry
transfer facility to, and received by, the exchange agent forming a part of a
confirmation of a book-entry, which states that such book-entry transfer
facility has received an express acknowledgment from the participant in such
book-entry transfer facility tendering the outstanding securities that such
participant has received and agrees: (1) to participate in the Automated Tender
Offer Program System of The Depositary Trust Company; (2) to be bound by the
terms of the letter of transmittal; and (3) that we may enforce such agreement
against such participant.
By executing the letter of transmittal, each holder will make to us the
representations set forth above in the fourth paragraph under the heading "--
Purpose and Effect of the Exchange Offers."
The tender by a holder and our acceptance thereof will constitute agreement
between such holder and us in accordance with the terms and subject to the
conditions set forth in this prospectus and in the letter of transmittal or
agent's message.
The method of delivery of outstanding securities and the letter of
transmittal or agent's message and all other required documents to the exchange
agent is at the election and sole risk of the holder. As an alternative to
delivery by mail, holders may wish to consider overnight or hand delivery
service. In all cases, sufficient time should be allowed to assure delivery to
the exchange agent before the expiration date. No letter of transmittal or
outstanding securities should be sent to us. Holders may request their
respective brokers, dealers, commercial banks, trust companies or nominees to
effect the above transactions for such holders.
Any beneficial owner whose outstanding securities 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. See
"Instructions to Registered Holder and/or Book-Entry Transfer Facility
Participant from Beneficial Owner" included with the letter of transmittal.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member firm of the Medallion System (an
"eligible institution") unless the outstanding securities tendered pursuant
thereto are tendered (1) by a registered holder who has not completed the box
entitled "Special Delivery Instructions" on the letter of transmittal or (2)
for the account of an eligible institution. In the event that signatures on a
letter of transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by an eligible institution.
If the letter of transmittal is signed by a person other than the registered
holder of any outstanding securities listed in this prospectus, such
outstanding securities 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 outstanding securities with the signature thereon guaranteed by
an eligible institution.
29
<PAGE>
If the letter of transmittal or any outstanding securities or bond powers
are signed by trustees, executors, administrators, guardians, attorneys-in-
fact, offices of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and evidence
satisfactory to us of its authority to so act must be submitted with the letter
of transmittal.
We understand that the exchange agent will make a request promptly after the
date of this prospectus to establish accounts with respect to the outstanding
securities at The Depositary Trust Company, for the purpose of facilitating the
exchange offers, and subject to the establishment thereof, any financial
institution that is a participant in The Depositary Trust Company's system may
make book-entry delivery of outstanding securities by causing The Depositary
Trust Company to transfer such outstanding securities into the exchange agent's
account with respect to the outstanding securities in accordance with The
Depositary Trust Company's procedures for such transfer. Although delivery of
the outstanding securities may be effected through book-entry transfer into the
exchange agent's account at The Depositary Trust Company, unless an agent's
message is received by the exchange agent in compliance with the Automated
Tender Offer Program System of The Depositary Trust Company, an appropriate
letter of transmittal properly completed and duly executed with any required
signature guarantee and all other required documents must in each case be
transmitted to and received or confirmed by the exchange agent at its address
set forth below on or prior to the expiration date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures. Delivery of documents to The Depositary Trust
Company does not constitute delivery to the exchange agent.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance of tendered outstanding securities and withdrawal of
tendered outstanding securities will be determined by us in our sole
discretion, which determination will be final and binding. We reserve the
absolute right to reject any and all outstanding securities not properly
tendered or any outstanding securities our acceptance of which would, in the
opinion of our counsel, be unlawful. We also reserves the right in our sole
discretion to waive any defects, irregularities or conditions of tender as to
particular outstanding securities. Our interpretation of the terms and
conditions of the exchange offers, 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 outstanding securities
must be cured within such time as we will determine. Although we intend to
notify holders of defects or irregularities with respect to tenders of
outstanding securities, neither the Issuers, the exchange agent nor any other
person will incur any liability for failure to give such notification. Tenders
of outstanding securities will not be deemed to have been made until such
defects or irregularities have been cured or waived. Any outstanding securities
received by the exchange agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned by
the exchange agent to the tendering holders, unless otherwise provided in the
letter of transmittal, as soon as practicable following the expiration date.
Guaranteed Delivery Procedures
Holders who wish to tender their outstanding securities and (1) whose
outstanding securities are not immediately available, (2) who cannot deliver
their outstanding securities, the letter of transmittal or any other required
documents to the exchange agent or (3) who cannot complete the procedures for
book-entry transfer, 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 setting forth the name and address of the holder, the
certificate number(s) of such outstanding securities and the principal
amount of outstanding securities tendered, stating that the tender is being
made thereby and guaranteeing that, within three New York Stock Exchange
trading days after the expiration date, the letter of transmittal together
with the certificate(s) representing the outstanding securities or a
confirmation of book-entry transfer of such outstanding securities into the
exchange agent's account at The Depositary Trust Company, and any other
documents required by the letter of transmittal will be deposited by the
eligible institution with the exchange agent; and
30
<PAGE>
(C) such properly completed and executed letter of transmittal, as well
as the certificate(s) representing all tendered outstanding securities in
proper form for transfer or a confirmation of book-entry transfer of such
outstanding securities into the exchange agent's account at The Depositary
Trust Company, and all other documents required by the letter of
transmittal are received by the exchange agent upon five New York Stock
Exchange trading days after the expiration date.
Upon request to the exchange agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their outstanding securities according to
the guaranteed delivery procedures set forth above.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, tenders of outstanding
securities may be withdrawn at any time prior to 5:00 p.m., New York City time,
on the expiration date.
To withdraw a tender of outstanding securities in the exchange offers, a
telegram, telex, letter or facsimile transmission notice of withdrawal must be
received by the exchange agent at its address set forth in this prospectus
prior to 5:00 p.m., New York City time, on the expiration date. Any such notice
of withdrawal must:
(1) specify the name of the person having deposited the outstanding
securities to be withdrawn;
(2) identify the outstanding securities to be withdrawn, including the
certificate number(s) and principal amount of such outstanding securities,
or, in the case of outstanding securities transferred by book-entry
transfer, the name and number of the account at The Depositary Trust
Company to be credited;
(3) be signed by the holder in the same manner as the original signature
on the letter of transmittal by which such outstanding securities were
tendered, including any required signature guarantees, or be accompanied by
documents of transfer sufficient to have the trustee with respect to the
outstanding securities register the transfer of such outstanding securities
into the name of the person withdrawing the tender; and
(4) specify the name in which any such outstanding securities are to be
registered, if different from that of the depositor.
All questions as to the validity, form and eligibility, including time of
receipt, of such notices will be determined by us, whose determination will be
final and binding on all parties. Any outstanding securities so withdrawn will
be deemed not to have been validly tendered for purposes of the exchange offers
and no exchange securities will be issued with respect thereto unless the
outstanding securities so withdrawn are validly retendered. Any outstanding
securities which have been tendered but which are not accepted for exchange
will be returned to the holder thereof without cost to such holder as soon as
practicable after withdrawal, rejection of tender or termination of the
exchange offers. Properly withdrawn outstanding securities may be retendered by
following one of the procedures described above under "--Procedures for
Tendering" at any time prior to the expiration date.
Conditions
Notwithstanding any other term of the exchange offers, we will not be
required to accept for exchange, or exchange notes for, any outstanding
securities, and may terminate or amend the exchange offers as provided in this
prospectus before the acceptance of such outstanding securities, if:
(1) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the exchange offers
which, in our sole judgment, might materially impair our ability to proceed
with the exchange offers or any material adverse development has occurred
in any existing action or proceeding with respect to us or any of our
subsidiaries; or
(2) any law, statute, rule, regulation or interpretation by the Staff of
the SEC is proposed, adopted or enacted, which, in our sole judgment, might
materially impair our ability to proceed with the exchange offers or
materially impair the contemplated benefits of the exchange offers to us;
or
(3) any governmental approval has not been obtained, which approval we
will, in our sole discretion, deem necessary for the consummation of the
exchange offers as contemplated in this prospectus.
31
<PAGE>
If we determine in our sole discretion that any of the conditions are not
satisfied, we may:
(1) refuse to accept any outstanding securities and return all tendered
outstanding securities to the tendering holders;
(2) extend the exchange offers and retain all outstanding securities
tendered prior to the expiration of the exchange offers, subject, however,
to the rights of holders to withdraw such outstanding securities (see "--
Withdrawal of Tenders"); or
(3) waive such unsatisfied conditions with respect to the exchange
offers and accept all properly tendered outstanding securities which have
not been withdrawn.
Exchange Agent
United States Trust Company of New York has been appointed as exchange agent
for the exchange offers. Questions and requests for assistance, requests for
additional copies of this prospectus or of the letter of transmittal and
requests for Notice of Guaranteed Delivery should be directed to the exchange
agent addressed as follows:
By Overnight Delivery:
By Mail: By Hand: United States Trust
United States Trust United States Trust Company of Company of
Company of New York New York
New York 111 Broadway 770 Broadway
844 Cooper Station New York, New York 10006 New York, New York 10003
New York, New York Attention: Lower Level CorporateAttention: Corporate
10274-0844 Trust Window Trust
Attention: Corporate Operations
Trust Operations
By Facsimile for Eligible Institutions:
(212) 420-6152
Attention: Corporate Trust Department
For Confirmation and/or Information call:
(800) 548-6565
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
Fees and Expenses
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, additional solicitation may be made by
telegraph, telecopy, telephone or in person our and our affiliates' officers
and regular employees.
We have not retained any dealer-manager in connection with the exchange
offers and will not make any payments to brokers, dealers, or others soliciting
acceptances of the exchange offers. We will, however, 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.
We will pay the cash expenses to be incurred in connection with the exchange
offers. Such expenses include fees and expenses of the exchange agent and
Trustee, accounting and legal fees and printing costs, among others.
Accounting Treatment
The exchange securities will be recorded at the same carrying value as the
outstanding securities, which is face value for the senior notes and the
accreted value of the senior discount debentures, as reflected in our
accounting records on the date of exchange. Accordingly, we will not recognize
any gain or loss for accounting purposes as a result of the exchange offers.
The expenses of the exchange offers will be deferred and charged to expense
over the term of the exchange securities.
32
<PAGE>
Consequences of Failure to Exchange
The outstanding securities that are not exchanged for exchange securities
pursuant to the exchange offers will remain restricted securities. Accordingly,
such outstanding securities may be resold only:
. to Woods, either upon redemption or otherwise,
. so long as the outstanding securities are eligible for resale pursuant to
Rule 144A, to a person inside the United States whom the seller
reasonably believes is a qualified institutional buyer within the meaning
of Rule 144A under the Securities Act in a transaction meeting the
requirements of Rule 144A, in accordance with Rule 144 under the
Securities Act, or pursuant to another exemption from the registration
requirements of the Securities Act and based upon an opinion of counsel
reasonably acceptable to us,
. outside the United States to a foreign person in a transaction meeting
the requirements of Rule 904 under the Securities Act, or
. pursuant to an effective registration statement under the Securities Act,
in each case in accordance with any applicable securities laws of any
state of the United States.
Resale of the Exchange Securities
With respect to resales of the exchange securities, based on interpretations
by the Staff of the SEC set forth in no-action letters issued to third parties,
we believe that a holder or other person who receives exchange securities,
whether or not such person is the holder, will be allowed to resell the
exchange securities to the public without further registration under the
Securities Act and without delivering to the purchasers of the exchange
securities a prospectus that satisfies the requirements of Section 10 of the
Securities Act provided that:
. the holder acquired the exchange securities in the ordinary course of its
business;
. the holder is not participating, does not intend to participate, and has
no arrangement or understanding with any person to participate, in the
distribution of the exchange securities;
. the holder is not an "affiliate" of ours within the meaning of Rule 405
under the Securities Act; and
. the holder is not a broker-dealer who purchased its outstanding
securities from us for resale under Rule 144A or any other available
exemption under the Securities Act.
However, if any holder acquires exchange securities in the exchange offers
for the purpose of distributing or participating in a distribution of the
exchange securities, such holder cannot rely on the position of the Staff of
the SEC expressed in such no-action letters or any similar interpretive
letters, 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. Further, each
participating broker-dealer that receives exchange securities for its own
account in exchange for outstanding securities, where such outstanding
securities were acquired by such participating 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
securities.
Although a broker-dealer may be an "underwriter" within the meaning of the
Securities Act, 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 securities received in
exchange for outstanding securities.
As contemplated by these no-action letters and the registration rights
agreement, each holder tendering securities in the exchange offers is required
to represent to us in the letter of transmittal, that, among things:
(1) the person receiving the exchange securities pursuant to the exchange
offer, whether or not such person is the holder, is receiving them in
the ordinary course of business;
33
<PAGE>
(2) neither the holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of
such exchange securities and that such holder is not engaged in, and
does not intend to engage in, a distribution of exchange securities;
(3) neither the holder nor any such other person is an "affiliate" of ours
within the meaning of Rule 405 under the Securities Act;
(4) the holder acknowledges and agrees that:
(a) any person participating in the exchange offer for the purpose of
distributing the exchange securities must comply with the
registration and prospectus delivery requirements of the Securities
Act in connection with a secondary resale transaction with respect
to the exchange securities acquired by such person and cannot rely
on the position of the Staff of the SEC set forth in no-action
letters that are discussed above and under the heading "--Purpose
and Effect of the Exchange Offers;" and
(b) any broker-dealer that receives exchange securities for its own
account in exchange for notes pursuant to the exchange offer must
deliver a prospectus in connection with any resale of such exchange
notes, but by so acknowledging, the holder shall not be deemed to
admit that, by delivering a prospectus it is an "underwriter"
within the meaning of the Securities Act; and
(5) the holder understands that a secondary resale transaction described in
clause (4)(a) above should be covered by an effective registration
statement containing the selling securityholder information required by
Item 507 of Regulation S-K of the SEC.
The exchange offers are not being made to, and we will not accept surrenders
for exchange from, holders of the outstanding securities in any jurisdiction in
which the exchange offers or their acceptance would not comply with the
securities or blue sky laws of such jurisdiction.
All resales must be made in compliance with state securities or "blue sky"
laws. Such compliance may require that the exchange securities be registered or
qualified in a state or that the resales be made by or through a licensed
broker-dealer, unless exemptions from these requirements are available. We
assume no responsibility with regard to compliance with these requirements.
34
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements, which relate to
analyses and other information which are based on forecasts of future results
and estimates of amounts not yet determinable. These statements also relate to
our future prospects, developments and business strategies.
These forward-looking statements are identified in this prospectus by the
use of terms and phrases such as "believes," "anticipates," "expects,"
"estimate," "intends" and similar terms and phrases, including references to
assumptions. These statements are contained in sections entitled "Prospectus
Summary," "Risk Factors," "Business," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other sections of this
prospectus.
Forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or
achievements of Woods, or industry results, to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. These factors include, among other things, the
following:
(1) changes in general economic conditions in the United States;
(2) decreases in the current or planned levels of governmental spending;
(3) increased competition in the attachments and replacement parts
markets;
(4) continued consolidation among attachment dealers;
(5) our inability to successfully integrate the operations of newly
acquired companies as planned or achieve the anticipated cost savings from
such integration;
(6) our inability to successfully introduce continuous flow
manufacturing and total quality management techniques at the acquired
facilities;
(7) adverse weather conditions during the spring and summer months;
(8) our failure to develop or successfully introduce new products;
(9) changes in the regulatory environment;
(10) our inability to successfully complete acquisitions; and
(11) various other factors beyond our control.
Our risks are more specifically described in "Risk Factors." If one or more
of these risks or uncertainties materialize, or if underlying assumptions prove
incorrect, our actual results may vary materially from those expected,
estimated or projected.
We do not undertake to update our forward-looking statements or risk factors
to reflect future events or circumstances.
35
<PAGE>
USE OF PROCEEDS
These exchange offers are intended to satisfy our obligations under the
registration rights agreement. We will not receive any cash proceeds from the
issuance of the exchange securities. In consideration for issuing the exchange
securities contemplated in this prospectus, we will receive outstanding
securities in like principal amount, the form and terms of which are the same
as the form and terms of the exchange securities, except as otherwise
described in this prospectus.
Woods received gross proceeds from the initial offerings of $155.0 million.
The following table summarizes the sources and uses of funds in connection
with the initial offerings as of the closing date of July 28, 1999:
<TABLE>
<CAPTION>
Amount
-------------
(in millions)
<S> <C>
Senior notes.............. $130.0
Units..................... 25.0
New equity investment (1). 25.0
Senior credit facility.... 10.7
Cash on hand.............. 5.0
</TABLE>
<TABLE>
<CAPTION>
Amount
-------------
(in millions)
<S> <C>
Existing senior credit facility.............................. $ 84.6
Acquisition of TISCO (2)..................................... 37.3
Acquisition of Central Fabricators (2)....................... 29.0
Acquisition of Alitec Attachments Division................... 10.9
Subordinated bridge loan..................................... 27.4
Estimated fees and expenses.................................. 6.5
------
Total uses................................................. $195.7
======
------
Total sources........... $195.7
======
</TABLE>
- --------
(1) The new equity investment was made by MDCP and consisted of approximately
$18.4 million of 8% cumulative redeemable preferred stock of Parent and
approximately $6.6 million of common stock of Parent. See "Description of
Capital Stock."
(2) In connection with the Acquisitions, Woods entered into noncompete
agreements with the former owners of TISCO and Central Fabricators. The
noncompete payment for TISCO is $0.5 million, which is payable in
quarterly installments over a two year period. The noncompete payment for
Central Fabricators is $0.6 million, which is payable in quarterly
installments over a three year period. These noncompete payments are not
included in the acquisition costs listed in the table.
As of June 30, 1999, the interest rate on borrowings under the senior
credit facility was 8.3% and the interest rate on the subordinated bridge loan
was 11.5%. The senior credit facility matures on September 30, 2003 and the
subordinated bridge loan matures on October 1, 2007. Borrowings under the
senior credit facility and the subordinated bridge loan were used to finance
the recapitalization. An affiliate of the initial purchaser was a lender under
the senior credit facility and MDCP was the lender under the subordinated
bridge loan.
In connection with the initial offerings, Woods amended and restated its
senior credit facility to provide for a $40.0 million revolving line of credit
for working capital needs and future acquisitions. Woods is not currently a
party to any contracts, letters of intent, commitments or agreements with
respect to any acquisitions.
36
<PAGE>
CAPITALIZATION
The following table sets forth the historical capitalization of Woods as of
July 3, 1999 and as adjusted to give effect to the initial offerings, the new
equity investment by MDCP and the Acquisitions as if such transactions had
occurred on July 3, 1999. See "Use of Proceeds" and "Unaudited Pro Forma
Financial Data."
<TABLE>
<CAPTION>
At July 3, 1999
-----------------
Pro
Actual Forma
------- --------
(in thousands)
<S> <C> <C>
Long-term debt, including
current maturities:
Senior credit facility:
Revolving credit facility. $ -- $ 15,597
Term Loan A............... 25,000 --
Term Loan B............... 34,738 --
Term Loan C............... 24,812 --
12% Senior Notes............ -- 130,000
15% Senior Discount
Debentures (3)............. -- 24,269
Seller notes and other (4).. 5,288 5,488
Subordinated bridge loan
(5)........................ 25,000 --
Accrued interest on
subordinated bridge loan... 2,412 --
------- --------
Total long-term debt.... 117,250 175,354
Cumulative redeemable
preferred stock and accrued
dividends.................. 31,274 49,705
Stockholders' equity
(deficit):
Common stock.............. 6 10
Additional paid-in
capital.................. 14,937 22,233
Treasury stock, at cost... (96) (96)
Notes receivable from
stockholders............. (578) (578)
Retained earnings
(deficit)................ (67,782) (71,176)
------- --------
Total stockholders' equity
(deficit).................. (53,513) (49,607)
------- --------
Total capitalization.... $95,011 $175,452
======= ========
</TABLE>
- --------
(1) The value of the debentures represents $25.0 million less $0.7 million
ascribed to the shares of common stock issued in connection with the units.
We cannot assure you that the value ascribed to the common stock is
indicative of the price at which the common stock may trade in the future.
(2) Interest and principal payments on the seller notes issued to Baerts Metal
Products with an outstanding principal balance of $0.5 million were
suspended in May 1998 in connection with the complaint filed by Woods
against the former owners of Baerts alleging that such owners made material
misrepresentations in connection with the sale of Baerts to Woods.
37
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma combined financial data of Woods have been
derived by the application of pro forma adjustments to the historical financial
statements of Woods, TISCO, Central Fabricators and the Alitec Attachments
Division for the periods indicated. The adjustments are described in the
accompanying notes.
The unaudited statement of operations for the fiscal year ended January 2,
1999 and the six month period ended June 27, 1998 gives effect to the following
transactions as if such transactions had occurred at the beginning of the
earliest period presented:
(1) the recapitalization;
(2) the Acquisitions;
(3) the initial offerings; and
(4) the new equity investment by MDCP.
The unaudited statement of operations for the six month period ended July 3,
1999 gives effect to items (2), (3) and (4) set forth above, as if such
transactions had occurred at the beginning of the earliest period presented.
The unaudited pro forma balance sheet as of July 3, 1999 gives effect to: (1)
the Acquisitions; (2) the initial offerings and (3) the new equity investment
by MDCP, as if such transactions occurred on that date. The unaudited pro forma
statement of operations for the twelve months ended July 3, 1999 has been
derived by adding the pro forma financial data for the year ended January 2,
1999 and the pro forma financial data for the six months ended July 3, 1999 and
subtracting the pro forma financial data for the six months ended June 27,
1998. The unaudited pro forma financial data do not give effect to any other
transactions except those discussed in the accompanying notes. The unaudited
pro forma financial data are provided for informational purposes only and do
not purport to represent the results of operations or financial position of
Woods had these transactions in fact occurred on such dates, nor do they
purporting to be indicative of the financial position or results of operations
as of any future date or for any future period.
The Acquisitions will be accounted for using the purchase method of
accounting. The total cost of the Acquisitions will be allocated to the
tangible and intangible assets acquired and liabilities assumed based upon
their respective fair values as of the time the respective Acquisitions were
consummated. The excess of purchase cost over the historical basis of the net
assets acquired has been allocated in the accompanying unaudited pro forma
financial data based upon preliminary estimates. These estimates are based upon
available information and upon certain assumptions that management believes are
reasonable.
The unaudited pro forma financial data and accompanying notes should be read
in conjunction with the financial statements and accompanying notes thereto and
the other financial information included elsewhere in this prospectus.
38
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the Twelve Month Period Ended July 3, 1999
(In Thousands)
<TABLE>
<CAPTION>
Historical
-----------------------------------------------------
Alitec
Central Attachments Pro Forma Company
Woods TISCO Fabricators Division Combined(1) Adjustments Pro Forma
-------- ------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales.............. $156,837 $64,955 $22,423 $8,988 $253,203 $ -- $253,203
Cost of goods sold..... 115,119 40,379 16,240 5,502 177,240 -- 177,240
-------- ------- ------- ------ -------- ------- --------
Gross profit........... 41,718 24,576 6,183 3,486 75,963 -- 75,963
Selling, general and
administrative
expenses.............. 30,790 21,750 3,588 2,010 58,138 436 (2)(3) 58,574
Noncash stock option
compensation charge... 4,310 -- -- -- 4,310 -- 4,310
-------- ------- ------- ------ -------- ------- --------
Income from operations. 6,618 2,826 2,595 1,476 13,515 (436) 13,079
Interest and other
expense, net.......... 11,882 430 171 184 12,667 8,678 (5)(6) 21,345
-------- ------- ------- ------ -------- ------- --------
Income (loss) before
provision (benefit)
for income taxes...... (5,264) 2,396 2,424 1,292 848 (9,114) (8,266)
Benefit for income
taxes................. (1,274) -- -- 668 (606) (1,675)(7) (2,281)
-------- ------- ------- ------ -------- ------- --------
Income (loss) from
continuing operations. $ (3,990) $ 2,396 $ 2,424 $ 624 $ 1,454 $(7,439) $ (5,985)
======== ======= ======= ====== ======== ======= ========
Other Data:
Depreciation and
amortization.......... $ 6,439 $ 513 $ 306 $ 193 $ 7,451 $ 2,928 $ 10,379
Capital expenditures... 4,577 361 249 171 5,358
EBITDA (4)............. 17,367 3,339 2,901 1,749 25,356 2,492 27,848
Ratio of earnings to
fixed charges (9)..... --
</TABLE>
39
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the Fiscal Year Ended January 2, 1999
(In Thousands)
<TABLE>
<CAPTION>
Historical
-----------------------------------------------------
Alitec
Central Attachments Pro Forma Company
Woods TISCO Fabricators Division Combined(1) Adjustments Pro Forma
-------- ------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales.............. $154,734 $65,609 $22,901 $9,157 $252,401 $ -- $252,401
Cost of goods sold..... 113,205 40,937 16,628 5,652 176,422 -- 176,422
-------- ------- ------- ------ -------- -------- --------
Gross profit........... 41,529 24,672 6,273 3,505 75,979 -- 75,979
Selling, general and
administrative
expenses.............. 29,699 21,540 3,439 1,970 56,648 394 (2)(3) 57,042
Noncash stock option
compensation charge... 4,310 -- -- -- 4,310 -- 4,310
-------- ------- ------- ------ -------- -------- --------
Income from operations. 7,520 3,132 2,834 1,535 15,021 (394) 14,627
Interest and other
expense, net.......... 10,261 500 153 135 11,049 10,271 (5)(6) 21,320
-------- ------- ------- ------ -------- -------- --------
Income (loss) before
provision (benefit)
for income taxes...... (2,741) 2,632 2,681 1,400 3,972 (10,665) (6,693)
Benefit for income
taxes................. (438) -- -- 487 49 (2,087)(7) (2,038)
-------- ------- ------- ------ -------- -------- --------
Income (loss) from
continuing operations. $ (2,303) $ 2,632 $ 2,681 $ 913 $ 3,923 $ (8,578) $ (4,655)
======== ======= ======= ====== ======== ======== ========
Other Data:
Depreciation and
amortization.......... $ 6,196 $ 642 $ 298 $ 175 $ 7,311 $ 2,928 $ 10,239
Capital expenditures... 3,212 433 215 110 3,970
EBITDA(4).............. 18,026 3,774 3,132 1,812 26,744 2,534 29,278
Ratio of earnings to
fixed charges(9)...... --
</TABLE>
40
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the Six Month Period Ended June 27, 1998
(In Thousands)
<TABLE>
<CAPTION>
Historical
---------------------------------------------------
Alitec
Central Attachments Pro Forma Company
Woods TISCO Fabricators Division Combined(1) Adjustments Pro Forma
------- ------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales............. $83,694 $34,985 $12,388 $5,197 $136,264 $ -- $136,264
Cost of goods sold.... 59,674 22,008 8,882 3,450 94,014 -- 94,014
------- ------- ------- ------ -------- ------- --------
Gross profit.......... 24,020 12,977 3,506 1,747 42,250 -- 42,250
Selling, general and
administrative
expenses............. 13,785 10,780 1,703 870 27,138 306 (2)(3) 27,444
------- ------- ------- ------ -------- ------- --------
Income from
operations........... 10,235 2,197 1,803 877 15,112 (306) 14,806
Interest and other
expense, net......... 3,964 292 74 60 4,390 5,765 (5)(6) 10,155
------- ------- ------- ------ -------- ------- --------
Income (loss) before
provision (benefit)
for income taxes..... 6,271 1,905 1,729 817 10,722 (6,071) 4,651
Provision (benefit)
for income taxes..... 2,662 -- -- 370 3,032 (950)(7) 2,082
------- ------- ------- ------ -------- ------- --------
Income from continuing
operations........... $ 3,609 $ 1,905 $ 1,729 $ 447 $ 7,690 $(5,121) $ 2,569
======= ======= ======= ====== ======== ======= ========
Other Data:
Depreciation and
amortization......... $ 3,024 $ 354 $ 134 $ 71 $ 3,583 $ 1,464 $ 5,047
Capital expenditures.. 1,255 123 9 45 1,432
EBITDA(4)............. 13,259 2,551 1,937 1,003 18,750 1,158 19,908
Ratio of earnings to
fixed charges(9)..... 1.4x
</TABLE>
41
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the Six Month Period Ended July 3, 1999
(In Thousands)
<TABLE>
<CAPTION>
Historical
---------------------------------------------------
Alitec
Central Attachments Pro Forma Company
Woods TISCO Fabricators Division Combined(1) Adjustments Pro Forma
------- ------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales............. $85,797 $34,331 $11,910 $5,028 $137,066 $ -- $137,066
Cost of goods sold.... 61,588 21,450 8,494 3,300 94,832 -- 94,832
------- ------- ------- ------ -------- ------- --------
Gross profit.......... 24,209 12,881 3,416 1,728 42,234 -- 42,234
Selling, general and
administrative
expenses............. 14,876 10,990 1,852 910 28,628 348 (2)(3) 28,976
------- ------- ------- ------ -------- ------- --------
Income from
operations........... 9,333 1,891 1,564 818 13,606 (348) 13,258
Interest and other
expense, net......... 5,585 222 92 109 6,008 4,172 (5)(6) 10,180
------- ------- ------- ------ -------- ------- --------
Income (loss) before
provision (benefit)
for income taxes..... 3,748 1,669 1,472 709 7,598 (4,520) 3,078
Provision (benefit)
for income taxes..... 1,826 -- -- 551 2,377 (538)(7) 1,839
------- ------- ------- ------ -------- ------- --------
Income from continuing
operations........... $ 1,922 $ 1,669 $ 1,472 $ 158 $ 5,221 $(3,982) $ 1,239
======= ======= ======= ====== ======== ======= ========
Other Data:
Depreciation and
amortization......... $ 3,267 $ 225 $ 142 $ 89 $ 3,723 $ 1,464 $ 5,187
Capital expenditures.. 2,620 51 43 106 2,820
EBITDA(4)............. 12,600 2,116 1,706 940 17,362 1,116 18,478
Ratio of earnings to
fixed charges (9).... 1.3x
</TABLE>
42
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the Twelve Months Ended July 3, 1999, Fiscal Year Ended January 2, 1999 and
Six Month Periods Ended June 27, 1998 and July 3, 1999
(In Thousands)
(1) The combined historical data gives pro forma effect to the acquisition of
TISCO, Central Fabricators and the Alitec Attachments Division (exclusive
of the adjustments set forth under "Pro Forma Adjustments") and was derived
from audited historical statements of operations of Woods, WEC, TISCO,
Central Fabricators and the Alitec Attachments Division, all included
elsewhere herein. The periods presented for each of the companies is as
follows:
<TABLE>
<CAPTION>
For the Twelve
Month Period For the Fiscal For the Six For the Six
Ended July 3, Year Ended Months Ended Months Ended
1999 January 2, 1999 July 3, 1999 June 27, 1998
-------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C>
Woods................. July 3, 1999 January 2, 1999 July 3, 1999 June 27, 1998
TISCO................. May 21, 1999 November 28, 1998 May 21, 1999 May 22, 1998
Central Fabricators... June 30, 1999 December 31, 1998 June 30, 1999 June 30, 1998
Alitec Attachments Di-
vision............... June 30, 1999 December 31, 1998 June 30, 1999 June 30, 1998
(2) Adjustments reflect the following:
Selling, general
administrative
expenses:
Elimination of
certain management
positions (a)...... $1,153 $1,155 $459 $461
Elimination of
certain employee
positions (b)...... 1,258 1,298 616 656
Elimination of
facility rental
costs (c).......... 39 39 20 20
------------- ----------------- ------------- -------------
Total............. $2,450 $2,492 $1,095 $1,137
============= ================= ============= =============
(a) Adjustment
reflects the
elimination of
compensation,
benefits and
other expenses
of the
owners/managers
of TISCO and
Central
Fabricators as
they will cease
employment as of
the acquisition
date and not be
replaced. Such
amounts are
summarized as
follows:
TISCO............. $ 348 $ 374 $159 $185
Central
Fabricators...... 805 781 300 276
------------- ----------------- ------------- -------------
Total........... $1,153 $1,155 $459 $461
============= ================= ============= =============
</TABLE>
(b) Adjustment reflects the elimination of compensation and benefit
costs of certain sales, engineering and other employee positions of
TISCO and the Alitec Attachments Division that are redundant with
existing positions at Woods and the individuals will cease
employment as of the acquisition date.
43
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the Twelve Months Ended July 3, 1999, Fiscal Year Ended January 2, 1999 and
Six Month Periods Ended June 27, 1998 and July 3, 1999--(Continued)
(In Thousands)
<TABLE>
<CAPTION>
For the Twelve For the Fiscal For the Six For the Six
Month Period Year Ended Months Ended Months Ended
Ended July 3, 1999 January 2, 1999 July 3, 1999 June 27, 1998
------------------ --------------- ------------ -------------
<S> <C> <C> <C> <C>
(c) Elimination of
non-recurring
facility rental
costs to bring
such costs down
to the level
agreed upon in
connection with
the Central
Fabricators
Acquisition..... $ 111 $ 111 $ 56 $ 56
Elimination of
non-recurring
facility rental
costs in
connection with
the TISCO
headquarters
facility as the
building will be
acquired in the
TISCO Acquisition. 132 132 66 66
Adjustment
reflects the
incremental
depreciation
expense in
connection with
the TISCO
headquarters
facility to be
acquired in the
TISCO Acquisition. (42) (42) (21) (21)
Adjustment
reflects the
incremental rent
expense in
connection with
the Alitec
Attachments
Division
acquisition....... (162) (162) (81) (81)
--------- --------- -------- --------
$ 39 $ 39 $ 20 $ 20
========= ========= ======== ========
(3) Adjustment reflects
the incremental
goodwill and
noncompete
amortization
associated with the
acquisitions of
TISCO, Central
Fabricators and the
Alitec Attachments
Division as if such
acquisitions had
occurred at the
beginning of the
period presented.
For pro forma
purposes, goodwill
is being amortized
over a period of 20
years and the TISCO
and Central
Fabricators non-
competes are being
amortized over a
period of two and
three years,
respectively........ $ 2,886 $ 2,886 $ 1,443 $ 1,443
========= ========= ======== ========
(5) Increase in interest
expense to reflect
the interest
associated with the
notes, the
debentures, and
revolving credit
facility as if the
transactions had
been consummated as
of the beginning of
the period presented
summarized as
follows:
Interest expense
with respect to the
notes, the
debentures, and
revolving credit
facility........... $ 19,773 $ 19,773 $ 9,887 $ 9,887
Amortization of
deferred finance
costs, net (i)..... 69 260 12 203
--------- --------- -------- --------
Total........... $ 19,842 $ 20,033 $ 9,899 $ 10,090
========= ========= ======== ========
</TABLE>
(4) EBITDA is defined as operating income plus depreciation, amortization and
the noncash stock option compensation charge and is presented because it is
generally accepted as providing useful information regarding a company's
ability to service debt. EBITDA should not be considered in isolation or as
a substitute for net income, cash flows from operating activities or other
cash flow statement data prepared in accordance with generally accepted
accounting principles or as a measure of profitability or liquidity.
44
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the Twelve Months Ended July 3, 1999, Fiscal Year Ended January 2, 1999 and
Six Month Periods Ended June 27, 1998 and July 3, 1999--(Continued)
(In Thousands)
<TABLE>
<CAPTION>
For the Twelve For the Six
Month Period For the Fiscal For the Six Months Ended
Ended Year Ended Months Ended June
July 3, 1999 January 2, 1999 July 3, 1999 27, 1998
-------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
(i) Adjustment
reflects
amortization of
the capitalized
deferred finance
costs incurred
in connection
with the
financing of the
transactions.
For pro forma
purposes,
deferred finance
costs are being
amortized, as
interest
expense, over a
period of 10
years. The
adjustment is
offset by
deferred finance
costs written
off in the
refinancing.
This is
summarized as
follows:
Amortization of
new deferred
finance costs in
connection with
the transactions. $ 580 $ 580 $ 290 $ 290
Write off of
amortization of
old deferred
finance costs on
existing debt in
connection with
the refinancing.. 483 205 278 --
Write off of
amortization of
old deferred
finance costs on
old debt (prior
to the
recapitalization
on August 7,
1998)............ 28 115 -- 87
-------- -------- -------- --------
Total........... $ 69 $ 260 $ 12 $ 203
======== ======== ======== ========
(6) Reduction in
interest expense to
reflect the use of
proceeds of the
initial offerings,
the new equity
investment and new
revolving credit
facility as follows:
Net proceeds of the
initial offerings,
new equity
investment and new
revolving credit
facility .......... $210,707 $210,707 $210,707 $210,707
Funding of TISCO.... 38,500 38,500 38,500 38,500
Funding of Central
Fabricators........ 29,100 29,100 29,100 29,100
Funding of the
Alitec Attachments
Division........... 11,000 11,000 11,000 11,000
Funding of deferred
finance costs...... 5,800 5,800 5,800 5,800
Payoff of accrued
interest on
subordinated
promissory notes... 2,412 2,412 2,412 2,412
-------- -------- -------- --------
Net proceeds
available to pay
down existing debt. 109,550 109,550 109,550 109,550
Average 1998
interest rate on
existing debt...... 8.5% 8.5% 8.5% 8.5%
-------- -------- -------- --------
Reduction in
interest expense
related to interest
incurred on
existing debt
(beginning August
7, 1998 through the
end of the period
presented)......... 9,547 4,240 5,307 --
Reduction in
interest expense
related to interest
incurred on old
debt prior to the
recapitalization on
August 7, 1998..... 824 4,701 -- 3,877
Reduction in
interest expense
related to net
interest incurred
on notes payable to
shareholders and
other long-term
debt related to
TISCO, Central
Fabricators and the
Alitec Attachments
Division for
liabilities not
assumed in the
acquisitions....... 793 821 420 448
-------- -------- -------- --------
Total........... $ 11,164 $ 9,762 $ 5,727 $ 4,325
======== ======== ======== ========
(7) Adjusted to reflect
the income tax
effect of the pro
forma and offering
adjustments based on
an estimated
marginal tax rate of
39%, offset by the
income tax effect of
both TISCO and
Central Fabricators
becoming C
corporations in
connection with the
acquisitions........ $ (1,675) $ (2,087) $ (538) $ (950)
======== ======== ======== ========
(8) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges. Fixed charges consist of
interest expense (which includes amortization of deferred finance costs)
and one-third of rental expense, deemed representative of that portion of
rental expense estimated to be attributable to interest. Earnings were
insufficient to cover fixed charges by the following amounts for the
periods indicated:
<CAPTION>
For the Twelve For the Six
Month Period For the Fiscal For the Six Months Ended
Ended Year Ended Months Ended June
July 3, 1999 January 2, 1999 July 3, 1999 27, 1998
-------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Fixed charges........... $ 8,266 $ 6,693 N/A N/A
</TABLE>
45
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
July 3, 1999
(In Thousands)
<TABLE>
<CAPTION>
Historical
------------------------------------------------------
Central Alitec
Alitec TISCO Fabricators Attachments
Central Attachments Historical Acquisition Acquisition Division
Woods TISCO Fabricators Division Combined (1) Adjustments (2) Adjustments (4) Adjustments (9)
-------- ------- ----------- ----------- ------------ --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Current assets:
Cash............ $ -- $ -- $ 136 $ 5 $ 141 $ -- $ (136) $ ( 5)
Trade accounts
receivable,
net............ 29,736 14,202 3,087 1,684 48,709 -- -- --
Inventories,
net............ 18,510 7,326 2,310 1,645 29,791 -- -- --
Deferred income
taxes.......... 3,083 -- -- 41 3,124 -- -- --
Prepaid expenses
and other
current assets. 2,100 201 1 36 2,338 -- -- --
-------- ------- ------ ------- -------- -------- ------- -------
Total current
assets......... 53,429 21,729 5,534 3,411 84,103 -- (136) ( 5)
Property and
equipment, net.. 26,588 964 766 685 29,003 -- -- --
Goodwill, net.... 23,266 -- -- 508 23,774 16,888 23,990 7,836
Other assets,
net............. 5,883 3,515 -- 51 9,449 500 600 --
-------- ------- ------ ------- -------- -------- ------- -------
Total assets.... $109,166 $26,208 $6,300 $ 4,655 $146,329 $ 17,388 $24,454 $ 7,831
======== ======= ====== ======= ======== ======== ======= =======
Liabilities and
Stockholders'
Equity:
Current
liabilities:
Notes payable to
officers and
stockholders... $ -- $12,419 $2,800 $ -- $ 15,219 $(12,419) $(2,800) $ --
Current
maturities of
long-term
obligations.... 3,153 200 300 4,028 7,681 -- (300) (4,028)
Accounts
payable........ 6,085 3,042 993 1,104 11,224 -- -- --
Accrued
expenses....... 7,322 2,667 493 434 10,916 -- -- --
-------- ------- ------ ------- -------- -------- ------- -------
Total current
liabilities.... 16,560 18,328 4,586 5,566 45,040 (12,419) (3,100) (4,028)
Long-term
obligations,
less current
maturities...... 111,685 -- 18 5 111,708 32,305 (3) (18) 10,875
25,120 (5) --
Deferred income
taxes........... 3,083 -- -- 68 3,151 -- -- --
Other long-term
liabilities..... 77 -- -- -- 77 -- -- --
-------- ------- ------ ------- -------- -------- ------- -------
Total
liabilities.... 131,405 18,328 4,604 5,639 159,976 19,886 22,002 6,847
Redeemable
preferred stock
and accrued
dividends....... 31,274 -- -- -- 31,274 3,855 (3) 2,971 (5) --
Stockholders'
equity:
Common stock.... 6 21 -- 49 76 (20)(3) 1 (5) (49)
Additional paid-
in capital..... 14,937 -- 31 43 15,011 1,526 (3) 1,145 (5) (43)
Treasury stock,
at cost........ (96) -- -- -- (96) -- -- --
Notes receivable
from
stockholders... (578) -- -- -- (578) -- -- --
Retained
earnings
(accumulated
deficit)....... (67,782) 7,859 1,665 (1,076) (59,334) (7,859) (1,665) 1,076
-------- ------- ------ ------- -------- -------- ------- -------
Total
stockholder's
equity
(deficit)...... (53,513) 7,880 1,696 (984) (44,921) (6,353) (519) 984
-------- ------- ------ ------- -------- -------- ------- -------
Total
liabilities and
shareholders'
equity......... $109,166 $26,208 $6,300 $ 4,655 $146,329 $ 17,388 $24,454 $ 7,831
======== ======= ====== ======= ======== ======== ======= =======
<CAPTION>
Pro Forma Company
Adjustments Pro Forma
-------------- ----------
<S> <C> <C>
Assets:
Current assets:
Cash............ $ -- $ --
Trade accounts
receivable,
net............ -- 48,709
Inventories,
net............ -- 29,791
Deferred income
taxes.......... -- 3,124
Prepaid expenses
and other
current assets. -- 2,338
-------------- ----------
Total current
assets......... -- 83,962
Property and
equipment, net.. -- 29,003
Goodwill, net.... -- 72,488
Other assets,
net............. 2,406 (6) 12,955
-------------- ----------
Total assets.... $ 2,406 $198,408
============== ==========
Liabilities and
Stockholders'
Equity:
Current
liabilities:
Notes payable to
officers and
stockholders... $ -- $ --
Current
maturities of
long-term
obligations.... -- 3,353
Accounts
payable........ -- 11,224
Accrued
expenses....... (2,412)(7) 8,504
-------------- ----------
Total current
liabilities.... (2,412) 23,081
Long-term
obligations,
less current
maturities...... 5,800 (6) 172,001
(13,789)(7)
Deferred income
taxes........... -- 3,151
Other long-term
liabilities..... -- 77
-------------- ----------
Total
liabilities.... (10,401) 198,310
Redeemable
preferred stock
and accrued
dividends....... 11,605 (8) 49,705
Stockholders'
equity:
Common stock.... 2 (8) 10
Additional paid-
in capital..... 4,594 (8) 22,233
Treasury stock,
at cost........ -- (96)
Notes receivable
from
stockholders... -- (578)
Retained
earnings
(accumulated
deficit)....... (3,394)(6) (71,176)
-------------- ----------
Total
stockholder's
equity
(deficit)...... 1,202 (49,607)
-------------- ----------
Total
liabilities and
shareholders'
equity......... $ 2,406 $198,408
============== ==========
</TABLE>
46
<PAGE>
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
July 3, 1999
(In Thousands)
(1) The combined historical data gives pro forma effect to the acquisitions of
TISCO, Central Fabricators and the Alitec Attachments Division (exclusive
of the adjustments set forth under "Pro Forma Adjustments") and was derived
from unaudited interim financial statements of TISCO, Central Fabricators
and Alitec included elsewhere herein. The balance sheet date for each of
the companies is as follows:
<TABLE>
<S> <C>
Woods.......................................................... July 3, 1999
TISCO.......................................................... May 21, 1999
Central Fabricators............................................ June 30, 1999
Alitec Attachments Division.................................... June 30, 1999
</TABLE>
(2) Reflects the acquisition of TISCO which will be accounted for as a purchase
in accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations." The purchase price is being allocated to tangible and
identifiable intangible assets and liabilities based upon preliminary
estimates of their fair values, with the excess of purchase price over fair
value allocated to goodwill. Woods has not yet determined the final
allocation of the purchase price as current information regarding the fair
value of assets to be acquired is not available and accordingly, the
amounts shown below may differ from the amounts ultimately determined.
Allocation of purchase price based upon preliminary estimated values is as
follows:
<TABLE>
<S> <C>
Purchase price (includes estimated transaction costs of $400)....... $37,687
Book value of net assets acquired (i)............................. 20,299
-------
Increase in basis................................................. $17,388
=======
Allocation of increase in basis:
Non-compete agreements........................................ $ 500
Goodwill...................................................... 16,888
-------
Total....................................................... $17,388
=======
</TABLE>
(i) Comprised of total assets of $26,208 less liabilities assumed of $5,909
as of May 21, 1999. Therefore, adjustment also includes elimination of
liabilities not assumed related to notes payable to officers and
stockholders of $12,419. In addition, adjustment includes the
elimination of TISCO's historical equity.
(3) Includes the portion of the purchase price (including estimated transaction
costs of $400) for the acquisition of TISCO estimated to be financed in the
following form:
<TABLE>
<S> <C>
Senior Notes due 2009................................................ $25,974
Units--Debentures.................................................... 5,075
Units--Common Stock.................................................. 153
New Equity Investment--8% Cumulative Redeemable Preferred Stock...... 3,855
New Equity Investment--Common Stock.................................. 1,374
Revolving credit facility............................................ 1,256
-------
Total.............................................................. $37,687
=======
</TABLE>
47
<PAGE>
(4) Reflects the acquisition of Central Fabricators which will be accounted for
as a purchase in accordance with Accounting Principles Board Opinion No.
16, "Business Combinations." The purchase price is being allocated to
tangible and identifiable intangible assets and liabilities based upon
preliminary estimates of their fair values, with the excess of purchase
price over fair value allocated to goodwill. Woods has not yet determined
the final allocation of the purchase price as current information regarding
the fair value of assets to be acquired is not available and accordingly,
the amounts shown below may differ from the amounts ultimately determined.
Allocation of purchase price based upon preliminary estimated values is as
follows:
<TABLE>
<S> <C>
Purchase price (includes estimated transaction costs of $300)....... $29,268
Book value of net assets acquired (i)............................. 4,678
-------
Increase in basis................................................. $24,590
=======
Allocation of increase in basis:
Non-compete agreements........................................ $ 600
Goodwill...................................................... 23,990
-------
Total....................................................... $24,590
=======
</TABLE>
(i) Comprised of total assets being acquired of $6,164 less liabilities
assumed of $1,486 as of June 30, 1999. Therefore, adjustment also
includes elimination of cash not being acquired of $136, liabilities
not assumed related to notes payable to stockholders of $3,100 and
long-term debt of $18. In addition, adjustment includes the elimination
of Central Fabricators' historical equity.
(5) Includes the portion of the purchase price, including estimated transaction
costs of $300, for the acquisition of Central Fabricators estimated to be
financed in the following form:
<TABLE>
<S> <C>
Senior Notes due 2009................................................ $20,024
Units--Debentures.................................................... 3,913
Units--Common Stock.................................................. 118
New Equity Investment--8% Cumulative Redeemable Preferred Stock...... 2,971
New Equity Investment--Common Stock.................................. 1,059
Revolving credit facility............................................ 1,183
-------
Total.............................................................. $29,268
=======
</TABLE>
(6) Adjustment reflects the new capitalized deferred finance costs of $5,800,
net of $3,394 of capitalized deferred finance costs written off upon the
refinancing. The new deferred finance costs of $5,800 will be incurred
primarily in connection with the offering of the notes of $130,000 and the
new revolving credit facility of $15,597. The deferred finance costs of
$3,394 written off upon the refinancing are in connection with the
following: (a) term loans of $84,550, and (b) subordinated promissory notes
of $25,000.
(7) Adjustment reflects the net decrease in long-term debt associated with (i)
the Notes of $78,202, the debentures of $15,281, and a revolving credit
facility of $2,278 (excluding borrowings for the Acquisitions--see (3), (5)
and (10) and also excluding deferred finance costs of $5,800--see (6))
offset by, (ii) the refinancing of the following: (a) term loans of $84,550
and (b) subordinated promissory notes of $25,000, plus accrued interest of
$2,412.
(8) Adjustment reflects the increase in equity associated with the issuance of
8% cumulative redeemable preferred stock of $11,605 and common stock of
$4,136 relating to the new equity investment and $460 relating to the
issuance of shares of common stock in connection with the units (excluding
equity infusions for the TISCO and Central Fabricators' acquisitions--see
(3) and (5) above).
48
<PAGE>
(9) Reflects the acquisition of the Alitec Attachments Division which will be
accounted for as a purchase in accordance with Accounting Principles Board
Opinion No. 16, "Business Combinations." The purchase price is being
allocated to tangible and identifiable intangible assets and liabilities
based upon preliminary estimates of their fair values, with the excess of
purchase price over fair value allocated to goodwill. Woods has not yet
determined the final allocation of the purchase price as current
information regarding the fair value of assets to be acquired is not
available and accordingly, the amounts shown below may differ from the
amounts ultimately determined. Allocation of purchase price based upon
preliminary estimated values is as follows:
<TABLE>
<S> <C>
Purchase price ..................................................... $10,880
Book value of net assets acquired (i)............................. 3,044
-------
Increase in basis................................................. $ 7,836
=======
Allocation of increase in basis:
Goodwill...................................................... $ 7,836
=======
</TABLE>
(i) Comprised of total assets of $4,650 less liabilities assumed of $1,606
as of March 31, 1999. Therefore, adjustment also includes elimination
of liabilities not assumed of $4,033. In addition, adjustment includes
the elimination of the Alitec Attachments Division's historical equity.
(10) Includes the portion of the purchase price for the acquisition of the
Alitec Attachments Division estimated to be financed in the following
form:
<TABLE>
<S> <C>
Revolving credit facility........................................... $10,880
=======
</TABLE>
49
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
Woods Equipment Company
The following table presents selected historical consolidated statements of
operations, balance sheet, and other data for Woods for the periods presented
and should only be read in conjunction with the audited and unaudited
consolidated financial statements of Woods, and the related notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," all included elsewhere in this prospectus. The data as of and for
each of the five fiscal year periods ended January 2, 1999 have been derived
from the audited consolidated financial statements of Woods. The data as of and
for the six month periods ended June 27, 1998 and July 3, 1999 have been
derived from the unaudited consolidated financial statements of Woods which, in
the opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation. Results of operations
for an interim period are not necessarily indicative of results for a full
year.
<TABLE>
<CAPTION>
Fiscal Year Ended,
--------------------------------------------------------------
December 31, December 30, December 28, December 27, January 2,
1994 1995 1996 1997(1) 1999
------------ ------------ ------------ ------------ ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net sales............................... $96,333 $122,795 $129,427 $137,924 $154,734
Costs of goods sold..................... 69,707 89,277 97,025 104,983 113,205
------- -------- -------- -------- --------
Gross profit............................ 26,626 33,518 32,402 32,941 41,529
Selling, general and administrative expenses (2). 20,020 23,396 20,453 24,521 29,699
Noncash stock option compensation
charge................................. -- -- -- -- 4,310
------- -------- -------- -------- --------
Income from operations.................. 6,606 10,122 11,949 8,420 7,520
Interest and other expense, net......... 9,132 8,184 7,326 7,831 10,261
------- -------- -------- -------- --------
Income (loss) before provision (benefit)
for income taxes and extraordinary
loss................................... (2,526) 1,938 4,623 589 (2,741)
Provision (benefit) for income taxes.... (891) 941 1,971 494 (438)
------- -------- -------- -------- --------
Income (loss) before extraordinary loss. (1,635) 997 2,652 95 (2,303)
Extraordinary loss (3).................. -- -- -- 290 795
------- -------- -------- -------- --------
Net income (loss)....................... $(1,635) $ 997 $ 2,652 $ (195) $ (3,098)
======= ======== ======== ======== ========
Other Data:
Depreciation and amortization........... $ 2,020 $ 2,981 $ 3,409 $ 4,412 $ 6,196
Capital expenditures.................... 2,084 3,302 4,662 4,678 3,212
EBITDA (2) (4).......................... 8,626 13,103 15,358 12,832 18,026
Net cash provided by (used in):
Operating activities................... (2,681) 524 11,226 7,000 3,762
Investing activities................... (18,060) (5,242) (1,872) (25,520) (3,182)
Financing activities................... 21,064 4,340 (9,297) 21,159 (1,944)
Ratio of earnings to fixed charges (5).. -- 1.2x 1.6x 1.1x --
Balance Sheet Data (at end of period):
Working capital......................... $31,020 $ 36,325 $ 29,838 $ 35,604 $ 39,679
Total assets............................ 84,801 88,742 81,628 105,440 108,665
Total debt.............................. 61,859 66,999 58,623 82,367 119,161
Stockholders' equity (deficit).......... (112) 990 3,379 2,856 (54,224)
<CAPTION>
Six Months Ended,
-------------------
June 27, July 3,
1998 1999
--------- ---------
<S> <C> <C>
Statements of Operations Data:
Net sales............................... $ 83,694 $ 85,797
Costs of goods sold..................... 59,674 61,588
--------- ---------
Gross profit............................ 24,020 24,209
Selling, general and administrative expenses (2). 13,785 14,876
Noncash stock option compensation
charge................................. -- --
--------- ---------
Income from operations.................. 10,235 9,333
Interest and other expense, net......... 3,964 5,585
--------- ---------
Income (loss) before provision (benefit)
for income taxes and extraordinary
loss................................... 6,271 3,748
Provision (benefit) for income taxes.... 2,662 1,826
--------- ---------
Income (loss) before extraordinary loss. 3,609 1,922
Extraordinary loss (3).................. -- --
--------- ---------
Net income (loss)....................... $ 3,609 $ 1.922
========= =========
Other Data:
Depreciation and amortization........... $ 3,024 $ 3,267
Capital expenditures.................... 1,255 2,620
EBITDA (2) (4).......................... 13,259 12,600
Net cash provided by (used in):
Operating activities................... 3,304 5,644
Investing activities................... (1,227) (2,620)
Financing activities................... (4,793) (4,376)
Ratio of earnings to fixed charges (5).. 2.4x 1.6x
Balance Sheet Data (at end of period):
Working capital......................... $ 35,658 $ 36,869
Total assets............................ 107,016 109,166
Total debt.............................. 78,126 114,838
Stockholders' equity (deficit).......... 6,156 (53,513)
</TABLE>
- -------
(1) Woods acquired Baerts Metal Products in April 1997 and Wain-Roy in October
1997.
(2) Includes $0.6 million and $1.1 million of expenses incurred by Woods in the
fiscal year ended January 2, 1999 and the six months ended July 3, 1999,
respectively, relating to the failed acquisition of Alamo Group, Inc.
Excluding these expenses, EBITDA for the fiscal year ended January 2, 1999
and the six months ended July 3, 1999 would have been $18,588 and $13,738,
respectively.
(3) Extraordinary loss, net of income tax benefit, represents the write-off of
unamortized deferred finance costs on the early extinguishment of debt.
(4) EBITDA is defined as operating income plus depreciation, amortization and
the noncash stock option compensation charge and is presented because it is
generally accepted as providing useful information regarding a company's
ability to service debt. EBITDA should not be considered in isolation or as
a substitute for net income, cash flows from operating activities or other
cash flow statement data prepared in accordance with generally accepted
accounting principles or as a measure of profitability or liquidity.
(5) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges. Fixed charges consist of
interest expense (which includes amortization of deferred finance costs)
and one-third of rental expense, deemed representative of that portion of
rental expense estimated to be attributable to interest. Earnings were
insufficient to cover fixed charges by approximately $2,526 and $2,741 for
the fiscal year ended December 31, 1994 and January 2, 1999, respectively.
50
<PAGE>
TISCO
The following table presents selected historical statements of operations,
balance sheet and other data for TISCO for the periods presented and should
only be read in conjunction with the audited and unaudited financial statements
of TISCO and the related notes thereto, included elsewhere in this prospectus.
The data as of and for each of the three fiscal year periods ended November 30,
1996, November 29, 1997 and November 28, 1998 have been derived from the
audited consolidated financial statements of TISCO. The data as of and for the
six month periods ended May 22, 1998 and May 21, 1999 have been derived from
the unaudited financial statements of TISCO which, in the opinion of management
of TISCO, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation. Results of operations for an
interim period are not necessarily indicative of results for a full year.
<TABLE>
<CAPTION>
Fiscal Year Ended, Six Months Ended,
-------------------------------------- ------------------
November 30, November 29, November 28, May 22, May 21,
1996 1997 1998 1998 1999
------------ ------------ ------------ -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Net sales............... $ 65,771 $66,366 $65,610 $ 34,985 $ 34,331
Costs of goods sold..... 40,923 41,566 40,937 22,008 21,450
-------- ------- ------- -------- --------
Gross profit............ 24,848 24,800 24,673 12,977 12,881
Selling, general and ad-
ministrative
expenses............... 21,535 21,723 21,541 10,780 10,990
-------- ------- ------- -------- --------
Income from operations.. 3,313 3,077 3,132 2,197 1,891
Interest and other ex-
pense, net............. 781 510 500 292 222
-------- ------- ------- -------- --------
Net income.............. $ 2,532 $ 2,567 $ 2,632 $ 1,905 $ 1,669
======== ======= ======= ======== ========
Other Data:
Depreciation and amorti-
zation................. $ 1,002 $ 980 $ 642 $ 354 $ 225
Capital expenditures.... 283 296 433 123 51
EBITDA (1).............. 4,315 4,057 3,774 2,551 2,116
Net cash provided by
(used in):
Operating activities.. 5,246 2,132 3,604 (5,843) (5,531)
Investing activities.. 1,683 (303) (746) (165) (214)
Financing activities.. (3,172) (2,917) (2,397) 1,589 (1,715)
Balance Sheet Data (at
end of period):
Working capital......... $ 1,149 $ 1,555 $ 1,722 $ 3,649 $ 3,401
Total assets............ 25,104 24,395 25,483 28,832 26,208
Total debt.............. 12,436 12,051 11,965 15,951 12,619
Stockholders' equity.... 6,197 5,947 6,211 7,852 7,880
</TABLE>
- --------
(1) EBITDA is defined as operating income plus depreciation and amortization
and is presented because it is generally accepted as providing useful
information regarding a company's ability to service debt. EBITDA should
not be considered in isolation or as a substitute for net income, cash
flows from operating activities or other cash flow statement data prepared
in accordance with generally accepted accounting principles or as a measure
of profitability or liquidity.
51
<PAGE>
Central Fabricators
The following table presents selected historical statements of operations,
balance sheet, and other data for Central Fabricators for the periods presented
and should only be read in conjunction with the audited and unaudited financial
statements of Central Fabricators and the related notes thereto included
elsewhere in this prospectus. The data as of and for each of the two fiscal
year periods ended December 31, 1997 and 1998 have been derived from the
audited financial statements of Central Fabricators. The data as of and for the
six month periods ended June 30, 1998 and 1999 have been derived from the
unaudited financial statements of Central Fabricators which, in the opinion of
management of Central Fabricators, include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation. Results of
operations for an interim period are not necessarily indicative of results for
a full year.
<TABLE>
<CAPTION>
Fiscal Year Ended Six Months Ended
December 31, June 30,
------------------ ------------------
1997 1998 1998 1999
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Statements of Operations Data:
Net sales.............................. $ 18,629 $ 22,901 $ 12,388 $ 11,910
Costs of goods sold.................... 13,216 16,628 8,882 8,494
-------- -------- -------- --------
Gross profit........................... 5,413 6,273 3,506 3,416
Selling, general and administrative ex-
penses................................ 3,116 3,439 1,703 1,852
-------- -------- -------- --------
Income from operations................. 2,297 2,834 1,803 1,564
Interest and other expense net......... 92 153 74 92
-------- -------- -------- --------
Income (loss) before provision for in-
come taxes............................ 2,205 2,681 1,729 1,472
Provision (benefit) for income taxes... -- -- -- --
-------- -------- -------- --------
Net income............................. $ 2,205 $ 2,681 $ 1,729 $ 1,472
======== ======== ======== ========
Other Data:
Depreciation and amortization.......... $ 243 $ 298 $ 134 $ 142
Capital expenditures................... 493 215 9 43
EBITDA (1)............................. 2,540 3,132 1,937 1,706
Net cash provided by (used in):
Operating activities................. 2,158 2,275 979 794
Investing activities................. (493) (215) (9) (43)
Financing activities................. (1,763) (2,059) (1,150) (1,219)
Balance Sheet Data (at end of period):
Working capital........................ $ 1,257 $ 1,729 $ 1,225 $ 948
Total assets........................... 5,007 5,654 6,118 6,300
Total debt............................. 1,753 1,984 2,489 3,118
Stockholders' equity................... 2,186 2,577 2,028 1,696
</TABLE>
- --------
(1) EBITDA is defined as operating income plus depreciation and amortization
and is presented because it is generally accepted as providing useful
information regarding a company's ability to service debt. EBITDA should
not be considered in isolation or as a substitute for net income, cash
flows from operating activities or other cash flow statement data prepared
in accordance with generally accepted accounting principles or as a measure
of profitability or liquidity.
52
<PAGE>
Alitec Attachments Division
The following table presents selected unaudited historical statements of
operations, balance sheet, and other data for the Alitec Attachments Division
for the periods presented and should only be read in conjunction with the
audited financial statements of the Alitec Attachments Division and the related
notes thereto included elsewhere in this prospectus. The data as of and for
each of the years ended December 31, 1997 and 1998 have been derived from the
audited financial statements of the Alitec Attachments Division. The data as of
and for the six month periods ended June 30, 1998 and 1999 have been derived
from the unaudited financial statements of the Alitec Attachments Division
which, in the opinion of management of the Alitec Attachments Division, include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation. Results of operations for an interim period are not
necessarily indicative of results for a full year.
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
---------------- ------------------
1997 1998 1998 1999
------- ------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Statements of Operations Data:
Net sales................................ $ 7,740 $ 9,157 $ 5,197 $ 5,028
Costs of goods sold...................... 5,054 5,652 3,450 3,300
------- ------- -------- --------
Gross profit............................. 2,686 3,505 1,747 1,728
Selling, general and administrative ex-
penses.................................. 1,561 1,970 870 910
------- ------- -------- --------
Income from operations................... 1,125 1,535 877 818
Interest and other expense net........... 3 135 60 109
------- ------- -------- --------
Income (loss) before provision for income
taxes................................... 1,122 1,400 817 709
Provision (benefit) for income taxes..... -- 487 370 551
------- ------- -------- --------
Net income............................... $ 1,122 $ 913 $ 447 $ 158
======= ======= ======== ========
Other Data:
Depreciation and amortization............ $ 191 $ 175 $ 71 $ 89
Capital expenditures..................... 102 110 45 106
EBITDA (1)............................... 1,497 1,812 1,003 940
Net cash provided by (used in):
Operating activities................... 1,195 1,118 (255) 74
Investing activities................... (95) 72 (45) (183)
Financing activities................... (1,100) (1,191) 299 114
Balance Sheet Data (at end of period):
Working capital.......................... $(1,019) $(1,461) $ (1,641) $ (2,155)
Total assets............................. 3,526 3,822 4,480 4,655
Total debt............................... 2,868 3,859 4,137 4,033
Stockholders' equity..................... (283) (988) (1,242) (984)
</TABLE>
- --------
(1) EBITDA is defined as operating income plus depreciation and amortization
and is presented because it is generally accepted as providing useful
information regarding a company's ability to service debt. EBITDA should
not be considered in isolation or as a substitute for net income, cash
flows from operating activities or other cash flow statement data prepared
in accordance with generally accepted accounting principles or as a measure
of profitability or liquidity.
53
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
Our Business. Woods is a leading manufacturer of attachments for a variety
of mowing, cutting and clearing, construction, material handling, landscaping
and grounds maintenance applications. During July 1999, Woods acquired TISCO,
Central Fabricators and the Alitec Attachments Division. As a result of the
Acquisitions, Woods enhanced its position as one of the largest independent
attachments manufacturers in the United States as well as gained a new platform
in the replacement parts business for tractors.
Outlook. While we believe our revenue base is reasonably diversified by
industry, geographic region, application and end-user, any weakness in one or
more of our end markets can impact our revenue and profitability. In recent
months, our revenue growth has been impacted by softness in certain segments of
the construction market, particularly with equipment rental companies who are
adjusting inventory levels following a period of consolidation in that sector.
In addition, the agricultural market continued to be soft due to a depressed
agricultural commodities market caused by a weak farm export market, strong
harvests and poor regional weather conditions in 1998. Despite these market
conditions, we have been able to increase sales 2.5% in the six months ended
July 3, 1999 from the corresponding six months ended June 27, 1998. This growth
in revenues reflects our diversified end-user customer base and, in particular,
growth in our roadside maintenance, grounds maintenance and replacement parts
businesses.
While short term fluctuations in revenue and earnings can result from
volatility in our end-user markets, we believe that a number of current
initiatives, industry developments and recent and planned product introductions
will help make an increasing contribution to our financial performance
throughout the next 12 to 18 months. Some of these initiatives and developments
are highlighted below:
. Sales of under 40 horsepower tractors, on which many of our attachments
are used, are up 25.5% year-to-date through August 31, 1999 as compared
to the same period last year.
. There are some general indications that the Asian economies have begun to
stabilize, which could improve the environment for agricultural exports.
. We believe that the recent softness in demand for our construction
buckets is relatively short-term given construction spending is up 3.4%
year-to-date through August 31, 1999 as compared to the same period last
year and disbursements of road construction funds related to the recently
enacted $216 billion Transportation Equity Act began in late May 1999.
. We recently introduced several new products including a new line of
attachments for the rapidly growing skid steer market. In addition, we
are now an approved supplier of backhoes to Caterpillar's new range of
skid steer products. The U.S. market for skid steers grew approximately
18.6% between 1998 and 1997.
. We anticipate introducing several other new products in the next several
months, including a medium duty Batwing(R) rotary cutter, a mid-mount
Mow'n Machine, a heavy duty Wain-Roy(R) coupler and an extended line of
coupler products.
Working Capital Requirements. Our accounts receivables significantly
increases throughout the first quarter of each year to allow dealers to
accumulate inventory for sale during the warmer months of the year. These
dealer inventories are non-returnable to Woods and invoiced upon shipment. Our
average borrowings under our revolving credit facility for the twelve month
period ended July 3, 1999 was approximately $3.8 million.
Purchase Accounting Effects. The Acquisitions were accounted for using the
purchase method of accounting. As a result, the Acquisitions will prospectively
affect our results of operations in certain significant
54
<PAGE>
respects. The aggregate acquisition costs (including the assumption of
liabilities and estimated transaction expenses) of approximately $77.8 million
will be allocated to the tangible and intangible assets acquired and
liabilities assumed by us based upon their respective fair values as of the
date of Acquisitions. The allocation of the purchase price of the assets
acquired in the Acquisitions will result in a significant increase in our
annual depreciation and amortization expense. In addition, due to the effects
of the increased borrowings of Woods to finance the recapitalization and the
Acquisitions, our interest expense will increase significantly in the periods
following the Acquisitions.
Results of Operations
The following table sets forth each category of statement of operations
data as a percentage of net sales:
<TABLE>
<CAPTION>
Fiscal Year Ended, Six Months Ended,
------------------------------------ --------------------
December 28, December 27, January 2, June 27, July 3,
1996 1997 1999 1998 1999
------------ ------------ ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of goods sold..... 75.0 76.1 73.2 71.3 71.8
----- ----- ----- -------- --------
Gross profit............ 25.0 23.9 26.8 28.7 28.2
Selling, general and ad-
ministrative expenses.. 15.8 17.8 19.2 16.5 17.3
Noncash stock option
compensation charge.... -- -- 2.8 -- --
----- ----- ----- -------- --------
Income from operations.. 9.2 6.1 4.8 12.2 10.9
Interest and other ex-
pense.................. 5.7 5.7 6.6 4.7 6.5
----- ----- ----- -------- --------
Income before provision
for income taxes and
extraordinary loss..... 3.5 0.4 (1.8) 7.5 4.4
Provision for income
taxes.................. 1.5 0.4 (0.3) 3.2 2.1
----- ----- ----- -------- --------
Income before extraordi-
nary loss.............. 2.0 0.0 (1.5) 4.3 2.3
Extraordinary loss...... -- 0.2 0.5 --
----- ----- ----- -------- --------
Net income (loss)....... 2.0% (0.2)% (2.0)% 4.3% 2.3%
===== ===== ===== ======== ========
</TABLE>
Six Months Ended July 3, 1999 Compared to Six Months Ended June 27, 1998
Net sales were $85.8 million for the six months ended July 3, 1999, an
increase of $2.1 million, or 2.5%, from $83.7 million in the comparable period
in the prior year. The increase was primarily due to the strength in the
grounds maintenance market, which resulted in increased sales of front-end
loaders in the amount of $2.3 million, batwings in the amount of $1.0 million
and rear mount mowers in the amount of $1.6 million. The strength in this
market offset the decline in sales on product lines within the specialty
agricultural market (e.g., sugar beet harvesters, defoliators and cultivators)
during the period. Sales to the construction market for the period declined
slightly compared to the prior year as the rental market demand softened.
Gross profit was $24.2 million for the six months ended July 3, 1999, an
increase of $0.2 million, or 0.8%, from $24.0 million in the comparable period
in the prior year. The increase in gross profit was entirely attributable to
sales growth for the period. Inflation and increases in lower-margin OEM
business offset cost reduction achievements to reduce our gross margin to
28.2%.
Selling, general and administrative expenses were $14.9 million for the six
months ended July 3, 1999, an increase of $1.1 million, or 8.0%, from $13.8
million in the comparable period in the prior year. The increase in selling,
general and administrative expenses is due primarily to the costs incurred by
Woods in connection with its failed acquisition of Alamo. On a pro forma basis
without such acquisition costs, selling, general and administrative expenses
would have been $13.8 million, or 16.1% of net sales, for the six months ended
July 3, 1999, compared to 16.5% of net sales for the prior comparable period.
55
<PAGE>
Income from operations was $9.3 million for the six months ended July 3,
1999, a decrease of $0.9 million, or 8.8%, from $10.2 million in the comparable
period in the prior year. The decrease in earnings is due to costs relating to
the failed acquisition of Alamo. On a pro forma basis without such acquisition
costs, income from operations would have been $10.4 million for the six months
ended July 3, 1999, an increase of $0.2 million, or 2.0%.
Interest and other expense was $5.6 million for the six months ended July 3,
1999, an increase of $1.6 million, or 40.9%, from $4.0 million in the
comparable period in the prior year as the result of additional interest
expense and finance cost amortization relating to the recapitalization.
Provision for income taxes was $1.8 million for the six months ended July 3,
1999, a decrease of $0.9 million, or 31.4%, from $2.7 million in the comparable
period in the prior year as a result of lower earnings from operations due to
fees and expenses incurred in connection with the failed acquisition of Alamo.
The higher effective tax rate is due to the impact of nondeductible goodwill
relating to the acquisition of Wain-Roy.
Year Ended January 2, 1999 Compared to Year Ended December 27, 1997
Net sales were $154.7 million for the year ended January 2, 1999, an
increase of $16.8 million, or 12.2%, from $137.9 million in the prior year. The
increase was primarily due to the continued strength of the end-user markets
for our grounds maintenance, general purpose maintenance, roadside maintenance
and construction products and the impact of the acquisition of Wain-Roy, which
was completed in October 1997. Sales of the Wain-Roy(R) product line accounted
for approximately $12.2 million, or 72.6%, of the increase in net sales. Woods'
sales growth occurred despite negative market conditions for product lines
dependant upon the sugar beet market, which include harvesters, defoliators and
cultivators, during the period and temporary declines in construction spending
in the Pacific Northwest due to adverse weather conditions.
Gross profit was $41.5 million for the year ended January 2, 1999, an
increase of $8.6 million, or 26.1%, from $32.9 million in the prior year.
Approximately $5.9 million, or 63.4%, of this increase was directly
attributable to the increase in net sales during the period and the remaining
$2.7 million increase was the result of variable cost reductions in Woods'
manufacturing plants. Investments in new equipment and tooling, totaling $3.2
million during 1998, enabled Woods to realize productivity gains that have
reduced its variable costs per unit by approximately 5.3% during the year ended
January 2, 1999. Such reductions were accomplished despite an approximately
0.7% increase in raw material prices and an approximately 1.9% overall increase
in labor and material prices.
Selling, general and administrative expenses were $34.0 million for the year
ended January 2, 1999, an increase of $9.5 million, or 38.8%, from $24.5
million in the prior year. As a percent of net sales, these expenses increased
to 22.0% during the year ended January 2, 1999 from 17.8% for the prior year.
Approximately $4.3 million, or 45%, of this increase is the result of a noncash
stock option compensation charge incurred in connection with the
recapitalization, approximately $2.0 million, or 21.0%, resulted from an
increase in amortization expense and administrative costs associated with the
acquisition of Wain-Roy and approximately $0.6 million, or 6.3%, of this
increase is the result of costs incurred by Woods in connection with its failed
acquisition of Alamo. The remaining balance of the increase was due to an
increase in net sales and increased marketing expenses associated with the
integration of the Wain-Roy(R) product line into Woods' construction business
unit. On a pro forma basis without the compensation charge, the one-time
charges associated with the acquisition of Wain-Roy and the Alamo acquisition
expenses, selling, general and administrative expenses would have been $27.1
million for the year ended January 2, 1999, or 17.5% of net sales, an increase
of $2.6 million, or 10.6%.
Income from operations was $7.5 million for the year ended January 2, 1999,
a decrease of $0.9 million, or 10.7%, from $8.4 million in the prior year. The
decrease in profitability is primarily due to the noncash stock option
compensation charge incurred in connection with the recapitalization.
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Interest expense was $10.3 million for the year ended January 2, 1999, an
increase of $2.5 million, or 32.0%, from $7.8 million in the prior year. The
increase is the result of fees and expenses and additional interest costs
relating to the recapitalization.
Provision (benefit) for income tax decreased from a benefit of $0.4 million
for the year ended January 2, 1999, from a provision of $0.5 million in the
prior year as a result of lower earnings from operations resulting from a
noncash stock option compensation expense of $4.3 million relating to the
recapitalization.
In the year ended January 2, 1999, there was an extraordinary loss of $0.8
million related to the early extinguishment of debt attributable to the
recapitalization. In the prior year, there was an extraordinary loss of $0.3
million related to the early extinguishment of debt associated with repayment
of Woods' senior credit facility.
Year Ended December 27, 1997 Compared to Year Ended December 28, 1996
Net sales were $137.9 million for the year ended December 27, 1997, an
increase of $8.5 million, or 6.6%, from $129.4 million in the prior year.
Approximately $5.0 million, or 58.8%, of this increase was attributable to the
acquisitions of Baerts and Wain-Roy, which were completed in April 1997 and
October 1997, respectively. Contributing to the increase was the strengthening
agriculture and construction markets, particularly demand for the agricultural
backhoes and front end loaders and construction buckets and box scrapers. Our
agricultural and construction sales increased $4.0 million, or 5.3%, and $2.9
million, or 17.8%, respectively, during the year ended December 27, 1997. Each
of these product lines experienced a second year of significant unit volume
increases as we leveraged our dealer network to offer these product lines
nationally.
Gross profit was $32.9 million for the year ended December 27, 1997, an
increase of $0.5 million, or 1.5%, from $32.4 million in the prior year.
Variable cost increases limited the growth of gross profit for the year.
Approximately $0.9 million of productivity gains realized as a result of the
implementation of continuous flow manufacturing at our Sioux Falls facility
were offset by $1.2 million of expenses associated with implementing continuous
flow manufacturing at our facilities located in Oregon, Charlotte and LaMirada.
Additionally, gross profit was adversely affected by approximately $2 million
relating to an increase in cash discounts associated with timely payment of
invoices taken by dealers and an increase in the relative weighting of lower-
margin OEM business.
Selling, general and administrative expenses were $24.5 million for the year
ended December 27, 1997, an increase of $4.0 million, or 20.0%, from $20.5
million in the prior year. As a percentage of net sales, these expenses
increased to 17.8% for 1997, from 15.8% in 1996. This increase is primarily due
to an investment in a new computer aided drawing system of $0.6 million, higher
than historical levels of executive relocation expenses of $0.3 million, wage
inflation of $0.5 million, incremental selling and administrative costs
relating to the acquisitions of Baerts and Wain-Roy of $1.1 million, and the
impact of operating expenses in 1996 being below normal levels due to a one-
time reduction in product liability expenses.
Income from operations was $8.4 million for the year ended December 27,
1997, a decrease of $3.5 million, or 29.4%, from $11.9 million in the prior
year. The primary factors adversely affecting profitability were an increase in
cash discounts taken by dealers, a sales mix weighted toward lower margin OEM
customers, investments in technology and personnel, and implementation costs
associated with continuous flow manufacturing initiatives.
Interest and other expense was $7.8 million for the year ended December 27,
1997. Interest and other expense for the prior year was $7.3 million.
Provision for income taxes was $0.5 million for the year ended December 27,
1997, a decrease of $1.5 million, or 75.0%, from $2.0 million in the prior year
due to a decrease in income from operations. However, the effective tax rate
increased from 42.6% in 1996 to 83.9% in 1997 due to the impact of
nondeductible amortization of goodwill relating to the acquisition of Wain-Roy.
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In the year ended December 27, 1997, there was an extraordinary loss of $0.3
million due to the writeoff of fees associated with the 1993 senior bank
facility as the result of the new senior bank facility originated in October
1997 to finance the acquisition of Wain-Roy. There were no extraordinary items
in the prior year.
Seasonality
The markets within which Woods operates are somewhat seasonal with peak use
for Woods' products coming in the prime moving, landscaping and construction
season during the spring and summer months. Woods has pre-season sales programs
which provide certain quarterly and cash discount incentives to Woods' dealers
to encourage pre-season orders. As a result of these programs, demand for
Woods' products is fairly constant over the entire year. However, greater than
60% of Woods' EBITDA is generated during the first half of the year, in part
due to the holiday season in the fourth calendar quarter. Woods' working
capital requirements reach their seasonal peak during the first quarter due
primarily to increased accounts receivable.
Backlog
At July 3, 1999, Woods had unfilled whole goods orders of approximately $5.2
million compared to approximately $10.0 million at June 27, 1998. This decrease
in backlog is primarily the result of a eight day decrease in Woods' order-to-
delivery time from 22 days in 1997 to 14 days in 1998. The amount of unfilled
orders at a particular time is affected by a number of factors, including the
scheduling of the manufacturing and shipping of the product which in most cases
is dependent on pre-season sales programs at Woods and the needs of the
customer. Orders generally are subject to cancellation at any time before
shipment, and, therefore, a comparison of unfilled orders from period to period
may not be meaningful or indicative of eventual shipments.
Liquidity and Capital Resources
Woods' principal sources of cash during the six months ended July 3, 1999
and fiscal years ended January 2, 1998, December 27, 1997 and December 28, 1996
were from operations and borrowings under existing credit facilities. Cash
generated from operating activities during such periods was $5.6 million, $3.8
million, $7.0 million and $11.2 million, respectively.
On October 31, 1997, Woods acquired Wain-Roy for approximately $19.2 million
in cash, including the fees and expenses of the acquisition. The purchase price
was funded through borrowings under a new senior credit facility, which
provided for revolving credit borrowings of up to $40.0 million, subject to a
borrowing base, and term loans of $50.0 million.
Capital expenditures for the six months ended July 3, 1999, and fiscal years
ended January 2, 1999, December 27, 1997 and December 28, 1996 amounted to $2.6
million, $3.2 million, $4.7 million and $4.7 million, respectively. Capital
expenditures for all these periods were used to purchase additional equipment
and tooling. Woods intends to make capital expenditures of $7.3 million in the
remainder of 1999 primarily for capacity expansion at certain facilities and
information technology upgrades.
On August 7, 1998, Parent completed the recapitalization. Woods used $155.0
million to complete the recapitalization, including the payment of related fees
and expenses. The recapitalization was financed through:
. borrowings of approximately $85.0 million under a new $110 million multi-
tranche senior secured credit facility;
. borrowings of $25.0 million under a subordinated bridge loan provided by
MDCP;
. the assumption of approximately $5.8 million of existing indebtedness of
Woods;
. an equity investment of approximately $39.8 million in Parent by MDCP,
senior management and certain other investors; and
. cash on hand of approximately $1.7 million.
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As of July 3, 1999, Woods had no outstanding revolving credit borrowings,
seller notes of $4.5 million, $84.6 million of term loan borrowings and a
subordinated bridge loan of $27.4 million. See "Certain Relationships and
Related Transactions."
At various points in time during 1998, 1997 and 1996, Woods was briefly in
default of certain restrictive covenants under its senior credit facility and
obtained appropriate waivers or amendments to the respective debt agreements.
Woods used the proceeds from the initial offerings, together with the new
equity investment by MDCP, borrowings under the senior credit facility and
cash on hand of approximately $5.0 million, to repay approximately $111.5
million of its existing indebtedness, to finance the Acquisitions and to pay
the related fees and expenses. See "Use of Proceeds."
The Acquisitions and the initial offerings had a significant impact on the
capitalization of Woods. At July 3, 1999, the pro forma indebtedness of Woods
would have been $175.4 million compared to $114.8 million for Woods on a
stand-alone basis at that date.
In connection with the initial offerings, WEC amended and restated its
existing senior credit facility. The new senior credit facility provides a
$40.0 million revolving line of credit, all of which is undrawn and available.
The senior credit facility will mature on July 31, 2004. Interest on revolving
loans under the senior credit facility will bear interest at rates based upon
federal or Eurodollar rates plus an applicable margin. All borrowings under
the senior credit facility will be guaranteed by Parent and will be secured by
substantially all of the assets of WEC. See "Risk Factors--Substantial
Leverage; Ability to Service Debt," "--Substantial Restrictions and Covenants"
and "Description of Other Financing Arrangements--Senior Credit Facility."
Woods anticipates that its principal use of cash will be working capital
requirements, debt service requirements and capital expenditures. Based upon
current and anticipated levels of operations, Woods believes that its cash
flow from operations, together with amounts available under the senior credit
facility, will be adequate to meet its anticipated requirements. We cannot
assure you, however, that our business will continue to generate sufficient
cash flow from operations in the future to service our debt, and we may be
required to refinance all or a portion of our existing debt or to obtain
additional financing. These increased borrowings may result in higher interest
payments. In addition, there can be no assurance that any such refinancing
would be possible or that any additional financing could be obtained. The
inability to obtain additional financing could have a negative impact on us.
Market Risk
We are exposed to market risks relating to changes in interest rates. We do
not enter into derivatives or other financial instruments for trading or
speculative purposes. We enter into financial instruments to manage and reduce
the impact of changes in interest rates. The counterparties are major
financial institutions.
We manage our interest rate risk by balancing the amount of our fixed and
variable debt. For fixed rate debt, interest rate changes affect the fair
market value of such debt but do not impact earnings or cash flows. Conversely
for variable rate debt, interest rate changes generally do not affect the fair
market value of such debt but do impact future earnings and cash flows,
assuming other factors are held constant. At July 3, 1999, we had variable
rate debt of $110.3 million.
Inflation
We believe that inflation generally has not had a material impact on our
operations or liquidity to date.
Year 2000 Compliance
Introduction. Over the next few months, most large companies will face a
potentially serious information systems problem because many software
applications and operational programs written in the past
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may not properly recognize calendar dates beginning in the year 2000. This
problem could force information systems to either shut down or provide
incorrect data or information. Woods began the process of identifying the
necessary changes to its computer programs and hardware as well as assessing
the progress of its significant vendors in their remediation efforts in 1998.
The discussion below details the efforts of Woods to ensure Year 2000
compliance.
State of Readiness. Woods has identified and evaluated the readiness of its
internal and third party information technology and non-information technology
systems which, if not Year 2000 compliant, could have a direct major impact to
Woods. This evaluation focused on the following areas: (1) Woods' accounting
and financial reporting system, (2) Woods' systems used in its manufacturing
and engineering activities, (3) the systems of third party vendors which supply
raw materials to Woods, and (4) the systems of its dealers used for tracking
inventory levels.
Woods' accounting and financial reporting system has already been upgraded
with the provider's latest release which is certified to be Year 2000
compliant. In addition, Woods believes that its systems used in its
manufacturing and engineering activities are Year 2000 compliant.
Woods has also assessed the state of readiness of its major servers and
shared hardware devices. It has determined that its hardware systems are either
already Year 2000 compliant or can be made so through upgrades of operating
system software. Where necessary, these upgrades will be completed by mid-year
1999.
Based on its assessment and its vendors' representations, Woods believes
that the systems of its significant third party vendors are already Year 2000
compliant.
Year 2000 Costs. In fiscal 1998, Woods expensed approximately $130,000 on
the assessment and evaluation phase of its Year 2000 initiatives and estimates
that it will expense approximately $150,000 in fiscal 1999 to complete the
remediation efforts. These efforts have been, and are expected to continue to
be, funded through cash from operations. The Year 2000 compliance project has
not resulted in the deferral of any significant information systems initiatives
by Woods.
Risks from Year 2000 Issues. Woods believes the greatest year 2000
compliance risk, in terms of magnitude of risk, is that the computer systems of
its major third party vendors could be interrupted for a period of time. Other
than representations made by the vendors, the Company is unable to predict the
likelihood of this risk occurring. Any significant interruption of raw
materials as a result of a Year 2000 problem could have a material adverse
effect on Woods' results of operations, liquidity or financial condition.
Contingency Plans. At this time, Woods fully expects to be Year 2000
compliant and is satisfied that its significant vendors are already compliant.
As such, Woods has not developed any specific contingency plan in the event it
fails to complete its Year 2000 projects.
New Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and for Hedging Activities
("Statement 133"). Statement 133 is effective for years beginning after June
15, 1999. Statement 133 provides a comprehensive and consistent standard for
the recognition and measurement of derivatives and hedging activities.
Management does not anticipate that the adoption of Statement 133 will have a
material impact on its financial position or the results of its operations.
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BUSINESS
Our Business
Woods is a leading manufacturer of attachments for a variety of mowing,
cutting and clearing, construction, material handling, landscaping and grounds
maintenance applications. In July 1999, Woods acquired three separate
businesses:
. TISCO--one of the leading independent distributors of replacement parts
in the United States primarily for tractors over ten years old;
. Central Fabricators--one of the leading independent manufacturers of pin-
on excavator buckets for the U.S. construction industry; and
. Alitec Attachments Division--a manufacturer of patented hydraulic powered
attachments for the rapidly growing U.S. skid steer market.
As a result of these acquisitions, Woods enhanced its position as one of the
largest independent attachments manufacturers in the United States as well as
gained a new platform in the replacement parts business for tractors.
Woods is managed by Thomas J. Laird and his executive management team. Mr.
Laird joined Woods in 1993 and has assembled an executive management team with
significant manufacturing and industry experience. Since 1993, Woods' executive
management team has transformed Woods from a manufacturer of niche agricultural
and landscaping products into a leading, diversified attachments manufacturer
through the successful introduction of new products and implementation of a
strategic acquisition program. From 1993 to 1998, Woods has completed and fully
integrated seven acquisitions. As a result of such acquisitions and new product
introductions, Woods' sales have increased from $57.6 million in 1992 to
approximately $154.7 million in 1998, representing a compound annual growth
rate of approximately 21.8%. In addition to increasing sales, Woods' executive
management team has also been successful in improving Woods' manufacturing
processes by implementing new operating procedures designed to increase
productivity, shorten manufacturing lead times and reduce costs and inventory
levels. As a result of the implementation of these operating procedures, Woods
generated approximately $22.0 million in cash through increasing its inventory
turns from 2.6 times in 1993 to 5.3 times in 1998.
Woods' products are used in a variety of applications to enhance the
productivity and versatility of prime movers, which include tractors,
excavators, tractor loader backhoes and skid steers. Our products include
rotary cutting and finish mowing attachments, front end loaders, backhoes,
coupler systems, buckets, scrapers and other implements. We also offer a full
line of replacement parts for our increasing installed base of attachments as
well as replacement parts for tractors. The average lifespan of our attachments
range from one to five years due to the severe and wearing nature of the
applications for which they are used. In most instances, a prime mover will be
used for several different types of applications, each of which requires a
separate attachment. For example, a prime mover can be used in conjunction with
a mower, front end loader, backhoe or scraper, depending on the desired
application. Most of our products range in price from $1,000 to $10,000. Our
products are sold through our large and extensive dealer network and directly
to original equipment manufacturers. Our products are used by a variety of end-
users, including construction companies and contractors, utility contractors,
landscaping and groundscare companies, farmers, ranchers, homeowners and
governmental agencies. No single customer accounted for more than 3% of our pro
forma net sales in 1998.
We sell our products to end-users located primarily in the United States.
The attachments market in the United States is very large and fragmented. We
believe the market for attachments in the United States had sales in excess of
$4.0 billion in 1998 and historically has grown at a rate of 2% to 4% annually.
With the acquisition of TISCO, we also operate in the $8 billion capital
equipment replacement parts market in the United States. For the most part, the
U.S. attachments and replacement parts markets are comprised of several hundred
small, regional manufacturers and distributors that offer a limited number of
products as well as a small number of national and international companies that
offer a broad range of products. In recent years, there has been a trend
towards consolidation among attachments manufacturers and parts suppliers in
order to
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achieve operating efficiencies and to better serve the needs of their end-
users. Similarly, there has been significant consolidation among dealers, who
are increasingly seeking suppliers, such as our company, who are able to offer
broad product lines, national distribution capabilities, innovative products
and reliable service.
Acquisition Rationale
We believe that the acquisition of TISCO, Central Fabricators and the Alitec
Attachments Division will provide us with several strategic benefits, including
the following:
Expanded Product Offering. The acquisition of Central Fabricators will
significantly expand our construction buckets product offerings. In addition,
we will substantially increase our replacement parts business through the
acquisition of TISCO, which will provide us a new platform for growth in the $8
billion capital equipment replacement parts market.
Increased Distribution Capabilities and Cross Selling Opportunities. We
believe the acquisitions will provide us with significant cross-selling
opportunities and distribution capabilities. For example, TISCO provides us
with five additional distribution centers and the marketing and logistical
capability to deliver on a national basis small product quantities within 24
hours. In addition, TISCO has not yet penetrated the construction market where
Woods has approximately 1,100 dealers. Furthermore, Central Fabricators'
dealers are heavily concentrated in Wisconsin, Illinois and Michigan and will
benefit from Woods' national dealer network.
Improved Relationships with Original Equipment Manufacturers. In most cases,
new prime movers are shipped and sold with attachments. As a result,
relationships with original equipment manufacturers provide a valuable source
of demand as well as insight into their new designs and end user preferences.
Currently, Woods sells approximately 8% of its products directly to original
equipment manufacturers compared to approximately 54% for Central Fabricators.
We believe that Central Fabricators' established relationships will allow Woods
to better penetrate the original equipment manufacturer market with its
existing product lines.
Anticipated Cost Savings. We believe that the Acquisitions will provide us
with a number of opportunities to reduce costs and improve operational
efficiency. In total, we expect over $6.5 million of annual cost savings to be
realized in the next three years through a combination of:
. the elimination of redundant selling, administrative and marketing
functions;
. reduced transportation and distribution costs; and
. elimination of duplicate executive management positions.
In addition, we expect to realize additional cost savings and working
capital reductions through the implementation of continuous flow manufacturing
at Central Fabricators.
Leverage Complementary Technology. We believe that we can improve certain of
Central Fabricators' products by utilizing certain of Woods' patented value
added features, such as those features found in Woods' coupler system, which
allows the user to change attachments without leaving the cab of the prime
mover.
Competitive Strengths
We believe that our success is attributable to the following competitive
strengths:
Proven Management Team with Significant Industry and Operational
Experience. Woods is operated under the leadership of Thomas J. Laird. Mr.
Laird joined Woods in 1993 and has over 25 years of manufacturing, marketing
and general management experience, including 21 years of experience at General
Electric Company. The eight member senior management team assembled at Woods by
Mr. Laird has over 150 years of combined manufacturing and industry experience
from world-class manufacturing companies, including GE, New Holland, Newell,
IBM and Kubota. Since 1993, Woods' management team has transformed Woods from a
manufacturer of niche agricultural and landscaping products into a leading,
diversified
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attachments manufacturer through the successful introduction of new products
and implementation of a
strategic acquisition program. We also expect to benefit from the significant
operational experience of the management teams of TISCO and Central
Fabricators. Our management team currently owns approximately 8% of our common
stock.
Strong Operational Focus. Woods' management is focused on improving
profitability through a Total Cost Productivity program designed to achieve
continuous productivity gains, shorten manufacturing lead times and reduce
costs and inventory levels. In 1995, as part of the Total Cost Productivity
program, Woods began to implement continuous flow manufacturing and total
quality management techniques at certain of its manufacturing facilities. To
date, Woods has implemented continuous flow manufacturing and total quality
management at three of its facilities. As a result of these techniques, Woods
has successfully decreased its overall working capital requirements by
increasing inventory turnover from 2.6 times in 1993 to 5.3 times in 1998 and
reducing order-to-delivery times from 35 days to 16 days over the same period.
While the implementation costs and realizable savings from continuous flow
manufacturing and total quality management will vary from plant-to-plant, at
its Sioux Falls facility, which generated approximately $12.9 million in net
sales in 1998, Woods has permanently reduced its manufacturing and operating
costs by $1.5 million per year, increased sales per employee three-fold to
$119,000, increased inventory turns from 1.4 times to 5.7 times per year and
reduced required square footage by approximately 23%.
Extensive Distribution Network. Our extensive dealer network provides
geographical and customer diversification and facilitates the successful
introduction of new products and the cross-selling of acquired product lines.
Our distribution network includes dealers that have affiliations with all the
principal original equipment manufacturers of prime movers, such as New
Holland, Deere, Case, AGCO, Ingersoll-Rand, which is the manufacturer of the
Bobcat brand of skid steer, Caterpillar and Kubota, as well as a number of
independent dealers. As an independent attachments manufacturer, we believe
that we are able to distribute our products through a larger network of dealers
than our prime mover original equipment manufacturers competitors, which are
generally restricted from distributing their products through other original
equipment manufacturer-affiliated dealers.
Strong Brand Recognition and Product Breadth. Woods' well-known brands
include Woods(R), Wain-Roy(R), Gannon(R), Alloway(R) and Gill(R). Management
believes that Woods has the most comprehensive product line of tractor-mounted
attachments in the industry with 24 product categories. Our recent acquisitions
have provided us with a number of additional well-known brands, including
Central Fabricators(R), Tru-Part(R), TRU-POWER(R), TISCO(R) and CALCO(R). In
addition, the acquisition of TISCO has provided us with a new platform in the
replacement parts business for tractors.
Versatile Mounting Systems. Woods has developed a large number of mounting
systems that enable their products to be attached to all of the major brands of
prime movers. For example, Woods' mounting systems enable its front end loaders
to be attached to approximately 317 tractor models and its backhoes to be
attached to 243 tractor models. In addition, these mounting systems permit
Woods' products to be attached to several types of prime movers. For example,
Woods' Groundbreaker(R) backhoe can be attached to a compact tractor, a skid
steer or trencher using different mounting systems. We believe that these
mounting systems create customer loyalty as end-users are reluctant to purchase
attachments from other manufacturers because doing so would also require the
purchase of a new mounting system at an additional cost. In addition, through
its acquisition of Wain-Roy, Woods gained access to Wain-Roy(R)'s unique
coupler system, which enables users to quickly and safely change attachments to
large excavators or tractor loader backhoes without leaving the cab of the
prime mover.
Successful New Product Introductions. Woods has a successful product
development record and a strong research and development team. Over the last
four years, Woods has made substantial investments to support new product
development, including the purchase of 3-D solid modeling and CAD-CAM systems
to facilitate product design and the implementation of finite element analysis
testing for proposed prototypes. Woods' 37 engineering professionals in design,
testing and new product support have introduced over 90 new
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products since 1993, which accounted for approximately $31.8 million, or 20.6%
of Woods' net sales in 1998. TISCO and Central Fabricators also have a history
of successful product introductions and Central Fabricators employs 9
professionals in its engineering department.
Acquisition Integration Capability. From 1993 to 1998, Woods' management
team has successfully integrated seven strategic acquisitions. With these
acquisitions, Woods has increased and leveraged its existing distribution
network, eliminated redundant corporate functions, increased sales and reduced
costs. For example, in connection with Woods' acquisition of Du-Al
Manufacturing Company in September 1993, Woods has almost tripled sales of Du-
Al's products and improved its EBITDA margin from 10.2% in 1993 to 16.1% in
1998. Over the last five years, Woods' management increased Woods' product
categories from 7 to 24 through new product introductions and strategic
acquisitions.
Growth Strategy
Our strategy is to increase market share and profitability through the
following initiatives:
Capitalize on the Anticipated Benefits of the Acquisitions. Management
believes that the combination of Woods, TISCO, Central Fabricators and the
Alitec Attachments Division will provide several strategic benefits, including:
. expanded product offerings;
. increased distribution capabilities and cross-selling opportunities;
. improved OEM relationships;
. anticipated cost savings; and
. leverage complementary technology.
In addition, TISCO's strategy will focus on three additional growth
initiatives:
. increasing sales directly to the end user through promotional marketing
and the Internet;
. focusing on the construction, grounds maintenance and roadside
maintenance markets, all of which are not currently served by TISCO; and
. relocating up to two additional distribution facilities to better serve
the U.S. market.
Continue to Implement Total Cost Productivity Initiatives. We intend to
continue to implement our Total Cost Productivity program in an effort to
become the lowest cost producer of attachments in each of our product
categories. Continuous flow manufacturing and total quality management are
important components of our strategy to improve productivity, shorten
manufacturing lead times and reduce costs and inventory levels. Woods has
successfully introduced continuous flow manufacturing and total quality
management at certain of its facilities, which has increased inventory turnover
from 2.6 times in 1993 to 5.3 times in 1998 and reduced order-to-delivery times
from 35 days to 16 days over the same period. Management expects that
continuous flow manufacturing and total quality management will be implemented
at the acquired facilities over the next 12 to 18 months and that all of our
facilities will be utilizing these techniques by 2001.
Develop New and Enhance Existing Products. Management believes it can
continue to generate internal growth and increase our overall market share
through product innovation and new product development. We work closely with
dealers and customers to identify customer needs and product opportunities.
Management believes that our engineering department of 46 professionals
provides us with the design, product development and technical expertise needed
to continue to successfully introduce new products and product improvements.
Woods expects to introduce several new products in the next 12 to 18 months,
including a completely re-engineered line of front end loaders, a new patented
coupler system and a new line of construction buckets. TISCO typically
introduces over 1,000 new and replacement products each year to its replacement
parts product offering.
Increase Depth of Product Penetration at Dealers. Woods is currently in the
process of reducing the size of its dealer network from approximately 4,000 to
under 3,000. The remaining dealers will represent those with greater than
$25,000 in annual sales of Woods' products. We believe our remaining dealers
will carry
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more of our products because they will be the predominant Woods dealer in their
county and we will be able to provide them with additional marketing and
logistical support. In addition, we should be able to achieve transportation
cost savings by increasing delivery sizes and reducing the number of absolute
deliveries. A similar dealer rationalization initiative is also under way at
TISCO, in addition to its focus on other emerging distribution channels, such
as the Internet and national farm supply retailers.
Acquire Complementary Businesses. Management believes that it can continue
to expand our product offerings, further expand our dealer network and
supplement our internal growth through strategic acquisitions. In pursuing our
acquisition strategy, we intend to focus our efforts on acquiring businesses
with product lines that can be sold through our extensive dealer network.
Management believes that the highly fragmented nature of the U.S. attachments
industry provides a favorable environment for such acquisitions and the
continued success of our consolidation efforts. Additionally, with the TISCO
acquisition we will have a new operating platform in the $8 billion capital
equipment replacement parts market, which, like the attachments market, is
highly fragmented.
Industry Overview
The attachments industry generally encompasses products used in a broad
range of residential, commercial, industrial, governmental and agricultural
applications to enable end users to significantly enhance the productivity and
flexibility of their prime movers, which include tractors, excavators, tractor
loader backhoes and skid steers. These products are attached to prime movers in
order to complete a variety of applications including mowing, cutting,
clearing, material handling and landscaping as well as the preparation of
ground surfaces for the agricultural and construction industries. While their
respective life cycles vary, attachments tend to be used as consumables with a
usable life of approximately one to five years due to the severe and wearing
nature of the applications for which they are used. Attachments are used by a
wide variety of end-users, including construction companies and contractors,
utility contractors, landscaping and groundscare companies, farmers, ranchers,
homeowners and governmental agencies.
Our products are sold to end-users located primarily in the United States.
The attachments market in the United States is very large and fragmented. We
believe the U.S. attachments market had sales in excess of $4.0 billion in 1998
and historically has grown at a rate of 2% to 4% annually. We believe that the
U.S. market for replacement parts for capital equipment was approximately $8
billion in 1998. For the most part, the U.S. attachments and replacement parts
market are comprised of several hundred small, regional manufacturers and
distributors that offer a limited number of products as well as a small number
of national and international companies that offer a broad range of products.
In recent years, there has been a trend towards consolidation among attachments
manufacturers and parts suppliers in order to achieve operating efficiencies
and to better serve the needs of their end-users. Similarly, there has been
significant consolidation among attachment dealers, who are increasingly
seeking suppliers, such as Woods, who are able to offer broad product lines,
innovative products, national distribution capabilities and reliable service.
The market for our products can generally be divided into six categories
delineated by the end-use of the product. The following table identifies these
end-use categories as well as the percentage of net sales in 1998 to each
category by Woods, TISCO, Central Fabricators, the Alitec Attachments Division
and Woods on a pro forma basis:
<TABLE>
<CAPTION>
Fiscal Year 1998
-------------------------------------------
Alitec
Central Attachments Pro
Description of End-Use Woods TISCO Fabricators Division Forma
---------------------- ----- ----- ----------- ----------- -----
<S> <C> <C> <C> <C> <C>
Replacement parts.............. 13.9% 100.0% 8.7% 1.0% 35.8%
Construction and utility....... 21.3 -- 91.3 99.0% 24.8%
Grounds maintenance............ 29.9 -- -- -- 18.2%
General purpose maintenance
(agricultural)................ 17.3 -- -- -- 10.5%
Roadside maintenance (primarily
governmental)................. 13.7 -- -- -- 8.3%
Specialty agricultural......... 3.9 -- -- -- 2.4%
----- ----- ----- ----- -----
Total........................ 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
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<PAGE>
Set forth below is a brief overview of each of these product categories and
the factors which we believe generally influence the demand for such products.
Replacement Parts. Replacement parts are sold to end-users across all of our
other product categories. A significant portion of our existing replacement
parts are sold to end-users in the roadside maintenance market due to the
intensive use of such attachments. TISCO's replacement parts are predominantly
sold for use on tractors, and they provide a platform for Woods to enter the $8
billion market for capital equipment replacement parts in the United States.
Approximately 55% of this market is currently served by original equipment
manufacturers, with the remainder being served by co-operative organizations
and companies similar to TISCO who specialize in replacement parts. Demand for
replacement parts is generally not subject to significant fluctuations due to
the required nature of their uses and the low average cost as compared to the
total cost of a prime mover.
Construction and Utility. The end-users in this product category generally
include construction companies and utility contractors. Demand for these
products is closely correlated to the overall demand for construction
equipment, which is driven by several factors, including general economic
conditions, interest rates, weather conditions and governmental spending. The
construction industry has exhibited strong growth in recent years in response
to a strong overall economy and a relatively favorable interest rate
environment. Since 1992, the total domestic construction machinery market has
increased at a compound annual growth rate of 6.6% annually to an estimated
$568 billion in 1998. This market is also expected to benefit from the recently
enacted Transportation Equity Act, which appropriates $216 billion over the
next six years to finance the repair and new construction of roads, mass
transit, bridges, bike paths and other infrastructure in the United States. The
Transportation Equity Act increases national construction spending by
approximately 44% from current levels over the next six years. The acquisition
of Central Fabricators increases our presence in the U.S. excavator bucket
market, which in 1998 totaled approximately 17,500 units, almost double from
8,900 units sold in 1993.
Grounds Maintenance. This product category includes attachments used to
maintain the grounds surrounding industrial and office parks, large estates,
resort complexes, universities, golf courses and individual homes. In general,
the demand for these products is dependent upon a variety of conditions,
including general economic conditions, consumer spending patterns, weather
conditions as well as state and municipal government spending. In recent years,
the overall demand for these products has increased due to the increasing
number of second and larger homes, and the growth in disposable income, dual
career households and the outsourcing of traditional domestic tasks. Domestic
shipments of grounds and turf equipment, as measured by the U.S. Census Bureau,
have grown at a compound annual growth rate of 5.1% since 1990 to $20.7 billion
in 1997.
General Purpose Maintenance. The end-users in this product category are
predominantly farmers and ranchers, who use these products for applications
associated with general maintenance activities, including mowing, material
handling and optimizing the productivity of their land. Unlike the demand for
the speciality agricultural products, which is influenced by the conditions in
the agricultural industry, the demand for attachments used for general purpose
maintenance, such as rotary cutters, backhoes, front end loaders and post hole
diggers, tends not to be directly influenced by this industry due to the type
of applications for which these products are used. We believe that farmers and
ranchers continue to purchase these types of products regardless of the
conditions in the agricultural industry due to the importance of maintaining
the productivity of their land.
Roadside Maintenance. The end-users in this product category are
predominantly federal, state and local government agencies in the United
States. In general, demand for roadside maintenance attachments is strongly
influenced by overall levels of governmental spending.
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<PAGE>
Specialty Agricultural. The end-users in this product category are
predominantly farmers and ranchers, who use these products principally in the
planting, cultivating and harvesting of their crops. The demand for these
products closely correlates to the demand for agricultural equipment in
general, which is influenced by a number of factors, including total farm cash
receipts, acreage under crop or livestock, crop yields, government programs,
general economic conditions, interest rates, weather and technological trends
in agriculture.
When compared to prime mover original equipment manufacturers, we believe
that the overall demand for our products is relatively stable and is not
dependent to any significant degree on the business cycle of any single
industry. We attribute this relative stability to:
. the diversity and balance of the end-users and applications of our
products;
. the required maintenance and ground engaging nature of our product
applications, which limits the end-user's ability to defer purchases and
encourages ongoing replacement;
. our large and geographically diverse customer base;
. the relative low cost of our products as compared to the cost of a prime
mover; and
. our significant replacement parts business.
Background
Woods is a successor to a business founded in 1947. Parent and WEC were
organized in January 1993 for the purpose of acquiring substantially all of the
assets and business of the Woods Division of Fiatallis North America, Inc. From
1993 to 1998, Woods has successfully completed and fully integrated seven
strategic acquisitions:
Du-AL Manufacturing. In September 1993, Woods acquired the assets and
business of Du-Al Manufacturing Company for approximately $6.4 million and the
assumption of certain liabilities. Du-Al was a manufacturer of tractor-mounted
front end loaders. Through the acquisition of Du-Al, Woods expanded its product
offerings and dealer network in the upper Midwest and achieved significant cost
savings and efficiencies by consolidating Du-Al's sales force, customer
service, marketing, employee benefits and certain manufacturing activities in
Woods' headquarters.
Gannon Manufacturing. In July 1994, Woods acquired Gannon Manufacturing Co.
for approximately $12.8 million. Gannon was a manufacturer of scrapers, pin-on
backhoe buckets, excavator buckets and multi-purpose loader buckets. The
acquisition of Gannon expanded Woods' product offerings by adding products used
primarily in construction applications and strengthened its dealer network in
the western and southwestern regions of the United States.
Alloway Manufacturing. In November 1994, Woods acquired Alloway
Manufacturing Co. for approximately $8.7 million. Alloway was a manufacturer of
tractor-mounted flail shredders, cultivators, sugar beet defoliators and snow
blowers. The acquisition of Alloway:
. added flail cutting technology to complement Woods' rotary cutter
technology;
. further broadened Woods' product offerings by adding speciality
agricultural products; and
. expanded Woods' dealer network to include dealers focused on the
speciality agricultural market.
Gill Manufacturing. In July 1995, Woods acquired Gill Manufacturing Co.,
L.P. for approximately $3.0 million. Gill was a manufacturer of landscape
blades, scrapers, pulverizers, turf renovators, construction backhoes and skid
steer buckets for landscaping applications. The acquisition of Gill:
. added turf products to Woods' product offerings;
. strengthened Woods' dealer network in the southeastern region of the
United States; and
. added a manufacturing facility located in the eastern portion of the
United States.
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<PAGE>
Beetec. In June 1996, Woods acquired Beetec L.L.C. for approximately
$600,000. Beetec was a manufacturer of sugar beet harvesters and folding sugar
beet defoliators. The acquisition of Beetec expanded Woods' sugar beet product
offerings.
Baerts Metal Products. In April 1997, Woods acquired Baerts Metal Products,
Inc. for approximately $3.0 million. Baerts was a manufacturer of heavy duty
excavator buckets, hydraulic thumbs, grapples and compactors. The acquisition
of Baerts further broadened Woods' product line and strengthened Woods' dealer
network in the Pacific Northwest.
Wain-Roy. In October 1997, Woods acquired Wain-Roy, Inc. for approximately
$19.2 million. Wain-Roy manufactures a unique coupler system, grapples and jaw
and ripper buckets designed for use on heavy construction equipment. The
acquisition of Wain-Roy expanded Woods' product offerings by adding heavy duty
jaw and ripper buckets, added complementary coupler technology and strengthened
Woods' dealer network by adding a significant number of construction dealers.
Recent Acquisitions
In July 1999, Woods acquired TISCO, Central Fabricators and the Alitec
Attachments Division. A brief description of each of these businesses is set
forth below:
TISCO
TISCO is one of the largest independent distributors of agricultural
equipment replacement parts in the United States. TISCO provides replacement
parts to tractor and farm equipment end users through retail farm equipment
dealers and OEM brands, including Allis Chalmers, Case, John Deere, Ford,
International Harvester, Massey Ferguson, New Holland and all the brands
associated with AGCO. TISCO has been operating since 1937 and has developed a
strong reputation for integrity, high quality products and exceptional service.
Many of TISCO's dealers have been customers for more than 40 years. TISCO
focuses primarily on tractors, combines and other farm equipment that are ten
years old or older because that is the primary usage period for replacement
parts. TISCO is headquartered in St. Paul, Minnesota and operates five
distribution centers across the U.S. During the twelve months ended May 21,
1999, TISCO had approximately $65.0 million in net sales and was purchased for
approximately $37.2 million in cash plus noncompete payments of an aggregate of
$0.5 million to its former owners to be made on a quarterly basis over a two
year period.
TISCO maintains an inventory of approximately 24,000 stock keeping units and
introduces approximately 1,000 new and replacement stock keeping units each
year. Currently, most major tractor OEMs provide a five year warranty on their
new tractors and combines. As a result, TISCO does not introduce replacement
parts for models that are still under warranty. TISCO focuses on providing
replacement parts for tractors with less than 100 horsepower. Tractor models
over 10 years old tend not to be a core focus of the major tractor original
equipment manufacturers and as a result these markets are highly fragmented.
TISCO presently serves approximately 9,500 dealers in the United States, of
which 40% are affiliated with one of the four major tractor original equipment
manufacturers, Deere, Case, New Holland and AGCO, and 60% are independent
dealers selling non-major brand tractors and/or attachments, replacement parts
and doing farm machinery repair work.
TISCO's practice is to ship orders the same day as received. TISCO supports
its business with 54 territory managers who live in selected territories across
the U.S. and service dealers in their geographic territories. TISCO also has a
telemarketing support system and can accept dealer orders by fax and via the
Internet. In addition, TISCO has a five-man technical assistance center that
provides advice at no charge to the dealer customers.
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<PAGE>
TISCO does not manufacture its products. Instead, its products are
manufactured and supplied by numerous third party manufacturers predominantly
in North America and Asia. During the last twelve months ending May 21, 1999,
no one supplier produced more than 3% of all the stock keeping units sold by
TISCO.
Central Fabricators
Central Fabricators, headquartered in Schofield, Wisconsin and founded in
1967, is one of the leading manufacturers of pin-on excavator buckets for the
U.S. construction industry. During the last twelve months ending June 30, 1999,
Central Fabricators had approximately $22.4 million in sales and was purchased
for approximately $29.3 million in cash, including the noncompete payments of
$0.6 million.
Central Fabricators sells predominantly excavator buckets with an average
retail cost of approximately $3,350. Approximately 54% of these buckets are
sold to OEMs, with the remainder being sold to dealers. Sales are administered
through telemarketing and all products are manufactured at three facilities
located in Wisconsin. Like Woods, Central Fabricators has focused on reducing
its order-to-delivery times, which are currently approximately 12 days.
Management believes that its low order-to-delivery time is a competitive
advantage.
Alitec Attachments Division
Alitec, headquartered in Brownsburg, Indiana and founded in 1987, is a
manufacturer of patented hydraulic powered attachments for the rapidly growing
U.S. skid steer market. During the last twelve months ended June 30, 1999, the
Alitec Attachments Division had approximately $9.1 million in sales and was
purchased for approximately $11 million in cash. Approximately 55,000 skid
steers were sold in the United States in 1998, up 16.5% per annum since 1992.
The acquisition of Alitec provided us with a substantially larger range of skid
steer attachments. Alitec's skid steer attachments include cold planers,
vibratory rollers, augers, stump grinders, rock wheels and tillers.
Substantially all of Alitec's attachments center around complex hydraulic
products that are used in ground engaging applications. Due to the complexity
of these products and the various patents protecting their design, we believe
that there are few competitors to Alitec's products.
Products and Applications
We sell our products under a variety of well-recognized brand names. The
following table lists our brands used in each of the end-user categories we
serve. Brand names that appear in bold are those that were acquired by Woods as
a result of the Acquisitions.
<TABLE>
<CAPTION>
Description of End-Use Brand Names Representative End Users
- ---------------------- ------------------------------ ------------------------------
<S> <C> <C>
Replacement Parts TISCO(R), Tru-Part(R), All of the other end-users
TRU-POWER(R), CALCO(R), listed in this table.
WoodsCare(R), all of the other
brands listed in this table
Construction and Utility Woods(R), Gannon(R), Wain- General and construction
Roy(R), GannonBMP, Central contractors, utility
Fabricators(R) companies, government
contractors and industrial
manufacturing companies.
Grounds Maintenance Woods(R), Gill(R), Alloway(R) Homeowners, landscape and
mowing contractors, building
and snow removal contractors,
sod farms, cemeteries and golf
courses.
General Purpose Woods(R), Alloway(R) Farmers and ranchers for
Maintenance general ground maintenance
purposes.
Roadside Maintenance Woods(R) State and local governments,
landscape and mowing
contractors and building and
snow removal contractors.
Specialty Agricultural Woods(R), Alloway(R) Farmers and ranchers.
</TABLE>
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<PAGE>
Woods organizes its operations according to its product lines, enabling it
to focus a team of engineering, manufacturing, marketing and sales personnel on
each component of its business. The product lines primarily consist of
different types of attachments for prime movers manufactured by various
original equipment manufacturers. These product lines can generally be grouped
into the following general categories: replacement parts, buckets, finish
mowers, flail mowers and rotary cutters, backhoes, front end loaders,
agricultural equipment, couplers, parts and other products.
The following table sets forth the percentage of sales derived from the sale
of certain product lines in fiscal 1998:
Percentage of Sales by Product Line
<TABLE>
<CAPTION>
Fiscal Year 1998
-----------------------------------------------
Alitec
Central Attachments
Product line Woods TISCO Fabricators Division Pro Forma
------------ ----- ----- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Replacement Parts........... 13.9% 100.0% 9.6% 1.0% 35.8%
Buckets..................... 18.4 -- 90.4 -- 19.4%
Finish Mowers............... 20.4 -- -- -- 12.5%
Rotary Cutters and Flail
Mowers..................... 16.5 -- -- -- 10.0%
Backhoes.................... 9.6 -- -- -- 5.9%
Front End Loaders........... 8.3 -- -- -- 5.1%
Agricultural Equipment...... 2.6 -- -- -- 1.5%
Couplers.................... 2.5 -- -- -- 1.5%
Other....................... 7.8 -- -- 99.0% 8.3%
----- ----- ----- ----- ------
Total..................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ======
</TABLE>
Set forth below is a brief description of each of Woods' principal product
lines:
Replacement Parts
Historically, Woods replacement parts complemented its attachments business
and have represented a source of consistent revenues and profits. For 1998,
approximately 30% of Woods' replacement part sales were for its own products,
including parts manufactured by Woods and parts manufactured to Woods'
specifications by other manufacturers of replacement parts. Replacement parts
and accessories are typically more profitable than sales of new equipment.
Following the acquisition of TISCO, we will become a distributor of over
24,000 different replacement parts for tractors, usually over 10 years old.
TISCO products are focused on high-wear components and TISCO provides a full
range of replacement parts for brand name tractors such as Allis Chalmers, John
Deere, Ford, Massey Ferguson, New Holland and White.
Buckets
Woods' bucket line includes material handling units for tractor loader
backhoes, excavators and skid steers. This product line also includes
attachments with related designs, such as jaws, rippers, industrial scrapers
and certain multi-purpose attachments. The Gannon(R) line of attachments is
focused on the smaller construction applications. The GannonBMP line and the
Central Fabricators line are focused on hydraulic excavators and includes
heavy-duty excavator buckets, bucket clamps and excavator mounted compaction
equipment.
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Finish Mowers
Finish mowers are used when a high-quality cut is desired. Our finish mower
product line includes rearmount and undermount mowers as well as Turf-
Batwings(R) and the Mow'n Machine line of riding mowers.
. Rearmount mowers feature a hitch that allows the mower to be easily
attached to and detached from the rear of a tractor. We offer both belt
and gear drive versions of rearmount mowers, which feature heavy-duty
gearboxes and industrial grade blade spindles.
. Undermount mowers are mounted beneath the tractor, between the front and
rear wheels. In general, undermount mowers provide a better quality cut
than rearmount mowers because the cutting occurs before the large rear
wheels of the tractor have traveled over the grass. We offer over 200
different mountings which allow its undermount mowers to be used on most
new and used compact tractors. We believe we are one of the only
manufacturers to offer a broad line of replacement undermount mowers that
can be attached to tractors that are out of production.
. Turf-Batwing(R) is a line of gang mowers, which consist of three
rearmount mowers connected with a flexible frame, which will cut a swath
ranging from twelve to seventeen feet. The flexible frame of the Turf-
Batwing(R) mowers assures uniform mowing on both rolling and level
terrain. The Turf-Batwing(R) gang mowers are designed to mow large areas
requiring a high-quality cut.
. Mow'n Machine riding mowers are a line of premium, self-propelled, zero-
turn radius riding mowers sold under the tradename Mow'n Machine. These
highly maneuverable, rear-engine riding mowers provide a manicured cut
and, unlike our attachment products, are self-propelled units with a
gasoline or diesel engine. We currently offer nine models of the Mow'n
Machine, all of which are manufactured under contract for us by an
unrelated third party. We also sell a line of accessories for the Mow'n
Machine, including mulching decks, sweepers, snow blowers and snowplows,
all of which are manufactured for us by unrelated third parties. See "--
Suppliers."
Rotary Cutters and Flail Mowers
Rotary Cutters. Rotary cutters are typically used in high-volume
applications where the finish of the cut is relatively unimportant. Rotary
cutters use fixed or free-swinging blades that are attached to a horizontal,
rotating blade carrier. Rotary cutters are more popular than other types of
tractor-mounted cutters, and are generally less expensive to maintain than
flail mowers. Cutting widths range from four to twenty feet on mechanical
rotary cutters and from five to fifteen feet on hydraulic cutters. We
manufacture four principal types of rotary cutters: Batwing(R), single spindle,
multi-spindle and ditchbank rotary cutters.
. Batwing(R) mowers are large rotary cutters featuring a central cutting
section and two hinged wing sections with overall cutting widths of ten
to twenty feet. The hinged wing sections on the Batwing(R) cutters enable
the housing to flex, assuring uniform mowing on both rolling and level
terrain and enabling the end-user to transport the cutter more easily on
highways. During use, the Batwing(R) utilizes constant velocity
drivelines and gearboxes to maintain a constant horsepower rating for
uniform clearing of brush up to 3 1/2 inches in diameter.
. Single spindle rotary cutters have one pair of blades, feature heavy-duty
gear drives, and can clear light vegetation.
. Multi-spindle cutters have two or three pairs of blades and are generally
designed for large area mowing and clearing, such as industrial parks,
airports, agricultural fields, pastures and orchards.
. Ditchbank rotary cutters are designed to maintain roadside ditches,
drainage ditches, catfish farms and difficult to access road shoulders.
These cutters can be angled off the side of a prime mover from 90 degrees
straight up an embankment to 90 degrees straight down a ditch. Ditchbank
cutters feature belt, mechanical or hydraulic drives and can be attached
to the three point hitch of a tractor.
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<PAGE>
Flail Mowers. Most flail mowers are purchased for use in high-volume,
intensive-use mowing applications. Flail mowers have a rotor shaft parallel to
the ground which has multiple sets of blades attached in a free swinging
manner. As the rotor shaft turns, the cutting blades rotate perpendicular to
the cutting surface delivering a consistent fine cut. The design of a flail
mower generally makes it more expensive to purchase and maintain than a rotary
mower. End-users of flail mowers prefer them because they deliver a finer cut,
distribute cuttings more evenly and have superior mulching action. In addition,
the perpendicular cutting motion of the flail mower deflects debris in a
mulching action making it generally safer than other types of mowers and thus
more popular for use in urban and congested areas. Mechanical flail mowers are
sold with cutting widths of between three and eight feet and hydraulic flail
mowers are sold with cutting widths of between four and twenty-one feet.
Backhoes
Our line of hydraulic backhoes are used in numerous applications, including
light construction and general grounds maintenance. Our backhoes can be
attached to approximately 243 of the models of tractors manufactured since
1990. Several of our backhoes can also be attached to skid steers.
Front End Loaders
We offer a line of twelve different models of tractor-mounted front end
loaders designed for tractors ranging from 11 to 200 horsepower. Loaders are
used in a wide range of applications, including farmstead maintenance,
landscaping, snow removal, care of livestock and other general grounds
maintenance. We offer approximately 317 mounting systems which enables its
loaders to be attached to a majority of the tractors manufactured since 1990,
including models produced by all major original equipment manufacturers. We
also manufacture mountings systems for numerous tractor models that are out-of-
production, while original equipment manufacturers generally do not offer
mounting systems for out-of-production tractors.
Agricultural Equipment
We design, manufacture and sell a broad line of tractor-mounted equipment to
serve the needs of the sugar beet industry, including a precise, narrow-row
cultivator, two types of sugar beet defoliators (rigid and folding), which
remove the vegetation from the beet prior to harvest, and a sugar beet
harvester.
Couplers
This product line includes backhoe couplers, excavator couplers, swingers
and hydraulic clamps, or "thumbs." These attachments, which are sold under the
Gannon(R), GannonBMP and Wain-Roy(R) brand names, are useful for a variety of
applications, including forestry and debris clearing. With the acquisition of
Wain-Roy in October 1997, we expanded this product line to include an
innovative coupler system that utilizes a "quick change" tool hitch. Recent
refinements of this coupler system allow the changing of buckets, jaws,
grapples and other attachments without requiring the operator to leave the cab
of the prime mover.
Other Products
In addition to the product lines mentioned above, we also produce industrial
grading scrapers, landscape rakes, tillers and other tillage attachments,
snowblowers, post hole diggers, box blades and other attachment products.
Customers
We market and distribute our products to end-users through one of the
attachments industry's largest dealer networks in the United States. We believe
that our national dealer network provides an efficient platform through which
we can expand the distribution of products from acquired regional attachment
manufacturers. Additionally, we believe that our dealer network provides a
significant competitive advantage by allowing us to support a large direct
factory sales force, effective marketing programs and a highly trained staff of
dealer service representatives. Management is committed to strengthening its
relationships with dealers through continued sales and aftermarket support and
by offering a broader product line resulting from new product introductions and
strategic acquisitions.
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<PAGE>
Unlike many of our smaller competitors, we are not dependent upon any one
geographic area. Management expects that our sales base will become even more
geographically diverse as we continue to diversify our product offering through
new product introductions and additional strategic acquisitions. Currently, we
sell our products into eight major geographic regions in the United States. The
following table identifies each of these geographic regions as well as the
percentage of net sales in 1998 to each region by Woods, TISCO, Central
Fabricators and Woods on a pro forma basis:
Percent of Sales by Geographic Region
<TABLE>
<CAPTION>
Fiscal Year 1998 (1)
-----------------------------------
Central
Region Woods TISCO Fabricators Pro Forma
- ------ ----- ----- ----------- ---------
<S> <C> <C> <C> <C>
Northeast................................... 16.5% 7.5% -- % 13.3%
Southeast................................... 12.7 13.4 16.5 13.1
South Central............................... 12.5 14.6 11.3 13.0
Lakes....................................... 16.3 12.0 16.5 15.1
Upper Mid West.............................. 8.2 9.5 22.0 9.1
Central Mid West............................ 11.6 12.0 11.0 11.7
Southern Mid West........................... 9.5 15.0 8.5 11.0
West........................................ 12.7 16.0 14.2 13.7
----- ----- ----- -----
Total..................................... 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
</TABLE>
- --------
(1) Due to the large percentage of sales made by the Alitec Attachments
Division to original equipment manufacturers, it is not meaningful to
segment its sales by geographic region.
Attachments are sold primarily by construction, commercial, agricultural and
outdoor power equipment dealers that sell prime movers and other equipment
produced by the major original equipment manufacturers. Our distribution
network includes dealers that have affiliations with all of the principal
original equipment manufacturers of prime movers, such as New Holland, Deere,
Case, AGCO, which manufactures the Massey Ferguson brand of prime mover,
Ingersoll, which manufactures the Bobcat brand of skid steer, Caterpillar and
Kubota. We also sell our products through a substantial number of independent
dealers that are not affiliated with the major original equipment manufacturers
of prime movers. Most dealers offer tractor and prime mover attachments from
independent manufacturers which complement or compete with attachments sold by
the major tractor and prime mover manufacturers. In most cases, dealers also
offer products manufactured by our competitors.
We support our dealers' efforts with national, regional and local
advertising and participation in approximately a dozen major trade shows and
exhibits annually in the United States. We advertise in trade journals and
provide our dealers with sales support literature and other point-of-purchase
material, in addition to running various merchandising and sales promotion
programs. Dealers often jointly participate in regional and local advertising
and sales promotion programs that we organize.
As a result of the acquisition of Central Fabricators, we also sell our
products directly to original equipment manufacturers. During 1998, original
equipment manufacturers accounted for approximately 54% of Central Fabricators'
net sales.
There has been significant consolidation among attachment dealers over the
last several decades. Management believes that the consolidation among dealers
is a favorable trend for Woods as it looks to focus its sales efforts on the
largest dealers. Larger dealers prefer a relationship with national attachment
manufacturers that offer the benefits of brand identity, volume discounts,
geographic coverage, warranty services and rapid delivery. We are well
positioned to capitalize on this trend with our superior service, high order
fill rates, quick delivery and brand strength, in conjunction with our ability
to offer a broad range of products.
Our sales are not dependent on any customer, specific dealer or group of
dealers. Woods' top 20 customers accounted for 14% of its net sales for 1998
with no single dealer accounting for more than 3% of net sales.
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<PAGE>
TISCO's top 20 customers accounted for approximately 10% of its net sales for
1998 with no single dealer accounting for more than 0.3% of net sales. Central
Fabricators' top 20 customers accounted for approximately 17% of its net sales
for 1998 with no single dealer accounting for more than 3% of net sales.
We sell our attachments to original equipment manufacturers based on a net
price and to dealers based on a list price. Dealers may qualify for various
levels of trade discounts to the list price depending upon the dollar volume of
their purchases and the timing of their payment. In order to moderate the
seasonality of our sales, we offer pre-season sales programs to dealers which
provide for discounts on attachments purchased during off-season periods. We
also offer cash discounts as part of these programs to encourage dealers to
accelerate payment for its attachments. We do not provide our dealers with
floor financing or return privileges.
Competition
The attachment and replacement parts industries are highly competitive. Our
products are sold in markets where the principal competitive factors are price,
quality, service, brand name and product availability. We compete with the
major original equipment manufacturers of prime movers as well as with several
hundred companies producing one or more models of attachments. Some of these
competitors are significantly larger than us and have substantially greater
financial and other resources at their disposal. As an independent attachments
manufacturer, we believe that we are able to distribute our products through a
larger network of dealers than if we were a prime mover OEM, which are
generally restricted from distributing their products through other OEM-
affiliated dealers. Our principal competitors in the attachments market are
Alamo Group Inc., Bush Hog, which is a division of Allied Products Corporation,
Land Pride, which is a division of Great Plains Manufacturing Company, and
Deere. Within the replacement parts markets, TISCO is one of the largest
independent distributors in the United States. Other independent competitors
include Heschel-Adams, SMA, Riverside, Shoup and Hy-Capacity.
We believe that our ability to compete successfully in our markets is a
result of containing our manufacturing costs, reducing shipping times to our
dealers, offering high quality products, focusing purely on the attachment and
replacement parts markets and designing and developing innovative products.
Product Development and Engineering
Management believes that its ability to provide innovative responses to
customer needs, to continue developing and manufacturing new products and to
enhance its existing product lines is critical to our success. Consequently,
our sales and design teams work closely with dealers and customers to identify
customer needs and product opportunities. Once a new product opportunity is
identified, our sales, marketing, engineering and manufacturing departments
work together during the design, engineering and development process to ensure
that new products meet both customer needs and our own internal rate of return
thresholds.
Woods develops all of its products to be compatible with the latest tractor
designs and uses a sophisticated 3-D solid modeling CAD-CAM engineering and
design system, extensive field testing and the evaluation of competitors'
products to validate new products.
Over the last three years, Woods expended approximately $10 million on
engineering, research and new product development. Woods currently has 37
engineers in its facilities working on product design, prototype development,
product testing and new product research. Since 1993, Woods introduced over 90
new products, including a new line of Batwing(R) cutters, a skid steer
attachment product line, a line of rear discharge mowers and the
Groundbreaker(R) line of backhoes.
Central Fabricators currently employs approximately 9 engineers in product
development.
Total Cost Productivity Program
In 1995, management began Woods' Total Cost Productivity program,
implementing continuous flow manufacturing and total quality management
techniques at certain of Woods' manufacturing facilities. In
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<PAGE>
connection with this program, Woods has focused on reducing its order-to-
delivery schedule, as well as improving quality, reducing production costs and
inventory levels, improving environmental, health and safety and enhancing
plant profitability and flexibility through a more efficient plant layout.
Woods has significantly improved its manufacturing efficiency by focusing on
its core competencies within each facility, which include fabricating, welding,
assembling and painting, and changing its manufacturing techniques.
Woods invested $2.0 million to complete the transformation of the Sioux
Falls, South Dakota facility to continuous flow manufacturing and total quality
management. While the implementation costs and realizable savings from
continuous flow manufacturing and total quality management will vary from
plant-to-plant, at this facility, which generated approximately $12.9 million
in net sales in 1998, Woods has permanently reduced its manufacturing and
operating costs by $1.5 million per year, increased sales per employee three-
fold to $119,000, increased inventory turns from 1.4 times in 1994 to 5.7 times
per year in 1998 and reduced required square footage by approximately 23%.
Continuous flow manufacturing and total quality management techniques were
introduced at Woods' Oregon, Illinois facility in 1996 and were substantially
completed by the end of 1998. Continuous flow manufacturing and total quality
management initiatives at Woods' facilities in La Mirada, California and
Charlotte, North Carolina were started in 1997 and should be substantially
completed in 1999. Woods' Hubbardston facility is scheduled to begin adopting
its Total Cost Productivity program in late 1999.
As a result of continuous flow manufacturing and total quality management
implementation to date, Woods has successfully decreased its overall working
capital requirements by increasing inventory turnover from 2.6 times per year
in 1993 to 5.3 times per year in 1998 and reducing order-to-delivery times from
35 days to 16 days over the same period. Management believes that the programs
used to achieve the results at its Sioux Falls, Oregon, La Mirada and Charlotte
facilities can be successfully employed at several of our other facilities,
particularly at the facilities of the acquired companies where Woods'
continuous flow manufacturing and total quality management techniques have yet
to be initiated. Even though continuous flow manufacturing initiatives have
been implemented at several facilities, Woods expects to realize additional
costs savings from the continued implementation of continuous flow
manufacturing.
Warranty
Woods generally provides dealers with limited one-year warranties. Dealers
typically provide warranty service for end-users pursuant to their own express
warranties and warranties implied by state law. The dealers are compensated by
us for warranty service provided to end-users based upon the nature of the
dealers' warranty claims against us. Woods' warranty expenses have averaged
approximately 0.9% of invoiced sales for 1995 to 1998. TISCO and Central
Fabricators' warranty expenses over the same period have averaged approximately
0% and 0.9% of invoiced sales, respectively.
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<PAGE>
Facilities
Our corporate headquarters are located in Rockford, Illinois. Information
regarding our manufacturing and distribution facilities is set forth below:
<TABLE>
<CAPTION>
Owned/ Square
Plant Location Company Products Manufactured Leased Feet
- -------------- ----------- ---------------------------- ------ -------
<S> <C> <C> <C> <C>
Manufacturing Facili-
ties:
La Mirada, CA........... Woods Buckets Owned 80,000
Oregon, IL.............. Woods Backhoes, Rear-mount Mowers Owned 420,000
and Batwing cutters
Gardner, MA(1).......... Woods Couplers and Buckets Leased 68,000
Hubbardston, MA(1)...... Woods Couplers and Buckets Owned 34,400
Charlotte, NC........... Woods Blades, Buckets and Leased 65,000
Landscape Equipment
Fargo, ND(2)............ Woods Flail Shredders, Row Crop Owned(3) 130,000
Cultivators, Beet Harvesters
and Defoliators and Snow
Blowers
Sioux Falls, SD......... Woods Loaders Owned 108,000
Seguin, TX.............. Woods Blades and Buckets Owned 65,000
Schofield, WI (3 loca- Central Buckets Leased 70,000
tions)................. Fabricators
Brownsburg, IN.......... Alitec Skid Steer Attachments Leased 65,000
Distribution Warehouses:
West St. Paul, MN....... TISCO NA Leased 47,270
West St. Paul, MN....... TISCO NA Leased 14,800
Sacramento, CA.......... TISCO NA Leased 43,200
Nashville, TN........... TISCO NA Leased 41,760
Dallas, TX.............. TISCO NA Leased 32,500
Richmond, VA............ TISCO NA Leased 25,600
</TABLE>
- --------
(1) The Gardner, Massachusetts facility is in the process of being
constructed. Woods has entered into a "build to suit" lease for the
facility, which is expected to be ready for occupancy by October 1999. At
that time, Woods expects to sell its Hubbardston facility.
(2) Capital expenditures at the Fargo, North Dakota facility are financed with
earnings from the joint venture and are therefore excluded from the
calculation of annual maintenance capital expenditures for Woods.
(3) The Fargo, North Dakota facility John is owned by Alloway Industries,
L.L.C., which is jointly owned on an equal basis by Woods and Deere.
All of our properties are pledged as collateral to secure our borrowings
under the senior credit facility. We believe that substantially all of our
properties and equipment all in good condition and that we have sufficient
capacity to meet our current manufacturing needs. Utilization of our
facilities varies depending on demand for the products produced at such
facility. Overall, we estimate that our facilities are operating at
approximately 70% capacity.
Patents and Trademarks
Woods owns numerous U.S. and foreign patents and have several applications
for patents pending. While we consider our patents to be advantageous to our
business, we do not believe our business is dependent on any single patent or
group of patents. Management believes that our trademarks are well known in
our markets, are valuable and are increasing in value with the development of
the business, but that the business is not
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<PAGE>
dependent on such trademarks. Woods owns United States federal registrations
for several marks, including Woods(R), Alloway(R), WoodsCare(R), Gill(R),
Gannon(R) and Wain-Roy(R). TISCO and Central Fabricators' products are sold
under numerous trademarks, including Central Fabricators(R), Tru-Part(R), TRU-
POWER(R), TISCO(R) and CALCO(R).
Suppliers
The principal raw materials that we use include steel, other metals and
hydraulic tubing. While we manufacture many of the parts for our products, some
parts, including most drive lines, blades, hydraulic pumps and motors, are
purchased from outside suppliers who manufacture parts to our specifications.
We purchase all of our self-propelled riding mowers, marketed under the
brand name Mow'n Machine, from Ariens Corporation, a private company located in
Brillion, Wisconsin. This manufacturing relationship is pursuant to a five-year
agreement expiring on December 7, 1999, with an option to renew for an
additional five years. We own the designs, tooling and drawings for the current
Mow'n Machine products.
TISCO does not manufacture its products. Instead, its products are
manufactured and supplied by numerous third party manufacturers predominantly
in North America and Asia. During the LTM period, no one supplier produced more
than 3% of all the stock keeping units sold by TISCO.
Employees
As of July 3, 1999, Woods employed 975 full-time employees, of whom 37 were
employed in engineering and research and development, 794 in manufacturing and
144 marketing, sales, customer service and administration. None of Woods'
employees are subject to collective bargaining agreements and Woods considers
its relationship with its employees to be good.
As of June 30, 1999, TISCO employed 289 full-time employees, Central
Fabricators employed 173 full-time employees and the Alitec Attachments
Division employed 71 full-time employees.
Legal Matters
From time-to-time, we are is subject to product liability claims that arise
in the ordinary course of business, and we maintain insurance believed to be
adequate to cover these claims.
We are subject to numerous environmental laws and regulations concerning air
emissions, discharges into waterways and the generation, handling, storage,
transportation, treatment and disposal of waste materials. It is our policy to
comply with all applicable environmental, health and safety laws and
regulations, and we believe we currently are in material compliance with all
such applicable laws and regulations.
Management is not aware of any material environmental issues at any of its
facilities. We have commissioned environmental studies of each of the Woods'
facilities within the past five years. As part of the Wain-Roy acquisition in
1997, additional tests were performed at Wain-Roy's Hubbardston, Massachusetts
facility. Woods is currently in consultation with the Massachusetts Department
of Environmental Protection to determine an appropriate remediation plan for
trichloroethylene found on the property. We expect minimal remediation, if any,
to be required.
We are subject to various federal, state, and local laws affecting our
business, as well as a variety of regulations relating to such matters as
working conditions, equal employment opportunities and product safety. A
variety of state laws regulate our relationship with our dealers, some of which
impose substantive standards on such relationships, including events of
default, grounds for termination, non-renewal of dealer contracts and equipment
repurchase requirements. We believe we are currently in material compliance
with all such applicable laws and regulations.
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<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information regarding the directors
of Parent and the executive officers of Parent and WEC as of September 30,
1999:
<TABLE>
<CAPTION>
Name Age Principal Position
---- --- ------------------
<S> <C> <C>
Paul R. Wood............ 45 Chairman of the Board
Thomas J. Laird......... 49 President, Chief Executive Officer and Director
Michael S. Carney....... 41 Chief Operating Officer and Director
D. Stephen Crider....... 37 Chief Financial Officer, Secretary and Treasurer
David W. Ferguson....... 55 Vice President--Ag and Turf Business
L. William Templeton.... 65 Vice President--Parts Business
Timothy M. Hurd......... 30 Director
Paul R. Lederer......... 60 Director
Thomas R. Reusche....... 44 Director
</TABLE>
Paul R. Wood has served as Chairman of the Board and a director of Parent
and as the sole director of WEC since the recapitalization. Since their
respective formations in March 1999, June 1996 and January 1993, Mr. Wood has
served as a principal of the three investment funds associated with Madison
Dearborn Partners and as a Vice President or Managing Director of Madison
Dearborn Partners, their indirect general partner. Prior to that time, Mr. Wood
served as Vice President of First Chicago Venture Capital, which comprised the
private equity investment activities of First Chicago Corporation, the holding
company parent of First National Bank of Chicago. Mr. Wood serves on the board
of directors of Hines Horticulture, Inc., Eldorado Bancshares Inc. and a number
of private companies.
Thomas J. Laird has served as the President, Chief Executive Officer and a
director of Woods since April 1993. From March 1991 to March 1993, Mr. Laird
was the President and Chief Executive Officer of Casablanca Fan Co., a
manufacturer of ceiling fans. During this period, Casablanca Fan Co.
accelerated new product introduction and expanded its distribution network
which contributed to improved profitability. From August 1985 to March 1991,
Mr. Laird was employed by GE Motors, a manufacturer of motors located in Ft.
Wayne, Indiana. He held positions of Plant Manager of several of that
business's commercial equipment plants, was Marketing Director of the
Industrial Components Division and also held the position of General Manager of
the Industrial Components Division.
Michael S. Carney has served as Chief Operating Officer of Woods since 1995.
Prior to joining Woods, Mr. Carney spent 15 years in a variety of manufacturing
and marketing positions at GE. Mr Carney's last position with GE was General
Manager of AC Motors and Controls Division, where he had profit and loss
responsibility for the $300 million business which spanned five international
and domestic plants. Prior to such time, Mr. Carney was in charge of the
Owensboro, Kentucky plant for GE Motors as the Plant Manager. Mr. Carney also
spent four years in the Marketing Department of GE Motors, where he was
involved with setting up an international joint venture and several
international sourcing initiatives.
D. Stephen Crider has served as Chief Financial Officer, Secretary and
Treasurer of Woods since April 1996. Prior to joining Woods, Mr. Crider spent
nine years with Newell, where his last position was Vice President-Controller
of a $125 million division located in Memphis, Tennessee. Prior to joining
Newell, Mr. Crider spent three years in public accounting and internal audit.
David W. Ferguson has served as Vice President--Ag and Turf Business of
Woods since October 1997. Prior to joining Woods, Mr. Ferguson spent 28 years
working for New Holland. Mr. Ferguson's most recent assignment as General
Manager, Parts Operations with New Holland North America, Inc. included
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<PAGE>
responsibility for parts supply, distribution, inventory, systems and
transportation. While at New Holland, Mr. Ferguson served as General Manager,
Parts and Service, where he was accountable for parts sales, supply,
distribution, service education, warranty and policy administration,
publications and product support.
L. William Templeton will be named Vice President--Parts Business upon the
completion of TISCO Acquisition. Mr. Templeton has served as President and
Chief Operating Officer of TISCO since 1992. Prior to joining TISCO, Mr.
Templeton worked for NAEDA Financial Services, T Enterprises, Deutz-Allis
Corporation, Kubota Tractor Corporation, Ford and McCarty Sherwan Distribution
Corporation. Mr. Templeton has over 42 years of experience in senior management
for finance, sales and marketing functions primarily in the farm and
construction equipment industries.
Timothy M. Hurd has served as a director of Parent since the
recapitalization. Mr. Hurd has served as a director of Madison Dearborn Capital
Partners III, L.P. since its formation in March 1999. Mr. Hurd joined Madison
Dearborn Partners in 1996. From 1994 to 1996, Mr. Hurd attended business school
at Harvard University. From 1992 to 1994, Mr. Hurd was employed by Goldman,
Sachs & Co.
Paul R. Lederer has served as a director of Parent since June 1999. Prior to
his retirement in October 1998, Mr. Lederer served as Executive Vice President-
Worldwide Aftermarket of Federal-Mogul Corporation since February 1998; from
November 1994 to February 1998, President and Chief Operating Officer of Fel-
Pro Inc., which was acquired by Federal-Mogul Corporation; and from January
1993 to November 1994, an automotive consultant and member of the advisory
boards of Fullerton Metals and Fel-Pro Inc. Mr. Lederer also currently serves
as a director of R&B Inc. and Trans-Pro Corporation and as a member of the
advisory boards of Ampere Inc., Newcorp., Richco Inc., Turtle Wax, Inc. and
Wine Discount Center.
Thomas R. Reusche has served as a director of Parent since the
recapitalization. Since their respective formations in March 1999, June 1996
and January 1993, Mr. Reusche has served as a principal of the three investment
funds associated with Madison Dearborn Partners, and a Vice President or
Managing Director of Madison Dearborn Partners. Prior to that time, Mr. Reusche
was a senior investment manager at First Chicago Venture Capital. Mr. Reusche
serves on the board of directors of Hines Horticulture, Inc. and a number of
private companies.
At present, all directors are elected and serve until a successor is duly
elected and qualified or until his or her earlier death, resignation or
removal. All members of the board of directors set forth herein were elected
pursuant to a stockholders agreement that was entered into in connection with
the recapitalization. See "Certain Relationships and Related Transactions."
There are no family relationships between any of the directors or executive
officers of Woods. Executive officers of Woods are elected by and serve at the
direction of the board of directors.
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<PAGE>
Executive Compensation
Summary Compensation Table
The following table sets forth information concerning the compensation for
services in all capacities to Woods for the fiscal year ended January 2, 1999
of those persons who (1) served during the fiscal year ended January 2, 1999 as
the chief executive officer of Woods and (2) were, at January 2, 1999, the
other executive officers of Woods who earned more than $100,000 in salary and
bonus in fiscal 1998. For case of reference, we refer to these persons as our
"named executive officers."
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------------ ------------
Securities
Fiscal Other Annual Underlying All Other
Year Salary Bonus Compensation Options/SARS Compensation
Name and Principal Position Ended ($) ($) ($)(1) (#) ($)(3)
- --------------------------- ------ -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Thomas J. Laird......... 1998 $247,131 $122,919 $ (1) -- $ 4,850
President and Chief
Executive Officer
Michael S. Carney....... 1998 184,708 79,216 88,990(2) -- 4,850
Chief Operating Officer
D. Stephen Crider....... 1998 131,077 57,734 (1) -- 3,932
Chief Financial Officer
David W. Ferguson....... 1998 141,302 81,865 199,248(2) -- 4,239
Vice President--Sales
and Service
</TABLE>
- --------
(1) The total amount of perquisites and other personal benefits for the named
executive officer did not exceed the reporting threshold, which is the
lesser of $50,000 or 10% of total annual salary and bonus.
(2) Reflects payments made to the named executive officer for relocation
expenses.
(3) Represents matching contributions made by Woods to such named executive
officers under its 401(k) plan.
Compensation Committee Interlocks and Insider Participation
We currently do not have a compensation committee. The compensation
arrangement for our chief executive officer was established pursuant to the
terms of his employment agreement with Woods. The compensation arrangements for
each of the other executive officers of Woods was established by the board of
directors. On a going forward basis, any changes in the compensation
arrangements of the executive officers of Woods will be determined by the board
of directors, which is controlled by Madison Dearborn Partners.
Compensation of Directors
Directors serving on the board of directors are not entitled to receive any
compensation for serving on the board. Directors are reimbursed for their out-
of-pocket expenses incurred in connection with such services.
1999 Stock Option Plan
The board of directors of Parent expects to adopt the Woods Equipment
Company 1999 Stock Option Plan by the end of 1999. The option plan is intended
to advance the best interests of Woods by providing those persons who have a
substantial responsibility for its management and growth with additional
incentives by allowing them to increase their ownership interest in Woods and
thereby encouraging them to contribute to the success of Woods and to remain in
its employ. The availability and offering of stock options under the plan will
also increase our ability to retain individuals of exceptional managerial
talent upon whom, in large measure, the sustained progress, growth and
profitability of our company depends.
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The option plan will be administered by a committee of the board. Subject to
the limitations of the option plan, the committee will have the sole and
complete authority to:
. select participants,
. grant options to participants in such forms and amounts as it shall
determine,
. impose such limitations, restrictions and conditions upon such options as
it shall deem appropriate,
. interpret the option plan and adopt, amend and rescind administrative
guidelines and other rules and regulations relating to the option plan,
. correct any defect or omission or reconcile any inconsistency in the
option plan or in any option granted thereunder and
. make all other determinations and take all other actions necessary or
advisable for the implementation and administration of the option plan.
The number of shares of common stock with respect to which options may be
granted under the option plan and which may be issued upon the exercise thereof
will be limited to an aggregate of 50,000 shares. The type and the aggregate
number of shares which may be subject to options is subject to adjustment in
the event of certain changes to our capital structure.
Options granted under the option plan may be "incentive stock options"
within the meaning of Section 422 of the Code or nonqualified stock options.
The option plan will provide that in no event shall the committee grant an
option intended to be an incentive stock option after the date which is 10
years from the earlier of (1) the date the option plan was adopted and (2) the
date the option plan was approved by our stockholders and that the aggregate
fair market value of all common stock with respect to which incentive stock
options are exercisable for the first time by an individual during any calendar
year exceed $100,000. The option exercise price per share of common stock shall
be determined by the committee; provided that if the option is intended to be
an incentive stock option, the option exercise price per share of common stock
may not be less than 100% of the fair market value of a share of common stock
on the date of grant of such option or 110% of the fair market value if, at the
time of the grant, the participant owns common stock possessing more than 10%
of Woods' combined voting power.
Except as otherwise provided by the committee, any portion of a
participant's option that was not vested and exercisable on the date of the
termination of such participant's employment shall expire and be forfeited as
of such date, and any portion of a participant's option that was vested and
exercisable on the date of the termination of such participant's employment
shall expire and be forfeited as of such date, except that:
. if any participant dies or becomes subject to any disability, such
participant's option shall expire 180 days after the date of his death or
disability, but in no event after the expiration date,
. if any participant retires (with the approval of the board), his option
shall expire 90 days after the date of his retirement, but in no event
after the expiration date, and
. if any participant is discharged other than for cause, such participant's
option shall expire 30 days after the date of his discharge, but in no
event after the expiration date.
The board or the committee may suspend or terminate the option plan or any
portion thereof at any time and may amend it from time to time in such respects
as the board or the committee may deem advisable; provided that no such
amendment shall be made without stockholder approval to the extent such
approval is required by law, agreement or the rules of any exchange upon which
the common stock is listed, and no such amendment, suspension or termination
shall impair the rights of participants under outstanding options without the
consent of the participants affected thereby. No options may be granted under
the option plan after the tenth anniversary of the adoption of the option plan.
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<PAGE>
PRINCIPAL STOCKHOLDERS
All of the outstanding capital stock of WEC is owned by Parent. The
following table sets forth certain information regarding the beneficial
ownership of Parent's common stock and redeemable preferred stock as of
September 30, 1999 of:
. each person known by Parent to own beneficially more than 5% of the
common stock;
. each person known by Parent to own beneficially more than 5% of the
redeemable preferred stock;
. each director of Parent;
. the named executive officers; and
. all directors and executive officers of Woods as a group.
<TABLE>
<CAPTION>
Redeemable
Preferred Stock Common Stock
------------------ ---------------------
Number Percent Number of Percent
Name and Address of Beneficial Owner of Shares of Class Shares of Class
------------------------------------- --------- -------- ------------ --------
<S> <C> <C> <C> <C>
Madison Dearborn Capital Partners II,
L.P. (1)............................. 43,680.66 91.8% 967,039.94 90.7%
Thomas J. Laird (2)................... 1,076.48 2.3 28,942.23 2.7
Michael S. Carney..................... 523.43 1.1 14,072.84 1.3
D. Stephen Crider..................... 348.95 1.0 9,381.89 1.0
David W. Ferguson..................... 174.48 * 4,690.95 *
Paul R. Wood (1)...................... 43,680.66 91.8 967,039.94 90.7
Thomas R. Reusche (1)................. 43,680.66 91.8 967,039.94 90.7
Timothy M. Hurd (1)................... 43,680.66 91.8 967,039.94 90.7
Paul R. Lederer....................... -- -- -- --
All directors and executive officers
as a group (8 persons)............... 45,804.00 96.2 1,024,127.85 96.1
</TABLE>
- --------
*Indicates less than 1% of the outstanding redeemable preferred stock or common
stock, as the case may be.
(1) All of such shares are held by MDCP. The address for MDCP and Messrs. Wood,
Reusche and Hurd is Three First National Plaza, Suite 3800, Chicago,
Illinois 60602. Messrs. Wood, Reusche and Hurd are executive officers of
Madison Dearborn Partners, Inc., which is the general partner of Madison
Dearborn Partners II, L.P., which, in turn, is the general partner of MDCP,
and therefore may be deemed to share voting and investment power over the
shares owned by MDCP and therefore to beneficially own such shares. Each of
Messrs. Wood, Reusche and Hurd disclaims beneficial ownership of the shares
owned by MDCP in which such person does not have a pecuniary interest.
(2) All shares listed are held by the Thomas J. Laird Trust, of which Mr. Laird
serves as the trustee.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Recapitalization
On August 7, 1998, Woods effected the recapitalization pursuant to a
recapitalization agreement among the Parent, MDCP, Brian P. Simmons, as the
seller's representative, and the then-existing stockholders of Parent.
Pursuant to the recapitalization agreement:
. MDCP purchased shares of the common stock and preferred stock of Parent
for an aggregate of $34.3 million,
. some of the prior stockholders of Parent redeemed all of their shares of
capital stock of Parent for cash,
. some of the prior stockholders exchanged all of their shares of capital
stock for new shares of common stock and redeemable preferred stock, and
. some of the prior stockholders redeemed some shares of capital stock,
including options, and exchanged their remaining shares of capital stock
for new shares of common stock and redeemable preferred stock.
Pursuant to the recapitalization agreement:
. the prior stockholders who redeemed their shares of capital stock
received, in the aggregate, approximately $68.5 million in cash,
. the prior stockholders who exchanged their shares of capital stock
received shares of common stock and redeemable preferred stock having
an aggregate value for purposes of the recapitalization of
approximately $3.25 million.
In connection with the recapitalization, the following named executive
officers received the following securities and cash from Woods:
<TABLE>
<CAPTION>
No. of Shares Received
-----------------------
Preferred Common
Name Stock Stock Cash
---- ----------------------- ----------
<S> <C> <C> <C>
Thomas J. Laird........................ 1,076.48 28,942.23 $4,866,304
Michael S. Carney...................... 175.93 14,072.84 376,452
D. Stephen Crider...................... 24.03 9,381.88 85,478
David W. Ferguson...................... 97.87 4,690.95 68,458
</TABLE>
Stockholders Agreement
General. In connection with the recapitalization, Woods and all its
stockholders entered into a stockholders agreement. The stockholders agreement
generally:
. restricts the transfer of any shares of common stock and preferred stock
held by the employee stockholders,
. grants Woods and MDCP the right to repurchase an employee stockholder's
shares of common stock and preferred stock in the event such employee
stockholder leaves the employment of Woods or its subsidiaries for any
reason,
. grants Woods and MDCP a right of first refusal in connection with any
proposed transfer by any other party, subject to certain exceptions, and
. grants participation rights to the stockholders in the event the
contemplated transfer results in a sale of Woods to an independent third
party.
In addition, the stockholders agreement requires each party to consent to a
sale of Woods to an independent third party if such sale is approved by Woods'
board of directors and MDCP.
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Registration Rights. Each of the parties to the stockholders agreement has
piggyback registration rights with respect to any regulation by Woods of any of
its common stock or securities convertible into or exchangeable for common
stock, other than a registration statement on Form S-8 or Form S-4 or successor
forms thereto, and the registration form to be used may be used for the
registration of the common stock held by the stockholders. Woods will bear the
costs of such piggyback registrations, excluding any underwriting discounts or
commissions, transfer taxes on the sale of such Registrable Securities or the
fees and expenses of any counsel retained by the selling Stockholders. In
addition, each stockholder has agreed not to effect any public sale or
distribution, including sales pursuant to Rule 144, of equity securities of
Woods, or any securities convertible into or exchangeable or exercisable for
such securities, during the seven days prior to and the 180-day period
beginning on the effective date of any underwritten piggyback registration if
so requested by the underwriters managing the registered public offering. The
right of any holder of registrable securities to request a piggyback
registration shall terminate after the holders of registrable securities have
had the opportunity to participate with respect to at least a majority of their
registrable securities.
Confidentiality, Protection of Company Inventions and Non-
Competition. Pursuant to the stockholders agreement, each employee stockholder
agrees not to disclose any confidential information concerning the business or
affairs of Woods, any of its subsidiaries and their customers and vendors,
unless and to the extent that the employee stockholder can demonstrate that the
aforementioned matters have become generally known to and available for use by
the public other than as a result of employee Stockholder's acts or omissions.
In addition, each employee stockholder acknowledges that all inventions,
innovations, improvements, developments, methods, designs, analyses, drawings,
reports and all similar or related information (whether or not patentable)
which relate to Woods' or any of its subsidiaries' actual or anticipated
business, research and development or existing or future products or services
and which are conceived, developed or made by the employee stockholder while
employed by Woods and its subsidiaries belong to Woods or such subsidiary.
Furthermore, in consideration for the continued employment of each employee
Stockholder as an employee-at-will after the date of the stockholders agreement
and in order to preserve and protect the interests of Woods in its confidential
information and work product, each employee stockholder agrees, for a specified
period of time, that it will not directly or indirectly own any interest in,
manage, control, participate in, consult with, render services for, or in any
manner engage in any business competing with the businesses of Woods or its
subsidiaries, within any geographical area in which Woods or its subsidiaries
engage or has current plans to engage in such businesses.
Management Stock Purchasers
In connection with the recapitalization, Messrs. Michael S. Carney, D.
Stephen Crider and David W. Ferguson purchased 347.50, 324.92 and 76.60 shares
of redeemable preferred stock, respectively, at a purchase price equal to
approximately $1,000.00 per share.
Management Indebtedness
In connection with the recapitalization, certain employees of Woods
purchased additional shares of common stock and/or preferred stock of the
Parent with promissory notes and/or cash. Such promissory notes were issued on
August 7, 1998 and are secured by a pledge of all of the stock purchased by
such employee stockholder. Michael S. Carney, Chief Operating Officer, issued
to Woods an 8% promissory note in the aggregate principal amount of $100,000
pursuant to which the principal balance and all accrued and unpaid interest is
payable on August 7, 2003. D. Stephen Crider, Chief Financial Officer,
Secretary and Treasurer of Woods, issued to Woods an 8% promissory note in the
aggregate principal amount of $285,000 pursuant to which the principal balance
and all accrued and unpaid interest is payable on August 7, 2003.
Loan from Principal Stockholder
In connection with the recapitalization, WEC borrowed $25 million from MDCP
through the issuance of a subordinated promissory note. The note is a general
unsecured obligation of WEC, subordinated in right of
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payment to all current and future senior debt of WEC, as defined in the note.
The note matures on October 1, 2007. The note may be repaid without premium or
penalty, from time to time until maturity. The interest rate per annum
applicable to the note is initially 10.0% and increases by 0.5% at the end of
each three-month period after August 7, 1998 until October 1, 2007. The note
contains customary events of default, including payment defaults and certain
events of bankruptcy and insolvency. Woods used a portion of the proceeds from
the initial offerings to repay the note.
Management Services Agreement
In connection with the recapitalization, Parent entered into a management
services agreement with MDP, pursuant to which MDP will provide certain
management consulting services to Woods in exchange for an annual fee of
$300,000 to commence in the year 2000, plus out-of-pocket expenses. MDP
received fees of $1.8 million, plus reimbursement for out-of-pocket expenses
for services rendered to Woods from the date of the recapitalization through
January 2, 1999.
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DESCRIPTION OF OTHER FINANCING ARRANGEMENTS
Senior Credit Facility
General. In connection with the recapitalization, WEC, as borrower, Parent,
as guarantor, Credit Suisse First Boston, New York Branch, an affiliate of
Credit Suisse First Boston Corporation, as administrative agent, and certain
other financial institutions entered into a $110 million multi-tranche senior
secured bank credit facility. As of July 3, 1999, WEC had unused borrowing
capacity under its revolving credit facility of approximately $24.1 million. On
July 28, 1999, the existing senior credit facility was amended and restated in
connection with the initial offerings.
As amended, the senior credit facility provides for revolving loans to WEC
for up to $40.0 million, including letters of credit. Subject to certain
restrictions, the senior credit facility may be used to finance the
acquisitions and for working capital and general corporate purposes of WEC and
its subsidiaries.
Repayment. The revolving loans must be repaid on July 31, 2004. The
revolving loans made pursuant to the senior credit facility may be repaid and
borrowed and reborrowed, without premium or penalty, from time to time until
maturity, subject to the satisfaction of certain conditions on the date of any
such borrowing. Prepayments of eurodollar rate loans, however, may be subject
to customary breakage costs. In addition, the senior credit facility provides
for mandatory repayments of any outstanding borrowings out of any net cash
proceeds received from:
. a sale of assets, other than sales of inventory in the ordinary course of
business and sales of less than $0.5 million worth of assets;
. net cash proceeds of permitted debt issuances, subject to certain
exceptions, including the initial offerings;
. 50.0% of net cash proceeds of permitted equity issuances, reducing to
0.0% when WEC's leverage ratio is less than 3.5:1, subject to certain
exceptions;
. net cash proceeds from insurance recovery and condemnation events,
subject to certain reinvestment rights; and
. 50.0% of annual excess cash flow, reducing to 0.0% when the WEC's
leverage ratio is less than 3.5:1.
Security; Guaranty. The obligations of WEC under the senior credit facility
are guaranteed by Parent and will be guaranteed by each of WEC's future direct
and indirect domestic subsidiaries and, so long as there are no adverse tax
consequences, foreign subsidiaries, if any. The obligations of WEC under the
senior credit facility and each of the guarantors under its guarantee is or
will be secured by
. a first priority security interest in substantially all of the assets of
such person,
. a pledge of all of the capital stock of each direct and indirect domestic
subsidiary of Parent and WEC and
. a pledge of 65.0% of the capital stock of each foreign subsidiary of
Parent and WEC, if any.
Interest. At WEC's option, the interest rates per annum applicable to the
loans under the senior credit facility will be a fluctuating rate of interest
measured by reference to one or a combination of the following at WEC's
election:
. the base rate (as defined in the senior credit facility), plus the
applicable borrowing margin, which is 1.25% for revolving loans, subject
to adjustment based on WEC's leverage ratio; or
. the relevant reserve adjusted eurodollar rate (as defined in the senior
credit facility), plus the applicable borrowing margin, which is 2.25%
for revolving loans, subject to adjustment based on WEC's leverage ratio.
Fees. WEC has agreed to pay certain fees in connection with the senior
credit facility, including letter of credit fees, agency fees and commitment
fees. Commitment fees are payable at a rate per annum of 0.5% on the undrawn
amounts of the senior credit facility.
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Covenants. The senior credit facility requires WEC to meet certain financial
tests, including, without limitation, a maximum leverage ratio, a minimum
interest coverage ratio and a minimum fixed charge coverage ratio. The senior
credit facility also contains covenants which, among other things, restrict the
ability of Parent, WEC and their subsidiaries, subject to certain exceptions,
to incur liens, transact with affiliates, incur indebtedness, declare dividends
or redeem or repurchase capital stock, make loans and investments, engage in
mergers, acquisitions, consolidations and asset sales, acquire assets, stock or
debt securities of any person, have additional subsidiaries, amend its
certificate of incorporation and make capital expenditures. The senior credit
facility also requires Parent, WEC and their subsidiaries to satisfy certain
customary affirmative covenants and to make certain customary indemnifications
to the lenders under the senior credit facility and the administrative agent
under the senior credit facility.
Events of Default. The senior credit facility contains customary events of
default, including, without limitation, payment defaults, breaches of
representations and warranties, covenant defaults, certain events of bankruptcy
and insolvency, ERISA violations, judgment defaults, cross-defaults to certain
other indebtedness and a change in control of Parent or WEC.
Seller Promissory Notes
In connection with the acquisition of all of the capital stock of Gannon by
WEC in June 1994, WEC issued a $5.0 million promissory note to the former
stockholders of Gannon. Such note accrues interest at a rate of 7.5% per annum
and is payable in monthly installments of principal and interest in the amount
of $34,960.73 with a final payment due on July 1, 2009, at which time, all
accrued interest and principal is due and payable. WEC's obligations under the
note are secured by deeds of trusts relating to WEC's facilities located in La
Mirada, California and Seguin, Texas. Such note may be prepaid in whole or in
part on any monthly payment date without penalty. A default in any payment of
more than 10 days after its due date will result in the additional payment of a
late charge equal to 2.5% of such over-due payment.
In April 1997, WEC issued a $700,000 subordinated term note in connection
with its acquisition of Baerts. Such note accrues interest at a rate of 8% per
annum and principal is payable in monthly instalments of $19,444.44, with a
final payment due on April 15, 2000 of the entire unpaid principal balance. In
the event of any default under this note, the principal amount then due shall
bear interest at 10% per annum. The payments of principal and interest on this
note is subordinated to all "senior indebtedness" of WEC, which is defined as
all indebtedness of WEC to any and all of its creditors, secured or unsecured
and whether outstanding as of April 18, 1997 or thereafter incurred, except
indebtedness of WEC to its stockholders or affiliates. Interest and principal
payments on the notes were suspended by WEC in May 1998 in connection with the
complaint filed by Woods against the former owners of Baerts alleging that such
owners made material misrepresentations in connection with the sale of Baerts
to Woods.
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DESCRIPTION OF THE EXCHANGE DEBENTURES
Parent will issue the exchange debentures under the debenture indenture,
dated as of July 28, 1999, between Woods Equipment Company and United States
Trust Company of Texas, N.A., as trustee. The following is a summary of certain
provisions of the debenture indenture; it does not restate these provisions in
their entirety. We have filed a complete copy of the debenture indenture as an
exhibit to the registration statement of which this prospectus forms a part.
See "Where You Can Find More Information." We urge you to read the debenture
indenture because it, and not this description, define your rights as holders
of these debentures. We use the term "debentures" in this prospectus to refer
to both the outstanding notes and the exchange debentures.
The form and terms of the exchange debentures are the same as the form and
terms of the outstanding debentures except that:
. the exchange debentures bear a Series B designation and a different CUSIP
number from the outstanding debentures;
. the exchange debentures have been registered under the Securities Act
and, therefore, will not bear legends restricting their transfer; and
. the holders of the exchange debentures will not be entitled to the rights
under the registration rights agreement, including the provisions for an
increase in the interest rate on the outstanding debentures in certain
circumstances relating to the timing of the exchange offer.
The exchange debentures will evidence the same debt as the outstanding
debentures and will be entitled to the benefits of the debentures indenture.
The exchange debentures will rank equally with the outstanding debentures if
all of the outstanding debentures are not exchanged in this exchange offer.
General
The debentures are limited to $51.9 million aggregate principal amount at
maturity, plus any additional interest as a result of our failure to comply
with the registration provisions in the registration right agreement, and will
mature on July 15, 2011. Interest will accrue on the accreted value of the
debentures at 15.0% but will not be payable in cash prior to October 15, 2004.
From July 15, 2004, or from the most recent date to which interest has been
paid or provided for, interest will be payable in cash on the debentures at the
interest rate stated on the cover page, quarterly on January 15th, April 15th,
July 15th and October 15th of each year. Parent will make each interest payment
to the person in whose name the debenture is registered at the close of
business on the January 1st, April 1st, July 1st or October 1st, immediately
preceding the interest payment date. Parent will pay cash interest on overdue
principal at an annual interest rate of 2% in excess of such rate, and will pay
cash interest on overdue installments of cash interest at such higher rate to
the extent lawful.
Parent will make cash payments on the debentures, including principal,
premium and interest, by wire transfer of immediately available funds to the
accounts specified by the holders or, if no such account is specified, by
mailing a check to each holder's address, as it appears in the register of the
debentures maintained by the registrar. You may transfer and exchange the
debentures at the office of the registrar and any co-registrar. Parent will
issue the debentures in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple thereof. No service charge
will be made for any registration of transfer or exchange of debentures, but
Parent may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection with certain transfers
and exchanges.
Optional Redemption
The debentures will be redeemable at Parent's option, in whole or in part,
at any time on or after July 15, 2004, at the respective redemption price set
forth below, which is expressed as a percentage of accreted value, plus accrued
and unpaid interest to the redemption date, subject to the right of holders of
record on the
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relevant record date to receive interest due on the relevant interest payment
date, if redeemed during the 12-month period beginning on July 15, of the year
indicated below:
<TABLE>
<CAPTION>
Redemption
Period Price
------ ----------
<S> <C>
2004........................................................... 107.500%
2005........................................................... 105.000%
2006........................................................... 102.500%
2007 and thereafter............................................ 100.000%
</TABLE>
In addition, before July 15, 2002, Parent may at its option redeem all of
the outstanding debentures with the proceeds of one or more public equity
offerings, at a redemption price, expressed as a percentage of accreted value,
of 115% plus accrued interest to the redemption date, subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date; provided that such redemption must occur within
60 days of the public equity offering.
Selection and Notice of Redemption
If Parent is redeeming less than all the debentures at any time, the trustee
will select debentures on a pro rata basis, by lot or by such other method as
the trustee in its sole discretion will deem to be fair and appropriate.
Parent will redeem debentures of $1,000 in principal amount at maturity or
less in whole and not in part. Parent will cause notices of redemption to be
mailed by first-class mail at least 30 and not more than 60 days before the
redemption date to each holder's registered address.
If any debenture is to be redeemed in part only, the notice of redemption
relating to such debenture will state the portion of the principal amount
thereof to be redeemed. Parent will issue a new debenture in principal amount
equal to the unredeemed portion of the original debenture in the name of the
holder thereof upon cancellation of the original debenture. On or after the
date of redemption, interest will cease to accrue on debentures or portions
thereof called for redemption.
Ranking
The outstanding debentures are, and the exchange debentures will be, senior
unsecured obligations of Parent, rank or will rank equal in right of payment
with all existing and future senior unsecured indebtedness of Parent, are or
will be senior in right of payment to all future subordinated indebtedness of
Parent. The outstanding debentures are, and the exchange debentures will be,
effectively subordinated to any secured indebtedness of Parent to the extent of
the value of the assets securing such indebtedness. As of July 3, 1999 after
giving pro forma effect to the Acquisitions and the initial offerings, Parent
would have had no indebtedness other than the debentures and its guaranties of
WEC's obligations under the senior credit facility and the notes. Although the
debenture indenture contains limitations on the amount of additional
indebtedness that Parent may incur, under certain circumstances the amount of
such Indebtedness could be substantial or secured. See "--Certain Covenants--
Limitation on Indebtedness."
All of Parent's operations are conducted through WEC. Claims of creditors of
WEC, including trade creditors, secured creditors and creditors holding
indebtedness and guarantees issued by WEC, and claims of preferred
stockholders, if any, of WEC generally will have priority with respect to the
assets and earnings of WEC over the claims of Parent's creditors, including
holders of the debentures. Therefore, the outstanding debentures are, and the
exchange debentures will be, effectively subordinated to creditors, including
trade creditors, and preferred stockholders, if any, of Parent's existing and
future subsidiaries. At July 3, 1999, after giving pro forma effect to the
Acquisitions and the initial offerings, the total liabilities of WEC would have
been approximately $174.1 million, including trade payables. Although the
debenture indenture limits the incurrence of indebtedness and preferred stock
of certain of Parent's subsidiaries, such limitation is subject to a
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number of significant qualifications. Moreover, the debenture indenture does
not impose any limitation on the incurrence by such subsidiaries of liabilities
that are not considered indebtedness under the debenture indenture. See "--
Certain Covenants--Limitation on Indebtedness."
Same-Day Payment
The debenture indenture requires Parent to make cash payments in respect of
debentures, including principal, premium and interest, be made 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.
Change of Control
Upon the occurrence of any of the following events (each a "change of
control"), each holder will have the right to require Parent to repurchase such
holder's debentures at a purchase price in cash equal to 101% of the accreted
value thereof plus accrued and unpaid interest, if any, to the date of
purchase, subject to the right of holders of record on the relevant record date
to receive interest due on the relevant interest payment date:
(1) Prior to the earlier to occur of the first public offering of common
stock of Parent, the permitted holders cease to be the "beneficial owner,"
as defined in Rules 13d-3 and 13d-5 under the Exchange Act, directly or
indirectly, of at least 35% of the aggregate of the total voting power of
Parent's voting stock, as a result of issuance of Parent's securities,
Parent's merger, consolidation, liquidation or dissolution, any direct or
indirect transfer of securities by Parent or otherwise. For purposes of
this clause (1) and clause (2) below, the permitted holders will be deemed
to beneficially own any voting stock of a corporation (the "specified
corporation") held by any other corporation (the "parent corporation") so
long as the permitted holders beneficially own, directly or indirectly, in
the aggregate a majority of the voting power of the voting stock of the
parent corporation.
(2) Any "person," as such term is used in Sections 13(d) and 14(d) of
the Exchange Act, other than one or more permitted holders, is or becomes
the "beneficial owner," as defined in clause (1) above, except that for
purposes of this clause (2) such person will be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time, directly or indirectly, of more than 35% of the total voting power of
Parent's voting stock. The foregoing will only be deemed to be a change of
control if the permitted holders "beneficially own," as defined in clause
(1) above, directly or indirectly, in the aggregate a lesser percentage of
the total voting power of Parent's voting stock than such other person and
do not have the right or ability by voting power, contract or otherwise to
elect or designate for election a majority of Parent's board of directors.
For the purposes of this clause (2), such other person will be deemed to
beneficially own any voting stock of a specified corporation held by a
parent corporation, if such other person is the "beneficial owner," as
defined in this clause (2), directly or indirectly, of more than 35% of the
voting power of the voting stock of such parent corporation and the
permitted holders "beneficially own," as defined in clause (1) above,
directly or indirectly, in the aggregate a lesser percentage of the voting
power of the voting stock of such parent corporation and do not have the
right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the board of directors of such parent
corporation.
(3) During any period of two consecutive years, individuals who at the
beginning of such period constituted Parent's board of directors, together
with any new directors whose election by Parent's Board of Directors or
whose nomination for election by Parent's shareholders, as applicable, was
approved by a vote of a majority of Parent's directors, as applicable, then
still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority of Parent's board of
directors, as applicable, then in office.
(4) The adoption of a plan relating to Parent's liquidation or
dissolution.
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(5) The merger or consolidation of Parent with or into another person or
the merger of another person with or into Parent, or the sale of all or
substantially all of Parent's assets to another person, (other than a
person that is controlled by the permitted holders, and, in the case of any
such merger or consolidation, Parent's securities that are outstanding
immediately prior to such transaction and which represent 100% of the
aggregate voting power of Parent's voting stock are changed into or
exchanged for cash, securities or property, unless pursuant to such
transaction such securities are changed into or exchanged for, in addition
to any other consideration, securities of the surviving corporation that
represent immediately after such transaction, at least a majority of the
aggregate voting power of the voting stock of the surviving corporation.
Within 30 days following any change of control, Parent will mail a notice to
each holder with a copy to the trustee stating:
(1) that a change of control has occurred and that such holder has the
right to require Parent to purchase such holder's debentures at a purchase
price in cash equal to 101% of the accreted value thereof plus accrued and
unpaid interest, if any, to the date of purchase, subject to the right of
holders of record on the relevant record date to receive interest on the
relevant interest payment date;
(2) the circumstances and relevant facts regarding such change of
control, including information with respect to pro forma historical income,
cash flow and capitalization after giving effect to such change of control;
(3) the repurchase date, which will be no earlier than 30 days nor later
than 60 days from the date such notice is mailed; and
(4) the instructions determined by Parent, consistent with the covenant
described hereunder, that a holder must follow in order to have its
debentures purchased.
Parent will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of debentures pursuant to this covenant
described hereunder. To the extent that the provisions of any securities laws
or regulations conflict with the provisions of the covenant described
hereunder, Parent will comply with the applicable securities laws and
regulations and will not be deemed to have breached Parent's obligations under
the covenant described hereunder by virtue thereof.
The change of control purchase feature is a result of negotiations between
Parent and the initial purchaser. Parent's management has no present intention
to engage in a transaction involving a change of control, although it is
possible that Parent would decide to do so in the future. Subject to the
limitations discussed below, Parent could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a change of control under the debenture indenture,
but that could increase the amount of indebtedness outstanding at such time or
otherwise affect Parent's capital structure or credit ratings. Restrictions on
Parent's ability to incur additional indebtedness are contained in the covenant
described under "--Certain Covenants--Limitation on Indebtedness." Such
restrictions can only be waived with the consent of the holders of a majority
in principal amount of the debentures then outstanding. Except for the
limitations contained in such covenants, however, the debenture indenture will
not contain any covenants or provisions that may afford holders of the
debentures protection in the event of a highly leveraged transaction.
The senior credit facility restricts Parent from purchasing any debentures
prior to September 30, 2007, and will also provide that the occurrence of
certain change of control events with respect to Parent would constitute a
default thereunder. In the event a change of control occurs at a time when
Parent is prohibited from purchasing debentures, Parent could seek the consent
of the lenders under the senior credit facility to the purchase of debentures
or could attempt to refinance the borrowings that contain such prohibition. If
Parent does not obtain such a consent or repay such borrowings, Parent will
remain prohibited from purchasing debentures. In such case, Parent's failure to
purchase tendered debentures would constitute an event of default under the
debenture indenture which would, in turn, constitute a default under the senior
credit facility.
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Future indebtedness that Parent may incur may contain prohibitions on the
occurrence of certain events that would constitute a change of control or
require such indebtedness to be repurchased upon a change of control. Moreover,
the exercise by the holders of their right to require Parent to repurchase the
debentures could cause a default under such indebtedness, even if the change of
control itself does not, due to the financial effect of such repurchase on
Parent. Finally, Parent's ability to pay cash to the holders of debentures
following the occurrence of a change of control may be limited by Parent's then
existing financial resources. There can be no assurance that sufficient funds
will be available when necessary to make any required repurchases.
Certain Covenants
The debenture indenture contains covenants including, among others, the
following:
Limitation on Indebtedness. (a) Parent will not, and will not permit any of
its restricted subsidiaries to, incur, directly or indirectly, any
indebtedness; provided, however, that Parent and any restricted subsidiary may
incur indebtedness if, on the date of such Incurrence and after giving effect
thereto, the Consolidated Coverage Ratio exceeds 1.75 to 1 if such indebtedness
is incurred prior to July 31, 2001 or 2.0 to 1 if such indebtedness is incurred
thereafter.
(b) Notwithstanding the foregoing paragraph (a), Parent and its restricted
subsidiaries may incur any or all of the following indebtedness:
(1) indebtedness Incurred pursuant to the senior credit facility;
provided, however, that, after giving effect to any such incurrence, the
aggregate principal amount of such indebtedness then outstanding does not
exceed $40 million less the sum of all principal payments with respect to
such indebtedness pursuant to paragraph (a)(2)(A) of the covenant described
under "--Limitation on Sales of Assets and Subsidiary Stock";
(2) indebtedness owed to and held by Parent or any of its restricted
subsidiaries; provided, however, that (x) any subsequent issuance or
transfer of any capital stock which results in any such restricted
subsidiary ceasing to be a restricted subsidiary or any subsequent transfer
of such indebtedness, other than to Parent or any of its restricted
subsidiaries, will be deemed, in each case, to constitute the incurrence of
such indebtedness by the obligor thereon that is not permitted to be
incurred under this clause (2) and (y) if Parent is the obligor on such
indebtedness, such indebtedness is expressly subordinated to the prior
payment in full in cash of all obligations with respect to the debenture;
(3) the debentures, the notes issued by WEC on the July 28, 1999 and
their respective exchange notes;
(4) indebtedness outstanding on the July 28, 1999, other than
indebtedness described in clause (1), (2) or (3) of this covenant;
(5) indebtedness of a subsidiary incurred and outstanding on or prior to
the date on which such subsidiary was acquired by Parent, other than
indebtedness incurred in connection with, or to provide all or any portion
of the funds or credit support utilized to consummate, the transaction or
series of related transactions pursuant to which such subsidiary became a
subsidiary or was acquired by Parent; provided, however, that on the date
of such acquisition and after giving effect thereto, Parent would have been
able to issue at least $1.00 of additional indebtedness pursuant to clause
(a);
(6) refinancing indebtedness in respect of indebtedness incurred
pursuant to paragraph (a) above or pursuant to clause (3), (4) or (5) above
or this clause (6);
(7) hedging obligations or commodity agreements not entered into for
speculative purposes and directly related to indebtedness permitted to be
incurred by Parent or any of its restricted subsidiaries pursuant to the
debenture indenture;
(8) the incurrence by Parent or any of 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 Parent
or such restricted subsidiaries, in an aggregate principal amount to not
exceed $5.0 million at any time outstanding;
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(9) the guarantee by Parent of indebtedness of a restricted subsidiary
that was permitted to be incurred by another provision of this covenant;
(10) the accrual of interest, the accretion or amortization of original
issue discount, the payment of interest on any indebtedness in the form of
additional indebtedness with the same terms, and the payment of dividends
on disqualified stock in the form of additional shares of the same class of
disqualified stock will not be deemed to be an incurrence of Indebtedness
or an issuance of disqualified stock for purposes of this covenant;
provided, in each case, that the amount thereof is included in Consolidated
Interest Expense of Parent as accrued;
(11) indebtedness arising from agreements of Parent or a restricted
subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred or assumed in connection with
the disposition of any business, assets or a subsidiary, other than
guarantees of indebtedness incurred by any person acquiring all or any
portion of such business, assets or a subsidiary for the purpose of
financing such acquisition; provided, however, that (a) such indebtedness
is not reflected on the balance sheet of Parent or any restricted
subsidiary with contingent obligations referred to in a footnote to
financial statements and not otherwise reflected on the balance sheet will
not be deemed to be reflected on such balance sheet for purposes of this
clause (a) and (b) the maximum assumable liability in respect of all such
indebtedness shall at no time exceed the gross proceeds including noncash
proceeds, with the fair market value of such noncash proceeds being
measured at the time received and without giving effect to any subsequent
changes in value actually received by Parent and its restricted
subsidiaries in connection with such disposition;
(12) the incurrence of obligations in respect of performance and surety
bonds provided by Parent or any of its restricted subsidiaries in the
ordinary course of business;
(13) the incurrence of indebtedness consisting of guarantees of loans
made to management for the purpose of permitting management to purchase
equity interests of Parent, in an amount not to exceed $1.0 million at any
one time outstanding;
(14) indebtedness of Parent or any restricted subsidiary arising from
the honoring by a bank or other financial institution of a check, draft or
similar instrument inadvertently, except in the case of daylight
overdrafts, drawn against insufficient funds in the ordinary course of
business, provided that such indebtedness is satisfied within five business
days of incurrence;
(15) indebtedness of Parent or WEC issued to directors, employees,
officers or consultants of Parent, WEC or a restricted subsidiary in
connection with the redemption or purchase of capital stock of Parent or
WEC that, by its terms, is subordinated to the debentures, is not secured
by any assets of the Parent, WEC or its Restricted Subsidiaries and does
not require cash payments prior to the stated maturity of the debentures
and refinancing indebtedness in respect thereof, in an aggregate principal
amount which, when added together with the amount of indebtedness incurred
pursuant to this clause (15) and then outstanding, does not exceed $1.0
million; and
(16) indebtedness in an aggregate principal amount which, together with
Parent's other indebtedness outstanding on the date of such incurrence,
other than indebtedness permitted by clauses (1) through (15) above or
paragraph (a), does not exceed $10 million at any one time outstanding.
(c) Notwithstanding the foregoing, neither Parent nor any of its restricted
subsidiaries will incur any indebtedness pursuant to the foregoing paragraph
(b) if the proceeds thereof are used, directly or indirectly, to refinance any
of Parent's subordinated obligations unless such indebtedness will be
subordinated to the debentures to at least the same extent as such subordinated
obligations.
(d) For purposes of determining compliance with the foregoing covenant, (1)
in the event that an item of indebtedness meets the criteria of more than one
of the types of indebtedness described above, Parent, in its sole discretion,
will classify such item of indebtedness and only be required to include the
amount and type of such Indebtedness in one of the above clauses and (2) an
item of indebtedness may be divided and classified in more than one of the
types of indebtedness described above.
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(e) If Parent incurs indebtedness which is subordinate or junior in right
of payment to any other indebtedness of Parent, Parent shall cause such
subordinate or junior indebtedness to be subordinated to the debentures to the
same extent as such other indebtedness.
(f) Parent will not permit any unrestricted subsidiary to incur any
indebtedness other than non-recourse debt; provided, however, that if any such
indebtedness ceases to be non-recourse debt, such event will be deemed to
constitute an incurrence of indebtedness by Parent or any of its restricted
subsidiaries.
Limitation on Restricted Payments. (a) Parent will not, and will not permit
any restricted subsidiary, directly or indirectly, to make a restricted
payment if at the time Parent or such restricted subsidiary makes such
restricted payment:
(1) a default will have occurred and be continuing or would result
therefrom;
(2) Parent is not able to Incur an additional $1.00 of indebtedness
pursuant to paragraph (a) of the covenant described under "--Limitation on
Indebtedness"; or
(3) the aggregate amount of such restricted payment and all other
restricted payments since July 28, 1999 would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the period,
treated as one accounting period, from July 3, 1999 to the end of the
most recent fiscal quarter ending at least 45 days prior to the date of
such restricted payment, or, in case such Consolidated Net Income will
be a deficit, minus 100% of such deficit;
(B) 100% of the aggregate Net Cash Proceeds received by Parent from
the issuance or sale of Parent's capital stock (other than disqualified
stock) or an equity contribution from a holder of Parent's capital stock
subsequent to July 28, 1999, other than an issuance or sale to any of
Parent's subsidiaries and other than an issuance or sale to an employee
stock ownership plan or to a trust established by Parent or any of its
subsidiaries for the benefit of their employees, or from the issue or
sale of convertible or exchangeable disqualified stock or convertible or
exchangeable debt securities of Parent that have been converted into or
exchanged for such equity interests, other that equity interests or
disqualified stock or debt securities sold to Parent or a subsidiary of
Parent, together with the net proceeds received by Parent upon such
conversion or exchange, if any, plus;
(C) an amount equal to the aggregate net proceeds (including the fair
market value, as determined in good faith by a resolution of the Board
of Directors of Parent, of property other than cash that would
constitute marketable securities or a related business so long as there
is no restriction on the sale of such property) of any
(1) sale or other disposition of Investments made by Parent and its
restricted subsidiaries, or
(2) dividend from, or the sale of the stock of, an unrestricted
subsidiary;
provided, however, that the foregoing amount shall not exceed the amount of
such Investment previously made, and treated as a restricted payment, by
Parent or any restricted subsidiary, and, in the case of any such clause (2),
the amount of Investments previously made, and treated as a restricted
payment, by Parent or any restricted subsidiary in such unrestricted
subsidiary.
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(1) any acquisition of any capital stock of Parent made out of the
proceeds of the substantially concurrent sale of, or made by exchange for,
Parent's capital stock, other than disqualified stock and other than
capital stock issued or sold to any of Parent's subsidiaries or an employee
stock ownership plan or to a trust established by Parent or any of its
subsidiaries for the benefit of Parent or their employees; provided,
however, that (A) such acquisition of capital stock will be excluded in the
calculation of the amount of restricted payments and (B) the Net Cash
Proceeds from such sale will be excluded from the calculation of amounts
under clause (3)(B) of paragraph (a) above;
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(2) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of subordinated obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, indebtedness of Parent's which is permitted to be incurred pursuant to
the covenant described under "--Limitation on Indebtedness"; provided,
however, that such purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value will be excluded in the calculation of
the amount of restricted payments;
(3) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of disqualified stock made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
disqualified stock of Parent which is permitted to be issued pursuant to
the debenture indenture; provided, however, that such purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value will be
excluded in the calculation of the amount of restricted payments;
(4) dividends paid or the consummation at any irrevocable redemption
within 60 days after the date of declaration or notice of redemption
thereof if at such date of declaration or notice such dividend or
redemption would have complied with this covenant; provided, however, that
such dividend will be included in the calculation of the amount of
restricted payments;
(5) so long as no default has occurred or will occur as a result of such
payment, the repurchase or other acquisition of shares of, or options to
purchase shares of, Parent's common stock or the common stock of any of
Parent's subsidiaries from former employees or former directors of Parent's
or any of Parent's subsidiaries, or permitted transferees of such former
employees or former directors, pursuant to the terms of the agreements,
including employment agreements, or plans or amendments thereto approved by
Parent's board of directors under which such individuals purchase or sell
or are granted the option to purchase or sell, shares of such common stock;
provided, however, that the aggregate amount of such repurchases and other
acquisitions will not exceed $1 million in any calendar year; provided
further, however, that such repurchases and other acquisitions will be
deducted in the calculation of the amount of restricted payments;
(6) prepayments, repayments or purchases of indebtedness pursuant to
clause (2)(D) under "--Limitation on Asset Sales and Subsidiary Stocks";
provided, however, that such prepayment, repayment or purchase will be
included in the calculation of the amount of restricted payments;
(7) repurchase of equity interests of Parent deemed to occur upon
exercise of stock options to the extent equity interests represent a
portion of the exercise price of such options; or
(8) so long as no default has occurred and is continuing or would be
caused thereby, other restricted payments in an aggregate amount not to
exceed $3 million since the date of the debenture indenture.
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 to or by Parent or such
restricted subsidiary, as the case may be, pursuant to the restricted payment.
The fair market value of any assets or securities that are required to be
valued by this covenant shall be determined in good faith by the board of
directors whose resolution with respect thereto shall be conclusive. The board
of directors' determination must be based upon an opinion or appraisal issued
by an accounting, appraisal or investment banking firm of national standing if
the fair market value exceeds $10.0 million.
The board of directors of Parent 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
Parent 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 clause (a) 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 as 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.
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Limitation on Restrictions on Distributions from Restricted Subsidiaries.
Parent will not, and will not permit any of Parent's restricted subsidiaries
to, create or otherwise cause or permit to exist or become effective any
consensual encumbrance or consensual restriction on the ability of any
restricted subsidiary to:
(1) pay dividends or make any other distributions on its capital stock
to Parent or any of its restricted subsidiaries or pay any indebtedness
owed to Parent,
(2) make any loans or advances to Parent or
(3) transfer any of its property or assets to Parent,
except:
(1) any encumbrance or restriction pursuant to an agreement in effect at
or entered into on July 28, 1999, including restrictions under the
debenture indenture, the debentures, the notes indenture, the notes and the
guarantees of the notes;
(2) any encumbrance or restriction with respect to a restricted
subsidiary pursuant to an agreement relating to any indebtedness incurred
by such restricted subsidiary on or prior to the date on which such
restricted subsidiary was acquired by Parent, other than indebtedness
incurred as consideration in, or to provide all or any portion of the funds
or credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such restricted subsidiary became a
restricted subsidiary or was acquired by Parent, and outstanding on such
date;
(3) any such encumbrance or restriction consisting of customary non-
assignment provisions in leases governing leasehold interests to the extent
such provisions restrict the transfer of the lease or the property leased
thereunder;
(4) in the case of clause (c) above, restrictions contained in security
agreements or mortgages securing indebtedness of a restricted subsidiary to
the extent such restrictions restrict the transfer of the property subject
to such security agreements or mortgages; provided that such security
agreements or mortgages constitute Permitted Liens and such indebtedness is
permitted to be incurred under the debenture indenture;
(5) any restriction with respect to a restricted subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the capital stock or assets of such restricted subsidiary
pending the closing of such sale or disposition;
(6) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
and
(7) restrictions on the transfer of assets subject to any Lien permitted
under the debenture indenture imposed by the holder of such Lien;
(8) encumbrances or restrictions existing under or arising pursuant to
credit facilities entered into in accordance with the debenture indenture;
provided that the encumbrances or restrictions in such credit facilities
are not materially more restrictive than those contained in the senior
credit facility as in effect on the date hereof;
(9) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the property so acquired of
the nature described in clause (3) of the first paragraph of this covenant;
and
(10) 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;
(11) any agreement or instrument governing capital stock, other than
disqualified stock, of any person that is in effect on the date such person
is acquired by Woods or a restricted subsidiary; and
(12) any encumbrances or restrictions imposed by any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings of the contracts, instruments or obligations
referred to in clauses (1) through (11) above; provided that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are, in the good
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faith judgment of the board of directors of Parent, not materially more
restrictive with respect to such dividend and other payment restrictions
than those contained in the dividends or other payment restrictions prior
to such amendment, modification, restatement, renewal, increase,
supplement, refunding, replacement or refinancing.
Limitation on Sales of Assets and Subsidiary Stock. (a) Parent will not, and
will not permit any of Parent's restricted subsidiaries to, directly or
indirectly, consummate any Asset Disposition unless:
(1) Parent or such restricted subsidiary receives consideration at the
time of such Asset Disposition at least equal to the fair market value,
including as to the value of all non-cash consideration, as determined in
good faith by Parent's board of directors, of the shares and assets subject
to such Asset Disposition and at least 75% of the consideration thereof
received by Parent or such restricted subsidiary is in the form of cash or
cash equivalents or marketable securities and
(2) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by Parent or such restricted subsidiary, as the case
may be;
(A) first, to the extent Parent elects, or is required by the terms
of any indebtedness, to prepay, repay, redeem or purchase indebtedness
under the senior credit facility or indebtedness, other than any
disqualified stock, of a restricted subsidiary required to be repaid
upon such Asset Sale, including the notes, in each case other than
indebtedness owed to Parent or any of its affiliates, within one year
from the later of the date of such Asset Disposition or the receipt of
such Net Available Cash;
(B) second, to the extent of the balance of such Net Available Cash
after application in accordance with clause (A), to the extent Parent
elects, to acquire Additional Assets within one year from the later of
the date of such Asset Disposition or the receipt of such Net Available
Cash;
(C) third, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A) and (B) and to the
extent the Net Available Cash is permitted to be distributed to Parent
pursuant to the terms of the indenture governing the notes, to make an
offer to the holders of the debentures, and, to holders of other
indebtedness that ranks equals with the debentures designated by
Parent, to purchase debentures, and such other equal indebtedness,
pursuant to and subject to the conditions contained in the debenture
indenture; and
(D) fourth, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A), (B) and (C) to (x)
the acquisition by Parent or any of its restricted subsidiaries of
Additional Assets or (y) the prepayment, repayment or purchase of
Parent's indebtedness (other than any disqualified stock and other than
indebtedness owed to any of Parent's affiliates or indebtedness of any
subsidiary, other than indebtedness owed to Parent or any of its
affiliates, in each case within one year from the later of the receipt
of such Net Available Cash and the date the offer described in clause
(b) below is consummated;
provided, however, that in connection with any prepayment, repayment or
purchase of indebtedness pursuant to clause (A), (C) or (D) above, Parent or
any such restricted subsidiary will permanently retire such indebtedness and
will cause the related loan commitment, if any, to be permanently reduced in an
amount equal to the principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions of this paragraph, Parent and its
restricted subsidiaries will not be required to apply any Net Available Cash in
accordance with this paragraph except to the extent that the aggregate Net
Available Cash from all Asset Dispositions which are not applied in accordance
with this paragraph exceeds $1.0 million. Pending application of Net Available
Cash pursuant to this covenant, such Net Available Cash will be invested in
Permitted Investments.
For the purposes of this covenant, the following are deemed to be cash or
cash equivalents: any liabilities, as shown on Parent's or such Restricted
Subsidiary's most recent balance sheet, of Parent or any restricted subsidiary,
other than contingent liabilities and liabilities that are by their terms
subordinated to the debentures, that are assumed by the transferee of any such
assets; and any securities, notes or other obligations received by Parent or
any such restricted subsidiary from such transferee that are converted, sold or
exchanged by Parent or such restricted subsidiary into cash within 30 days of
the related Asset Sale to the extent of the cash received in that conversation.
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(b) In the event of an Asset Disposition that requires the purchase of the
debentures, and other pari passu indebtedness pursuant to clause (a)(2)(C)
above, Parent will be required to purchase debentures tendered pursuant to an
offer by Parent for the debentures and other pari passu indebtedness at a
purchase price of 100% of their accreted value, without premium, plus accrued
but unpaid interest, or, in respect of such other pari passu indebtedness, 100%
of the principal amount or such lesser price, if any, as may be provided for by
the terms of such pari passu indebtedness, in accordance with the procedures,
including prorating in the event of oversubscription, set forth in the
debenture indenture. If the aggregate purchase price of debentures, and any
other pari passu indebtedness, tendered pursuant to such offer is less than the
Net Available Cash allotted to the purchase thereof, Parent will be required to
apply the remaining Net Available Cash in accordance with clause (a)(2)(D)
above. Parent will not be required to make such an offer to purchase
debentures, and other pari passu indebtedness, pursuant to this covenant if the
Net Available Cash available therefor is less than $5.0 million, which lesser
amount will be carried forward for purposes of determining whether such an
offer is required with respect to the Net Available Cash from any subsequent
Asset Disposition.
(c) Notwithstanding paragraphs (a) and (b) above, Parent and its restricted
subsidiaries will be permitted to consummate an Asset Disposition with respect
to assets in any transaction or series of related transactions with a fair
market value of $2.0 million or less without complying with such paragraphs to
the extent (i) at least 75% of the consideration for such Asset Sale
constitutes cash, cash equivalents, marketable securities or Productive Assets
and (ii) such Asset Disposition is for fair market value, as determined in good
faith by Parent's Board of Directors; provided that any consideration not
constituting Productive Assets received by Parent or any restricted subsidiary
in connection with an Asset Disposition permitted to be consummated under this
paragraph shall be subject to the provisions of paragraphs (a) and (b) above
and included in Net Available Cash.
(d) Parent will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of debentures pursuant to this covenant. To
the extent that the provisions of any securities laws or regulations conflict
with provisions of this covenant, Parent will comply with the applicable
securities laws and regulations and will not be deemed to have breached
Parent's obligations under this clause by virtue thereof.
Limitation on Affiliate Transactions. (a) Parent will not, and will not
permit any restricted subsidiary to, enter into or permit to exist any
transaction, including the purchase, sale, lease or exchange of any property,
employee compensation arrangements or the rendering of any service, with any of
Parent's affiliates (an "affiliate transaction") unless the terms thereof:
(1) are no less favorable to Parent or such Restricted Subsidiary than
those that could be obtained at the time of such transaction in arm's-
length dealings with a Person who is not such an affiliate,
(2) if such affiliate transaction involves an amount in excess of $1
million, (A) are set forth in writing and (B) have been approved by a
majority of the members of Parent's board of directors having no personal
stake in such affiliate transaction; and
(3) if such affiliate transaction involves as amount in excess of $10
million, have been determined by nationally recognized investment banking
or accounting firm to be fair, from a financial standpoint, to Parent and
its restricted subsidiaries.
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(1) any restricted payment permitted to be paid pursuant to the covenant
described under "--Limitation on Restricted Payments,"
(2) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by Parent's
board of directors,
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(3) the grant of stock options or similar rights to Parent's employees
and directors pursuant to plans approved by Parent's board of directors,
(4) loans or advances to employees in the ordinary course of business in
accordance with Parent's past practices or past practices of Parent's
restricted subsidiaries, but in any event not to exceed $1 million in the
aggregate outstanding at any one time,
(5) the payment of reasonable fees to Parent's directors and directors
of restricted subsidiaries who are not Parent's employees or employees of
restricted subsidiaries,
(6) any affiliate transaction between Parent and a restricted subsidiary
or between restricted subsidiaries,
(7) the issuance or sale of any capital stock of Parent other than
Disqualified Stock,
(8) any employment agreement with reasonable terms entered into by
Parent or any of its restricted subsidiaries in the ordinary course of
business and consistent with the past practice of Parent or such restricted
subsidiary,
(9) transactions with a person that is an affiliate of Parent solely
because Parent owns an equity interest in such person so long as no other
affiliate of Parent owns an interest in such person,
(10) the payment of transaction, management, consulting and advisory
fees and related expenses to Madison Dearborn Partners, LLC and its
Affiliates; provided, that such fees shall not, in the aggregate, exceed:
(a) in the case of a management fee, $600,000 in any twelve-month
period, and
(b) in the case of a transaction fee, 1.0% of the total equity value
of, plus the indebtedness assumed from, the business acquired in such
transaction or series of related transactions;
(11) reasonable fees and expenses and compensation paid to, and
indemnity provided on behalf of, officers, directors or employees of Parent
or any subsidiary as determined in good faith by the board of directors of
Parent or senior management; and
(12) any agreement as in effect as of July 28, 1999 or any amendment
thereto so long as such amendment is not more disadvantageous to the
holders in any material respect.
Limitation on Liens. Parent will not, and will not permit any restricted
subsidiary to, directly or indirectly, create or permit to exist any Lien on
any of its property or assets, including capital stock, whether owned on July
28, 1999 or thereafter acquired, securing any obligation, other than Permitted
Liens, unless contemporaneously therewith effective provision is made to secure
the debentures equally and ratably with, or on a senior basis to the
subordinated obligations, such obligation for so long as such obligation is so
secured.
Limitation on the Sale or Issuance of Preferred Stock of Restricted
Subsidiaries. Parent will not sell or otherwise dispose of any capital stock of
a restricted subsidiary, and will not permit any restricted subsidiary,
directly or indirectly, to issue or sell or otherwise dispose of any of its
preferred stock except to Parent or any of its wholly owned subsidiaries.
Limitation on Sale/Leaseback Transactions. Parent will not, and will not
permit any restricted subsidiary to, enter into any Sale/Leaseback Transaction
with respect to any property unless
(1) Parent or such restricted subsidiary would be entitled to (A) incur
indebtedness in an amount equal to the attributable debt with respect to
such Sale/Leaseback Transaction pursuant to the covenant described under
"--Certain Covenants--Limitation on Indebtedness" and (B) create a Lien on
such property securing such attributable indebtedness without equally and
ratably securing the debentures pursuant to the covenant described under
"--Certain Covenants--Limitation on Liens," and
(2) the transfer of such property is permitted by, and Parent or such
restricted subsidiary applies the proceeds of such transaction in
compliance with, the covenant described under "--Certain Covenants--
Limitation on Sales of Assets and Subsidiary Stock."
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Merger and Consolidation. Parent will not consolidate with or merge with or
into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all Parent's assets to, any person, unless:
(1) the resulting, surviving or transferee person (the "successor
company") will be a person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
the successor company, if not Parent, will expressly assume, by an
indenture supplemental thereto, executed and delivered to the trustee, in
form satisfactory to the trustee, all Parent's obligations under the
debentures and the debenture indenture;
(2) immediately after giving effect to such transaction, and treating
any indebtedness which becomes an obligation of the successor company or
any subsidiary as a result of such transaction as having been incurred by
such successor company or such subsidiary at the time of such transaction,
no default will have occurred and be continuing;
(3) immediately after giving effect to such transaction, the successor
company would be able to Incur an additional $1.00 of indebtedness pursuant
to paragraph (a) of the covenant described under "--Limitation on
indebtedness"; and
(4) Parent will have delivered to the trustee an officers' certificate
and an opinion of counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture, if any, comply with the debenture
indenture.
The successor company will be Parent's successor and will succeed to, and be
substituted for, and may exercise every right and power Parent has under the
debenture indenture, but Parent's predecessor in the case of a conveyance,
transfer or lease will not be released from the obligation to pay the principal
of and interest on the debentures.
SEC Reports. Notwithstanding that Parent may not be subject to the reporting
requirements of Section 13 or 15 (d) of the Exchange Act, Parent will file with
the SEC, to the extent the SEC will accept such filings, and provide the
trustee and debentureholders with such annual reports and such information,
documents and other reports as are specified in Sections 13 and 15(d) of the
Exchange Act and applicable to a U.S. corporation subject to such Sections,
such information, documents and other reports to be so filed and provided at
the times specified for the filing of such information, documents and reports
under such Sections.
Limitations on Status as Investment Company. The debenture indenture
prohibits Parent and its subsidiaries from becoming "investment companies" (as
that term is defined in the Investment Company Act of 1940, as amended), or
from otherwise becoming subject to regulation under the Investment Company Act.
Defaults
An event of default is defined in the debenture indenture as:
(1) a default in the payment of cash interest on the debentures when
due, continued for 30 days,
(2) a default in the payment of principal of any debenture when due at
its stated maturity, upon optional redemption, upon required repurchase,
upon declaration or otherwise,
(3) Parent's failure to comply with its obligations under "--Certain
Covenants--Merger and Consolidation" above,
(4) Parent's failure to comply for 30 days after notice with any of its
obligations in the covenants described above under "Change of Control,"
other than a failure to purchase debentures, or under "--Certain Covenants"
under "--Limitation on Indebtedness," "--Limitation on Restricted
Payments," "--Limitation on Restrictions on Distributions from Restricted
Subsidiaries" or "--Limitation on Sales of Assets and Subsidiary Stock,"
other than a failure to purchase debentures, "--Limitation on Affiliate
Transactions," "--Limitation on the Sale or Issuance of Preferred Stock of
Restricted Subsidiaries" or "--SEC Reports,"
(5) Parent's failure to comply for 60 days after notice with its other
agreements contained in the debenture indenture,
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(6) indebtedness of Parent or any of its significant subsidiaries is not
paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default and the total
amount of such indebtedness unpaid or accelerated exceeds $5 million (the
"cross acceleration provision"),
(7) certain events of bankruptcy, insolvency or reorganization of Parent
or any of its significant subsidiaries (the "bankruptcy provisions"),
(8) any judgment or decree for the payment of money in excess of $5
million is entered against Parent or any of its significant subsidiaries,
remains outstanding for a period of 90 days following such judgment and is
not discharged, waived or stayed within 10 days after notice (the "judgment
default provision").
However, a default under clauses (4) , (5) and (8) will not constitute an
event of default until the trustee or the holders of 25% in principal amount of
the outstanding debentures notify Parent of the default and Parent does not
cure such default within the time specified after receipt of such notice.
If an event of default occurs and is continuing, the trustee or the holders
of at least 25% in principal amount at maturity of the outstanding debentures
may declare the principal of and accrued but unpaid interest on all the
debentures to be due and payable. Upon such a declaration, such principal and
interest will be due and payable immediately. If an event of default relating
to certain events of bankruptcy, insolvency or reorganization of Parent occurs
and is continuing, the principal of and interest on all the debentures will
ipso facto become and be immediately due and payable without any declaration or
other act on the part of the trustee or any holders of the debentures.
Under certain circumstances, the holders of a majority in principal amount
at maturity of the outstanding debentures may rescind any such acceleration
with respect to the debentures and its consequences. Subject to the provisions
of the debenture indenture relating to the duties of the trustee, in case an
event of default occurs and is continuing, the trustee will be under no
obligation to exercise any of the rights or powers under the debenture
indenture at the request or direction of any of the holders of the debentures
unless such holders have offered to the trustee reasonable indemnity or
security against any loss, liability or expense.
Except to enforce the right to receive payment of principal, premium, if
any, or interest when due, no holder of a debenture may pursue any remedy with
respect to the debenture indenture or the debentures unless:
(1) such holder has previously given the trustee notice that an event of
default is continuing,
(2) holders of at least 25% in principal amount at maturity of the
outstanding debentures have requested the trustee to pursue the remedy,
(3) such holders have offered the trustee reasonable security or
indemnity against any loss, liability or expense,
(4) the trustee has not complied with such request within 60 days after
the receipt thereof and the offer of security or indemnity and
(5) the holders of a majority in principal amount at maturity of the
outstanding debentures have not given the trustee a direction inconsistent
with such request within such 60-day period. Subject to certain
restrictions, the holders of a majority in principal amount at maturity of
the outstanding debentures are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the
trustee or of exercising any trust or power conferred on the trustee. The
trustee, however, may refuse to follow any direction that conflicts with
law or the debenture indenture or that the trustee determines is unduly
prejudicial to the rights of any other holder of a debenture or that would
involve the trustee in personal liability.
The debenture indenture provides that if a default occurs and is continuing
and is known to the trustee, the trustee must mail to each holder of the
debentures notice of the default within 90 days after it occurs. Except in the
case of a default in the payment of principal of or interest on any debenture,
the trustee may withhold notice if and so long as a committee of its trust
officers determines that withholding notice is not opposed to
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the interest of the holders of the debentures. In addition, Parent is required
to deliver to the trustee, within 120 days after the end of each fiscal year, a
certificate indicating whether the signers thereof know of any default that
occurred during the previous year. Parent is also required to deliver to the
trustee, within 30 days after the occurrence thereof, written notice of any
event which would constitute certain defaults, their status and what action
Parent is taking or proposes to take in respect thereof.
Amendments and Waivers
Subject to certain exceptions, the debenture indenture may be amended with
the consent of the holders of a majority in principal amount at maturity of the
debentures then outstanding, including consents obtained in connection with a
tender offer or exchange for the debentures, and any past default or compliance
with any provisions may also be waived with the consent of the holders of a
majority in principal amount at maturity of the debentures then outstanding.
However, without the consent of each holder of an outstanding debenture
affected thereby, no amendment may, among other things:
(1) reduce the amount of debentures whose holders must consent to an
amendment,
(2) reduce the rate of or extend the time for payment of interest on any
debenture or make any change to the calculation of the accreted value of
the debentures,
(3) reduce the principal of or extend the stated maturity of any
debenture,
(4) reduce the amount payable upon the redemption of any debenture or
change the time at which any debenture may be redeemed as described under
"--Optional Redemption,"
(5) make any debenture payable in money other than that stated in the
debenture,
(6) impair the right of any holder of the debentures to receive payment
of principal of and interest on such holder's debentures on or after the
due dates therefor or to institute suit for the enforcement of any payment
on or with respect to such holder's debentures, or
(7) make any change in the amendment provisions which require each
holder's consent or in the waiver provisions.
Without the consent of any holder of the debentures, Parent and the trustee
may amend the debenture indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of
Parent's obligations under the debenture indenture, to provide for
uncertificated debentures in addition to or in place of certificated
debentures, provided that the uncertificated debentures are issued in
registered form for purposes of Section 163(f) of the U.S. tax code, or in a
manner such that the uncertificated debentures are described in Section
163(f)(2)(B) of the U.S. tax code, to add guarantees with respect to the
debentures, to secure the debentures, to add to Parent's covenants for the
benefit of the holders of the debentures or to surrender any right or power
conferred upon Parent, to make any change that does not adversely affect the
rights of any holder of the debentures or to comply with any requirement of the
SEC in connection with the qualification of the debenture indenture under the
Trust Indenture Act.
The consent of the holders of the debentures is not necessary under the
debenture indenture to approve the particular form of any proposed amendment.
It is sufficient if such consent approves the substance of the proposed
amendment.
After an amendment under the debenture indenture becomes effective, Parent
is required to mail to holders of the debentures a notice briefly describing
such amendment. However, the failure to give such notice to all holders of the
debentures, or any defect therein, will not impair or affect the validity of
the amendment.
Transfer
The debentures will be issued in registered form and will be transferable
only upon the surrender of the debentures being transferred for registration of
transfer. Parent may require payment of a sum sufficient to cover any tax,
assessment or other governmental charge payable in connection with certain
transfers and exchanges.
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Defeasance
At any time Parent may terminate all its obligations under the debentures
and the debenture indenture ("legal defeasance"), except for certain
obligations, including those respecting the defeasance trust and obligations to
register the transfer or exchange of the debentures, to replace mutilated,
destroyed, lost or stolen debentures and to maintain a registrar and paying
agent in respect of the debentures. At any time Parent may terminate its
obligations under "change of control" and under the covenants described under
"--Certain Covenants," other than the covenant described under "--Merger and
Consolidation", the operation of the cross acceleration provision, the
bankruptcy provisions with respect to significant subsidiaries and the judgment
default provision described under "--Defaults" above and the limitations
contained in clause (3) and (4) under "--Certain Covenants--Merger and
Consolidation" above ("covenant defeasance").
Parent may exercise its legal defeasance option notwithstanding Parent's
prior exercise of its covenant defeasance option. If Parent exercises its legal
defeasance option, payment of the debentures may not be accelerated because of
an event of default with respect thereto. If Parent exercises its covenant
defeasance option, payment of the debentures may not be accelerated because of
an event of default specified in clause (4), (6), (7) (with respect only to
Significant Subsidiaries), (8) or (9) under "--Defaults" above or because
Parent failed to comply with clause (3) or (4) under "--Certain Covenants--
Merger and Consolidation" above.
In order to exercise either defeasance option, Parent must irrevocably
deposit in trust (the "defeasance trust") with the trustee money or U.S.
Government Obligations for the payment of principal and interest on the
debentures to redemption or maturity, as the case may be, and must comply with
certain other conditions, including delivery to the trustee of an opinion of
counsel to the effect that holders of the debentures will not recognize income,
gain or loss for Federal income tax purposes as a result of such deposit and
defeasance and will be subject to Federal income tax on the same amounts and in
the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred and, in the case of legal defeasance
only, such opinion of counsel must be based on a ruling of the IRS or other
change in applicable Federal income tax law.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of Parent, as
such, shall have any liability for any obligations of Parent under the
debentures, the debenture indenture or for any claim based on, in respect of,
or by reason of, such obligations or their creations. Each holder of debentures
by accepting a debenture waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the debentures. The
waiver may not be effective to waive liabilities under the federal securities
laws.
Concerning the Trustee
United States Trust Company of Texas, N.A. is the trustee under the
debenture indenture and has been appointed by Parent as registrar and paying
agent with regard to the debentures.
The debenture indenture contains certain limitations on the rights of the
trustee, should it become a creditor of Parent, 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; provided, however, if it acquires any conflicting interest
it must eliminate such conflict within 90 days, apply to the SEC for permission
to continue or resign.
The holders of a majority in principal amount at maturity of the outstanding
debentures 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 debenture indenture provides that if an
event of default occurs and is not 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
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any of its rights or powers under the debenture indenture at the request of any
holder of debentures, unless such holder will have offered to the trustee
security and indemnity satisfactory to it against any loss, liability or
expense and then only to the extent required by the terms of the debenture
indenture.
Governing Law
The debenture indenture provides that it and the debentures will be governed
by, and construed in accordance with, the laws of the State of New York without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
Certain Definitions
"accreted value" means, as of any date prior to July 15, 2004, an amount per
$1,000 principal amount at maturity of debentures that is equal to the sum of
(a) the initial offering price ($481.45 per $1,000 principal amount at maturity
of debentures) of such debentures and (b) the portion of the excess of the
principal amount of such debentures over such initial offering price which
shall have been amortized through such date, such amount to be so amortized on
a daily basis and compounded quarterly on each January 15th, April 15th,
July 15th and October 15th, commencing October 15, 1999, at the rate of 15% per
annum from the date of original issue of the debentures through the date of
determination computed on the basis of a 360-day year of twelve 30-day months,
and as of any date on or after July 15, 2004, the principal amount of each
debenture.
"Additional Assets" means
(1) any property or assets, other than indebtedness and capital stock,
in a Related Business;
(2) the capital stock of a person that becomes a restricted subsidiary
as a result of the acquisition of such capital stock by Parent or a
restricted subsidiary; or
(3) capital stock constituting a minority interest in any person that at
such time is a Restricted Subsidiary; provided, however, that any such
restricted subsidiary described in clauses (2) or (3) above is primarily
engaged in a Related Business.
"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 the purposes of this definition,
"control" when used with respect to any person means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "--Certain Covenants--Limitation on
Restricted Payments," "--Certain Covenants--Limitation on Affiliate
Transactions" and "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" only, "affiliate" will also mean any beneficial owner of
Parent's capital stock representing 10% or more of the total voting power of
the voting stock on a fully diluted basis or of rights or warrants to purchase
such capital stock whether or not currently exercisable and any person who
would be an affiliate of any such beneficial owner pursuant to the first
sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other disposition or
series of related sales, leases, transfers or dispositions by Parent or any
restricted subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of
(1) any shares of capital stock of a restricted subsidiary other than
directors' qualifying shares or shares required by applicable law to be
held by a person other than Parent or a restricted subsidiary,
(2) all or substantially all the assets of any division or line of
business of Parent's or any restricted subsidiary or
(3) any other assets of Parent or any restricted subsidiary outside of
Parent's ordinary course of business or such restricted subsidiary.
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Notwithstanding the preceding, the following items shall not be deemed to be
Asset Dispositions:
(1) any single transaction or series of related transactions that
involves assets having a fair market value of less than $1.0 million;
(2) a transfer of assets between or among Parent and its wholly owned
subsidiaries,
(3) an issuance of Equity Interests by a wholly owned subsidiary to
Parent or to another wholly owned subsidiary;
(4) the sale, license or lease of equipment, inventory, accounts
receivable or other assets in the ordinary course of business;
(5) the sale or other disposition of cash or cash equivalents or
marketable securities;
(6) a restricted payment that is permitted by the covenant described
above under the caption "--Certain Covenants--Limitation on Restricted
Payments."
"Attributable Debt" when used with respect to any Sale/Leaseback Transaction
means, as at the time of determination, the present value, discounted at the
interest rate borne by the debentures, compounded annually, of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction, including any period for
which such lease has been extended.
"average life" means, as of the date of determination, with respect to any
indebtedness or preferred stock, the quotient obtained by dividing (1) the sum
of the products of numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such indebtedness or
redemption or similar payment with respect to such preferred stock multiplied
by the amount of such payment by (2) the sum of all such payments.
"banks" has the meaning specified in the credit agreement.
"bank indebtedness" means all obligations pursuant to the senior credit
facility.
"board of directors" means Parent's board of directors or any committee
thereof duly authorized to act on behalf of such board.
"Business Day" means each day which is not a legal holiday.
"capital lease obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation will be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof will be the date of the
last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"capital stock" of any person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in, however designated, equity of such person, including any
preferred stock, but excluding any debt securities convertible into such
equity.
"cash equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guarantee or insured by the
Untied 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 no more than six months from the date of
acquisition;
(3) 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 twelve months and overnight bank
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deposits, in each case, with any lender party to the credit agreement or
with any domestic commercial bank having capital and surplus in excess of
$500.0 million and a Thomson Bank Watch Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institutions meeting the qualifications
specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Rating Services and in each
case maturing within twelve months after the date of acquisition; and
(6) money marked funds at least 95% of the assets of which constitute
cash equivalents of the kinds described in clauses (1) through (5) of this
definition.
"Code" means the Internal Revenue Code of 1986, as amended.
"commodity agreement" means in respect of a person, any commodity futures
contract, commodity option or other similar agreement or arrangement designed
to protect such person against fluctuations in the price of energy, commodities
and raw materials.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (1) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters prior to the date of such determination to (2)
Consolidated Interest Expense for such four fiscal quarters; provided, however,
that
(1) if Parent or any restricted subsidiary has incurred any indebtedness
since the beginning of such period that remains outstanding or if the
transaction giving rise to the need to calculate the Consolidated Coverage
Ratio is an incurrence of indebtedness, or both, EBITDA and Consolidated
Interest Expense for such period will be calculated after giving effect on
a pro forma basis to such Indebtedness as if such Indebtedness had been
incurred on the first day of such period and the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise discharged with the
proceeds of such new Indebtedness as if such discharge had occurred on the
first day of such period,
(2) if Parent or any restricted subsidiary has repaid, repurchased,
defeased or otherwise discharged any indebtedness since the beginning of
such period or if any indebtedness is to be repaid, repurchased, defeased
or otherwise discharged (in each case other than indebtedness incurred
under any revolving credit facility unless such indebtedness has been
permanently repaid and has not been replaced) on the date of the
transaction giving rise to the need to calculate the Consolidated Coverage
Ratio, EBITDA and Consolidated Interest Expense for such period will be
calculated on a pro forma basis as if such discharge had occurred on the
first day of such period and as Parent or such restricted subsidiary has
not earned the interest income actually earned during such period in
respect of cash or temporary cash investments used to repay, repurchase,
defease or otherwise discharge such indebtedness,
(3) if since the beginning of such period Parent or any restricted
subsidiary will have made any Asset Disposition, the EBITDA for such period
will be reduced by an amount equal to the EBITDA, if positive, directly
attributable to the assets which are the subject of such Asset Disposition
for such period, or increased by an amount equal to the EBITDA, if
negative, directly attributable thereto for such period and Consolidated
Interest Expense for such period will be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to Parent's
indebtedness or any restricted subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to Parent and its continuing restricted
subsidiaries in connection with such Asset Disposition for such period (or,
if the capital stock of any Restricted Subsidiary is sold, the Consolidated
Interest Expense for such period directly attributable to the indebtedness
of such restricted subsidiary to the extent Parent and its continuing
restricted subsidiaries are no longer liable for such Indebtedness after
such sale,
(4) if since the beginning of such period Parent or any restricted
subsidiary (by merger or otherwise) will have made an Investment in any
restricted subsidiary (or any person which becomes a restricted
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subsidiary) or an acquisition of assets, including any acquisition of
assets occurring in connection with a transaction requiring a calculation
to be made hereunder, which constitutes all or substantially all of an
operating unit of a business, EBITDA and Consolidated Interest Expense for
such period will be calculated after giving pro forma effect thereto
(including the incurrence of any indebtedness or any cost saving permitted
to be adjusted in accordance with Article 11 of Regulation S-X) as if such
Investment or acquisition occurred on the first day of such period and
(5) if since the beginning of such period any person (that subsequently
became a restricted subsidiary or was merged with or into Parent or any
restricted subsidiary since the beginning of such period) will have made
any Asset Disposition, any Investment or acquisition of assets that would
have required an adjustment pursuant to clause (3) or (4) above if made by
Parent or a restricted subsidiary during such period, EBITDA and
Consolidated Interest Expense for such period will be calculated after
giving pro forma effect thereto as if such Asset Disposition, Investment or
acquisition occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto and
the amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations will be determined
by Parent in good faith by a responsible financial or accounting officer. If
any indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest of such Indebtedness will be calculated as if the rate in
effect on the date of determination had been the applicable rate for the entire
period (taking into account any interest rate agreement applicable to such
indebtedness if such interest rate agreement has a remaining term in excess of
12 months).
"Consolidated Interest Expense" means, for any period, Parent's total
interest expense and that of Parent's consolidated restricted subsidiaries,
plus, to the extent not included in such total interest expense, and to the
extent incurred by Parent or its restricted subsidiaries, without duplication,
(1) interest expense attributable to capital leases and the interest
expense attributable to leases constituting part of a Sale/Leaseback
Transaction,
(2) amortization of debt discount and debt issuance cost,
(3) capitalized interest,
(4) non-cash interest expenses,
(5) commissions, discounts and other fees and charges owed with respect
to letters of credit and bankers' acceptance financing,
(6) net costs associated with hedging obligations (including
amortization of fees),
(7) preferred Stock dividends in respect of all preferred stock held by
persons other than Parent or a wholly owned Subsidiary,
(8) interest incurred in connection with Investments in discontinued
operations,
(9) interest accruing on any Indebtedness of any other Person to the
extent such indebtedness is guaranteed by (or secured by the assets of)
Parent or any restricted subsidiary and
(10) the cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan or
trust to pay interest or fees to any person (other than Parent) in
connection with indebtedness incurred by such plan or trust.
"Consolidated Net Income" means, for any period, Parent's net income and
that of Parent's consolidated subsidiaries; provided, however, that there will
not be included in such Consolidated Net Income:
(1) any net income of any person (other than Parent) if such person is
not a restricted subsidiary, except that
(A) subject to the exclusion contained in clause (4) below, Parent's
equity in the net income of any such Person for such period will be
included in such Consolidated Net Income up to the aggregate amount of
cash actually distributed by such person during such period to Parent
or a
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restricted subsidiary as a dividend or other distribution (subject, in
the case of a dividend or other distribution paid to a restricted
subsidiary, to the limitations contained in clause (3) below) and
(B) Parent's equity in a net loss of any such person for such period
will be included in determining such Consolidated Net Income;
(2) any net income (or loss) of any Person acquired by Parent or a
subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition;
(3) any net income of any restricted subsidiary if such restricted
subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such restricted
subsidiary, directly or indirectly, to Parent, except that
(A) this clause (3) shall not apply to the restriction contained in
the indenture governing the notes of WEC or contained in the senior
credit facility,
(B) subject to the exclusion contained in clause (4) below, Parent's
equity in the net income of any such restricted subsidiary for such
period will be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such restricted
subsidiary during such period to Parent or another restricted
subsidiary as a dividend or other distribution, subject, in the case of
a dividend or other distribution paid to another restricted subsidiary,
to the limitation contained in this clause, and
(C) Parent's equity in a net loss of any such restricted subsidiary
for such period will be included in determining such Consolidated Net
Income;
(4) any gain (but not loss) realized upon the sale or other disposition
of any of Parent's assets, Parent's consolidated subsidiaries or any other
person (including pursuant to any sale-and-leaseback arrangement) which is
not sold or otherwise disposed of in the ordinary course of business and
any gain (but not loss) realized upon the sale or other disposition of any
capital stock of any person;
(5) extraordinary gains or losses; and
(6) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purposes of the covenant described
under "Certain Covenants--Limitation on Restricted Payments" only, there will
be excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from unrestricted subsidiaries to Parent
or a restricted subsidiary to the extent such dividends, repayments or
transfers increase the amount of restricted payments permitted under such
covenant pursuant to clause (a)(3)(D) thereof.
"credit facilities" means, one or more debt facilities or commercial paper
facilities, in each case with banks or other institutional lenders providing
for revolving credit loans, term loans, receivables financing (including
through the sale of receivables to such lenders or to special purpose entities
formed to borrow from such lenders against such receivables), working capital
loans, swing lines, advances or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced, restructured or refinanced in
whole or in part from time to time.
"currency agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement designed to
protect such Person against fluctuations in currency values.
"default" means any event which is, or after notice or passage of time or
both would be, an event of default.
"disqualified stock" means, with respect to any person, any capital stock
which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any
event
(1) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise,
(2) is convertible or exchangeable for Indebtedness or disqualified
stock or
(3) is redeemable or must be purchased, upon the occurrence of certain
events or otherwise, by such person at the option of the holder thereof, in
whole or in part,
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in each case on or prior to the first anniversary of the stated maturity of the
debentures; provided, however, that any capital stock that would not constitute
disqualified stock but for provisions thereof giving holders thereof the right
to require such person to purchase or redeem such capital stock upon the
occurrence of an "asset sale" or "change of control" occurring prior to the
first anniversary of the stated maturity of the debentures will not constitute
disqualified stock if (x) the "asset sale" or "change of control" provisions
applicable to such capital stock are not more favorable to the holders of such
capital stock than the terms applicable to the debentures and described under
"--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock" and
"--Certain Covenants--Change of Control" and (y) any such requirement only
becomes operative after compliance with such terms applicable to the
debentures, including the purchase of any debentures tendered pursuant thereto.
"EBITDA" for any period means the sum of Consolidated Net Income, plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income:
(1) all Parent's income tax expense and that of Parent's consolidated
restricted subsidiaries,
(2) Parent's depreciation expense and that of Parent's consolidated
restricted subsidiaries,
(3) Parent's amortization expense and that of Parent's consolidated
restricted subsidiaries (excluding amortization expense attributable to a
prepaid cash item that was paid in a prior period),
(4) all Parent's other non-cash charges and those of Parent's
consolidated restricted subsidiaries (excluding any such non-cash charge to
the extent that it represents an accrual of or reserve for cash
expenditures in any future period), in each case for such period, and
(5) all one-time compensation payments made in connection with the
recapitalization.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization and non-cash charges of, a
restricted subsidiary will be added to Consolidated Net Income to compute
EBITDA only to the extent (and in the same proportion) that the net income of
such restricted subsidiary was included in calculating Consolidated Net Income
and only if a corresponding amount would be permitted at the date of
determination to be dividended to Parent by such restricted subsidiary without
prior approval (that has not been obtained), 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. If since the beginning of the relevant period, Parent or any
restricted subsidiary will have made an Investment in any restricted subsidiary
(or any person which becomes a restricted subsidiary) or an acquisition of
assets, including any acquisition of assets occurring in connection with a
transaction requiring a calculation to be made hereunder, which constitutes all
or substantially all of an operating unit of a business, EBITDA for such period
will be calculated after giving pro forma effect thereto (including any cost
saving permitted to be adjusted in accordance with Article 11 of Regulation S-
X).
"equity interest" 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.
"equity offering" means an offering of stock of Parent.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of July 28, 1999, including those set forth in
(1) the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants,
(2) statements and pronouncements of the Financial Accounting Standards
Board,
(3) such other statements by such other entity as approved by a
significant segment of the accounting profession and
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(4) the rules and regulations of the SEC governing the inclusion of
financial statements (including pro forma financial statements) in periodic
reports required to be filed pursuant to Section 13 of the Exchange Act,
including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
"guarantee" means any obligation, contingent or otherwise, of any person
directly or indirectly guaranteeing any Indebtedness of any person and any
obligation, direct or indirect, contingent or otherwise, of such person
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such indebtedness or other obligation of such person (whether
arising by virtue of partnership arrangements, or by agreements to keep-
well, to purchase assets, goods, securities or services, to take-or-pay or
to maintain financial statement conditions or otherwise) or
(2) entered into for the purpose of assuring in any other manner the
obligee of such Indebtedness of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part); provided,
however, that the term "guarantee" will not include endorsements for
collection or deposit in the ordinary course of business.
The term "guarantee" used as a verb has a corresponding meaning. The term
"guarantor" will mean any person guaranteeing any obligation.
"hedging obligations" of any person means the obligations of such person
pursuant to any interest rate agreement or currency agreement.
"holder" or "debentureholder" means the person in whose name a debenture is
registered on the registrar's books.
"incur" means issue, assume, guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or capital stock of a person
existing at the time such person becomes Parent's subsidiary (whether by
merger, consolidation, acquisition or otherwise) will be deemed to be incurred
by such Subsidiary at the time it becomes a subsidiary. The term "incurrence"
when used as a noun will have a correlative meaning. The accretion of
principal of a non-interest bearing or other discount security will be deemed
the incurrence of indebtedness.
"indebtedness" means, with respect to any person on any date of
determination (without duplication):
(1) the principal in respect of (A) indebtedness of such Person for
money borrowed and (B) indebtedness evidenced by notes, debentures, bonds
or other similar instruments for the payment of which such Person is
responsible or liable, including, in each case, any premium on such
indebtedness to the extent such premium has become due and payable;
(2) all capital lease obligations of such Person and all Attributable
Debt in respect of Sale/Leaseback Transactions entered into by such Person;
(3) all obligations of such person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such person
and all obligations of such person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of
business);
(4) all obligations of such person for the reimbursement of any obligor
on any letter of credit, banker's acceptance or similar credit transaction
(other than obligations with respect to letters of credit securing
obligations (other than obligations described in clauses (1) through (3)
above) entered into in the ordinary course of business of such person to
the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the tenth
business day following payment on the letter of credit);
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(5) the amount of all obligations of such person with respect to the
redemption, repayment or other repurchase of any disqualified stock or,
with respect to any subsidiary of such person, the liquidation preference
with respect to, any preferred stock (but excluding, in each case, any
accrued dividends);
(6) all obligations of the type referred to in clauses (1) through (5)
of other persons and all dividends of other persons for the payment of
which, in either case, such person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
guarantee;
(7) all obligations of the type referred to in clauses (1) through (5)
of other persons secured by any Lien on any property or asset of such
person (whether or not such obligation is assumed by such person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so secured; and
(8) to the extent not otherwise included in this definition, hedging
obligations of such person.
The amount of indebtedness of any person at any date will be the outstanding
balance at such date of all unconditional obligations as described above and
the maximum liability, upon the occurrence of the contingency giving rise to
the obligation, of any contingent obligations at such date.
"interest rate agreement" means in respect of a person any interest rate
swap agreement, interest rate cap agreement or other financial agreement or
arrangement designed solely to protect such person against fluctuations in
interest rates.
"Investment" in any person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of the lender) or other extensions
of credit (including by way of guarantee or similar arrangement) or capital
contribution to (by means of any transfer of cash or other property to others
or any payment for property or services for the account or use of others), or
any purchase or acquisition of capital stock, Indebtedness or other similar
instruments issued by such person. For purposes of the definition of
"unrestricted subsidiary," the definition of "restricted payment" and the
covenant described under "--Certain Covenants--Limitation on Restricted
Payments,"
(1) "Investment" will include the portion (proportionate to Parent's
equity interest in such subsidiary) of the fair market value of the net
assets of any subsidiary of Parent at the time that such subsidiary is
designated an unrestricted subsidiary; provided, however, that upon a
redesignation of such subsidiary as a restricted subsidiary, Parent will be
deemed to continue to have a permanent "Investment" in an unrestricted
subsidiary equal to an amount (if positive) equal to (x) Parent's
"Investment" in such subsidiary at the time of such redesignation less (y)
the portion (proportionate to Parent's equity interest in such subsidiary)
of the fair market value of the net assets of such subsidiary at the time
of such redesignation; and
(2) any property transferred to or from an unrestricted subsidiary will
be valued at its fair market value at the time of such transfer, in each
case as determined in good faith by the board of directors.
"issue date" means the date on which the debentures are originally issued,
which was July 28, 1999.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind including any conditional sale or other title retention
agreement or lease in the nature thereof.
"marketable securities" means publicly traded debt or equity securities that
are listed for trading on a national securities exchange and that were issued
by a corporation whose debt securities are rated in one of the three highest
categories by either Standard & Poor's Corporation or Moody's Investors
Service, Inc.
"Net Available Cash" from an Asset Disposition means cash payments, cash
equivalents and marketable securities received therefrom including any cash
payments received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise and proceeds from the sale or other
disposition of any
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securities received as consideration, but only as and when received, but
excluding any other consideration received in the form of assumption by the
acquiring person of indebtedness or other obligations relating to such
properties or assets or received in any other noncash form, in each case net
of:
(1) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred, and all Federal, state, provincial, foreign and
local taxes required to be accrued as a liability under GAAP, as a
consequence of such Asset Disposition,
(2) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien
upon or other security agreement of any kind with respect to such assets,
or which must by its terms, or in order to obtain a necessary consent to
such Asset Disposition, or by applicable law, be repaid out of the proceeds
from such Asset Disposition,
(3) all distributions and other payments required to be made to minority
interest holders in restricted Subsidiaries as a result of such Asset
Disposition and
(4) the deduction of appropriate amounts provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with
the property or other assets disposed in such Asset Disposition and
retained by Parent or any restricted subsidiary after such Asset
Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of capital stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"non-recourse debt" means indebtedness
(1) as to which neither Parent nor any restricted subsidiary
(A) provides any guarantee or credit support of any kind including
any undertaking, guarantee, indemnity, agreement or instrument that
would constitute indebtedness or
(B) is directly or indirectly liable (as a guarantor or otherwise)
and
(2) 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
Parent's other indebtedness or that of any restricted subsidiary to declare
a default under such other indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity.
"permitted holders" means Madison Dearborn Partners, Inc. and any affiliate
thereof.
"Permitted Investment" means an Investment by Parent or any restricted
subsidiary in
(1) Parent, a restricted subsidiary or a person that will, upon the
making of such Investment, become a restricted subsidiary; provided,
however, that the primary business of such restricted subsidiary is a
Related Business;
(2) another person if as a result of such Investment such other person
is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, Parent or a restricted subsidiary;
provided, however, that such Person's primary business is a Related
Business;
(3) Investments in cash equivalents and marketable securities;
(4) receivables owing to Parent or any restricted subsidiary, including
negotiable interests held for deposit or collecting, if created or acquired
in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms; provided, however, that such trade
terms may include such concessionary trade terms as Parent or any such
restricted subsidiary deems reasonable under the circumstances;
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(5) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of
business;
(6) loans or advances to employees made in the ordinary course of
business consistent with Parent's past practices or that of such restricted
subsidiary;
(7) any person to the extent such Investment represents the non-cash
portion of the consideration received for an Asset Disposition as permitted
pursuant to the covenant described under "--Certain Covenants--Limitation
on Sales of Assets and Subsidiary Stock";
(8) any acquisition of assets to the extent acquired in exchange for the
issuance of equity interests, other than disqualified stock of Parent;
(9) hedging obligations permitted by clause (7) under the caption "--
Limitation on Indebtedness";
(10) an Investment existing on the date of the debenture indenture;
(11) any Investment in securities of trade creditors or customers
received in compromise of obligations of such persons incurred in the
ordinary course of business, including pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or insolvency of
such trade creditors or customers; and
(12) any Investments in any person having an aggregate fair market value
(measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all other
Investments made pursuant to this clause (12) that are at the time
outstanding not to exceed the greater of $5.0 million or 5% of Total
Tangible Assets.
"Permitted Liens" means, with respect to any person,
(1) pledges or deposits by such person under workmen's compensation
laws, unemployment insurance laws or similar legislation, or good faith
deposits in connection with bids, tenders, contracts (other than for the
payment of indebtedness) or leases to which such person is a party, or
deposits to secure public or statutory obligations of such person or
deposits or cash or United States government bonds to secure surety or
appeal bonds to which such person is a party, or deposits as security for
contested taxes or import duties or for the payment of rent, in each case
incurred in the ordinary course of business;
(2) Liens imposed by law, such as carriers', warehousemen's and
mechanic's Liens, in each case for sums not yet due or being contested in
good faith by appropriate proceeding or other Liens arising out of
judgments or awards against such person with respect to which such person
will then be proceeding with an appeal or other proceedings for review;
(3) Liens for property taxes not yet subject to penalties for non-
payment, which are being contested in good faith by appropriate proceedings
or with respect to which adequate reserves have been recorded in accordance
with GAAP;
(4) Liens in favor of issuers of surety bonds or letters of credit
issued pursuant to the request of and for the account of such person in the
ordinary course of its business;
(5) survey exceptions, encumbrances, easements or reservations of, or
rights of others for, licenses, rights of way, sewers, electric lines,
telegraph and telephone lines and other similar purposes, or zoning or
other restrictions as to use of real properties or liens incidental to the
conduct of the business of such Person or to the ownership of its
properties;
(6) Liens securing hedging obligations so long as the related
Indebtedness is, and is permitted to be under the debenture indenture,
secured by a Lien on the same property securing such hedging obligations;
(7) leases and subleases of real property which do not interfere with
the ordinary conduct of Parent's business or that of any of Parent's
restricted subsidiaries, and which are made on customary and usual terms
applicable to similar properties;
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(8) Liens existing as of the issue date and Liens created by the
debenture indenture or the notes indenture;
(9) Liens created solely for the purpose of securing the payment of all
or a part of the purchase price of assets or property acquired or
constructed in the ordinary course of business after the date on which the
debentures are originally issued; provided, however, that
(A) the aggregate principal amount of indebtedness secured by such
Liens will not exceed the lesser of cost or fair market value of the
assets or property so acquired or constructed,
(B) the indebtedness secured by such Liens will have otherwise been
permitted to be issued under the debenture indenture and
(C) such Liens will not encumber any of Parent's other assets or
property or that of any of Parent's restricted subsidiaries and will
attach to such assets or property within 180 days of the construction
or acquisition of such assets or property;
(10) Liens on the assets or property of any of Parent's restricted
subsidiaries existing at the time such restricted subsidiary became a
subsidiary of Parent and not incurred as a result of (or in connection with
or in anticipation of) such restricted subsidiary becoming a subsidiary of
Parent; provided, however, that:
(A) any such Lien does not by its terms cover any property or assets
after the time such restricted subsidiary becomes a subsidiary which
were not covered immediately prior to such transaction,
(B) the incurrence of the indebtedness secured by such Lien will
have otherwise been permitted to be issued under the debenture
indenture, and
(C) such Liens do not extend to or cover any of Parent's other
property or assets or that of any of Parent's restricted subsidiaries;
(11) Liens to secure capitalized lease obligations permitted to be
incurred under the debenture indenture;
(12) Liens securing Indebtedness outstanding or committed under the
senior credit facility;
(13) Liens extending, renewing or replacing in whole or in part a Lien
permitted by the debenture indenture; provided, however, that:
(A) such Liens do not extend beyond the property subject to the
existing Lien and improvements and construction on such property and
(B) the Indebtedness secured by the Lien may not exceed the
indebtedness secured at the time by the existing Lien;
(14) Liens on inventory deemed to arise by reason of the consignment of
inventory in Parent's ordinary course of business and that of Parent's
restricted subsidiaries;
(15) Liens on the assets or property of any of Parent's restricted
subsidiaries to secure indebtedness of such restricted subsidiary owing to
and held by Parent; and
(16) Liens incurred in the ordinary course of business with respect to
obligations that do not exceed $1.0 million at any one time outstanding.
"person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"preferred stock," as applied to the capital stock of any person, means
capital stock of any class or classes (however designated) which is preferred
as to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
person, over shares of capital stock of any other class of such person.
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"principal" of a debenture means the accreted value of the debenture plus
the premium, if any, payable on the debenture which is due or overdue or is to
become due at the relevant time.
"principal amount at maturity" of a debenture means the amount specified as
such on the face of such debenture.
"public equity offering" means an underwritten primary public offering of
Parent's common stock pursuant to an effective registration statement under the
Securities Act.
"refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such indebtedness. "refinanced"
and "refinancing" will have correlative meanings.
"refinancing indebtedness" means indebtedness that refinances any of
Parent's indebtedness or that of any restricted subsidiary referred to in
clause (b)(6) under the covenant "--Limitation on Indebtedness," including
indebtedness that refinances refinancing indebtedness; provided, however, that:
(1) such refinancing indebtedness has a stated maturity no earlier than
the stated maturity of the indebtedness being refinanced,
(2) such refinancing indebtedness has an average life at the time such
refinancing indebtedness is incurred that is equal to or greater than the
average life of the indebtedness being refinanced and
(3) such refinancing indebtedness has an aggregate principal amount (or
if incurred with original issue discount, an aggregate issue price) that is
equal to or less than the aggregate principal amount (or if Incurred with
original issue discount, the aggregate accreted value) then outstanding or
committed (plus fees and expenses, including any premium and defeasance
costs) under the indebtedness being refinanced; provided further, however,
that refinancing indebtedness will not include (x) indebtedness of a
subsidiary that refinances Parent's indebtedness or (y) Parent's
indebtedness or that of a restricted subsidiary that refinances
indebtedness of an unrestricted subsidiary.
"Related Business" means any business related, ancillary or complementary to
Parent's businesses and that of the restricted subsidiaries on the issue date.
"restricted payment" with respect to any person means
(1) the declaration or payment of any dividends or any other
distributions of any sort in respect of its capital stock (including any
payment in connection with any merger or consolidation involving such
person) or similar payment to the direct or indirect holders of its capital
stock (other than dividends or distributions payable solely in its capital
stock (other than disqualified stock) and dividends or distributions
payable solely to Parent or a restricted subsidiary, and other than pro
rata dividends or other distributions made by a Subsidiary that is not a
wholly owned subsidiary to minority stockholders (or owners of an
equivalent interest in the case of a subsidiary that is an entity other
than a corporation),
(2) the purchase, redemption or other acquisition or retirement for
value of any capital stock of Parent held by any person or of any capital
stock of a restricted subsidiary held by any affiliate of Parent's (other
than a restricted subsidiary), including the exercise of any option to
exchange any capital stock (other than into Parent's capital stock that is
not disqualified stock),
(3) the purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment of any subordinated
obligations, other than the purchase, repurchase or other acquisition of
subordinated obligations purchased in anticipation of satisfying a sinking
fund obligation, principal installment or final maturity, in each case due
within one year of the date of acquisition, or
(4) the making of any Investment in any person, other than a Permitted
Investment.
"restricted subsidiary" means any subsidiary of Parent that is not an
unrestricted subsidiary.
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"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby Parent or a restricted subsidiary transfers
such property to a person and Parent or a restricted subsidiary leases it from
such person.
"SEC" means the Securities and Exchange Commission.
"senior credit facility" means that certain credit agreement, dated on or
about July 28, 1999, among WEC, Parent, the subsidiaries named therein and the
lenders from time to time party thereto, including any collateral documents,
instruments and agreements executed in connection therewith, and the term
"senior credit facility" will also include any amendments, supplements,
modifications, extensions, renewals, restatements or refundings thereof and any
credit facilities that replace, refund or refinance any part of the loans,
other credit facilities or commitments thereunder, including any such
replacement, refunding or refinancing facility that increases the amount
borrowable thereunder or alters the maturity thereof.
"significant subsidiary" means any restricted subsidiary that would be a
"significant subsidiary" of Parent within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"stated maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"subordinated obligation" means any of Parent's indebtedness (whether
outstanding on the issue date or thereafter Incurred) which is subordinate or
junior in right of payment to the debentures, pursuant to a written agreement
to that effect.
"subsidiary" means, in respect of any person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of capital stock or other interests (including partnership
interests) 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:
(1) such person,
(2) such person and one or more subsidiaries of such person or
(3) one or more subsidiaries of such person.
"temporary cash investments" means any of the following:
(1) any investment in direct obligations of the United States of America
or any agency thereof or obligations guaranteed by the United States of
America or any agency thereof,
(2) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws
of the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $50,000,000
(or the foreign currency equivalent thereof) and has outstanding debt which
is rated "A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in Rule
436 under the Securities Act) or any money-market fund sponsored by a
registered broker dealer or mutual fund distributor,
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered
into with a bank meeting the qualifications described in clause (2) above,
(4) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an
affiliate of Parent's) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United
States of America with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's Investors
Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings
Group, and
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(5) investments in securities with maturities of six months or less from
the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A"
by Standard & Poor's Ratings Group or "A" by Moody's Investors Service,
Inc.
"Total Tangible Assets" means the total consolidated assets of Parent and
its restricted subsidiaries as set forth on Parent's most recent balance sheet
excluding goodwill, trademarks, patents and minority interests of others and
other intangible assets, all as determined in accordance with GAAP.
"unrestricted subsidiary" means
(1) any subsidiary of parent that at the time of determination will be
designated an unrestricted subsidiary by the board of directors in the
manner provided below and
(2) any subsidiary of an unrestricted subsidiary.
Parent's board of directors may designate any of its subsidiaries (including
any newly acquired or newly formed subsidiary) to be an unrestricted subsidiary
unless such subsidiary or any of its subsidiaries owns any of Parent's capital
stock or indebtedness, or holds any Lien on Parent's property or that of any
subsidiary of Parent's that is not a subsidiary of the subsidiary to be so
designated; provided, however, that either (A) the subsidiary to be so
designated has total assets of $1,000 or less or (B) if such subsidiary has
assets greater than $1,000, such designation would be permitted under the
covenant described under "--Certain Covenants--Limitation on Restricted
Payments."
Parent's board of directors may designate any unrestricted subsidiary to be
a restricted subsidiary; provided, however, that immediately after giving
effect to such designation (x) Parent could Incur $1.00 of additional
Indebtedness under paragraph (a) of the covenant described under "--Certain
Covenants--Limitation on Indebtedness" and (y) no default will have occurred
and be continuing. Any such designation by Parent's board of directors will be
evidenced to the trustee by promptly filing with the trustee a copy of the
resolution of the board of directors giving effect to such designation and an
officers' certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at Parent's option.
"voting stock" of a person means all classes of capital stock or other
interests (including partnership interests) of such person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"wholly owned subsidiary" means a restricted subsidiary all the capital
stock of which (other than directors' qualifying shares) is owned by Parent or
one or more wholly owned subsidiaries.
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DESCRIPTION OF THE EXCHANGE NOTES
WEC will issue the exchange notes under the notes indenture, dated as of
July 28, 1999, between WEC, Parent, and United States Trust Company of New
York, as trustee (the "trustee"). The following is a summary of certain
provisions of the notes indenture; it does not restate these provisions in
their entirety. We have filed a complete copy of the notes indenture as an
exhibit to the registration statement, which this prospectus forms a part. See
"Where You Can Find More Information." WEC urges you to read the notes
indenture because it, and not this description, define your rights as holders
of these notes. We use the term "notes" in this prospectus to refer to both the
outstanding notes and the exchange notes.
The form and terms of the exchange notes are the same as the form and terms
of the outstanding notes except that:
. the exchange notes bear a Series B designation and a different CUSIP
number from the outstanding notes;
. the exchange notes have been registered under the Securities Act and,
therefore, will not bear legends restricting their transfer; and
. the holders of the exchange notes will not be entitled to the rights
under the registration rights agreement, including the provisions
providing for an increase in the interest rate on the outstanding notes
in certain circumstances relating to the timing of the exchange offer.
The exchange notes will evidence the same debt as the outstanding notes and
will be entitled to the benefits of the notes indenture. The exchange notes
will rank equally with the outstanding notes if all of the outstanding notes
are not exchanged in this exchange offer.
General
The outstanding notes were initially issued in an aggregate principal amount
of $130 million and mature on July 15, 2009. Additional notes in an aggregate
principal amount of $50 million may be issued from time to time after the date
of the notes indenture, subject to the provisions of the notes indenture,
including those described under "Certain Covenants--Limitation on
Indebtedness." The notes bear an annual interest rate of 12.0% from July 28,
1999. WEC will pay interest semiannually on January 15th and July 15th of each
year, beginning January 15, 2000. WEC will make each interest payment to the
person in whose name the note is registered at the close of business on the
January 1 or July 1 immediately preceding the interest payment date. WEC will
pay interest on overdue principal at an annual interest rate of 1% in excess of
such rate, and will pay interest on overdue installments of interest at such
higher rate to the extent lawful.
WEC will make payments on the notes, including principal, premium and
interest, by wire transfer of immediately available funds to the accounts
specified by the holders or, if no such account is specified, by mailing a
check to each holder's address, as it appears in the register of the notes
maintained by the registrar. You may transfer and exchange the notes at the
office of the registrar and any co-registrar. WEC will issue the notes in fully
registered form, without coupons, in denominations of $1,000 and any integral
multiple thereof. No service charge will be made for any registration of
transfer or exchange of notes, but WEC may require payment of a sum sufficient
to cover any transfer tax or other similar governmental charge payable in
connection with certain transfers and exchanges.
Optional Redemption
The notes will be redeemable at WEC's option, in whole or in part, at any
time on or after July 15, 2004, at the respective redemption price set forth
below, which are expressed as a percentage of principal amount, plus accrued
and unpaid interest to the redemption date, subject to the right of holders of
record on the relevant
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record date to receive interest due on the relevant interest payment date, if
redeemed during the 12-month period beginning on the year indicated below:
<TABLE>
<CAPTION>
Redemption
Period Price
------ ----------
<S> <C>
2004........................................................... 106.000%
2005........................................................... 104.000%
2006........................................................... 102.000%
2007 and thereafter............................................ 100.000%
</TABLE>
In addition, before July 15, 2002, WEC may at its option on one or more
occasions redeem up to 35% of the original principal amount of the notes,
including the original principal amount of any additional notes, with the
proceeds of (i) one or more public equity offerings or (ii) any other equity
offering so long as the gross proceeds to WEC or Parent from such offering
exceeds $50 million, at a redemption price, expressed as a percentage of
principal amount, of 112% plus accrued interest to the redemption date, subject
to the right of holders of record on the relevant record date to receive
interest due on the relevant interest payment date; provided that at least 65%
of the aggregate principal amount of the notes, including the original
principal amount of any additional notes initially issued must remain
outstanding after each such redemption; provided, further, that such redemption
must occur within 120 days of the public equity offering or equity offering, as
the case may be.
Selection and Notice of Redemption
If WEC is redeeming less than all the notes at any time, the trustee will
select notes on a pro rata basis, by lot or by such other method as the trustee
in its sole discretion will deem to be fair and appropriate.
WEC will redeem notes of $1,000 in original principal amount or less in
whole and not in part. WEC will cause notices of redemption to be mailed by
first-class mail at least 30 and not more than 60 days before the redemption
date to each holder's registered address.
If any note is to be redeemed in part only, the notice of redemption
relating to such note will state the portion of the principal amount thereof to
be redeemed. WEC will issue a new note in principal amount equal to the
unredeemed portion of the original note in the name of the Holder thereof upon
cancellation of the original note. On or after the date of redemption, interest
will cease to accrue on notes or portions thereof called for redemption.
Guaranties
WEC's obligations pursuant to the notes, including the repurchase obligation
resulting from a change of control, are unconditionally guaranteed, jointly and
severally, on a subordinated basis by Parent and will be unconditionally
guaranteed by each future domestic subsidiary of WEC, if any. Parent is a
holding company that derives all its operating income and cash flow primarily
from WEC, the common stock of which is pledged to secure Parent's indebtedness
outstanding under the senior credit facility. The obligations of each
subsidiary guarantor will be limited to the maximum amount as will, after
giving effect to all other contingent and fixed liabilities of such subsidiary
guarantor, including, without limitation, any guarantees under the senior
credit facility, and after giving effect to any collections from or payments
made by or on behalf of any other subsidiary guarantor in respect of the
obligations of such other subsidiary guarantor under its subsidiary guaranty or
pursuant to its contribution obligations under the notes indenture, result in
the obligations of such subsidiary guarantor under the subsidiary guaranty not
constituting a fraudulent conveyance or fraudulent transfer under federal or
state law.
Each subsidiary guarantor may consolidate with or merge into or sell its
assets to WEC or another subsidiary guarantor without limitation. Upon the sale
or disposition, by merger or otherwise, of a subsidiary guarantor or all or
substantially all of its assets to a person, whether or not an affiliate of the
subsidiary
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guarantor which is not a subsidiary of WEC, which sale or disposition is
otherwise in compliance with the notes indenture, including the covenant
described under "Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock", such subsidiary guarantor will be deemed released from all
its obligations under the notes indenture and its subsidiary guaranty and such
subsidiary guaranty will terminate; provided, however, that any such
termination will occur only to the extent that all obligations of such
subsidiary guarantor under the senior credit facility and all of its guarantees
of, and under all of its pledges of assets or other security interests which
secure, any other indebtedness of WEC's or any of its restricted subsidiaries
will also terminate upon such release, sale or transfer.
The provisions under the notes indenture relating to the guaranties may be
waived or modified with the written consent of the holders of a majority in
principal amount of the notes then outstanding.
Ranking
The outstanding notes are, and the exchange notes will be, senior unsecured
obligations of WEC, are and will rank, equal in right of payment with all
existing and future senior unsecured indebtedness of WEC, are and will be,
senior in right of payment to all future subordinated indebtedness of WEC and
are and will be guaranteed on a senior unsecured basis by Parent and any future
domestic subsidiary of WEC. On the issue date of the exchange notes, WEC will
have no subsidiaries. The notes and the guaranties will be effectively
subordinated to any secured indebtedness, including indebtedness under the
senior credit facility, of WEC or the applicable guarantor, to the extent of
the value of the assets securing such indebtedness. As of July 3, 1999 after
giving pro forma effect to the Acquisitions and the initial offerings, WEC
would have had approximately $15.6 million of indebtedness outstanding under
its senior credit facility and would have been able to borrow an additional
$9.3 million under the senior credit facility. WEC and the guarantors had no
additional secured indebtedness as of July 3, 1999. Although the notes
indenture contains limitations on the amount of additional indebtedness that
WEC may incur, under certain circumstances the amount of such indebtedness
could be substantial or secured. See "--Certain Covenants--Limitation on
Indebtedness."
Book-Entry, Delivery and Form
The outstanding notes were, and the exchange notes will be, issued in the
form of one or more global notes. The global note representing the exchange
notes will be deposited with, or on behalf of, the Depository Trust Company
("DTC") and registered in the name of DTC or its nominee. Except as set forth
below, the global note may be transferred, in whole and not in part, only to
DTC or another nominee of DTC. Investors may hold their beneficial interests in
the global note directly through DTC if they have an account with DTC or
indirectly through organizations which have accounts with DTC.
Upon the transfer of an exchange note in definitive form, such note will,
unless the global note has previously been exchanged for notes in definitive
form, be exchanged for an interest in the global note representing the
principal amount of notes being transferred.
DTC has advised WEC as follows: DTC is a limited-purpose trust company and
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and "a clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities of institutions that have accounts with DTC ("participants") and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical
movement of securities certificates. DTC's participants include securities
brokers and dealers, which may include the initial purchaser, banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's book-entry system is also available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, whether directly or indirectly.
Upon the issuance of the global note, DTC will credit, on its book-entry
registration and transfer system, the principal amount of the notes represented
by such global note to the accounts of participants. The accounts
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to be credited will be designated by the initial purchaser of such notes.
Ownership of beneficial interests in the global note will be limited to
participants or persons that may hold interests through participants. Ownership
of beneficial interests in the global note will be shown on, and the transfer
of those ownership interests will be effected only through, records maintained
by DTC, with respect to participants' interest and such participants, with
respect to the owners of beneficial interests in the global note other than
participants. The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of such securities in
definitive form. Such limits and laws may impair the ability to transfer or
pledge beneficial interests in the global note.
So long as DTC, or its nominee, is the registered holder and owner of the
global note, DTC or such nominee, as the case may be, will be considered the
sole legal owner and holder of the related notes for all purposes of such notes
and the notes indenture. Except as set forth below, owners of beneficial
interests in the global note will not be entitled to have the notes represented
by the global note registered in their names, will not receive or be entitled
to receive physical delivery of certificated notes in definitive form and will
not be considered to be the owners or holders of any notes under the global
note. WEC understands that under existing industry practice, in the event an
owner of a beneficial interest in the global note desires to take any action
that DTC, as the holder of the global note, is entitled to take, DTC would
authorize the participants to take such action, and that the participants would
authorize beneficial owners owning through such participants to take such
action or would otherwise act upon the instructions of beneficial owners owning
through them.
Payment of principal of and interest on notes represented by the global note
registered in the name of and held by DTC or its nominee will be made to DTC or
its nominee, as the case may be, as the registered owner and holder of the
global note.
WEC expects that DTC or its nominee, upon receipt of any payment of
principal of or interest on the global note, will credit participants' accounts
with payments in amounts proportionate to their respective beneficial interests
in the principal amount of the global note as shown on the records of DTC or
its nominee. WEC also expects that payments by participants to owners of
beneficial interests in the global note held through such participants will be
governed by standing instructions and customary practices and will be the
responsibility of such participants. WEC will not have any responsibility or
liability for any aspect of the records relating to, or payments made on
account of, beneficial ownership interests in the global note for any note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests or for any other aspect of the relationship
between DTC and its participants or the relationship between such participants
and the owners of beneficial interests in the global note owning through such
participants.
Unless and until it is exchanged in whole or in part for certificated notes
in definitive form, the global note may not be transferred except as a whole by
DTC to a nominee or by a nominee to DTC or another nominee of DTC.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the global note among participants of DTC, it is
under no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. Neither WEC nor the trustee will
have any responsibility for the performance by DTC or its participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
Certificated Notes
Subject to certain conditions, the notes represented by the global note are
exchangeable for certificated notes in definitive form of like tenor as such
notes in denominations of U.S. $1,000 and integral multiples thereof if:
(1) DTC notifies WEC that it is unwilling or unable to continue as
depository for the global note or if at any time DTC ceases to be a
clearing agency registered under the Exchange Act and a successor
depository is not appointed by WEC within 90 days;
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(2) WEC in its discretion at any time determines not to have all of the
notes represented by the global note; or
(3) an event of default has occurred and is continuing.
Any note that is exchangeable as above is exchangeable for certificated
notes issuable in authorized denominations and registered in such names as DTC
will direct. Subject to the foregoing, the global note is not exchangeable,
except for a global note of the same aggregate denomination to be registered in
the name of DTC or its nominee.
Same-Day Payment
The notes indenture requires WEC to make payments in respect of notes,
including principal, premium and interest, be made 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.
Change of Control
Upon the occurrence of any of the following events (each a "change of
control"), each holder will have the right to require WEC to repurchase such
holder's notes at a purchase price in cash equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
purchase, subject to the right of holders of record on the relevant record date
to receive interest due on the relevant interest payment date:
(1) Prior to the earlier to occur of (A) the first public offering of
common stock of Parent or (B) the first public offering of WEC's common
stock, the permitted holders cease to be the "beneficial owner," as defined
in Rules 13d-3 and 13d-5 under the Exchange Act, directly or indirectly, of
at least 35% of the aggregate of the total voting power of WEC's voting
stock or that of Parent, whether as a result of issuance of WEC's
securities or that of Parent, WEC's merger, consolidation, liquidation or
dissolution or that of Parent, any direct or indirect transfer of
securities by Parent or otherwise. For purposes of this clause (1) and
clause (2) below, the permitted holders will be deemed to beneficially own
any voting stock of a corporation (the "specified corporation") held by any
other corporation (the "parent corporation") so long as the permitted
holders beneficially own (as so defined), directly or indirectly, in the
aggregate a majority of the voting power of the voting stock of the parent
corporation.
(2) Any "person," as such term is used in Sections 13(d) and 14(d) of
the Exchange Act, other than one or more permitted holders, is or becomes
the "beneficial owner," as defined in clause (1) above, except that for
purposes of this clause (2) such person will be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time, directly or indirectly, of more than 35% of the total voting power of
WEC's voting stock or that of Parent. The foregoing will only be deemed a
change of control if the permitted holders "beneficially own," as defined
in clause (1) above, directly or indirectly, in the aggregate a lesser
percentage of the total voting power of WEC's voting stock or that of
Parent than such other person and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election a
majority of WEC's board of directors or that of Parent. For the purposes of
this clause (2), such other person will be deemed to beneficially own any
voting stock of a specified corporation held by a parent corporation, if
such other person is the "beneficial owner," as defined in this clause (2),
directly or indirectly, of more than 35% of the voting power of the voting
stock of such parent corporation and the permitted holders "beneficially
own" as defined in clause (1) above, directly or indirectly, in the
aggregate a lesser percentage of the voting power of the voting stock of
such parent corporation and do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority
of the board of directors of such parent corporation.
(3) During any period of two consecutive years, individuals who at the
beginning of such period constituted WEC's board of directors or that of
Parent, together with any new directors whose election by WEC's board of
directors or that of Parent or whose nomination for election by WEC's
shareholders or
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that of Parent, as applicable, was approved by a vote of a majority of
WEC's directors or that of Parent, as applicable, then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority of WEC's board of directors or that of Parent, as
applicable, then in office.
(4) The adoption of a plan relating to WEC's liquidation or dissolution
or that of Parent.
(5) The merger or consolidation of WEC or Parent with or into another
person or the merger of another person with or into WEC or Parent, or the
sale of all or substantially all of WEC's assets or that of Parent to
another person, other than a Person that is controlled by the permitted
holders, and, in the case of any such merger or consolidation, WEC's
securities or that of Parent that are outstanding immediately prior to such
transaction and which represent 100% of the aggregate voting power of WEC's
voting stock or that of Parent are changed into or exchanged for cash,
securities or property, unless pursuant to such transaction such securities
are changed into or exchanged for, in addition to any other consideration,
securities of the surviving corporation that represent immediately after
such transaction, at least a majority of the aggregate voting power of the
voting stock of the surviving corporation.
Within 30 days following any change of control, WEC will mail a notice to
each holder with a copy to the trustee stating:
(1) that a change of control has occurred and that such holder has the
right to require WEC to purchase such holder's notes at a purchase price in
cash equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase, subject to the right of holders
of record on the relevant record date to receive interest on the relevant
interest payment date;
(2) the circumstances and relevant facts regarding such change of
control, including information with respect to pro forma historical income,
cash flow and capitalization after giving effect to such change of
control);
(3) the repurchase date, which will be no earlier than 30 days nor later
than 60 days from the date such notice is mailed; and
(4) the instructions determined by WEC, consistent with the covenant
described hereunder, that a holder must follow in order to have its notes
purchased.
WEC will comply, to the extent applicable, with the requirements of Section
14(e) of the Exchange Act and any other securities laws or regulations in
connection with the repurchase of notes pursuant to this covenant described
hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
WEC will comply with the applicable securities laws and regulations and will
not be deemed to have breached WEC's obligations under the covenant described
hereunder by virtue thereof.
The change of control purchase feature is a result of negotiations between
WEC and the initial purchaser. WEC's management has no present intention to
engage in a transaction involving a change of control, although it is possible
that WEC or Parent would decide to do so in the future. Subject to the
limitations discussed below, WEC or Parent could, in the future, enter into
certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a change of control under the
notes indenture, but that could increase the amount of indebtedness outstanding
at such time or otherwise affect WEC's capital structure or credit ratings.
Restrictions on WEC's ability to incur additional indebtedness are contained in
the covenant described under "--Certain Covenants--Limitation on Indebtedness."
Such restrictions can only be waived with the consent of the holders of a
majority in principal amount of the notes then outstanding. Except for the
limitations contained in such covenants, however, the notes indenture will not
contain any covenants or provisions that may afford holders of the notes
protection in the event of a highly leveraged transaction.
The senior credit facility restricts WEC from purchasing any notes prior to
September 30, 2007, and will also provide that the occurrence of certain change
of control events with respect to WEC would constitute a default thereunder. In
the event a change of control occurs at a time when WEC is prohibited from
purchasing
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notes, WEC could seek the consent of WEC's lenders to the purchase of notes or
could attempt to refinance the borrowings that contain such prohibition. If WEC
does not obtain such a consent or repay such borrowings, WEC will remain
prohibited from purchasing notes. In such case, WEC's failure to purchase
tendered notes would constitute an event of default under the notes indenture
which would, in turn, constitute a default under the senior credit facility.
Future indebtedness that WEC may incur may contain prohibitions on the
occurrence of certain events that would constitute a change of control or
require such indebtedness to be repurchased upon a change of control. Moreover,
the exercise by the holders of their right to require WEC to repurchase the
notes could cause a default under such indebtedness, even if the change of
control itself does not, due to the financial effect of such repurchase on WEC.
Finally, WEC's ability to pay cash to the holders of notes following the
occurrence of a change of control may be limited by WEC's then existing
financial resources. There can be no assurance that sufficient funds will be
available when necessary to make any required repurchases.
Certain Covenants
The notes indenture contains covenants including, among others, the
following:
Limitation on Indebtedness. (a) WEC will not, and will not permit any of its
restricted subsidiaries to, Incur, directly or indirectly, any Indebtedness;
provided, however, that WEC may Incur Indebtedness if, on the date of such
incurrence and after giving effect thereto, the Consolidated Coverage Ratio
exceeds 2 to 1 if such indebtedness is incurred prior to July 31, 2001 or 2.25
to 1 if such indebtedness is incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), WEC and its restricted
subsidiaries may incur any or all of the following indebtedness:
(1) indebtedness Incurred pursuant to the senior credit facility;
provided, however, that, after giving effect to any such incurrence, the
aggregate principal amount of such indebtedness then outstanding does not
exceed $40 million less the sum of all principal payments with respect to
such indebtedness pursuant to paragraph (a)(2)(A) of the covenant described
under "--Limitation on Sales of Assets and Subsidiary Stock";
(2) indebtedness owed to and held by WEC or any of its restricted
subsidiaries; provided, however, that (x) any subsequent issuance or
transfer of any capital stock which results in any such restricted
subsidiary ceasing to be a subsidiary or any subsequent transfer of such
indebtedness (other than to WEC or any of its restricted subsidiaries) will
be deemed, in each case, to constitute the incurrence of such indebtedness
by the obligor thereon that is not permitted to be Incurred under this
clause (2) and (y) if WEC and/or a subsidiary guarantor is the obligor on
such indebtedness, such indebtedness is expressly subordinated to the prior
payment in full in cash of all obligations with respect to the note and/or
the subsidiary guaranty of such subsidiary guarantor, as the case may be;
(3) the notes (other than additional notes) and the exchange notes;
(4) indebtedness outstanding on July 28, 1999 other than indebtedness
described in clause (1), (2) or (3) of this covenant;
(5) indebtedness of a subsidiary incurred and outstanding on or prior to
the date on which such subsidiary was acquired by WEC, other than
indebtedness incurred in connection with, or to provide all or any portion
of the funds or credit support utilized to consummate, the transaction or
series of related transactions pursuant to which such subsidiary became a
subsidiary or was acquired by WEC; provided, however, that on the date of
such acquisition and after giving effect thereto, WEC would have been able
to Incur at least $1.00 of additional indebtedness pursuant to clause (a);
(6) refinancing indebtedness in respect of indebtedness incurred
pursuant to paragraph (a) above or pursuant to clause (3), (4) or (5) above
or this clause (6); provided, however, that to the extent such refinancing
indebtedness directly or indirectly refinances indebtedness of a subsidiary
incurred pursuant to clause (5), such refinancing indebtedness will be
incurred only by such subsidiary;
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(7) hedging obligations or commodity agreements not entered into for
speculative purposes and directly related to indebtedness permitted to be
incurred by WEC or any of its restricted subsidiaries pursuant to the notes
indenture;
(8) the subsidiary guaranties of the subsidiary guarantors with respect
to the notes and the debentures;
(9) the incurrence by WEC or any of 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 WEC or
such restricted subsidiaries, in an aggregate principal amount to not
exceed the greater of 5% of total assets as of the date of incurrence and
$2.5 million at any time outstanding;
(10) the guarantee by WEC or any of the subsidiary guarantors of WEC's
indebtedness or Indebtedness of a restricted subsidiary that was permitted
to be incurred by another provision of this covenant;
(11) the accrual of interest, the accretion or amortization of original
issue discount, the payment of interest on any indebtedness in the form of
additional indebtedness with the same terms, and the payment of dividends
on disqualified stock in the form of additional shares of the same class of
disqualified stock will not be deemed to be an incurrence of indebtedness
or an issuance of disqualified stock for purposes of this covenant;
provided, in each case, that the amount thereof is included in Consolidated
Interest Expense of WEC as accrued;
(12) indebtedness arising from agreements of WEC or a restricted
subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred or assumed in connection with
the disposition of any business, assets or a subsidiary, other than
guarantees of indebtedness incurred by any person acquiring all or any
portion of such business, assets or a Subsidiary for the purpose of
financing such acquisition; provided, however, that (a) such indebtedness
is not reflected on the balance sheet of WEC or any restricted subsidiary
(contingent obligations referred to in a footnote to financial statements
and not otherwise reflected on the balance sheet will not be deemed to be
reflected on such balance sheet for purposes of this clause (a)) and (b)
the maximum assumable liability in respect of all such indebtedness shall
at no time exceed the gross proceeds including noncash proceeds (the fair
market value of such noncash proceeds being measured at the time received
and without giving effect to any subsequent changes in value) actually
received by WEC and its restricted subsidiaries in connection with such
disposition;
(13) the incurrence of obligations in respect of performance and surety
bonds provided by WEC or any of its restricted subsidiaries in the ordinary
course of business;
(14) the incurrence of indebtedness consisting of guarantees of loans
made to management for the purpose of permitting management to purchase
equity interests of Parent, in an amount not to exceed $1.0 million at any
one time outstanding;
(15) indebtedness of WEC or any restricted subsidiary arising from the
honoring by a bank or other financial institution of a check, draft or
similar instrument inadvertently (except in the case of daylight
overdrafts) drawn against insufficient funds in the ordinary course of
business, provided that such indebtedness is satisfied within five business
days of incurrence;
(16) indebtedness of WEC issued to directors, employees, officers or
consultants of WEC or a restricted subsidiary in connection with the
redemption or purchase of capital stock of WEC or Parent that, by its
terms, is subordinated to the notes, is not secured by any assets of the
WEC or its restricted subsidiaries and does not require cash payments prior
to the stated maturity of the notes and refinancing indebtedness in respect
thereof, in an aggregate principal amount which, when added together with
the amount of indebtedness incurred pursuant to this clause (16) and then
outstanding, does not exceed $1.0 million; and
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(17) indebtedness in an aggregate principal amount which, together with
WEC's other indebtedness outstanding on the date of such incurrence (other
than indebtedness permitted by clauses (1) through (16) above or paragraph
(a)) does not exceed $10 million at any one time outstanding.
(c) Notwithstanding the foregoing, neither WEC nor any of its restricted
subsidiaries will incur any indebtedness pursuant to the foregoing paragraph
(b) if the proceeds thereof are used, directly or indirectly, to refinance any
of WEC's subordinated obligations unless such indebtedness will be subordinated
to the notes to at least the same extent as such subordinated obligations. No
subsidiary guarantor will incur any indebtedness pursuant to the foregoing
paragraph (b) if the proceeds thereof are used, directly or indirectly, to
refinance any subsidiary guarantor subordinated obligation of such subsidiary
guarantor unless such indebtedness will be subordinated to the obligations of
such subsidiary guarantor under the applicable subsidiary guaranty to at least
the same extent as such subsidiary guarantor subordinated obligation.
(d) For purposes of determining compliance with the foregoing covenant, (1)
in the event that an item of indebtedness meets the criteria of more than one
of the types of indebtedness described above, WEC, in its sole discretion, will
classify such item of indebtedness and only be required to include the amount
and type of such indebtedness in one of the above clauses and (2) an item of
Indebtedness may be divided and classified in more than one of the types of
indebtedness described above.
(e) WEC will not permit any unrestricted subsidiary to incur any
indebtedness other than non-recourse debt; provided, however, that if any such
indebtedness ceases to be non-recourse debt, such event will be deemed to
constitute an incurrence of indebtedness by WEC or any of its restricted
subsidiaries.
Limitation on Restricted Payments. (a) WEC will not, and will not permit any
restricted subsidiary, directly or indirectly, to make a restricted payment if
at the time WEC or such restricted subsidiary makes such restricted payment:
(1) a default will have occurred and be continuing or would result
therefrom;
(2) WEC is not able to incur an additional $1.00 of indebtedness
pursuant to paragraph (a) of the covenant described under "--Limitation on
Indebtedness"; or
(3) the aggregate amount of such restricted payment and all other
restricted payments since July 28, 1999 would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the period,
treated as one accounting period, from July 3, 1999 to the end of the
most recent fiscal quarter ending at least 45 days prior to the date of
such restricted payment or, in case such Consolidated Net Income will
be a deficit, minus 100% of such deficit;
(B) 100% of the aggregate Net Cash Proceeds received by WEC from the
issuance or sale of WEC's capital stock, other than disqualified stock,
or an equity contribution from a holder of WEC's capital stock
subsequent to the issue date, other than an issuance or sale to any of
WEC's subsidiaries and other than an issuance or sale to an employee
stock ownership plan or to a trust established by WEC or any of its
subsidiaries for the benefit of their employees, or from the issue or
sale of convertible or exchangeable disqualified stock or convertible
or exchangeable debt securities of WEC that have been converted into or
exchanged for such equity interests, other that equity interests or
disqualified stock or debt securities sold to Parent or a subsidiary of
Parent or WEC, together with the net proceeds received by WEC upon such
conversion or exchange, if any, plus;
(C) an amount equal to the aggregate net proceeds, including the
fair market value as determined in good faith by a resolution of the
board of directors of WEC of property other than cash that would
constitute marketable securities or a Related Business so long as there
is no restriction on the sale of such property of any
(1) sale or other disposition of Investments made by WEC and its
restricted subsidiaries, or
(2) dividend from, or the sale of the stock of, an unrestricted
subsidiary;
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provided, however, that the foregoing amount shall not exceed the amount of
such Investment previously made, and treated as a restricted payment, by WEC or
any restricted subsidiary, and, in the case of any such clause (2), the amount
of Investments previously made, and treated as a restricted payment, by WEC or
any restricted subsidiary in such unrestricted subsidiary.
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(1) any acquisition of any capital stock of WEC made out of the proceeds
of the substantially concurrent sale of, or made by exchange for, WEC's
capital stock other than disqualified stock and other than capital stock
issued or sold to any of WEC's subsidiaries or an employee stock ownership
plan or to a trust established by WEC or any of its subsidiaries for the
benefit of WEC or their employees; provided, however, that (A) such
acquisition of capital stock will be excluded in the calculation of the
amount of restricted payments and (B) the Net Cash Proceeds from such sale
will be excluded from the calculation of amounts under clause (3)(B) of
paragraph (a) above;
(2) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of subordinated obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, indebtedness of WEC which is permitted to be incurred pursuant to the
covenant described under "--Limitation on Indebtedness"; provided, however,
that such purchase, repurchase, redemption, defeasance or other acquisition
or retirement for value will be excluded in the calculation of the amount
of restricted payments;
(3) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of disqualified stock made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
disqualified stock of WEC which is permitted to be issued pursuant to the
notes indenture; provided, however, that such purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value will be
excluded in the calculation of the amount of restricted payments;
(4) dividends paid or the consummation at any irrevocable redemption
within 60 days after the date of declaration or notice of redemption
thereof if at such date of declaration or notice such dividend or
redemption would have complied with this covenant; provided, however, that
such dividend will be included in the calculation of the amount of
restricted payments;
(5) so long as no default has occurred or will occur as a result of such
payment, the repurchase or other acquisition of shares of, or options to
purchase shares of, Parent's common stock or the common stock of any of
Parent's subsidiaries from employees, former employees, consultants,
directors or former directors of Parent's or any of Parent's subsidiaries,
or permitted transferees of such employees, former employees, directors or
former directors, pursuant to the terms of the agreements, including
employment agreements or plans or amendments thereto approved by WEC's
board of directors under which such individuals purchase or sell or are
granted the option to purchase or sell, shares of such common stock;
provided, however, that the aggregate amount of such repurchases and other
acquisitions will not exceed $2 million in any calendar year; provided
further, however, that such repurchases and other acquisitions will be
deducted in the calculation of the amount of restricted payments;
(6) repurchase of equity interests of WEC deemed to occur upon exercise
of stock options to the extent equity interests represent a portion of the
exercise price of such options;
(7) cash payments, advances, loans or expense reimbursements made to
Parent to permit Parent to pay its general operating expenses, franchise
tax obligations, accounting, legal, corporate reporting and administrative
expenses incurred in the ordinary course of its business in an amount not
to exceed $250,000 in the aggregate in any fiscal year;
(8) prepayments, repayments or purchases of indebtedness pursuant to
clause (2)(D) under "--Limitation on Asset Sales and Subsidiary Stocks";
provided, however, that such prepayment, repayment or purchase will be
included in the calculation of the amount of restricted payments;
(9) cash payments to Parent from and after October 15, 2004, to enable
Parent to make required interest payments on the debentures provided, in
each case, such cash payments are used for interest payments, as
applicable, within 30 days of such payment; provided, further, that (i) no
default or event of
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default shall have occurred and be continuing; (ii) that such payment will
be included in the calculation of the amount of restricted payments; and
(iii) that the Consolidated Coverage Ratio after giving effect to such
payments exceeds 2.5 to 1;
(10) so long as no default has occurred and is continuing or would be
caused thereby, other restricted payments in an aggregate amount not to
exceed $3 million since the date of the notes indenture.
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 to or by WEC or such restricted
subsidiary, as the case may be, pursuant to the restricted payment. The fair
market value of any assets or securities that are required to be valued by this
covenant shall be determined in good faith by the board of directors whose
resolution with respect thereto shall be conclusive. The board of directors'
determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $10.0 million.
The board of directors of WEC 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 WEC 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 clause (a) 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 as the time of such designation. Such designation
will only be permitted if such restricted payment would be permitted at such
time and if such and if such restricted subsidiary otherwise meets the
definition of an unrestricted subsidiary.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. WEC will not, and will not permit any of WEC's restricted
subsidiaries to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or consensual restriction on the ability
of any restricted subsidiary to:
(1) pay dividends or make any other distributions on its capital stock
to WEC or any of its restricted subsidiaries or pay any indebtedness owed
to WEC,
(2) make any loans or advances to WEC or
(3) transfer any of its property or assets to WEC,
except:
(1) any encumbrance or restriction pursuant to an agreement in effect at
or entered into on July 28, 1999, including restrictions under the notes
indenture, the notes, the debenture indenture, the debentures, and the
guarantees of the notes;
(2) any encumbrance or restriction with respect to a restricted
subsidiary pursuant to an agreement relating to any indebtedness incurred
by such restricted subsidiary on or prior to the date on which such
restricted subsidiary was acquired by WEC, other than indebtedness incurred
as consideration in, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by WEC, and outstanding on such date;
(3) any such encumbrance or restriction consisting of customary non-
assignment provisions in leases governing leasehold interests to the extent
such provisions restrict the transfer of the lease or the property leased
thereunder;
(4) in the case of clause (c) above, restrictions contained in security
agreements or mortgages securing indebtedness of a restricted subsidiary to
the extent such restrictions restrict the transfer of the property subject
to such security agreements or mortgages; provided that such security
agreements or mortgages constitute Permitted Liens and such indebtedness is
permitted to be Incurred under the notes indenture;
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(5) any restriction with respect to a restricted subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the capital stock or assets of such restricted subsidiary
pending the closing of such sale or disposition;
(6) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
(7) restrictions on the transfer of assets subject to any Lien permitted
under the notes indenture imposed by the holder of such Lien;
(8) encumbrances or restrictions existing under or arising pursuant to
credit facilities entered into in accordance with the notes indenture;
provided that the encumbrances or restrictions in such credit facilities
are not materially more restrictive than those contained in the senior
credit agreement as in effect on the date hereof;
(9) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the property so acquired of
the nature described in clause (3) of the first paragraph of this covenant;
(10) 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;
(11) any agreement or instrument governing capital stock, other than
disqualified stock, of any person that is in effect on the date such person
is acquired by WEC or a restricted subsidiary; and
(12) any encumbrances or restrictions imposed by any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings of the contracts, instruments or obligations
referred to in clauses (1) through (11) above; provided that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are, in the good faith judgment of
the board of directors of WEC, not materially more restrictive with respect
to such dividend and other payment restrictions than those contained in the
dividends or other payment restrictions prior to such amendment,
modification, restatement, renewal, increase, supplement, refunding,
replacement or refinancing.
Limitation on Sales of Assets and Subsidiary Stock. (a) WEC will not, and
will not permit any of WEC's restricted subsidiaries to, directly or
indirectly, consummate any Asset Disposition unless:
(1) WEC or such restricted subsidiary receives consideration at the time
of such Asset Disposition at least equal to the fair market value,
including as to the value of all non-cash consideration, as determined in
good faith by WEC's board of directors, of the shares and assets subject to
such Asset Disposition and at least 75% of the consideration thereof
received by WEC or such restricted subsidiary is in the form of cash or
cash equivalents or marketable securities and
(2) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by WEC or such Restricted Subsidiary, as the case
may be;
(A) first, to the extent WEC elects or is required by the terms of
any indebtedness, to prepay, repay, redeem or purchase indebtedness
under the senior credit facility or indebtedness, other than any
disqualified stock, of a restricted subsidiary required to be repaid
upon such Asset Sale, in each case other than indebtedness owed to WEC
or any of its affiliates, within one year from the later of the date of
such Asset Disposition or the receipt of such Net Available Cash;
(B) second, to the extent of the balance of such Net Available Cash
after application in accordance with clause (A), to the extent WEC
elects, to acquire Additional Assets within one year from the later of
the date of such Asset Disposition or the receipt of such Net Available
Cash;
(C) third, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A) and (B), to make an
offer to the holders of the Notes, and to holders of other indebtedness
that is pari passu with the notes designated by WEC, to purchase notes,
and such other pari passu Indebtedness, pursuant to and subject to the
conditions contained in the notes indenture; and
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(D) fourth, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A), (B) and (C) to (x)
the acquisition by WEC or any of its restricted subsidiaries of
Additional Assets or (y) the prepayment, repayment or purchase of WEC's
Indebtedness, other than any disqualified stock and other than
indebtedness owed to any of WEC's affiliates, or indebtedness of any
subsidiary, other than indebtedness owed to WEC or any of its
affiliates, in each case within one year from the later of the receipt
of such Net Available Cash and the date the offer described in clause
(b) below is consummated;
provided, however, that in connection with any prepayment, repayment or
purchase of indebtedness pursuant to clause (A), (C) or (D) above, WEC or any
such restricted subsidiary will permanently retire such indebtedness and will
cause the related loan commitment (if any) to be permanently reduced in an
amount equal to the principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions of this paragraph, WEC and its
restricted subsidiaries will not be required to apply any Net Available Cash
in accordance with this paragraph except to the extent that the aggregate Net
Available Cash from all Asset Dispositions which are not applied in accordance
with this paragraph exceeds $1.0 million. Pending application of Net Available
Cash pursuant to this covenant, such Net Available Cash will be invested in
Permitted Investments.
For the purposes of this covenant, the following are deemed to be cash or
cash equivalents: any liabilities, as shown on WEC or such restricted
subsidiary's most recent balance sheet, of WEC's or any restricted subsidiary,
other than contingent liabilities and liabilities that are by their terms
subordinated to the notes or any subsidiary guarantee, that are assumed by the
transferee of any such assets; and any securities, notes or other obligations
received by WEC or any such restricted subsidiary from such transferee that
are converted, sold or exchanged by WEC or such restricted subsidiary into
cash within 30 days of the related Asset Sale to the extent of the cash
received in that conversation.
(b) In the event of an Asset Disposition that requires the purchase of the
notes, and other pari passu indebtedness, pursuant to clause (a)(2)(C) above,
WEC will be required to purchase notes tendered pursuant to an offer by WEC
for the notes, and other pari passu indebtedness, at a purchase price of 100%
of their principal amount, without premium, plus accrued but unpaid interest
or, in respect of such other pari passu Indebtedness, such lesser price, if
any, as may be provided for by the terms of such pari passu indebtedness, in
accordance with the procedures, including prorating in the event of
oversubscription, set forth in the notes indenture. If the aggregate purchase
price of notes, and any other pari passu indebtedness, tendered pursuant to
such offer is less than the Net Available Cash allotted to the purchase
thereof, WEC will be required to apply the remaining Net Available Cash in
accordance with clause (a)(2)(D) above. WEC will not be required to make such
an offer to purchase notes, and other pari passu indebtedness, pursuant to
this covenant if the Net Available Cash available therefor is less than $5.0
million, which lesser amount will be carried forward for purposes of
determining whether such an offer is required with respect to the Net
Available Cash from any subsequent Asset Disposition.
(c) Notwithstanding paragraphs (a) and (b) above, WEC and its restricted
subsidiaries will be permitted to consummate an Asset Disposition with respect
to assets in any transaction or series of related transactions with a fair
market value of $2.0 million or less without complying with such paragraphs to
the extent (i) at least 75% of the consideration for such Asset Sale
constitutes cash, cash equivalents, marketable securities or Productive Assets
and (ii) such Asset Disposition is for fair market value as determined in good
faith by WEC's board of directors); provided that any consideration not
constituting Productive Assets received by WEC or any restricted subsidiary in
connection with an Asset Disposition permitted to be consummated under this
paragraph shall be subject to the provisions of paragraphs (a) and (b) above
and included in Net Available Cash.
(d) WEC will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, WEC will comply with the applicable securities
laws and regulations and will not be deemed to have breached WEC's obligations
under this clause by virtue thereof.
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Limitation on Affiliate Transactions. (a) WEC will not, and will not permit
any restricted subsidiary to, enter into or permit to exist any transaction
(including the purchase, sale, lease or exchange of any property, employee
compensation arrangements or the rendering of any service) with any of WEC's
affiliates (an "affiliate transaction") unless the terms thereof:
(1) are no less favorable to WEC or such restricted subsidiary than
those that could be obtained at the time of such transaction in arm's-
length dealings with a person who is not such an affiliate,
(2) if such affiliate transaction involves an amount in excess of $1
million, (A) are set forth in writing and (B) have been approved by a
majority of the members of WEC's board of directors having no personal
stake in such affiliate transaction;
(3) if such affiliate transaction involves as amount in excess of $10
million, have been determined by nationally recognized investment banking
or accounting firm to be fair, from a financial standpoint, to WEC and its
restricted subsidiaries; and
(4) with respect to any transaction, management, consulting and advisory
fees and related expenses to Madison Dearborn Partners, LLC and its
affiliates, WEC would be able to incur $1.00 of indebtedness pursuant to
paragraph (a) of the covenant described under "Limitation on Indebtedness";
provided, however, for the purposes of this clause (4) only, the
Consolidated Coverage Ratio shall exceed 1.75 to 1 prior to July 31, 2001
or 2.25 to 1 thereafter.
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(1) any restricted payment permitted to be paid pursuant to the covenant
described under "--Limitation on Restricted Payments,"
(2) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by WEC's
board of directors,
(3) the grant of stock options or similar rights to WEC's employees and
directors pursuant to plans approved by WEC's board of directors,
(4) loans or advances to employees in the ordinary course of business in
accordance with WEC's past practices or past practices of WEC's restricted
subsidiaries, but in any event not to exceed $1 million in the aggregate
outstanding at any one time,
(5) the payment of reasonable fees to WEC's or Parent's directors and
directors of restricted subsidiaries who are not WEC's or Parent's
employees or employees of directors of restricted subsidiaries,
(6) any affiliate transaction between WEC and a restricted subsidiary or
between restricted subsidiaries,
(7) the issuance or sale of any capital stock of WEC other than
disqualified stock,
(8) any employment agreement with reasonable terms entered into by WEC
or any of its restricted subsidiaries in the ordinary course of business
and consistent with the past practice of WEC or such restricted subsidiary,
(9) transactions with a person that is an affiliate of WEC solely
because WEC owns an equity interest in such person, so long as no other
affiliate of WEC owns an interest in such person,
(10) the payment of transaction, management, consulting and advisory
fees and related expenses to Madison Dearborn Partners, LLC and its
affiliates; provided, that such fees shall not, in the aggregate, exceed:
(a) in the case of a management fee, $600,000 in any twelve-month
period, and
(b) in the case of a transaction fee, 1.0% of the total equity value
of, plus the indebtedness assumed from, the business acquired in
such transaction or series of related transactions.
(11) reasonable fees and expenses and compensation paid to, and
indemnity provided on behalf of, officers, directors or employees of WEC,
Parent or any subsidiary as determined in good faith by the board of
directors of WEC or senior management,
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(12) any agreement as in effect as of the issue date or any amendment
thereto so long as such amendment is not more disadvantageous to the
holders in any material respect, and
(13) payments made to Parent for the purpose of allowing to pay its
general operating expenses, franchise tax obligations, accounting, legal
corporate reporting and administrative expenses incurred in the ordinary
course of its business in an amount not to exceed $250,000 in the aggregate
in any fiscal year.
Limitation on Liens. WEC will not, and will not permit any restricted
subsidiary to, directly or indirectly, create or permit to exist any Lien on
any of its property or assets, including capital stock, whether owned on the
issue date or thereafter acquired, securing any obligation, other than
Permitted Liens, unless contemporaneously therewith effective provision is made
to secure the notes or such subsidiary guarantor's subsidiary guarantee, as
applicable, equally and ratably with or on a senior basis to, in the case of
subordinated obligations or subsidiary guarantor subordinated obligations, as
applicable, such obligation for so long as such obligation is so secured.
Limitation on the Sale or Issuance of Preferred Stock of Restricted
Subsidiaries. WEC will not sell or otherwise dispose of any preferred stock of
a restricted subsidiary, and will not permit any restricted subsidiary,
directly or indirectly, to issue or sell or otherwise dispose of any of its
preferred stock except to WEC or any of its wholly owned subsidiaries.
Future Guarantors. WEC will cause each domestic restricted subsidiary,
including each domestic restricted subsidiary created or acquired following the
issue date, to guarantee the notes pursuant to a subsidiary guaranty on the
terms and conditions set forth in the notes indenture.
Limitation on Issuances of Guarantees of and Pledges for Debt: Subsidiary
Guarantors. WEC will not permit any subsidiary that is not a subsidiary
guarantor, directly or indirectly, to secure the payment of, guarantee, assume
or in any manner become liable with respect to any indebtedness of WEC, Parent
or any other subsidiary of WEC ("subsidiary guaranteed debt") or pledge any
intercompany note representing obligations of any subsidiary that is not a
subsidiary guarantor to secure the payment of any subsidiary guaranteed debt
unless such subsidiary simultaneously executes and delivers a supplemental
indenture to the notes indenture providing for a guarantee of payment of the
notes by such subsidiary, and, if the subsidiary guaranteed debt is by its
terms expressly subordinated to the notes, the Parent guaranty or any
subsidiary guaranty, as applicable, any such assumption, guarantee or other
liability of such subsidiary with respect to such subsidiary guaranteed debt
will be subordinated to such subsidiary's assumption, guarantee or other
liability with respect to the subsidiary guaranty to the same extent as such
subsidiary guaranteed debt is subordinated to the notes, the Parent guaranty or
any subsidiary guaranty, as applicable.
Limitation on Sale/Leaseback Transactions. WEC will not, and will not permit
any restricted subsidiary to, enter into any Sale/Leaseback Transaction with
respect to any property unless
(1) WEC or such restricted subsidiary would be entitled to (A) incur
indebtedness in an amount equal to the Attributable Debt with respect to
such Sale/Leaseback Transaction pursuant to the covenant described under
"--Certain Covenants--Limitation on Indebtedness" and (B) create a Lien on
such property securing such Attributable Indebtedness without equally and
ratably securing the notes pursuant to the covenant described under "--
Certain Covenants--Limitation on Liens," and
(2) the transfer of such property is permitted by, and WEC or such
restricted subsidiary applies the proceeds of such transaction in
compliance with, the covenant described under "--Certain Covenants--
Limitation on Sales of Assets and Subsidiary Stock."
Merger and Consolidation. WEC will not consolidate with or merge with or
into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all WEC's assets to, any person, unless:
(1) the resulting, surviving or transferee person (the "successor
company") will be a person organized and existing under the laws of the
United States of America, any State thereof or the District of
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Columbia and the successor company, if not WEC, will expressly assume, by
an indenture supplemental thereto, executed and delivered to the trustee,
in form satisfactory to the trustee, all WEC's obligations under the notes
and the notes indenture;
(2) immediately after giving effect to such transaction, and treating
any indebtedness which becomes an obligation of the successor company or
any subsidiary as a result of such transaction as having been incurred by
such successor company or such subsidiary at the time of such transaction,
no default will have occurred and be continuing;
(3) immediately after giving effect to such transaction, the successor
company would be able to incur an additional $1.00 of indebtedness pursuant
to paragraph (a) of the covenant described under "--Limitation on
Indebtedness";
(4) immediately after giving effect to such transaction, the successor
company will have Consolidated Net Worth in an amount that is not less than
the Consolidated Net Worth of WEC immediately prior to such transaction;
and
(5) WEC will have delivered to the trustee an officers' certificate and
an opinion of counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture, if any, comply with the notes
indenture.
WEC will not permit any subsidiary guarantor to consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all of its assets to any person, other than
in a transaction or transactions resulting in a release of such subsidiary
guarantor as described under "--Guaranties" above provided that WEC certifies
to the trustee that WEC will comply with the covenant described under "--
Limitation of Sales of Assets and Subsidiary Stock", unless:
(1) the resulting, surviving or transferee person, if not such
subsidiary, (the "successor guarantor") will be a person organized and
existing under the laws of the United States of America, or any State
thereof or the District of Columbia, and such person will expressly assume,
by a guaranty agreement, in form satisfactory to the trustee, all the
obligations of such subsidiary, if any, under its subsidiary guaranty;
(2) immediately after giving effect to such transaction, and treating
any indebtedness which becomes an obligation of the resulting, surviving or
transferee person as a result of such transaction as having been Incurred
by such Person at the time of such transaction, no default will have
occurred and be continuing; and
(3) WEC delivers to the trustee an officers' certificate and an opinion
of counsel addressed to the trustee with respect to the foregoing matters.
The successor company will be WEC's successor and will succeed to, and be
substituted for, and may exercise every right and power WEC has under the notes
indenture, but WEC's predecessor in the case of a conveyance, transfer or lease
will not be released from the obligation to pay the principal of and interest
on the notes. The successor guarantor will be the successor to such subsidiary
guarantor and will succeed to, and be substituted for, and may exercise every
right and power of, such subsidiary guarantor under the notes indenture, but
such predecessor subsidiary guarantor in the case of a conveyance, transfer or
lease will not be released from the obligation to pay the principal of and
interest on the notes.
SEC Reports. Notwithstanding that WEC may not be subject to the reporting
requirements of Section 13 or 15 (d) of the Exchange Act, WEC will file with
the SEC, to the extent the SEC will accept such filings, and provide the
trustee and noteholders with such annual reports and such information,
documents and other reports as are specified in Sections 13 and 15(d) of the
Exchange Act and applicable to a U.S. corporation subject to such Sections,
such information, documents and other reports to be so filed and provided at
the times specified for the filing of such information, documents and reports
under such Sections. The requirement under this paragraph will be satisfied by
filings made by Parent pursuant to the Exchange Act containing the required
information relating to WEC to the extent permitted by SAB 53.
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Limitations on Status as Investment Company. The notes indenture prohibits
Parent, WEC and its subsidiaries from becoming "investment companies" (as that
term is defined in the Investment Company Act of 1940, as amended), or from
otherwise becoming subject to regulation under the Investment Company Act.
Defaults
An event of default is defined in the notes indenture as:
(1) a default in the payment of interest on the notes when due,
continued for 30 days,
(2) a default in the payment of principal of any note when due at its
stated maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise,
(3) WEC's failure to comply with its obligations under "--Certain
Covenants--Merger and Consolidation" above,
(4) WEC's failure to comply for 30 days after notice with any of its
obligations in the covenants described above under "Change of Control,"
other than a failure to purchase notes, or under "--Certain Covenants"
under "--Limitation on Indebtedness," "--Limitation on Restricted
Payments," "--Limitation on Restrictions on Distributions from Restricted
Subsidiaries" or "--Limitation on Sales of Assets and Subsidiary Stock,"
other than a failure to purchase notes, "--Limitation on Affiliate
Transactions," "--Limitation on the Sale or Issuance of Capital Stock of
Restricted Subsidiaries," "Future Guarantors" or "--SEC Reports,"
(5) WEC's failure to comply for 60 days after notice with its other
agreements contained in the notes indenture,
(6) Indebtedness of WEC or any of its significant subsidiaries is not
paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default and the total
amount of such Indebtedness unpaid or accelerated exceeds $5 million (the
"cross acceleration provision"),
(7) certain events of bankruptcy, insolvency or reorganization of WEC or
any of its significant subsidiaries (the "bankruptcy provisions"),
(8) any judgment or decree for the payment of money in excess of $5
million is entered against WEC or any of its significant subsidiaries,
remains outstanding for a period of 90 days following such judgment and is
not discharged, waived or stayed within 10 days after notice (the "judgment
default provision") or
(9) any subsidiary guaranty of a significant subsidiary ceases to be in
full force and effect, except as contemplated by the terms of the notes
indenture, or any subsidiary guarantor denies or disaffirms its obligations
under the notes indenture or its subsidiary guaranty and such default
continues for 10 days.
However, a default under clauses (4) , (5) and (8) will not constitute an
event of default until the trustee or the holders of 25% in principal amount of
the outstanding notes notify WEC of the default and WEC does not cure such
default within the time specified after receipt of such notice.
If an event of default occurs and is continuing, the trustee or the holders
of at least 25% in principal amount of the outstanding notes may declare the
principal of and accrued but unpaid interest on all the notes to be due and
payable. Upon such a declaration, such principal and interest will be due and
payable immediately. If an event of default relating to certain events of
bankruptcy, insolvency or reorganization of WEC occurs and is continuing, the
principal of and interest on all the notes will ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the trustee or any holders of the notes. Under certain circumstances, the
holders of a majority in principal amount of the outstanding notes may rescind
any such acceleration with respect to the notes and its consequences. Subject
to the provisions of the notes indenture relating to the duties of the trustee,
in case an event of default occurs and is continuing, the trustee will be under
no obligation to exercise any of the rights or powers under the notes indenture
at the request or direction of any of the holders of the notes unless such
holders have offered to the trustee reasonable indemnity or security against
any loss, liability or expense.
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Except to enforce the right to receive payment of principal, premium, if
any, or interest when due, no holder of a note may pursue any remedy with
respect to the notes indenture or the notes unless:
(1) such holder has previously given the trustee notice that an event of
default is continuing,
(2) holders of at least 25% in principal amount of the outstanding notes
have requested the trustee to pursue the remedy,
(3) such holders have offered the trustee reasonable security or
indemnity against any loss, liability or expense,
(4) the trustee has not complied with such request within 60 days after
the receipt thereof and the offer of security or indemnity and
(5) the holders of a majority in principal amount of the outstanding
notes have not given the trustee a direction inconsistent with such request
within such 60-day period. Subject to certain restrictions, the holders of
a majority in principal amount of the outstanding notes are given the right
to direct the time, method and place of conducting any proceeding for any
remedy available to the trustee or of exercising any trust or power
conferred on the trustee. The trustee, however, may refuse to follow any
direction that conflicts with law or the notes indenture or that the
trustee determines is unduly prejudicial to the rights of any other holder
of a note or that would involve the trustee in personal liability.
The notes indenture provides that if a default occurs and is continuing and
is known to the trustee, the trustee must mail to each holder of the notes
notice of the default within 90 days after it occurs. Except in the case of a
default in the payment of principal of or interest on any note, the trustee may
withhold notice if and so long as a committee of its trust officers determines
that withholding notice is not opposed to the interest of the holders of the
notes. In addition, WEC is required to deliver to the trustee, within 120 days
after the end of each fiscal year, a certificate indicating whether the signers
thereof know of any default that occurred during the previous year. WEC is also
required to deliver to the trustee, within 30 days after the occurrence
thereof, written notice of any event which would constitute certain defaults,
their status and what action WEC is taking or proposes to take in respect
thereof.
Amendments and Waivers
Subject to certain exceptions, the notes indenture may be amended with the
consent of the holders of a majority in principal amount of the notes then
outstanding, including consents obtained in connection with a tender offer or
exchange for the notes, and any past default or compliance with any provisions
may also be waived with the consent of the holders of a majority in principal
amount of the notes then outstanding. However, without the consent of each
holder of an outstanding note affected thereby, no amendment may, among other
things,
(1) reduce the amount of notes whose holders must consent to an
amendment,
(2) reduce the rate of or extend the time for payment of interest on any
note,
(3) reduce the principal of or extend the stated maturity of any note,
(4) reduce the amount payable upon the redemption of any note or change
the time at which any note may be redeemed as described under "--Optional
Redemption,"
(5) make any note payable in money other than that stated in the note,
(6) impair the right of any holder of the notes to receive payment of
principal of and interest on such holder's notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such holder's notes,
(7) make any change in the amendment provisions which require each
holder's consent or in the waiver provisions or
(8) make any change in any subsidiary guaranty that would adversely
affect the noteholders.
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Without the consent of any holder of the notes, WEC and the trustee may
amend the notes indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of
WEC's obligations under the notes indenture, to provide for uncertificated
notes in addition to or in place of certificated notes, provided that the
uncertificated notes are issued in registered form for purposes of Section
163(f) of the U.S. tax code, or in a manner such that the uncertificated notes
are described in Section 163(f)(2)(B) of the U.S. tax code, to add guarantees
with respect to the notes, to secure the notes, to add to WEC's covenants for
the benefit of the holders of the notes or to surrender any right or power
conferred upon WEC, to make any change that does not adversely affect the
rights of any holder of the notes or to comply with any requirement of the SEC
in connection with the qualification of the notes indenture under the Trust
Indenture Act.
The consent of the holders of the notes is not necessary under the notes
indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the notes indenture becomes effective, WEC is
required to mail to holders of the notes a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the
notes, or any defect therein, will not impair or affect the validity of the
amendment.
Transfer
The notes will be issued in registered form and will be transferable only
upon the surrender of the notes being transferred for registration of transfer.
WEC may require payment of a sum sufficient to cover any tax, assessment or
other governmental charge payable in connection with certain transfers and
exchanges.
Defeasance
At any time WEC may terminate all its obligations under the notes and the
notes indenture ("legal defeasance"), except for certain obligations, including
those respecting the defeasance trust and obligations to register the transfer
or exchange of the notes, to replace mutilated, destroyed, lost or stolen notes
and to maintain a registrar and paying agent in respect of the notes. At any
time WEC may terminate its obligations under "Change of Control" and under the
covenants described under "--Certain Covenants," other than the covenant
described under "--Merger and Consolidation," the operation of the cross
acceleration provision, the bankruptcy provisions with respect to significant
subsidiaries and the judgment default provision described under "--Defaults"
above and the limitations contained in clauses (3) and (4) under "--Certain
Covenants--Merger and Consolidation" above ("covenant defeasance").
WEC may exercise its legal defeasance option notwithstanding WEC's prior
exercise of its covenant defeasance option. If WEC exercises its legal
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default with respect thereto. If WEC exercises its covenant defeasance
option, payment of the Notes may not be accelerated because of an Event of
Default specified in clause (4), (6), (7) (with respect only to Significant
Subsidiaries), (8) or (9) under "--Defaults" above or because WEC failed to
comply with clause (3) or (4) under "--Certain Covenants--Merger and
Consolidation" above.
In order to exercise either defeasance option, WEC must irrevocably deposit
in trust (the "defeasance trust") with the trustee money or U.S. Government
Obligations for the payment of principal and interest on the notes to
redemption or maturity, as the case may be, and must comply with certain other
conditions, including delivery to the trustee of an opinion of counsel to the
effect that holders of the notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and defeasance and will
be subject to Federal income tax on the same amounts and in the same manner and
at the same times as would have been the case if such deposit and defeasance
had not occurred and, in the case of legal defeasance only, such opinion of
counsel must be based on a ruling of the IRS or other change in applicable
Federal income tax law.
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No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of WEC or any
guarantor, as such, shall have any liability for any obligations of WEC or the
guarantors under the notes, the notes indenture, the guaranties or for any
claim based on, in respect of, or by reason of, such obligations or their
creations. 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. The waiver may not be effective to waive liabilities
under the federal securities laws.
Concerning the Trustee
United States Trust Company of New York is the trustee under the notes
indenture and has been appointed by WEC as registrar and paying agent with
regard to the notes.
The notes indenture contains certain limitations on the rights of the
trustee, should it become a creditor of WEC, 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; provided, however, if it acquires any conflicting interest
it must eliminate such conflict within 90 days, apply to the SEC for permission
to continue or resign.
The holders of a majority in principal amount of the 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 notes indenture provides that if an event of default
occurs (and is not 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 notes indenture at the request
of any holder of notes, unless such holder will have offered to the trustee
security and indemnity satisfactory to it against any loss, liability or
expense and then only to the extent required by the terms of the notes
indenture.
Governing Law
The notes indenture provides that it and the notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
Certain Definitions
"Additional Assets" means
(1) any property or assets, other than indebtedness and capital stock,
in a Related Business;
(2) the capital stock of a person that becomes a restricted subsidiary
as a result of the acquisition of such capital stock by WEC or another
restricted subsidiary or
(3) Capital stock constituting a minority interest in any person that at
such time is a restricted subsidiary; provided, however, that any such
restricted subsidiary described in clauses (2) or (3) above is primarily
engaged in a Related Business.
"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 the purposes of this definition,
"control" when used with respect to any person means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "--Certain Covenants--Limitation on
Restricted Payments," "--Certain Covenants--Limitation on Affiliate
Transactions" and "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" only, "affiliate" will also mean any beneficial owner of
WEC's capital stock representing
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10% or more of the total voting power of the voting stock on a fully diluted
basis or of rights or warrants to purchase such capital stock, whether or not
currently exercisable, and any person who would be an affiliate of any such
beneficial owner pursuant to the first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other disposition or
series of related sales, leases, transfers or dispositions by WEC or any
restricted subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of
(1) any shares of capital stock of a restricted subsidiary, other than
directors' qualifying shares or shares required by applicable law to be
held by a person other than WEC or a restricted subsidiary,
(2) all or substantially all the assets of any division or line of
business of WEC's or any restricted subsidiary or
(3) any other assets of WEC or any restricted subsidiary outside of
WEC's ordinary course of business or such restricted subsidiary.
Notwithstanding the preceding, the following items shall not be deemed to be
Asset Dispositions:
(1) any single transaction or series of related transactions that
involves assets having a fair market value of less than $1.0 million;
(2) a transfer of assets between or among WEC and its wholly owned
subsidiaries,
(3) an issuance of equity interests by a wholly owned subsidiary to WEC
or to another wholly owned subsidiary;
(4) the sale, license or lease of equipment, inventory, accounts
receivable or other assets in the ordinary course of business;
(5) the sale or other disposition of cash or cash equivalents or
marketable securities;
(6) a restricted payment that is permitted by the covenant described
above under the caption "--Certain Covenants--Restricted Payments."
"Attributable Debt" when used with respect to any Sale/Leaseback Transaction
means, as at the time of determination, the present value, discounted at the
interest rate borne by the notes, compounded annually, of the total obligations
of the lessee for rental payments during the remaining term of the lease
included in such Sale/Leaseback Transaction, including any period for which
such lease has been extended.
"average life" means, as of the date of determination, with respect to any
indebtedness or preferred stock, the quotient obtained by dividing (1) the sum
of the products of numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such indebtedness or
redemption or similar payment with respect to such preferred stock multiplied
by the amount of such payment by (2) the sum of all such payments.
"banks" has the meaning specified in the senior credit facility.
"bank indebtedness" means all obligations pursuant to the senior credit
facility.
"board of directors" means WEC's board of directors or that of Parent or any
committee thereof duly authorized to act on behalf of such board.
"business day" means each day which is not a legal holiday.
"capital lease obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting
purposes in accordance with GAAP, and the amount of indebtedness represented by
such obligation will be the capitalized amount of such obligation determined in
accordance with GAAP; and the stated maturity thereof will be the date of the
last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be terminated by the lessee without
payment of a penalty.
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"capital stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in, however designated, equity of such person, including any
preferred stock, but excluding any debt securities convertible into such
equity.
"cash equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guarantee or insured by the
Untied 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 no more than six months from the date of
acquisition;
(3) 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 twelve months and overnight bank deposits, in
each case, with any lender party to the credit agreement or with any
domestic commercial bank having capital and surplus in excess of $500.0
million and a Thomson Bank Watch Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institutions meeting the qualifications
specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Rating Services and in each
case maturing within twelve months after the date of acquisition; and
(6) money marked funds at least 95% of the assets of which constitute
cash equivalents of the kinds described in clauses (1) through (5) of this
definition.
"Code" means the Internal Revenue Code of 1986, as amended.
"commodity agreement" means in respect of a person, any commodity futures
contract, commodity option or other similar agreement or arrangement designed
to protect such person against fluctuations in the price of energy, commodities
and raw materials.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (1) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters prior to the date of such determination to (2)
Consolidated Interest Expense for such four fiscal quarters; provided, however,
that
(1) if WEC or any restricted subsidiary has incurred any indebtedness
since the beginning of such period that remains outstanding or if the
transaction giving rise to the need to calculate the Consolidated Coverage
Ratio is an incurrence of indebtedness, or both, EBITDA and Consolidated
Interest Expense for such period will be calculated after giving effect on
a pro forma basis to such Indebtedness as if such Indebtedness had been
Incurred on the first day of such period and the discharge of any other
indebtedness repaid, repurchased, defeased or otherwise discharged with the
proceeds of such new Indebtedness as if such discharge had occurred on the
first day of such period,
(2) if WEC or any restricted subsidiary has repaid, repurchased,
defeased or otherwise discharged any indebtedness since the beginning of
such period or if any indebtedness is to be repaid, repurchased, defeased
or otherwise discharged, in each case other than indebtedness incurred
under any revolving credit facility unless such indebtedness has been
permanently repaid and has not been replaced, on the date of the
transaction giving rise to the need to calculate the Consolidated Coverage
Ratio, EBITDA and Consolidated Interest Expense for such period will be
calculated on a pro forma basis as if such discharge had occurred on the
first day of such period and as WEC or such restricted subsidiary has not
earned the interest income actually earned during such period in respect of
cash or temporary cash investments used to repay, repurchase, defease or
otherwise discharge such indebtedness,
(3) if since the beginning of such period WEC or any restricted
subsidiary will have made any Asset Disposition, the EBITDA for such period
will be reduced by an amount equal to the EBITDA, if positive, directly
attributable to the assets which are the subject of such Asset Disposition
for such period, or
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increased by an amount equal to the EBITDA, if negative, directly
attributable thereto for such period and Consolidated Interest Expense for
such period will be reduced by an amount equal to the Consolidated Interest
Expense directly attributable to WEC's indebtedness or any restricted
subsidiary repaid, repurchased, defeased or otherwise discharged with
respect to WEC and its continuing restricted subsidiaries in connection
with such Asset Disposition for such period, or, if the capital stock of
any restricted subsidiary is sold, the Consolidated Interest Expense for
such period directly attributable to the indebtedness of such restricted
subsidiary to the extent WEC and its continuing restricted subsidiaries are
no longer liable for such Indebtedness after such sale,
(4) if since the beginning of such period WEC or any restricted
subsidiary, by merger or otherwise, will have made an Investment in any
restricted subsidiary, or any person which becomes a restricted subsidiary,
or an acquisition of assets, including any acquisition of assets occurring
in connection with a transaction requiring a calculation to be made
hereunder, which constitutes all or substantially all of an operating unit
of a business, EBITDA and Consolidated Interest Expense for such period
will be calculated after giving pro forma effect thereto, including the
incurrence of any indebtedness or any cost saving permitted to be adjusted
in accordance with Article 11 of Regulation S-X, as if such Investment or
acquisition occurred on the first day of such period and
(5) if since the beginning of such period any person, that subsequently
became a restricted subsidiary or was merged with or into WEC or any
restricted subsidiary since the beginning of such period, will have made
any Asset Disposition, any Investment or acquisition of assets that would
have required an adjustment pursuant to clause (3) or (4) above if made by
WEC or a restricted subsidiary during such period, EBITDA and Consolidated
Interest Expense for such period will be calculated after giving pro forma
effect thereto as if such Asset Disposition, Investment or acquisition
occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto and
the amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations will be determined
by WEC in good faith by a responsible financial or accounting officer. If any
indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest of such indebtedness will be calculated as if the rate in
effect on the date of determination had been the applicable rate for the entire
period, taking into account any interest rate agreement applicable to such
indebtedness if such interest rate agreement has a remaining term in excess of
12 months.
"Consolidated Interest Expense" means, for any period, WEC's total interest
expense and that of WEC's consolidated restricted subsidiaries, plus, to the
extent not included in such total interest expense, and to the extent incurred
by WEC or its restricted subsidiaries, without duplication,
(1) interest expense attributable to capital leases and the interest
expense attributable to leases constituting part of a Sale/Leaseback
Transaction,
(2) amortization of debt discount and debt issuance cost,
(3) capitalized interest,
(4) non-cash interest expenses,
(5) commissions, discounts and other fees and charges owed with respect
to letters of credit and bankers' acceptance financing,
(6) net costs associated with hedging obligations (including
amortization of fees),
(7) preferred Stock dividends in respect of all preferred stock held by
persons other than WEC or a wholly owned subsidiary,
(8) interest incurred in connection with Investments in discontinued
operations,
(9) interest accruing on any indebtedness of any other person to the
extent such indebtedness is guaranteed by, or secured by the assets of, WEC
or any restricted subsidiary and
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(10) the cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan or
trust to pay interest or fees to any person, other than WEC, in connection
with indebtedness incurred by such plan or trust.
"Consolidated Net Income" means, for any period, WEC's net income and that
of WEC's consolidated subsidiaries; provided, however, that there will not be
included in such Consolidated Net Income:
(1) any net income of any person, other than WEC, if such person is not
a restricted subsidiary, except that
(A) subject to the exclusion contained in clause (4) below, WEC's
equity in the net income of any such person for such period will be
included in such Consolidated Net Income up to the aggregate amount of
cash actually distributed by such person during such period to WEC or a
restricted subsidiary as a dividend or other distribution, subject, in
the case of a dividend or other distribution paid to a restricted
subsidiary, to the limitations contained in clause (3) below, and
(B) WEC's equity in a net loss of any such person for such period
will be included in determining such Consolidated Net Income;
(2) any net income, or loss, of any person acquired by WEC or a
subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition;
(3) any net income of any restricted subsidiary if such restricted
subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such restricted
subsidiary, directly or indirectly, to WEC, except that
(A) subject to the exclusion contained in clause (4) below, WEC's
equity in the net income of any such restricted subsidiary for such
period will be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such restricted
subsidiary during such period to WEC or another restricted subsidiary
as a dividend or other distribution, subject, in the case of a dividend
or other distribution paid to another restricted subsidiary, to the
limitation contained in this clause, and
(B) WEC's equity in a net loss of any such restricted subsidiary for
such period will be included in determining such Consolidated Net
Income;
(4) any gain, but not loss, realized upon the sale or other disposition
of any of WEC's assets, WEC's consolidated subsidiaries or any other
person, including pursuant to any sale-and-leaseback arrangement, which is
not sold or otherwise disposed of in the ordinary course of business and
any gain, but not loss, realized upon the sale or other disposition of any
capital stock of any person;
(5) extraordinary gains or losses; and
(6) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purposes of the covenant described under
"Certain Covenants--Limitation on Restricted Payments" only, there will be
excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from unrestricted subsidiaries to WEC or
a restricted subsidiary to the extent such dividends, repayments or transfers
increase the amount of restricted payments permitted under such covenant
pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Worth" means the total of the amounts shown on our balance
sheet and that of our consolidated Subsidiaries, determined on a consolidated
basis in accordance with GAAP, as of the end of our most recent fiscal quarter
ending at least 45 days prior to the taking of any action for the purpose of
which the determination is being made, as
(1) the par or stated value of all our outstanding capital stock; plus
(2) paid-in capital or capital surplus relating to such capital stock;
plus
(3) any retained earnings or earned surplus less (A) any accumulated
deficit and (B) any amounts attributable to disqualified stock.
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"credit facilities" means, one or more debt facilities or commercial paper
facilities, in each case with banks or other institutional lenders providing
for revolving credit loans, term loans, receivables financing, including
through the sale of receivables to such lenders or to special purpose entities
formed to borrow from such lenders against such receivables, working capital
loans, swing lines, advances or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced, restructured or refinanced in
whole or in part from time to time.
"currency agreement" means in respect of a person any foreign exchange
contract, currency swap agreement or other similar agreement designed to
protect such person against fluctuations in currency values.
"default" means any event which is, or after notice or passage of time or
both would be, an event of default.
"disqualified stock" means, with respect to any person, any capital stock
which by its terms, or by the terms of any security into which it is
convertible or for which it is exchangeable, or upon the happening of any event
(1) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise,
(2) is convertible or exchangeable for indebtedness or disqualified
stock or
(3) is redeemable or must be purchased, upon the occurrence of certain
events or otherwise, by such person at the option of the holder thereof, in
whole or in part,
in each case on or prior to the first anniversary of the stated maturity of the
notes; provided, however, that any capital stock that would not constitute
disqualified stock but for provisions thereof giving holders thereof the right
to require such person to purchase or redeem such capital stock upon the
occurrence of an "asset sale" or "change of control" occurring prior to the
first anniversary of the stated maturity of the notes will not constitute
disqualified stock if (x) the "asset sale" or "change of control" provisions
applicable to such capital stock are not more favorable to the holders of such
capital stock than the terms applicable to the notes and described under "--
Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock" and "--
Certain Covenants--Change of Control" and (y) any such requirement only becomes
operative after compliance with such terms applicable to the Notes, including
the purchase of any notes tendered pursuant thereto.
"EBITDA" for any period means the sum of Consolidated Net Income, plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income:
(1) all WEC's income tax expense and that of WEC's consolidated
restricted subsidiaries,
(2) WEC's depreciation expense and that of WEC's consolidated restricted
subsidiaries,
(3) WEC's amortization expense and that of WEC's consolidated restricted
subsidiaries, excluding amortization expense attributable to a prepaid cash
item that was paid in a prior period,
(4) all WEC's other non-cash charges and those of WEC's consolidated
restricted subsidiaries, excluding any such non-cash charge to the extent
that it represents an accrual of or reserve for cash expenditures in any
future period, in each case for such period, and
(5) all one-time compensation payments made in connection with the
recapitalization.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization and non-cash charges of, a
restricted subsidiary will be added to Consolidated Net Income to compute
EBITDA only to the extent, and in the same proportion, that the net income of
such restricted subsidiary was included in calculating Consolidated Net Income
and only if a corresponding amount would be permitted at the date of
determination to be dividended to WEC by such restricted subsidiary without
prior approval (that has not been obtained), pursuant to the terms of its
charter and all agreements, instruments, judgments, decrees, orders, statutes,
rules and governmental regulations applicable to such restricted subsidiary
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or its stockholders. If since the beginning of the relevant period, WEC or any
restricted subsidiary will have made an Investment in any restricted
subsidiary (or any person which becomes a restricted subsidiary) or an
acquisition of assets, including any acquisition of assets occurring in
connection with a transaction requiring a calculation to be made hereunder,
which constitutes all or substantially all of an operating unit of a business,
EBITDA for such period will be calculated after giving pro forma effect
thereto (including any cost saving permitted to be adjusted in accordance with
Article 11 of Regulation S-X).
"equity interest" 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.
"equity offering" means an offering of common stock of WEC or Parent.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in
(1) the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants,
(2) statements and pronouncements of the Financial Accounting Standards
Board,
(3) such other statements by such other entity as approved by a
significant segment of the accounting profession and
(4) the rules and regulations of the SEC governing the inclusion of
financial statements, including pro forma financial statements, in periodic
reports required to be filed pursuant to Section 13 of the Exchange Act,
including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
"guarantee" means any obligation, contingent or otherwise, of any person
directly or indirectly guaranteeing any indebtedness of any person and any
obligation, direct or indirect, contingent or otherwise, of such person
(1) to purchase or pay or advance or supply funds for the purchase or
payment of such indebtedness or other obligation of such person, whether
arising by virtue of partnership arrangements, or by agreements to keep-
well, to purchase assets, goods, securities or services, to take-or-pay or
to maintain financial statement conditions or otherwise, or
(2) entered into for the purpose of assuring in any other manner the
obligee of such Indebtedness of the payment thereof or to protect such
obligee against loss in respect thereof, in whole or in part; provided,
however, that the term "guarantee" will not include endorsements for
collection or deposit in the ordinary course of business.
The term "guarantee" used as a verb has a corresponding meaning. The term
"guarantor" will mean any person guaranteeing any obligation.
"guaranty agreement" means a supplemental indenture, in a form satisfactory
to the trustee, pursuant to which Parent or a subsidiary guarantor guarantees
WEC's obligations with respect to the notes on the terms provided for in the
notes indenture.
"hedging obligations" of any person means the obligations of such person
pursuant to any interest rate agreement or currency agreement.
"holder" or "noteholder" means the person in whose name a note is
registered on the registrar's books.
"incur" means issue, assume, guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or capital stock of a person
existing at the time such person becomes WEC's subsidiary, whether by merger,
consolidation, acquisition or otherwise, will be deemed to be incurred by such
subsidiary at the time
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it becomes a subsidiary. The term "incurrence" when used as a noun will have a
correlative meaning. The accretion of principal of a non-interest bearing or
other discount security will be deemed the Incurrence of indebtedness.
"indebtedness" means, with respect to any person on any date of
determination, without duplication:
(1) the principal in respect of (A) indebtedness of such person for
money borrowed and (B) indebtedness evidenced by notes, debentures, bonds
or other similar instruments for the payment of which such person is
responsible or liable, including, in each case, any premium on such
indebtedness to the extent such premium has become due and payable;
(2) all capital lease obligations of such person and all Attributable
Debt in respect of Sale/Leaseback Transactions entered into by such person;
(3) all obligations of such person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such person
and all obligations of such person under any title retention agreement, but
excluding trade accounts payable arising in the ordinary course of
business;
(4) all obligations of such person for the reimbursement of any obligor
on any letter of credit, banker's acceptance or similar credit transaction,
other than obligations with respect to letters of credit securing
obligations (other than obligations described in clauses (1) through (3)
above) entered into in the ordinary course of business of such person to
the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the tenth
Business Day following payment on the letter of credit;
(5) the amount of all obligations of such person with respect to the
redemption, repayment or other repurchase of any disqualified stock or,
with respect to any subsidiary of such person, the liquidation preference
with respect to, any preferred stock, but excluding, in each case, any
accrued dividends;
(6) all obligations of the type referred to in clauses (1) through (5)
of other persons and all dividends of other persons for the payment of
which, in either case, such person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
guarantee;
(7) all obligations of the type referred to in clauses (1) through (5)
of other persons secured by any Lien on any property or asset of such
person, whether or not such obligation is assumed by such person, the
amount of such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so secured; and
(8) to the extent not otherwise included in this definition, hedging
obligations of such person.
The amount of Indebtedness of any person at any date will be the outstanding
balance at such date of all unconditional obligations as described above and
the maximum liability, upon the occurrence of the contingency giving rise to
the obligation, of any contingent obligations at such date.
"interest rate agreement" means in respect of a person any interest rate
swap agreement, interest rate cap agreement or other financial agreement or
arrangement designed solely to protect such person against fluctuations in
interest rates.
"Investment" in any person means any direct or indirect advance, loan,
other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender, or other
extensions of credit, including by way of guarantee or similar arrangement, or
capital contribution to, by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others, or any purchase or acquisition of capital stock, indebtedness or other
similar instruments issued by such person. For purposes of the definition of
"unrestricted subsidiary," the definition of "restricted payment" and the
covenant described under "--Certain Covenants--Limitation on Restricted
Payments,"
(1) "Investment" will include the portion, proportionate to WEC's equity
interest in such subsidiary, of the fair market value of the net assets of
any subsidiary of WEC at the time that such subsidiary is designated an
unrestricted subsidiary; provided, however, that upon a redesignation of
such subsidiary as a restricted subsidiary, WEC will be deemed to continue
to have a permanent "Investment" in an
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unrestricted subsidiary equal to an amount, if positive, equal to (x) WEC's
"Investment" in such subsidiary at the time of such redesignation less (y)
the portion, proportionate to WEC's equity interest in such subsidiary, of
the fair market value of the net assets of such subsidiary at the time of
such redesignation; and
(2) any property transferred to or from an unrestricted subsidiary will
be valued at its fair market value at the time of such transfer, in each
case as determined in good faith by the board of directors.
"issue date" means the date on which the notes are originally issued, which
was July 28, 1999.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind, including any conditional sale or other title retention
agreement or lease in the nature thereof.
"marketable securities" means publicly traded debt or equity securities that
are listed for trading on a national securities exchange and that were issued
by a corporation whose debt securities are rated in one of the three highest
categories by either Standard & Poor's Corporation or Moody's Investors
Service, Inc.
"Net Available Cash" from an Asset Disposition means cash payments, cash
equivalents and marketable securities received therefrom, including any cash
payments received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise and proceeds from the sale or other
disposition of any securities received as consideration, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring person of indebtedness or other obligations
relating to such properties or assets or received in any other noncash form, in
each case net of
(1) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred, and all Federal, state, provincial, foreign and
local taxes required to be accrued as a liability under GAAP, as a
consequence of such Asset Disposition,
(2) all payments made on any indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien
upon or other security agreement of any kind with respect to such assets,
or which must by its terms, or in order to obtain a necessary consent to
such Asset Disposition, or by applicable law, be repaid out of the proceeds
from such Asset Disposition,
(3) all distributions and other payments required to be made to minority
interest holders in restricted subsidiaries as a result of such Asset
Disposition and
(4) the deduction of appropriate amounts provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with
the property or other assets disposed in such Asset Disposition and
retained by WEC or any Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of capital stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"non-recourse debt" means indebtedness
(1) as to which neither WEC nor any restricted subsidiary
(A) provides any guarantee or credit support of any kind, including
any undertaking, guarantee, indemnity, agreement or instrument that
would constitute indebtedness, or
(B) is directly or indirectly liable as a guarantor or otherwise and
(2) 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
WEC's other indebtedness or that of any restricted subsidiary to declare a
default under such other indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity.
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"Parent guaranty" means the guarantee of the notes by Parent.
"Parent subordinated obligation" means any indebtedness of Parent, whether
outstanding on the issue date or thereafter incurred, which is subordinate or
junior in right of payment to the obligations of Parent under the Parent
guaranty pursuant to a written agreement.
"permitted holders" means Madison Dearborn Partners, Inc. and any affiliate
thereof.
"Permitted Investment" means an Investment by WEC or any restricted
subsidiary in
(1) WEC, a restricted subsidiary or a person that will, upon the making
of such Investment, become a restricted subsidiary; provided, however, that
the primary business of such restricted subsidiary is a Related Business;
(2) another person if as a result of such Investment such other person
is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, WEC or a restricted subsidiary; provided,
however, that such person's primary business is a Related Business;
(3) Investments in cash equivalents and marketable securities;
(4) receivables owing to WEC or any restricted subsidiary, including
negotiable interests held for deposit or collecting, if created or acquired
in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms; provided, however, that such trade
terms may include such concessionary trade terms as WEC or any such
restricted subsidiary deems reasonable under the circumstances;
(5) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of
business;
(6) loans or advances to employees made in the ordinary course of
business consistent with WEC's past practices or that of such restricted
subsidiary;
(7) any person to the extent such Investment represents the non-cash
portion of the consideration received for an Asset Disposition as permitted
pursuant to the covenant described under "--Certain Covenants--Limitation
on Sales of Assets and Subsidiary Stock;
(8) any acquisition of assets to the extent acquired in exchange for the
issuance of equity interests of WEC other than disqualified stock;
(9) hedging obligations permitted by clause (7) under the caption "--
Limitation on Indebtedness";
(10) an Investment existing on the date of the notes indenture;
(11) any Investment in securities of trade creditors or customers
received in compromise of obligations of such persons incurred in the
ordinary course of business, including pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or insolvency of
such trade creditors or customers; and
(12) any Investments in any person having an aggregate fair market
value, measured on the date each such Investment was made and without
giving effect to subsequent changes in value, when taken together with all
other Investments made pursuant to this clause (12) that are at the time
outstanding, not to exceed the greater of $5.0 million or 5% of total
assets.
"Permitted Liens" means, with respect to any person,
(1) pledges or deposits by such person under workmen's compensation
laws, unemployment insurance laws or similar legislation, or good faith
deposits in connection with bids, tenders, contracts (other than for the
payment of indebtedness) or leases to which such person is a party, or
deposits to secure public or statutory obligations of such person or
deposits or cash or United States government bonds to secure surety or
appeal bonds to which such person is a party, or deposits as security for
contested taxes or import duties or for the payment of rent, in each case
incurred in the ordinary course of business;
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(2) Liens imposed by law, such as carriers', warehousemen's and
mechanic's Liens, in each case for sums not yet due or being contested in
good faith by appropriate proceeding or other Liens arising out of
judgments or awards against such person with respect to which such person
will then be proceeding with an appeal or other proceedings for review;
(3) Liens for property taxes not yet subject to penalties for non-
payment, which are being contested in good faith by appropriate proceedings
or with respect to which adequate reserves have been recorded in accordance
with GAAP;
(4) Liens in favor of issuers of surety bonds or letters of credit
issued pursuant to the request of and for the account of such person in the
ordinary course of its business;
(5) survey exceptions, encumbrances, easements or reservations of, or
rights of others for, licenses, rights of way, sewers, electric lines,
telegraph and telephone lines and other similar purposes, or zoning or
other restrictions as to use of real properties or liens incidental to the
conduct of the business of such Person or to the ownership of its
properties;
(6) Liens securing hedging obligations so long as the related
Indebtedness is, and is permitted to be under the notes indenture, secured
by a Lien on the same property securing such hedging obligations;
(7) leases and subleases of real property which do not interfere with
the ordinary conduct of WEC's business or that of any of WEC's restricted
subsidiaries, and which are made on customary and usual terms applicable to
similar properties;
(8) Liens existing as of the issue date and Liens created by the notes
indenture;
(9) Liens created solely for the purpose of securing the payment of all
or a part of the purchase price of assets or property acquired or
constructed in the ordinary course of business after the date on which the
notes are originally issued; provided, however, that
(A) the aggregate principal amount of Indebtedness secured by such
Liens will not exceed the lesser of cost or fair market value of the
assets or property so acquired or constructed,
(B) the indebtedness secured by such Liens will have otherwise been
permitted to be issued under the notes indenture and
(C) such Liens will not encumber any of WEC's other assets or
property or that of any of WEC's restricted subsidiaries and will attach
to such assets or property within 180 days of the construction or
acquisition of such assets or property;
(10) Liens on the assets or property of any of WEC's restricted
subsidiaries existing at the time such restricted subsidiary became a
subsidiary of WEC and not incurred as a result of or in connection with or
in anticipation of such restricted subsidiary becoming a subsidiary of WEC;
provided, however, that:
(A) any such Lien does not by its terms cover any property or assets
after the time such restricted subsidiary becomes a subsidiary which
were not covered immediately prior to such transaction,
(B) the incurrence of the indebtedness secured by such Lien will have
otherwise been permitted to be issued under the notes indenture, and
(C) such Liens do not extend to or cover any of WEC's other property
or assets or that of any of WEC's restricted subsidiaries;
(11) Liens to secure capitalized lease obligations permitted to be
incurred under the notes indenture;
(12) Liens securing indebtedness outstanding or committed under the
senior credit facility;
(13) Liens extending, renewing or replacing in whole or in part a Lien
permitted by the notes indenture; provided, however, that:
(A) such Liens do not extend beyond the property subject to the
existing Lien and improvements and construction on such property and
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(B) the indebtedness secured by the Lien may not exceed the
indebtedness secured at the time by the existing Lien;
(14) Liens on inventory deemed to arise by reason of the consignment of
inventory in WEC's ordinary course of business and that of WEC's restricted
subsidiaries;
(15) Liens on the assets or property of any of WEC's restricted
subsidiaries to secure indebtedness of such restricted subsidiary owing to
and held by WEC; and
(16) Liens incurred in the ordinary course of business with respect to
obligations that do not exceed $1.0 million at any one time outstanding.
"person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"preferred stock," as applied to the capital stock of any person, means
capital stock of any class or classes, however designated, which is preferred
as to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
person, over shares of capital stock of any other class of such person.
"principal" of a note means the principal of the note plus the premium, if
any, payable on the note which is due or overdue or is to become due at the
relevant time.
"Productive Assets" means assets, including capital stock, that are used or
useable by WEC and its Restricted Subsidiaries in a Related Business.
"public equity offering" means an underwritten primary public offering of
WEC's common stock or that of Parent pursuant to an effective registration
statement under the Securities Act.
"refinance" means, in respect of any indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
indebtedness in exchange or replacement for, such indebtedness. "refinanced"
and "refinancing" will have correlative meanings.
"refinancing indebtedness" means indebtedness that refinances any of WEC's
indebtedness or that of any restricted subsidiary referred to in clause (b)(6)
under the covenant "--Limitation on Indebtedness," including indebtedness that
refinances refinancing indebtedness; provided, however, that:
(1) such refinancing indebtedness has a stated maturity no earlier than
the stated maturity of the indebtedness being refinanced,
(2) such refinancing indebtedness has an average life at the time such
refinancing indebtedness is Incurred that is equal to or greater than the
average life of the indebtedness being refinanced and
(3) such refinancing indebtedness has an aggregate principal amount, or
if incurred with original issue discount, an aggregate issue price, that is
equal to or less than the aggregate principal amount, or if incurred with
original issue discount, the aggregate accreted value, then outstanding or
committed, plus fees and expenses, including any premium and defeasance
costs, under the indebtedness being refinanced; provided further, however,
that refinancing indebtedness will not include (x) indebtedness of a
subsidiary that refinances WEC's indebtedness, (y) WEC's indebtedness or
that of a restricted subsidiary that refinances indebtedness of an
unrestricted subsidiary or (z) WEC's indebtedness or that of a subsidiary
guarantor that refinances indebtedness of a restricted subsidiary that is
not a subsidiary guarantor.
"Related Business" means any business related, ancillary or complementary to
WEC's businesses and that of the restricted subsidiaries on the issue date.
"restricted payment" with respect to any person means
(1) the declaration or payment of any dividends or any other
distributions of any sort in respect of its capital stock, including any
payment in connection with any merger or consolidation involving such
person, or similar payment to the direct or indirect holders of its capital
stock, other than dividends or
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distributions payable solely in its capital stock, other than disqualified
stock, and dividends or distributions payable solely to WEC or a restricted
subsidiary, and other than pro rata dividends or other distributions made
by a subsidiary that is not a wholly owned subsidiary to minority
stockholders, or owners of an equivalent interest in the case of a
subsidiary that is an entity other than a corporation,
(2) the purchase, redemption or other acquisition or retirement for
value of any capital stock of WEC held by any person or of any capital
stock of a restricted subsidiary held by any affiliate of WEC's, other than
a Restricted Subsidiary, including the exercise of any option to exchange
any capital stock, other than into WEC's capital stock that is not
disqualified stock,
(3) the purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment of any subordinated
obligations, other than the purchase, repurchase or other acquisition of
subordinated obligations purchased in anticipation of satisfying a sinking
fund obligation, principal installment or final maturity, in each case due
within one year of the date of acquisition, or
(4) the making of any Investment in any person, other than a Permitted
Investment.
"restricted subsidiary" means any subsidiary of WEC that is not an
unrestricted subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby WEC or a restricted subsidiary transfers
such property to a person and WEC or a restricted subsidiary leases it from
such person.
"SEC" means the Securities and Exchange Commission.
"senior credit facility" means that certain credit agreement, dated on or
about July 28, 1999, among WEC, Parent, the subsidiaries named therein and the
lenders from time to time party thereto, including any collateral documents,
instruments and agreements executed in connection therewith, and the term
senior credit facility will also include any amendments, supplements,
modifications, extensions, renewals, restatements or refundings thereof and any
credit facilities that replace, refund or refinance any part of the loans,
other credit facilities or commitments thereunder, including any such
replacement, refunding or refinancing facility that increases the amount
borrowable thereunder or alters the maturity thereof.
"significant subsidiary" means any restricted subsidiary that would be a
"significant subsidiary" of WEC within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"stated maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision, but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred.
"subordinated obligation" means any of WEC's indebtedness, whether
outstanding on the issue date or thereafter incurred, which is subordinate or
junior in right of payment to the notes pursuant to a written agreement to that
effect, it being understood that any accrued but unpaid fees or expenses not
permitted to be paid to Madison Dearborn Partners LLC or its affiliates due to
the restriction under the covenant described under "Limitation on Affiliate
Transactions" shall be considered subordinated obligations.
"subsidiary" means, in respect of any person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of capital stock or other interests, including partnership
interests, 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:
(1) such person,
(2) such person and one or more subsidiaries of such person or
(3) one or more subsidiaries of such person.
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"subsidiary guarantor" means each subsidiary of WEC that is a subsidiary on
the issue date and any other subsidiary that guarantees WEC's obligations with
respect to the notes.
"subsidiary guarantor subordinated obligations" means, with respect to a
subsidiary guarantor, any indebtedness of such subsidiary guarantor, whether
outstanding on the issue date or thereafter incurred, which is subordinate or
junior in right of payment to the obligations of such subsidiary guarantor
under the subsidiary guaranty pursuant to a written agreement.
"subsidiary guaranty" means a guarantee by a subsidiary guarantor of WEC's
obligations with respect to the notes.
"temporary cash investments" means any of the following:
(1) any investment in direct obligations of the United States of America
or any agency thereof or obligations guaranteed by the United States of
America or any agency thereof,
(2) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws
of the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $50,000,000
(or the foreign currency equivalent thereof) and has outstanding debt which
is rated "A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in Rule
436 under the Securities Act) or any money-market fund sponsored by a
registered broker dealer or mutual fund distributor,
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered
into with a bank meeting the qualifications described in clause (2) above,
(4) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an
affiliate of WEC's) organized and in existence under the laws of the United
States of America or any foreign country recognized by the United States of
America with a rating at the time as of which any investment therein is
made of "P-1" (or higher) according to Moody's Investors Service, Inc. or
"A-1" (or higher) according to Standard and Poor's Ratings Group, and
(5) investments in securities with maturities of six months or less from
the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A"
by Standard & Poor's Ratings Group or "A" by Moody's Investors Service,
Inc.
"total assets" means the total consolidated assets of WEC and its restricted
subsidiaries as set forth on WEC's most recent balance sheet.
"unrestricted subsidiary" means
(1) any subsidiary of WEC that at the time of determination will be
designated an unrestricted subsidiary by the board of directors in the
manner provided below and
(2) any subsidiary of an unrestricted subsidiary.
WEC's board of directors may designate any of its subsidiaries, including
any newly acquired or newly formed subsidiary, to be an unrestricted subsidiary
unless such subsidiary or any of its subsidiaries owns any of WEC's capital
stock or indebtedness, or holds any Lien on WEC's property or that of any
subsidiary of WEC's that is not a subsidiary of the subsidiary to be so
designated; provided, however, that either (A) the subsidiary to be so
designated has total assets of $1,000 or less or (B) if such subsidiary has
assets greater than $1,000, such designation would be permitted under the
covenant described under "--Certain Covenants--Limitation on Restricted
Payments."
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WEC's board of directors may designate any unrestricted subsidiary to be a
restricted subsidiary; provided, however, that immediately after giving effect
to such designation (x) WEC could incur $1.00 of additional indebtedness under
paragraph (a) of the covenant described under "--Certain Covenants--Limitation
on Indebtedness" and (y) no default will have occurred and be continuing. Any
such designation by WEC's board of directors will be evidenced to the trustee
by promptly filing with the trustee a copy of the resolution of the board of
directors giving effect to such designation and an officers' certificate
certifying that such designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations, or certificates
representing an ownership interest in such obligations, of the United States of
America, including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at WEC's option.
"voting stock" of a person means all classes of capital stock or other
interests, including partnership interests, of such person then outstanding and
normally entitled, without regard to the occurrence of any contingency, to vote
in the election of directors, managers or trustees thereof.
"wholly owned subsidiary" means a restricted subsidiary all the capital
stock of which, other than directors' qualifying shares, is owned by WEC or one
or more wholly owned subsidiaries.
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DESCRIPTION OF CAPITAL STOCK
The following summarizes certain provisions of Parent's restated certificate
of incorporation and bylaws. Such summaries do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, all of the
provisions of the restated certificate of incorporation and the bylaws, which
have been filed as exhibits to the registration statement of which this
prospectus forms a part. See "Where You Can Find More Information."
General
The restated certificate of incorporation provides for, among other things,
the authorization of 5,000,000 shares of common stock, par value $.01 per
share, 100,000 shares of 8% cumulative redeemable preferred stock, par value
$.01 per share, and 500,000 shares of undesignated, serial preferred stock.
As of September 30, 1999, Parent had outstanding 1,065,996.46 shares of
common stock, 47,594.91 shares of redeemable preferred stock and no shares of
serial preferred stock.
Common Stock
All of the issued and outstanding shares of common stock is fully paid and
non-assessable. The common stock is entitled to one vote per share on all
matters to be voted on by stockholders of Parent. Subject to the rights of the
holders of preferred stock and the restrictions, if any, imposed by
indebtedness outstanding from time to time, the holders of common stock will be
entitled to dividends and other distributions, as and when declared or paid,
whether in cash, property or securities of Parent by the board of directors of
Parent out of assets legally available therefore. Holders of common stock will
be entitled to share in such dividends or distributions on a pro rata basis.
The holders of common stock will have no preemptive, subscription, redemption
or sinking fund rights under the terms of the restated certificate of
incorporation.
Upon any voluntary or involuntary liquidation, dissolution or winding up of
Parent, after satisfaction of all its liabilities and the payment of the
liquidation preference of any outstanding shares of preferred stock or other
capital stock, the holders of shares of common stock would be entitled to share
ratably in the distribution of all of Parent's assets remaining available for
distribution.
Preferred Stock
Redeemable Preferred Stock
The holders of shares of redeemable preferred stock are entitled to receive,
when and as declared by the Parent's board of directors, preferential dividends
in cash on each share of redeemable preferred stock outstanding at a rate of 8%
per annum on the sum of the liquidation value ($1,000.00 per share) of each
share plus all accumulated and unpaid dividends thereon. Parent is required to
redeem all outstanding shares of redeemable preferred stock on December 31,
2018 at a price per share equal to the liquidation value thereof plus all
accrued and unpaid dividends thereon. Parent may at any time make an offer to
redeem all, but not less than all, of the redeemable preferred stock, at a
price per share equal to the liquidation value thereof plus all accrued but
unpaid dividends thereon. In the event that Parent does not make a redemption
offer prior to December 31, 2006, then the dividend rate will be increased to
12% per annum until
. the date on which the liquidation value of such redeemable preferred
stock, plus all accrued and unpaid dividends thereon, is paid to the
holder thereof in connection with the liquidation of Parent or the
redemption of such redeemable preferred stock by Parent or
. the date on which such share is otherwise acquired by Parent.
In the event that Parent makes a redemption offer and a holder of redeemable
preferred stock elects not to have such redeemable preferred stock redeemed,
then
. the dividend rate with respect to such redeemable preferred stock will be
reduced to 5% per annum from the date after the redemption date and until
a repayment date and
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<PAGE>
. at the option of Parent, dividends on such redeemable preferred stock may
be paid to such holder by the issuance of additional shares of redeemable
preferred stock until December 31, 2013.
The holders of redeemable preferred stock generally have no voting rights.
Serial Preferred Stock
The restated certificate of incorporation authorizes the board of directors
to create and issue one or more series of serial preferred stock and determine
the rights and preferences of each series, to the extent permitted by the
restated certificate and applicable law. Among other rights, the board of
directors may determine, without the further vote or action by Parent's
stockholders:
. the number of shares constituting the series and the distinctive
designation of the series;
. the dividend rate on the shares of the series, whether dividends will be
cumulative and, if so, from which date or dates, and the relative rights
of priority, if any, of payment of dividends on shares of the series;
. whether the series shall have voting rights, in addition to the voting
rights provided by law and, if so, the terms of such voting rights;
. whether the series shall have conversion privileges, and, if so, the
terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the board of
directors shall determine;
. whether or not the shares of that series shall be redeemable or
exchangeable and, if so, the terms and conditions of such redemption or
exchange, as the case may be, and the amount per share payable in case of
redemption, which amount may vary under different conditions and at
different redemption dates;
. whether the series shall have a sinking fund for the redemption or
purchase of shares of that series and, if so, the terms and amount of
such sinking fund; and
. the rights of the shares of the series in the event of voluntary or
involuntary liquidation, dissolution or winding up of Parent and the
relative rights or priority, if any, of payment of shares of the series.
Except for any difference so provided by the board of directors, the shares of
all series of serial preferred stock will rank on a parity with respect to the
payment of dividends and the distribution of assets upon liquidation.
Anti-Takeover Provisions of Restated Certificate and Bylaws
The rights of Parent's stockholders are governed by the Delaware General
Corporation Law, the restated certificate of incorporation and the bylaws.
Certain provisions of the restated certificate and bylaws, which are summarized
below, may discourage or make more difficult a takeover attempt that a
stockholder might consider in its best interest. Such provisions may also
adversely affect the prevailing market price for the common stock.
Serial Preferred Stock. The board of directors will have the authority,
without action by Parent's stockholders, to fix the rights, privileges and
preferences of, and to issue up to 500,000 shares of serial preferred stock.
The issuance of such serial preferred stock may have the effect of delaying,
deferring or preventing a change in control of Parent without further action by
the stockholders and may adversely affect the voting and other rights of the
holders of the common stock, including the loss of voting control to others.
Parent currently has no plans to issue any shares of serial preferred stock.
Advance Notice Requirements for Stockholder Proposals. The bylaws will
establish advance notice procedures with regard to stockholder proposals. These
procedures provide that the notice of stockholder proposals must be received by
Parent no later than
. with respect to an annual meeting of stockholders, 60 days prior to the
anniversary date of the immediately preceding annual meeting of
stockholders and
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<PAGE>
. with respect to a special meeting of stockholders, no later than the
close of business on the tenth day following the date on which notice of
such meeting is first sent or given to stockholders.
Each stockholder proposal must set forth certain information as specified in
the bylaws.
Securityholders Agreement
On July 28, 1999, Parent, MDP and the initial purchaser entered into a
registration rights and securityholders agreement relating to the common stock
sold in the units offering. Each holder of shares of Parent's common stock
included in the units offering, including all transferees of such holders (each
a "common holder"), is entitled to the benefits and subject to the obligations
arising under such securityholders agreement.
Pursuant to the securityholders agreement, each common holder will have
certain piggyback registration rights, as well as certain participation rights
with respect to certain third-party sales of common stock by MDP. With respect
to the piggyback registration rights, each common holder will have the right to
include its common stock in any registration of common stock, other than
pursuant to a registration statement on Form S-8 or S-4 or any similar form or
in connection with a registration the primary purpose of which is to register
debt securities. The amount of shares of common stock which may be registered
pursuant to an exercise of piggyback rights may be reduced, including a
reduction to zero, if the managing underwriters advise Parent that, in their
opinion, the aggregate number of shares of common stock which may be included
in such offering exceeds the number which can be sold in such offering without
adversely affecting the marketability of such offering.
The securityholders agreement grants each common holder participation
rights, which will provide that prior to any sale, transfer, assignment, pledge
or other disposal (a "transfer") by MDP of common stock by MDP, MDP shall
deliver a written notice to Parent and registered common holders specifying in
reasonable detail the identity of the prospective transferee(s) and the terms
and conditions of the transfer. Each common holder may elect to participate in
the contemplated transfer by delivering written notice to the transferring
securityholder within 10 business days after delivery of the sale notice. If
any common holder has elected to participate in such transfer, each such common
holder shall be entitled to sell in the contemplated Transfer, at the same
price and on the same terms, a number of shares equal to the product of (1) the
quotient determined by dividing the number of shares owned by such common
holder by the aggregate number of shares of common stock outstanding on a fully
diluted basis prior to giving effect to such transfer and (2) the aggregate
number of shares to be sold in the contemplated transfer. Each common holder
transferring shares in a transfer shall pay its pro rata share, based on the
number of shares to be sold, of the expenses incurred by the securityholders in
connection with such transfer.
Notwithstanding the foregoing, the participation rights described above do
not apply to any transfer of shares by MDP:
. among its affiliates, employees and consultants,
. to any employee, prospective employee, director or prospective director
of Parent, WEC or any of their affiliates,
. to any former or prospective employee, director or prospective director
of MDP or any affiliate of such affiliate or
. to any person in order to resolve certain regulatory issues.
In addition, these restrictions and obligations do not apply to a transfer or
transfers by MDP of shares representing an aggregate of up to 5% of Parent's
outstanding shares of common stock.
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<PAGE>
In addition, the securityholders agreement confers upon each common holder
drag-along rights, which will provide that in the event of a sale of Parent to
an independent third party or group of independent third parties pursuant to
which such party or parties acquire
. capital stock of Parent possessing the voting power under normal
circumstances to elect a majority of Parent's board of directors, whether
by merger, consolidation, sale, transfer or exchange of Parent's capital
stock or
. all or substantially all of Parent's assets determined on a consolidated
basis approved by the board of directors of Parent and with respect to
which all holders of common stock receive or are generally offered the
same form and amount of per share consideration and, in any event, the
consideration shall be cash and/or securities registered under the
Securities Act and listed on a national securities exchange or authorized
for quotation on The Nasdaq Stock Market, Inc., then each common holder
shall sell all of the shares of common stock held by it.
In the event of a sale subject to these drag-along rights, each common holder
will be obligated to:
. consent to and raise no objections against the sale and rights, and
. waive any dissenter's rights and other similar rights, and
. take all reasonably necessary and desirable actions as directed by the
board in connection with the consummation of such sale, provided, that
each common holder shall only be required to make customary and
reasonable representations, warranties and indemnities regarding its
title to and ownership of its shares.
The obligations of the common holders with respect to sale shall be subject to
the receipt by Parent from a nationally recognized investment bank of a written
fairness opinion that the consideration received by the securityholders is fair
and adequate. Common holders shall be liable for their pro rata share of
expenses incurred in connection with a drag-along sale.
The drag-along and participation rights set forth in the securityholders
agreement will terminate upon the completion of (1) a sale subject to the drag-
along rights or (2) an underwritten registered public offering of shares of
common stock.
155
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UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion, including the opinion of counsel described below,
is based upon current provisions of the Internal Revenue Code of 1986,
applicable Treasury regulations, judicial authority and administrative rulings
and practice. The Internal Revenue Service may take a contrary view, and no
ruling from the IRS has been or will be sought. Legislative, judicial or
administrative changes or interpretations could alter or modify the following
statements and conditions. Moreover, these changes or interpretations may or
may not be retroactive and could affect the tax consequences to you. If you are
an insurance company, tax-exempt organization, financial institution, broker-
dealer, foreign corporation or non-resident of the United States, you may be
subject to special rules not discussed below. We recommend that every holder
consult their own tax advisor as to the particular tax consequences of
exchanging their existing notes for exchange notes, of exchanging their
existing debentures for exchange debentures, and as to the applicability and
effect of any state, local or foreign tax laws in regard to the exchange
offers.
Acquisition of the Exchange Notes
Kirkland & Ellis, counsel to Woods, has advised us that in its opinion, the
exchange of the outstanding notes for exchange notes in the exchange offer will
not be treated as a taxable "exchange" for federal income tax purposes because
the exchange notes should not be considered to differ materially in kind or
extent from the outstanding notes. Rather, the exchange notes received by a
holder will be treated as a continuation of the outstanding notes in the hands
of that holder. As a result, there will be no federal income tax consequences
to you if you exchange outstanding notes for exchange notes in the exchange
offer.
Acquisition of the Exchange Debentures
Kirkland & Ellis, counsel to Woods, has advised us that in its opinion, the
exchange of the outstanding debentures for exchange debentures in the exchange
offer will not be treated as a taxable "exchange" for federal income tax
purposes because the exchange debentures should not be considered to differ
materially in kind or extent from the outstanding debentures. Rather, the
exchange debentures received by a holder will be treated as a continuation of
the outstanding debentures in the hands of that holder. As a result, there will
be no federal income tax consequences to you if you exchange outstanding
debentures for exchange debentures in the exchange offer.
PLAN OF DISTRIBUTION
Each participating broker-dealer that receives exchange securities for its
own account pursuant to the exchange offers must acknowledge that it will
deliver a prospectus in connection with any resale of such exchange securities.
This prospectus, as it may be amended or supplemented from time to time, may be
used by a participating broker-dealer in connection with resales of exchange
securities received in exchange for outstanding securities where such
outstanding securities were acquired as a result of market-making activities or
other trading activities. We have agreed that for a period of 180 days after
the expiration date of the exchange offers, we will make this prospectus, as
amended or supplemented, available to any participating broker-dealer for use
in connection with any such resale. In addition, until January 24, 2000, all
dealers effecting transactions in the exchange securities may be required to
deliver a prospectus.
We will not receive any proceeds from any sales of the exchange securities
by participating broker-dealers. Exchange securities received by participating
broker-dealers for their own account pursuant to the exchange offers may be
sold from time to time in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the
exchange securities or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such participating broker-
dealer and/or the purchasers of any such exchange securities. Any participating
broker-dealer that resells the
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exchange securities that were received by it for its own account pursuant to
the exchange offers and any broker or dealer that participates in a
distribution of such exchange securities may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any such resale of
exchange securities 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 participating broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the expiration date of the exchange offers,
we will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any participating broker-dealer that requests
such documents in the letter of transmittal. We have agreed to pay all expenses
incident to the exchange offers, including the expenses of one counsel for the
holders of the securities, other than commissions or concessions of any brokers
or dealers and will indemnify the holders of the securities, including any
broker-dealers, against certain liabilities, including liabilities under the
Securities Act.
Prior to the exchange offers, there has not been any public market for the
outstanding securities. The outstanding securities have not been registered
under the Securities Act and will be subject to restrictions on transferability
to the extent that they are not exchanged for exchange securities by holders
who are entitled to participate in this exchange offers. The holders of
outstanding securities, other than any such holder that is an "affiliate" of
Woods within the meaning of Rule 405 under the Securities Act, who are not
eligible to participate in the exchange offers are entitled to certain
registration rights, and we are required to file a shelf registration statement
with respect to such outstanding securities. The exchange securities will
constitute a new issue of securities with no established trading market. We do
not intend to list the exchange securities on any national securities exchange
or to seek the admission thereof to trading in the National Association of
Securities Dealers Automated Quotation System. We understand that the initial
purchaser intends to make a market in the exchange securities. However, it is
not obligated to do so, and any market-making activity with respect to the
exchange securities may be discontinued at any time. In addition, such market
making activity will be subject to the limits imposed by the Securities Act and
the Exchange Act and may be limited during the exchange offers and the pendency
of the shelf registration statements. Accordingly, no assurance can be given
that an active public or other market will develop for the exchange securities
or as to the liquidity of the trading market for the exchange securities. If a
trading market does not develop or is not maintained, holders of the exchange
securities may experience difficulty in reselling the exchange securities or
may be unable to sell them at all. If a market for the exchange securities
develops, any such market may be discontinued at any time.
LEGAL MATTERS
Certain legal matters with regard to the validity of the Securities will be
passed upon for Woods by Kirkland & Ellis, a partnership including professional
corporations, Chicago, Illinois.
EXPERTS
The consolidated financial statements of Woods Equipment Company as of
January 2, 1999 and December 27, 1997 and for each of the three fiscal years
ended January 2, 1999, December 27, 1997 and December 28, 1996 appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report appearing elsewhere
herein and are included in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
The consolidated financial statements of Tru-Part Manufacturing Corporation
as of November 28, 1998 and November 29, 1997 and for each of the fiscal years
ended November 28, 1998, November 29, 1997 and November 30, 1996 appearing in
this Prospectus and Registration Statement have been audited by Grant Thornton
LLP, independent auditors, as set forth in their report appearing elsewhere
herein and are included in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
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The consolidated financial statements of Central Fabricators, Inc. as of
December 31, 1998 and 1997 and for each of the two years ended December 31,
1998 appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report
appearing elsewhere herein and are included in reliance upon such report given
on the authority of such firm as experts in accounting and auditing.
The financial statements of the Alitec Attachment Division as of and for the
years ended December 31, 1998 and 1997 appearing in this Prospectus and
Registration Statement have been audited by Greenwalt, Sponsel & Co., Inc.,
independent certified public accountants, as set forth in their report
appearing elsewhere herein and are included in reliance upon such report given
on the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Parent and WEC have filed with the SEC a registration statement on Form S-4
pursuant to the Securities Act and the rules and regulations promulgated
thereunder covering the exchange offers contemplated by this prospectus. This
prospectus does not contain all the information set forth in the registration
statement. For further information with respect to Parent, WEC and the exchange
offers, see the registration statement. The registration statement, including
the exhibits thereto, can be inspected and copied at the public reference
facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 (telephone number: 1-800-SEC-0330), at the Regional
Offices of the SEC at 7 World Trade Center, 13th Floor, New York, New York
10048 and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials can be obtained from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. The SEC maintains a website that contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the SEC. The address of such site is
http://www.sec.gov.
We are not currently subject to the periodic reporting and other
informational requirements of the Exchange Act. We have agreed that, whether or
not it is required to do so by the rules and regulations of the SEC, for so
long as any of the debentures or notes remain outstanding, we will furnish to
the holders of the debentures or notes and file with the SEC, copies of the
financial and other information that would be contained in the annual reports
and quarterly reports that we would be required to file with the SEC if we were
subject to such requirements of the Exchange Act. We will also make such
reports available to prospective purchasers of the exchange securities, and to
securities analysts and broker-dealers upon their request.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Woods Equipment Company--Consolidated Financial Statements
Report of Independent Auditors............................................ F- 3
Consolidated Balance Sheets as of January 2, 1999 and December 27, 1997... F- 4
Consolidated Statements of Operations for the fiscal years ended January
2, 1999, December 27, 1997 and December 28, 1996......................... F- 5
Consolidated Statements of Stockholders' Equity for the fiscal years ended
January 2, 1999, December 27, 1997 and December 28, 1996................. F- 6
Consolidated Statements of Cash Flows for the fiscal years ended January
2, 1999, December 27, 1997 and December 28, 1996......................... F- 7
Notes to Consolidated Financial Statements................................ F- 8
Condensed Consolidated Balance Sheet as of July 3, 1999 (unaudited)....... F-22
Condensed Consolidated Statements of Income for six months ended July 3,
1999 and June 27, 1998 (unaudited)....................................... F-23
Condensed Consolidated Statements of Cash Flow for six months ended July
3, 1999 and June 27, 1998 (unaudited).................................... F-24
Notes to Condensed Consolidated Financial Statements (unaudited).......... F-25
Tru-Part Manufacturing Corporation--Financial Statements
Report of Independent Certified Public Accountants........................ F-29
Balance Sheets as of November 28, 1998 and November 29, 1997.............. F-30
Statements of Earnings for the fifty-two weeks ended November 28, 1998 and
November 29, 1997 and the fifty-three weeks ended November 30, 1996...... F-31
Statements of Shareholders' Equity for the fifty-two weeks ended November
28, 1998 and November 29, 1997 and the fifty-three weeks ended November
30, 1996................................................................. F-32
Statements of Cash Flows for the fifty-two weeks ended November 28, 1998
and November 29, 1997 and the fifty-three weeks ended November 30, 1996.. F-33
Notes to Financial Statements............................................. F-35
Condensed Balance Sheet as of May 21, 1999 (unaudited).................... F-39
Condensed Statements of Earnings for the six months ended May 21, 1999 and
May 22, 1998 (unaudited)................................................. F-40
Condensed Statements of Cash Flows for the six months ended May 21, 1999
and May 22, 1998 (unaudited)............................................. F-41
Notes to Condensed Financial Statements (unaudited)....................... F-42
Central Fabricators, Inc.--Financial Statements
Report of Independent Auditors............................................ F-43
Balance Sheets as of December 31, 1998 and 1997........................... F-44
Statements of Income for the years ended December 31, 1998 and 1997....... F-45
Statements of Changes in Stockholders' Equity for the years ended December
31, 1998 and 1997........................................................ F-46
Statements of Cash Flows for the years ended December 31, 1998 and 1997... F-47
Notes to Financial Statements............................................. F-48
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Condensed Balance Sheet at June 30, 1999 (unaudited)...................... F-51
Condensed Statements of Income for the six months ended June 30, 1999 and
1998 (unaudited)......................................................... F-52
Condensed Statements of Cash Flow for the six months ended June 30, 1999
and 1998 (unaudited)..................................................... F-53
Notes to Condensed Financial Statements (unaudited)....................... F-54
Alitec Corporation--Attachments Division--Financial Statements
Independent Auditors' Report.............................................. F-55
Balance Sheets as of December 31, 1998 and 1997........................... F-56
Statements of Income and Accumulated Deficit for the years ended December
31, 1998 and 1997........................................................ F-57
Statements of Cash Flows for the years ended December 31, 1998 and 1997... F-58
Notes to Financial Statements............................................. F-60
Condensed Balance Sheet as of June 30, 1999 (unaudited)................... F-65
Condensed Statements of Income for the six months ended June 30, 1999 and
1998 (unaudited)......................................................... F-66
Condensed Statements of Cash Flows for the six months ended June 30, 1999
and 1998 (unaudited)..................................................... F-67
Notes to Condensed Financial Statements (unaudited)....................... F-69
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Woods Equipment Company
We have audited the accompanying consolidated balance sheets of Woods
Equipment Company as of January 2, 1999 and December 27, 1997, and the related
consolidated statements of operations, changes in stockholders' equity, and
cash flows for each of the three fiscal years in the period ended January 2,
1999. Our audits also included the financial statement schedule listed in the
index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the schedule 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 Woods
Equipment Company at January 2, 1999 and December 27, 1997, and the
consolidated results of its operations and its cash flows for each of the three
fiscal years in the period ended January 2, 1999, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
Ernst & Young LLP
Chicago, Illinois
February 19, 1999, except for Note
15, as to which the date is July 23,
1999
F-3
<PAGE>
WOODS EQUIPMENT COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Shares Information)
<TABLE>
<CAPTION>
January
2 December 27
ASSETS 1999 1997
------ -------- -----------
<S> <C> <C>
Current assets:
Cash................................................... $ 1,352 $ 2,716
Trade accounts receivable, less allowance of $120...... 24,160 21,252
Inventories, net....................................... 21,362 20,486
Deferred income taxes.................................. 3,083 1,844
Prepaid expenses and other current assets.............. 2,309 2,503
-------- --------
Total current assets................................. 52,266 48,801
Property, plant, and equipment:
Land................................................... 882 882
Buildings.............................................. 9,535 9,291
Machinery and equipment................................ 23,062 21,200
Office furniture, fixtures, and equipment.............. 5,545 4,561
-------- --------
39,024 35,934
Less: Accumulated depreciation......................... 13,079 9,564
-------- --------
25,945 26,370
Excess of cost over fair value of net assets acquired,
less accumulated amortization of $3,158 and $1,831,
respectively............................................ 23,817 24,717
Other assets, net........................................ 6,637 5,552
-------- --------
$108,665 $105,440
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Current maturities of long-term obligations............ $ 2,128 $ 2,722
Accounts payable....................................... 4,938 5,643
Accrued expenses....................................... 5,521 4,832
-------- --------
Total current liabilities............................ 12,587 13,197
Long-term obligations, less current maturities........... 117,033 79,645
Deferred income taxes.................................... 3,083 2,977
Other long-term liabilities.............................. 76 107
Redeemable preferred stock and accrued dividends......... 30,110 6,658
Common stockholders' equity (deficit):
Common stock, $.01 par value; authorized--15,000,000
shares; issued and outstanding--657,963 shares and
3,804,375 shares, respectively........................ 6 38
Additional paid-in capital............................. 14,897 2,412
Retained earnings (accumulated deficit)................ (68,546) 567
Treasury stock, at cost................................ -- (56)
Notes receivable from stockholders..................... (581) (105)
-------- --------
(54,224) 2,856
-------- --------
$108,665 $105,440
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE>
WOODS EQUIPMENT COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
Fiscal year ended
---------------------------------
January December 27 December 28
2 1999 1997 1996
-------- ----------- -----------
<S> <C> <C> <C>
Net sales.................................... $154,734 $137,924 $129,427
Cost of sales................................ 113,205 104,983 97,025
-------- -------- --------
Gross profit................................. 41,529 32,941 32,402
Operating expenses:
Selling.................................... 14,590 12,614 10,744
General and administrative................. 8,713 6,749 5,777
Noncash stock option compensation charge
(see Note 1) 4,310 -- --
Engineering................................ 3,766 3,443 2,643
Management fee paid to affiliate........... 203 366 368
Amortization............................... 2,596 1,358 906
Other operating (income) expenses, net..... (169) (9) 15
-------- -------- --------
34,009 24,521 20,453
-------- -------- --------
Operating income............................. 7,520 8,420 11,949
Interest expense, including amortization of
deferred financing costs.................... 10,261 7,831 7,326
-------- -------- --------
Income (loss) before income tax provision
(benefit) and extraordinary loss............ (2,741) 589 4,623
Income tax provision (benefit)............... (438) 494 1,971
-------- -------- --------
Income (loss) before extraordinary loss...... (2,303) 95 2,652
Extraordinary loss: Early extinguishment of
debt (net of income tax benefit of $588 and
$214, respectively)......................... 795 290 --
-------- -------- --------
Net (loss) income............................ $ (3,098) $ (195) $ 2,652
======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE>
WOODS EQUIPMENT COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Number of Retained Note
Shares of Additional Earnings Receivable
Common Common Paid-In (Accumulated Treasury From
Stock Stock Capital Deficit) Stock Stockholders Total
---------- ------ ---------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 30,
1995................... 3,777,500 $ 38 $ 2,336 $ (1,232) $(64) $(133) $ 945
Sale of common stock.... 31,625 -- 76 -- 72 (148) --
Purchase of common
stock.................. (4,750) -- -- -- (64) 28 (36)
Net income.............. -- -- -- 2,652 -- -- 2,652
Preferred stock
dividends.............. -- -- -- (182) -- -- (182)
---------- ---- ------- -------- ---- ----- --------
Balance at December 28,
1996................... 3,804,375 38 2,412 1,238 (56) (253) 3,379
Payments by
stockholders........... -- -- -- -- -- 148 148
Net loss................ -- -- -- (195) -- -- (195)
Preferred stock
dividends.............. -- -- -- (476) -- -- (476)
---------- ---- ------- -------- ---- ----- --------
Balance at December 27,
1997................... 3,804,375 38 2,412 567 (56) (105) 2,856
Recapitalization:
Exercise of stock
options.............. 329,780 3 436 -- -- -- 439
Purchase of common
stock................ (4,069,888) (41) (1,706) (64,735) 66 105 (66,311)
Sale of common stock.. 593,696 6 9,445 -- (10) (880) 8,561
Payments by
stockholders........... -- -- -- -- -- 299 299
Noncash stock option
compensation charge.... -- -- 4,310 -- -- -- 4,310
Net loss................ -- -- -- (3,098) -- -- (3,098)
Preferred stock
dividends paid and
accrued................ -- -- -- (1,280) -- -- (1,280)
---------- ---- ------- -------- ---- ----- --------
Balance at January 2,
1999................... 657,963 $ 6 $14,897 $(68,546) $-- $(581) $(54,224)
========== ==== ======= ======== ==== ===== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE>
WOODS EQUIPMENT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Fiscal year ended
----------------------------------
January 2 December 27 December 28
1999 1997 1996
--------- ----------- -----------
<S> <C> <C> <C>
Operating activities
Income (loss) before extraordinary items... $ (2,303) $ 95 $ 2,652
Adjustments to reconcile income (loss)
before extraordinary items to net cash
provided by operating activities:
Depreciation.............................. 3,600 3,054 2,503
Amortization.............................. 2,916 1,566 1,343
Noncash stock option compensation charge.. 4,310 -- --
Bad debt write-offs (recoveries), net..... 28 80 (60)
Deferred income taxes..................... (1,133) 595 1,239
Loss on sale of property, plant, and
equipment................................ 7 117 60
Gain on sale of assets to joint venture... -- -- (95)
Equity in income of joint venture......... (161) (195) (29)
Changes in operating assets and
liabilities, net of effects of
acquisitions:
Trade accounts receivable............... (2,936) 7,082 (3,735)
Inventories............................. (876) (1,818) 8,280
Prepaid expenses and other assets....... 357 (2,323) (375)
Accounts payable........................ (705) (2,145) (394)
Other liabilities....................... 658 892 (163)
-------- -------- -------
Net cash provided by operating activities.. 3,762 7,000 11,226
Investing activities
Acquisition of Wain Roy, net of cash
acquired of $321.......................... -- (19,165) --
Acquisition of Baerts...................... -- (2,175) --
Purchases of equipment..................... (3,212) (4,678) (4,662)
Proceeds from sale of property, plant, and
equipment................................. 30 498 17
Proceeds from sale of assets to joint
venture................................... -- -- 2,215
Acquisition of product line................ -- -- (236)
Proceeds from disposition of product line.. -- -- 794
-------- -------- -------
Net cash used in investing activities...... (3,182) (25,520) (1,872)
Financing activities
Payments for deferred financing costs...... (3,898) (1,553) (40)
Proceeds from issuance of old term loans... -- 54,683 1,429
Net payments on old revolving loan......... (20,700) (3,290) (3,035)
Payments on old term loans and other notes. (51,026) (28,829) (7,495)
Proceeds from new term loans............... 85,000 -- --
Payments on new term loan.................. (150) -- --
Proceeds from new revolver, net............ 3,750 -- --
Issuance of subordinated loan to
controlling stockholder................... 25,000 -- --
Proceeds from exercise of stock options.... 439 -- --
Proceeds from sale of common stock......... 8,561 -- --
Proceeds from sale of preferred stock...... 27,179 -- --
Payment of promissory note to old
controlling stockholder................... (5,080) -- --
Preferred stock dividends.................. (992) -- --
Redemption of common stock................. (66,311) -- (36)
Redemption of preferred stock.............. (4,015) -- --
Net change in notes receivable from
stockholders.............................. 299 148 (120)
-------- -------- -------
Net cash provided by (used in) financing
activities................................ (1,944) 21,159 (9,297)
-------- -------- -------
Net increase (decrease) in cash............ (1,364) 2,639 57
Cash at beginning of year.................. 2,716 77 20
-------- -------- -------
Cash at end of year........................ $ 1,352 $ 2,716 $ 77
======== ======== =======
Supplemental disclosure of noncash
investing and financing activities
Debt payable to sellers incurred in
connection with acquisitions.............. $ -- $ 700 $ 325
Notes receivable received in connection
with sale of stock........................ -- -- 148
Supplemental cash flow information
Cash paid for interest..................... $ 9,294 $ 6,254 $ 6,580
Cash paid for income taxes................. 1,357 728 687
</TABLE>
See accompanying notes to the consolidated financial statements.
F-7
<PAGE>
WOODS EQUIPMENT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares Information)
Each of the three fiscal years ended January 2, 1999
1. Description of Business, Recapitalization, and Acquisitions
Woods Equipment Company (Woods or the Company) is a leading manufacturer of
attachments for a variety of mowing, cutting, clearing, construction, material
handling, landscaping, and grounds maintenance applications. The Company's
products include mowing attachments, front end loaders, backhoes, coupler
systems, buckets, scrapers, and other implements, in addition to a full line of
replacement parts. The average lifespan of the products range from one to five
years due to the severe and wearing nature of the applications for which they
are used. The Company's products are sold through approximately 3,900 dealers
throughout the United States, with no one dealer accounting for more than 2% of
total company sales.
On August 7, 1998, the Company completed a recapitalization of its equity
structure, pursuant to which, among other things, Madison Dearborn Capital
Partners Fund II (MDCPII or new controlling stockholder) and Woods' senior
management acquired substantially all of the outstanding capital stock of the
Company, referred to as the Recapitalization. The Recapitalization was financed
through: (i) borrowings of $85,000 under a new $110,000 multitranche senior
secured credit facility; (ii) borrowings of $25,000 under a subordinated bridge
loan provided by MDCPII; (iii) an equity investment in the Company of
approximately $37,500 by MDCPII, senior management, and certain other
investors; and (iv) cash on hand of approximately $1,700. In connection with
securing financing, the Company paid the new controlling stockholder $1,000 for
related services. This amount was classified as interest expense.
With these funds, the Company retired $65,051 bank debt, including $15,400
for a revolving loan, $48,825 for term loans, and $826 for accrued interest.
The Company also used $6,576 to retire subordinated promissory notes held by
Code, Hennessy, and Simmons, LLC (old controlling stockholder), including
$6,156 of principal and $420 of accrued interest. In addition, $422 was used to
retire seller debt, consisting of $417 of principal and $5 of accrued interest.
The Company used $70,879 of Recapitalization proceeds to repurchase
4,069,888 shares of common stock and 4,015 shares of preferred stock for
$65,872 and $5,007, respectively. The repurchase of preferred stock included
$4,015 for the stocks' face value and $992 for accrued dividends. The proceeds
were dispersed to the old controlling stockholder and management. Issuance of
593,696 shares of common stock and 27,179 shares of preferred stock yielded
consideration of $36,620, including notes receivables from management of $880.
Prior to the Recapitalization, employees exercised options to purchase
329,780 shares of common stock. In the Recapitalization, 287,233 of such shares
were redeemed by the Company at $16.10 per share. When options are exercised
and repurchased by the Company without being held by the employee for a period
of at least six months, generally accepted accounting principles require that a
compensation change be recorded for the excess of the redemption amount over
the exercise price. The charge recorded by the Company was $4,310.
During October 1997, the Company acquired Wain-Roy, Inc. (Wain-Roy) for cash
of approximately $19,165. During April 1997, the Company acquired Baerts Metal
Products (Baerts) for an aggregate cost of $2,875, consisting of cash of $2,175
and issuance of a note payable of $700. The aggregate excess of cost over the
fair value of the net assets acquired was $16,351 for the Baerts and Wain-Roy
acquisitions. The acquisitions have been accounted for using the purchase
method of accounting and, accordingly, the results of operations of the
acquired businesses have been included in the accompanying financial statements
since their dates of acquisition.
F-8
<PAGE>
WOODS EQUIPMENT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In Thousands)
The following unaudited proforma results of operations assumes that the
Wain-Roy and Baerts acquisitions occurred as of the beginning of the fiscal
year ended December 27, 1997:
<TABLE>
<S> <C>
Net sales....................................................... $149,598
Operating income................................................ 10,722
Income before extraordinary loss................................ 1,236
</TABLE>
2. Summary of Significant Accounting Policies
Basis of Presentation
The Company operates on a fifty-two/fifty-three weeks year. As such,
financial statements included herein reflect information for the fifty-three
weeks ended January 2, 1999 (1998) and for the fifty-two weeks ended December
27, 1997 (1997) and December 28, 1996 (1996).
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, WEC Company. All significant intercompany
balances and transactions have been eliminated. The Company's investment in a
50%-owned joint venture is accounted for under the equity method and is
included in "Other Assets."
Revenue Recognition
Sales are recognized upon shipment of the related equipment and replacement
parts. The Company offers preseason, early-order programs, whereby customers
may order and take delivery of products prior to the spring and summer selling
season, to end-users. These preseason sales programs are shipped beginning in
the late summer, carry descending cash discounts in conjunction with delayed
payment terms, and have no right of return. Revenue on sales is recorded net of
anticipated discounts.
Financial Instruments
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. Credit
risks with respect to trade receivables are limited due to the large number of
customers comprising the Company's customer base. The Company performs ongoing
credit evaluations of its customers and maintains allowances for potential
credit losses which, when incurred, have been within the range of management
expectations.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by
the last in, first out (LIFO) method for materials costs and the first in,
first out (FIFO) method for all other cost components. Approximately 75% of
total inventories at January 2, 1999 and approximately 70% of total inventories
at December 27, 1997 were accounted for using LIFO.
During 1996, the Company reduced certain inventory quantities, which were
valued at lower LIFO costs prevailing in prior fiscal years. The effect of
these reductions was to increase 1996 income before income taxes by $465.
F-9
<PAGE>
WOODS EQUIPMENT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In Thousands)
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation thereon is
computed using principally the straight-line method over estimated useful lives
of the respective assets as follows:
<TABLE>
<S> <C>
Buildings................................................... 30 years
Machinery and equipment..................................... 7 to 10 years
Office furniture, fixtures, and equipment................... 3 to 8 years
</TABLE>
Intangible Assets
The excess of cost over fair value of net assets of acquired businesses is
being amortized on the straight-line basis over 20 years. Other intangible
assets consist primarily of covenants not to compete, which are being amortized
on a straight-line basis over the terms of the related agreements ranging from
3 years to 5 years.
Impairment of Long-Lived Assets
The Company continually reviews the carrying value of its long-lived assets.
The Company assesses recoverability from future operations using income from
operations of the related business as a measure. Under this approach, the
carrying value would be reduced if it becomes probable that the Company's best
estimate for expected future cash flows of the related business would be less
than the net carrying amount of the long-lived assets over the remaining useful
life period. For the three fiscal year periods ended January 2, 1999, there
were no adjustments to the carrying amounts of long-lived assets resulting from
these evaluations. However, if future operations do not perform as expected, or
if the Company's strategic plans for its business were to change, a reduction
in the carrying value of these assets may be required.
Deferred Finance Costs
Deferred finance costs are being amortized using both the straight-line
basis, which approximates the interest method, and the interest method over the
terms of the related debt agreements.
Warranty Obligations
The Company's products are generally under limited warranty for a period of
one year. The estimated cost of warranty obligations is recognized at the time
of sale.
Income Taxes
The Company uses the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax return
purposes, and are measured using the enacted tax rates at which the resulting
taxes are expected to be paid.
Stock Options
The Company accounts for employee stock options in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25). In accordance with APB 25, compensation expense is
recognized based on the excess of the fair value, as determined by the
Company's Board of Directors, over the exercise price of the underlying stock
on the measurement date. The measurement date is the date at which both the
exercise price and number of shares to be issued are known.
F-10
<PAGE>
WOODS EQUIPMENT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In Thousands)
Advertising Costs
The Company expenses the costs of advertising when incurred. Advertising
expense was $1,591 in 1998, $1,677 in 1997, and $1,224 in 1996.
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes standards for
expanded disclosures on derivative financial instruments and the exposure to
market risks. The Company does not engage in hedging or other market structure
derivative trading activities.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
January 2 December 27
1999 1997
--------- -----------
<S> <C> <C>
Raw materials....................................... $ 3,870 $ 3,355
Work in process..................................... 2,323 2,029
Finished goods...................................... 16,651 16,269
------- -------
Total inventories at FIFO........................... 22,844 21,653
LIFO adjustment..................................... (1,482) (1,167)
------- -------
Total inventories at LIFO........................... $21,362 $20,486
======= =======
</TABLE>
4. Other Assets
Other assets consist of the following:
<TABLE>
<CAPTION>
January 2 December 27
1999 1997
--------- -----------
<S> <C> <C>
Covenants not to compete............................ $3,749 $3,749
Deferred financing costs............................ 5,230 2,911
Patents............................................. 776 704
Organizational costs................................ 67 67
------ ------
9,822 7,431
Less: Accumulated amortization...................... 4,565 3,101
------ ------
5,257 4,330
Investment in joint venture......................... 1,380 1,222
------ ------
$6,637 $5,552
====== ======
</TABLE>
F-11
<PAGE>
WOODS EQUIPMENT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In Thousands)
5. Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
January 2 December 27
1999 1997
--------- -----------
<S> <C> <C>
Salaries, wages, and employee benefits.............. $2,696 $1,932
Interest............................................ 1,073 1,425
Warranty............................................ 730 648
Restructuring costs................................. 445 330
Property, payroll, and other taxes.................. 125 212
Other............................................... 452 285
------ ------
$5,521 $4,832
====== ======
</TABLE>
6. Revolving Loan and Other Long-Term Obligations
In connection with the recapitalization (see Note 1), the Company entered
into a bank loan agreement which provides for a revolving credit facility and
three term loans. Total borrowings under the revolving credit facility were
$3,750 at January 2, 1999, and are not to exceed $25,000, including outstanding
letters of credits. The Company is subject to a fee of .50% per annum applied
to the amount of unused borrowings available on the revolving credit facility.
The revolving credit facility expires on September 30, 2003. Interest on the
revolving credit facility and term loans is payable quarterly either at a
specified bank base rate plus margins ranging from .50% to 2.50, or at a
Eurodollar rate plus Eurodollar margins ranging from 1.50% to 3.50% (2.25% at
January 2, 1999). Additional borrowing capacity under the revolving credit
facility was $20,850 at January 2, 1999. Letters of credit of $400 were
outstanding at January 2, 1999.
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
January 2 December 27
Rates 1999 1997
------------- --------- -----------
<S> <C> <C> <C>
Revolving loans:
New revolver....................... 9.0% $ 3,750 $ --
Old revolver....................... 8.7% -- 20,700
Bank term loans:
New term loans..................... 7.5% to 8.5% 84,850 --
Old term loans..................... 8.7% to 9.2% -- 50,000
Seller promissory note............... 7.5% to 8.0% 4,768 5,177
Subordinated promissory notes:
New controlling stockholder........ 10.5% 25,000 --
Old controlling stockholder........ 8.0% to 25.0% -- 5,080
Other obligations.................... 7.5% to 8.0% 793 1,410
-------- -------
119,161 82,367
Less: Current maturities............. (2,128) (2,722)
-------- -------
Total long-term obligations.......... $117,033 $79,645
======== =======
</TABLE>
The new term loans are payable in quarterly installments which began at $150
and increase to an average of $1,712, $8,266, and $5,797 in 2004, 2005, and
2006, respectively, as the term notes mature. The final installment of the
remaining outstanding principal balance is due on September 30, 2006.
F-12
<PAGE>
WOODS EQUIPMENT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In Thousands, Except Shares Information)
The Company's term loan is subject to restrictive covenants, including
minimum levels of net earnings and limitations on capital expenditures and
dividends. Borrowings under the bank loan agreement are guaranteed by the
Company's controlling stockholder.
The seller promissory note was issued in connection with an acquisition.
The note is payable in monthly installments of principal and interest of $35,
with final payment due in July 2009, and bears annual interest at 7.5%.
The subordinated promissory note to the new controlling stockholder is due
on October 1, 2007, and initially bore an interest rate of 10%, which is
increased by 0.5% at the end of each successive three month period from the
August 7, 1998 date of issuance.
Included in other obligations are three noncompete agreements and
consulting agreements with key members of the management of acquired entities.
At January 2, 1999, the noncompete agreements require total remaining payments
of $604, excluding imputed interest, over one- to two-year periods, and bear
interest at an 8% rate or have been discounted to their net present value
using an interest rate of 7.50%. The consulting agreement requires total
remaining payments of $127, excluding imputed interest, at January 2, 1999,
over a remaining two-year period. The Company has discounted these consulting
agreement to its net present value using an interest rate of 7.5%.
At points in time during 1998, 1997, and 1996, the Company was briefly in
default of certain restrictive covenants and obtained appropriate waivers or
amendments to the respective debt agreements.
Substantially all assets of the Company are collateralized by the above
debt. The carrying amount of long-term debt, most of which bear interest at
floating rates, approximate their fair values.
Future annual maturities of other long-term obligations, subsequent to
January 2, 1999, are as follows:
<TABLE>
<S> <C>
1999............................................................. $ 2,128
2000............................................................. 3,246
2001............................................................. 4,673
2002............................................................. 5,679
2003............................................................. 7,185
Thereafter....................................................... 92,500
--------
$115,411
========
</TABLE>
7. Stockholders' Equity
Preferred Stock
The Preferred Stock of the Company consists of 50,000 shares of 8%
Cumulative Redeemable Preferred Stock, par value $.01 per share (the Preferred
Stock). As of January 2, 1999, there were 29,164.22 shares of preferred stock
outstanding.
When and as declared by the Company's Board of Directors, to the extent
permitted by law, the holders of shares of Preferred Stock are entitled to
receive preferential dividends in cash on each share of Preferred Stock
outstanding at a rate of 8% per annum on the sum of the liquidation value of
such share, plus all accumulated and unpaid dividends thereon. The liquidation
value of each share of Preferred Stock is $1,000 per share. To the extent not
paid on March 31, June 30, September 30, and December 31 of each year,
dividends which shall have
F-13
<PAGE>
WOODS EQUIPMENT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In Thousands, Except Shares Information)
accrued on each outstanding share of Preferred Stock shall accumulate, and
shall remain accumulated until paid. The shares of Preferred Stock are not
convertible into any other class of capital stock of the Company, and the
holders thereof have no preemptive or subscription rights to purchase any
securities of the Company.
The Company is required to redeem all outstanding shares of Preferred Stock
on December 31, 2018, at a price per share equal to the liquidation value
thereof, plus all accrued but unpaid dividends thereon. In the event that the
Company does not make a Redemption Offer prior to December 31, 2006, then the
Dividend Rate will increase to 12% per annum until (i) the date on which the
Liquidation Value of such Preferred Stock (plus all accrued and unpaid
dividends thereon) is paid to the holder thereof in connection with the
liquidation of the Company or the redemption of such Preferred Stock by the
Company or (ii) the date on which such Preferred Stock is otherwise acquired
by the Company (each a Repayment Date). In the event that the Company makes a
Redemption Offer and a holder of Preferred Stock elects not to have such
Preferred Stock redeemed, then (i) the Dividend Rate with respect to such
Preferred Stock will be reduced to 5% per annum from the date after the
Redemption Date and until a Repayment Date and (ii) at the option of the
Company, dividends on such Preferred Stock may be paid to such holder by the
issuance of additional shares of Preferred Stock until December 31, 2013.
The holders of Preferred Stock have no voting rights unless the Company
fails to make a redemption payment, with respect to the Preferred Stock, which
it is required to make pursuant to an Event of Noncompliance. If an Event of
Noncompliance has occurred, the number of directors constituting the Company's
board of directors shall, at the request of the holders of a majority of the
Preferred Stock then outstanding, be increased by one director, and the
holders of Preferred Stock shall have the special right, voting separately as
a single class (with each share being entitled to one vote) and to the
exclusion of the Common Stock holders, to elect one individual to fill such
newly created directorship, to remove any individuals elected to such
directorship, and to fill any vacancies in such directorship. Such special
right shall continue until such time as there is no longer an Event of
Noncompliance in existence, at which time such special right shall terminate,
subject to revesting upon the occurrence and continuation of any Event of
Noncompliance which gives rise to such special right. Each holder of Preferred
Stock shall, regardless of the existence of an Event of Noncompliance, be
entitled to notice of all stockholder meetings at the same time and in the
same manner as notice is given to all stockholders entitled to vote at such
meetings.
Warrants
Pursuant to the terms of the Recapitalization Agreement, the Company issued
a Contingent Stock Purchase Warrant (the Warrant) to the old controlling
stockholder. Such Warrant provides for the purchase, upon exercise of the
Warrant, of approximately 3% of the fully diluted shares of the Common Stock
at a nominal price. The Warrant is exercisable in whole at any time, and from
time to time after the closing of a particular acquisition (Acquisition), and
prior to the earlier of (i) August 7, 2008, (ii) an underwritten public
offering registered under the Securities Act of shares of Common Stock, or
(iii) the sale of the Company to an independent third-party. As the
Acquisition was not consummated, no value was ascribed to the warrants as of
January 2, 1999.
Management Stock Options
The Company adopted its 1994 Incentive Stock Plan (the 1994 Plan) which
permits the granting of options to certain key administrative, managerial, and
executive employees of the Company and directors of the Company to purchase
shares of the Company's common stock. Options shall expire at such time as
designated by the administering committee provided, however, that no option
shall be exercisable later than the tenth anniversary date of its grant.
F-14
<PAGE>
WOODS EQUIPMENT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In Thousands, Except Shares Information)
In connection with the Recapitalization, all stock options outstanding
immediately vested and were exercised. The 1994 Plan was terminated thereafter.
The following table summarizes the stock option activity:
<TABLE>
<S> <C>
Outstanding at December 30, 1995................................ 289,280
Granted....................................................... 34,000
Exercised..................................................... --
Canceled...................................................... --
--------
Outstanding at December 28, 1996................................ 323,280
Granted....................................................... --
Exercised..................................................... --
Canceled...................................................... --
--------
Outstanding at December 27, 1997................................ 323,280
Granted....................................................... 6,500
Exercised..................................................... (329,780)
Canceled...................................................... --
--------
Outstanding at January 2, 1999.................................. --
========
Average option price per share:
1996.......................................................... $1.33
1997.......................................................... $1.33
1998.......................................................... N/A
Options exercisable:
1996.......................................................... --
1997.......................................................... 289,280
1998.......................................................... N/A
Average price of options exercised:
1996.......................................................... N/A
1997.......................................................... N/A
1998.......................................................... $1.33
</TABLE>
Disclosure of pro forma information regarding net income (loss) is required
by SFAS No. 123, "Accounting for Stock-Based Compensation", as if the Company
had accounted for its stock options granted subsequent to December 31, 1994,
using the fair value method of SFAS No. 123. The fair values of the Company's
stock options granted subsequent to December 31, 1994, were estimated at the
dates of grant using the minimum value method for nonpublic companies. The
following assumptions were utilized in the valuation:
<TABLE>
<CAPTION>
Fiscal year ended
---------------------------------
January 2 December 27 December 28
1999 1997 1996
--------- ----------- -----------
<S> <C> <C> <C>
Risk-free interest rate................. 5.20% N/A 4.98%
Expected dividend yield................. N/A N/A N/A
Expected life of options................ 5 years N/A 5 years
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option vesting period. Had
compensation cost for stock options granted subsequent to December 31, 1994
F-15
<PAGE>
WOODS EQUIPMENT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In Thousands)
been determined based on their fair value at the dates of grant, the Company's
net income (loss) would have been changed to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
Fiscal year ended
---------------------------------
January 2 December 27 December 28
1999 1997 1996
--------- ----------- -----------
<S> <C> <C> <C>
As reported............................. $(3,098) $(195) $2,652
Pro forma............................... (3,111) (215) 2,636
</TABLE>
The pro forma effect for 1998, 1997, and 1996 is not representative of the
pro forma effect in future years, as the pro forma disclosures reflect only
the fair value of stock options granted in 1998, 1997, and 1996 and do not
reflect the fair value of outstanding options granted prior to 1995.
8. Income Taxes
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
January 2 December 27
1999 1997
--------- -----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable allowances................... $ 410 $ 338
Inventory capitalization and allowances.......... 243 261
Accrued expenses................................. 593 473
Net operating loss carryforward.................. 2,552 865
Alternative minimum tax credit carryforward...... 898 800
Other............................................ 533 408
------ -------
5,229 3,145
Less: Valuation allowance.......................... (602) --
------ -------
Total net deferred tax assets...................... 4,627 3,145
Deferred tax liabilities:
Book basis over tax basis of property, plant, and
equipment....................................... 4,065 3,821
Other............................................ 562 457
------ -------
Total net deferred tax liabilities................. 4,627 4,278
------ -------
Net deferred tax asset (liabilities)............... $ -- $(1,133)
====== =======
</TABLE>
Significant components of the income tax provision (benefit) are as
follows:
<TABLE>
<CAPTION>
Fiscal year ended
----------------------------------
January 2 December 27 December 28
1999 1997 1996
--------- ----------- -----------
<S> <C> <C> <C>
Deferred:
Federal............................... $ (989) $ 475 $ 877
State................................. (144) 120 362
-------- ----- ------
(1,133) 595 1,239
Current:
Federal............................... 93 (248) 732
State................................. 14 (67) --
-------- ----- ------
107 (315) 732
-------- ----- ------
$(1,026) $ 280 $1,971
======== ===== ======
</TABLE>
F-16
<PAGE>
WOODS EQUIPMENT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In Thousands)
A reconciliation of the income tax provision (benefit) computed at a federal
statutory tax rate to the reported income tax provision (benefit), inclusive of
the benefit resulting from the early extinguishment of debt, is as follows:
<TABLE>
<CAPTION>
Fiscal year ended
---------------------------------
January 2 December 27 December 28
1999 1997 1996
--------- ----------- -----------
<S> <C> <C> <C>
Tax provision (benefit) at statutory
rates................................. $(1,402) $29 $1,572
State income tax provision, net of
federal tax effect ................... (86) 35 240
Excess of cost over fair value of net
assets acquired....................... 485 196 117
Other permanent differences............ (23) 20 42
------- ---- ------
$(1,026) $280 $1,971
======= ==== ======
</TABLE>
At January 2, 1999, the Company has net operating loss (NOL) carryforwards
of approximately $6.5 million for federal income tax purposes expiring in years
through 2018, and alternative minimum tax credit carryforwards of approximately
$898, which is available indefinitely. The NOL carryforwards resulted from the
exercise of stock options which produced additional deductions for income tax
purposes. For financial reporting purposes, a valuation allowance of $602 has
been recognized to offset deferred tax assets related to those NOL
carryforwards. When realized, the tax benefit for those items will be
principally applied to increase additional paid-in capital.
9. Employee Benefit Plan
The Company maintains a defined-contribution and 401(k) plan covering
substantially all employees. The plan provides for a Company matching
contribution of 50% of the employee's contribution up to 6% of the employee's
eligible compensation. In addition, the plan has a discretionary contribution
provision. Total Company contributions during 1998, 1997, and 1996 were
approximately $663, $528, and $497, respectively.
10. Lease Commitments
The Company leases certain facilities, computer equipment, and
transportation equipment under various noncancelable operating lease
agreements. The transportation equipment leases incorporate variable rates
based on mileage. Future minimum lease payments under noncancelable operating
leases with initial or remaining lease terms in excess of one year at January
2, 1999, are as follows:
<TABLE>
<S> <C>
1999............................................................... $1,695
2000............................................................... 1,361
2001............................................................... 998
2002............................................................... 872
2003............................................................... 654
Thereafter......................................................... 1,352
------
$6,932
======
</TABLE>
Total rent expense under all operating leases for 1998, 1997, and 1996 was
approximately $2,110, $1,566, and $1,199, respectively.
F-17
<PAGE>
WOODS EQUIPMENT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In Thousands)
11. Segment and Related Information
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". This Statement required the Company to
change the way it reports information about its operations. Information for
1997 and 1996 has been restated to conform to the 1998 presentation of
operating segment information.
The Company's products are sold primarily by construction, commercial,
agricultural, and outdoor power equipment dealers that sell prime movers and
other equipment produced by the major OEMs. The Company distribution network
includes dealers that have affiliations with all of the principal OEMs of prime
movers, such as New Holland, Deere, Case, AGCO (manufacturer of the Massey
Furguson brand of prime mover), Ingersoll (manufacturer of the Bobcat brand of
prime mover), Caterpillar, and Kubota. The Company also sells its products
through a substantial number of independent dealers that are not affiliated
with the major prime mover OEMs. Most dealers offer tractor and prime mover
attachments from independent manufacturers which complement or compete with
attachments sold by the major tractor and prime mover manufacturers.
Business units represent market segments in which they share certain
characteristics, such as technology, marketing, and product application, that
create long-term synergies. The principal activities of the Company's operating
segments are as follows:
Grounds Maintenance
This product category includes attachments used to maintain the grounds
surrounding industrial and office parks, large estates, resort complexes,
universities, golf courses, and individual homes. In general, the demand for
these products is dependent upon a variety of conditions, including general
economic conditions, consumer spending patterns, weather conditions, as well as
state and municipal government spending.
Construction
The end-users in this product category generally include construction
companies and utility contractors. Demand for these products is closely
correlated to the overall demand for construction equipment, which is driven by
several factors, including general economic conditions, interest rates, weather
conditions, and government spending.
Other
The end-users in this product category are farmers and ranchers, who use
these products principally in the planting, cultivating, and harvesting of
their crops. The demand for these products closely correlates to the demand for
agricultural equipment in general, which is influenced by a number of factors,
including total farm cash receipts, acreage under crop or livestock, crop
yields, government programs, general economic conditions, interest rates,
weather, and technological trends in agriculture.
Net sales by operating segment reflects sales of products and services to
external customers, as reported in the Company's consolidated statements of
operations. The Company evaluates performance based on operating income of the
respective segment. Operating income includes all revenues, costs, and expenses
directly related to the segment involved. In determining operating income,
neither corporate nor interest expenses are included. Operating segment
depreciation expense, identifiable assets, and capital expenditures relate to
those assets that are utilized by the respective operating segment. Corporate
assets consist principally of cash, other receivables, and fixed assets.
F-18
<PAGE>
WOODS EQUIPMENT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In Thousands)
The accounting policies of each operating segment are the same as those
described in the summary of significant accounting policies.
A summary of the Company's operations by segment for the three-year period
ended January 2, 1999, is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales
Grounds maintenance........................ $114,567 $110,477 $107,564
Construction............................... 36,137 22,072 16,883
Other...................................... 4,030 5,375 4,980
-------- -------- --------
Total net sales............................ $154,734 $137,924 $129,427
======== ======== ========
Operating income (loss)
Grounds maintenance........................ $ 15,237 $ 12,111 $ 13,404
Construction............................... 4,639 988 3,158
Other...................................... 390 449 400
Corporate.................................. (12,746) (5,128) (5,013)
-------- -------- --------
Total operating income..................... 7,520 8,420 11,949
Interest expense........................... 10,261 7,831 7,326
-------- -------- --------
Income (loss) before income taxes and
extraordinary loss........................ $ (2,741) $ 589 $ 4,623
======== ======== ========
</TABLE>
In connection with the Recapitalization (see Note 1), the Company incurred a
noncash stock option compensation charge of $4,310 in 1998. Also, in connection
with the Acquisition, the Company incurred a charge of $562 for the write-off
of related acquisition costs during 1998.
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Depreciation and amortization
Grounds maintenance............................ $ 3,442 $ 3,090 $ 2,838
Construction................................... 1,781 863 738
Other.......................................... 27 18 33
Corporate...................................... 1,266 649 237
-------- -------- -------
Total depreciation and amortization............ $ 6,516 $ 4,620 $ 3,846
======== ======== =======
Assets
Grounds maintenance............................ $ 47,655 $ 47,788 $49,691
Construction................................... 18,030 13,976 12,620
Other.......................................... 3,808 3,311 3,531
Corporate...................................... 39,172 40,365 15,786
-------- -------- -------
Total assets................................... $108,665 $105,440 $81,628
======== ======== =======
</TABLE>
F-19
<PAGE>
WOODS EQUIPMENT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In Thousands)
The investment in joint venture is included in the other segment for all
years presented.
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Additions to long-lived assets
Grounds maintenance................................. $2,602 $3,548 $3,784
Construction........................................ 435 919 872
Other............................................... -- 14 6
Corporate........................................... 175 197 --
------ ------ ------
Total additions to long-lived assets................ $3,212 $4,678 $4,662
====== ====== ======
</TABLE>
The Company had no significant amounts of sales to or any long-lived assets
in an individual country outside of the United States.
12. Extraordinary Item
The extraordinary items of $795 and $290, net of income tax benefits of $588
and $214, represents the write-off of unamortized deferred financing costs
related to notes which were early extinguished in 1998 and 1997, respectively.
13. Legal Proceedings
The Company is subject to various claims, including product liability
claims, arising in the ordinary course of business, and is party to various
legal proceedings which are ordinary, routine, and incidental to the Company's
business. In the opinion of management, all such matters are either adequately
covered by insurance or are not expected to have a material adverse effect on
the Company.
14. Related Party Transactions
The Company purchases manufactured finished goods at cost from its joint
venture investment which amounted to $7,979, $8,032, and $4,064 in fiscal years
1998, 1997, and 1996, respectively.
15. WEC Condensed Financial Information
Summary balance sheet information for WEC Company is as follows:
<TABLE>
<CAPTION>
January 2 December 27
1999 1997
--------- -----------
<S> <C> <C>
Current assets...................................... $ 52,266 $ 48,801
Noncurrent assets................................... 56,399 56,639
Total assets........................................ 108,665 105,440
Current liabilities................................. 12,868 17,430
Noncurrent liabilities.............................. 120,192 77,649
Total liabilities................................... 133,060 95,079
</TABLE>
F-20
<PAGE>
WOODS EQUIPMENT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In Thousands)
Summary results of operations for WEC Company is as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------
January 2 December 27 December 28
1999 1997 1996
--------- ----------- -----------
<S> <C> <C> <C>
Net sales.............................. $154,734 $137,924 $129,427
Gross profit........................... 41,529 32,941 32,402
Operating income....................... 7,520 8,420 11,949
Income (loss) before income tax
provision (benefit) and extraordinary
loss.................................. (2,021) 1,540 5,060
Net (loss) income...................... (2,659) 385 2,919
</TABLE>
WEC Company is a wholly owned subsidiary of Woods Equipment Company. Woods
Equipment Company has fully and unconditionally guaranteed the 12.0% Senior
Notes. Complete financial statements and other disclosures concerning WEC
Company are not presented because management has determined they are not
meaningful to investors.
F-21
<PAGE>
WOODS EQUIPMENT COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
July 3, 1999
(In Thousands, Except Shares Information)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Current Assets:
Trade accounts receivable, less allowance of $51................... $ 29,736
Inventories, net................................................... 18,510
Deferred income taxes.............................................. 3,083
Prepaid expenses and other current assets.......................... 2,100
--------
Total current assets............................................. 53,429
Property, plant, and equipment, net.................................. 26,588
Intangibles, net..................................................... 4,402
Excess of cost over fair value of net assets acquired, net........... 23,266
Other assets, net.................................................... 1,481
--------
$109,166
========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C>
Current liabilities:
Current maturities of long-term debt............................... $ 3,153
Accounts payable................................................... 6,085
Accrued expenses................................................... 7,322
--------
Total current liabilities........................................ 16,560
Long-term obligations, less current maturities....................... 111,685
Deferred income taxes................................................ 3,083
Other long-term liabilities.......................................... 77
--------
131,405
Redeemable preferred stock and accrued dividends..................... 31,274
Common stockholders' equity (deficit):
Common Stock $0.01 par value; authorized--15,000,000 shares issued
and outstanding--658,363 shares................................... 6
Additional paid-in capital......................................... 14,937
Treasury stock, at cost............................................ (96)
Notes receivable from stockholders................................. (578)
Accumulated deficit................................................ (67,782)
--------
(53,513)
--------
$109,166
========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
F-22
<PAGE>
WOODS EQUIPMENT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Shares Information)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended,
------------------
July 3, June 27,
1999 1998
-------- ---------
<S> <C> <C>
Net sales.................................................... $ 85,797 $ 83,694
Cost of sales................................................ 61,588 59,674
-------- --------
Gross profit................................................. 24,209 24,020
Selling, general, and administrative expenses................ 14,876 13,785
-------- --------
Operating income............................................. 9,333 10,235
Interest expense, including amortization of deferred
financing costs............................................. 5,585 3,964
-------- --------
Income before income tax provision........................... 3,748 6,271
Income tax provision......................................... 1,826 2,662
-------- --------
Net income................................................... $ 1,922 $ 3,609
======== ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
F-23
<PAGE>
WOODS EQUIPMENT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended,
--------------------
July 3, June 27,
1999 1998
--------- ---------
<S> <C> <C>
Operating activities
Net income.............................................. $ 1,922 $ 3,609
Adjustments to reconcile net income to net cash and cash
equivalents used in operating activities
Depreciation............................................ 1,997 1,726
Amortization............................................ 1,548 1,385
Bad debt expense........................................ 19 --
Equity in income of joint venture....................... (101) (220)
(Gain) loss on sale of property, plant and equipment.... (20) 14
Changes in operating assets and liabilities:
Trade accounts receivables............................ (5,595) (6,970)
Inventories........................................... 2,852 (1,023)
Prepaid expenses and other assets..................... 74 1,352
Accounts payable and accrued liabilities.............. 2,948 3,431
--------- --------
Net cash provided by operating activities........... 5,644 3,304
Investing activities
Purchases of equipment, net............................. (2,620) (1,227)
--------- --------
Net cash used in investing activities............... (2,620) (1,227)
Financing activities
Payments on old term loans and other notes.............. (273) (941)
Net proceeds on old revolving loan...................... -- (3,800)
Payments on new term loans.............................. (300) --
Net borrowings on new revolving loan.................... (3,750) --
Proceeds from sale of common stock...................... 40 102
Redemption of common stock.............................. (67) (10)
Redemption of preferred stock........................... (29) --
Net change in notes receivable from stockholders........ 3 (144)
--------- --------
Net cash used in financing activities............... (4,376) (4,793)
--------- --------
Net decrease in cash.................................... (1,352) (2,716)
Cash at beginning of period............................. 1,352 2,716
--------- --------
Cash at end of period................................... $ -- $ --
========= ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
F-24
<PAGE>
WOODS EQUIPMENT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 3, 1999 and June 27, 1998
(In Thousands)
(Unaudited)
1. Formation and Basis of Presentation
Woods Equipment Company (Woods or the Company) is a leading manufacturer of
attachments for a variety of mowing, cutting, clearing, construction, material
handling, landscaping, and grounds maintenance applications. The Company's
products include mowing attachments, front end loaders, backhoes, coupler
systems, buckets, scrapers, and other implements, in addition to a full line of
replacement parts. The average life-span of the products range from one to five
years due to the severe and wearing nature of the application for which they
are used. The Company's products are sold through approximately 3,900 dealers
throughout the United States, with no one dealer accounting for more than 2% of
total company sales.
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with instruction to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six month periods ended July 3, 1999
and June 27, 1998 are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 1999. These financial
statements should be read in conjunction with the financial statements,
including the notes thereto, for the fiscal year ended January 2, 1999.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. Related Party Expenses
The Company purchases manufactured finished goods at cost from its joint
venture investment, which amounted to $2,984 and $4,699 for the six month
periods ended July 3, 1999 and June 27, 1998, respectively.
3. Segment and Related Information
The Company's products are sold primarily by construction, commercial,
agricultural, and outdoor power equipment dealers that sell prime movers and
other equipment produced by the major OEMs. The Company distribution network
includes dealers that have affiliations with all of the principal OEMs of prime
movers, such as New Holland, Deere, Case, AGCO (manufacturer of the Massey
Furguson brand of prime mover), Ingersoll (manufacturer of the Bobcat brand of
prime mover), Caterpillar, and Kubota. The Company also sells its products
through a substantial number of independent dealers that are not affiliated
with the major prime mover OEMs. Most dealers offer tractor and prime mover
attachments from independent manufacturers which complement or compete with
attachments sold by the major tractor and prime mover manufacturers.
Business units represent market segments in which they share certain
characteristics, such as technology, marketing, and product application, that
create long-term synergies. The principal activities of the Company's operating
segments are as follows:
Grounds Maintenance
This product category includes attachments used to maintain the grounds
surrounding industrial and office parks, large estates, resort complexes,
universities, golf courses, and individual homes. In general, the demand
F-25
<PAGE>
WOODS EQUIPMENT COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
(In Thousands)
(Unaudited)
for these products is dependent upon a variety of conditions, including general
economic conditions, consumer spending patterns, weather conditions, as well as
state and municipal government spending.
Construction
The end-users in this product category generally include construction
companies and utility contractors. Demand for these products is closely
correlated to the overall demand for construction equipment, which is driven by
several factors, including general economic conditions, interest rates, weather
conditions, and government spending.
Other
The end-users in this product category are farmers and ranchers, who use
these products principally in the planting, cultivating, and harvesting of
their crops. The demand for these products closely correlates to the demand for
agricultural equipment in general, which is influenced by a number of factors,
including total farm cash receipts, acreage under crop or livestock, crop
yields, government programs, general economic conditions, interest rates,
weather, and technological trends in agriculture.
Net sales by operating segment reflects sales of products and services to
external customers, as reported in the Company's statements of operations. The
Company evaluates performance based on operating income of the respective
segment. Operating income includes all revenues, costs, and expenses directly
related to the segment involved. In determining operating income, neither
corporate nor interest expenses are included. Operating segment depreciation
expense, identifiable assets, and capital expenditures relate to those assets
that are utilized by the respective operating segment. Corporate assets consist
principally of cash, other receivables, and fixed assets.
A summary of the Company's operations by segment for the six month periods
ended July 3, 1999 and June 27, 1998, is as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Net sales
Grounds maintenance........................................ $64,949 $59,804
Construction............................................... 17,751 18,560
Other...................................................... 3,097 5,330
------- -------
Total net sales............................................ $85,797 $83,694
======= =======
Operating income (loss)
Grounds maintenance........................................ $11,110 $10,955
Construction............................................... 2,639 3,039
Other...................................................... 295 516
Corporate.................................................. (4,711) (4,275)
------- -------
Total operating income..................................... 9,333 10,235
Interest expense........................................... 5,585 3,964
------- -------
Income before income taxes................................. $ 3,748 $ 6,271
======= =======
</TABLE>
F-26
<PAGE>
WOODS EQUIPMENT COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
July
3, 1999
--------
<S> <C>
Assets
Grounds maintenance.............................................. $ 50,732
Construction..................................................... 17,167
Other............................................................ 3,625
Corporate........................................................ 37,642
--------
Total assets..................................................... $109,166
========
</TABLE>
The investment in joint venture is included in the other segment for all
periods presented.
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Additions to long-lived assets
Grounds maintenance........................................... $2,178 $1,003
Construction.................................................. 364 168
Corporate..................................................... 147 84
------ ------
Total additions to long-lived assets.......................... $2,689 $1,255
====== ======
</TABLE>
The Company had no significant amounts of sales to or any long-lived assets
in an individual country outside of the United States.
4. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
July 3,
1999
-------
<S> <C>
Raw materials.................................................... $ 3,685
Work in process.................................................. 1,942
Finished goods................................................... 14,365
-------
Total inventories at FIFO........................................ 19,992
LIFO adjustment.................................................. (1,482)
-------
Total inventories at LIFO........................................ $18,510
=======
</TABLE>
5. WEC Condensed Financial Information
Summary balance sheet information for WEC Company is as follows:
<TABLE>
<CAPTION>
July 3,
1999
--------
<S> <C>
Current assets................................................... $ 53,429
Noncurrent assets................................................ 55,737
Total assets..................................................... 109,166
Current liabilities.............................................. 16,560
Noncurrent liabilities........................................... 114,845
Total liabilities................................................ 131,405
</TABLE>
F-27
<PAGE>
WOODS EQUIPMENT COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
(In Thousands)
(Unaudited)
Summary results of operations for WEC Company is as follows:
<TABLE>
<CAPTION>
Six Months Ended
----------------
July 3, June 27,
1999 1998
------- --------
<S> <C> <C>
Net sales................................................ $85,797 $83,694
Gross profit............................................. 24,209 24,020
Operating income......................................... 9,333 10,235
Income before income tax provision....................... 3,748 6,847
Net income............................................... 1,922 3,960
</TABLE>
WEC Company is a wholly owned subsidiary of Woods Equipment Company. Woods
Equipment Company has fully and unconditionally guaranteed the 12.0% Senior
Notes. Complete financial statements and other disclosures concerning WEC
Company are not presented because management has determined they are not
meaningful to investors.
F-28
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Tru-Part Manufacturing Corporation
We have audited the accompanying balance sheets of Tru-Part Manufacturing
Corporation (a Minnesota corporation) as of November 28, 1998 and November 29,
1997, and the related statements of earnings, shareholders' equity, and cash
flows for the fifty-two week periods ended November 28, 1998 and November 29,
1997 and fifty-three week period ended November 30, 1996. These financial
statements are the responsibility of Tru-Part Manufacturing Corporation'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 our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Tru-Part Manufacturing
Corporation at November 28, 1998 and November 29, 1997, and the results of its
operations and its cash flows for the fifty-two week periods ended November 28,
1998 and November 29, 1997 and fifty-three week period ended November 30, 1996
in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Minneapolis, Minnesota
December 17, 1998
F-29
<PAGE>
TRU-PART MANUFACTURING CORPORATION
BALANCE SHEETS
November 28, 1998 and November 29, 1997
(In Thousands, Except Share Information)
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Current Assets:
Cash and cash equivalents.................................... $ 7,460 $ 6,999
Accounts receivable.......................................... 6,341 6,144
Merchandise inventories...................................... 7,049 6,690
Other........................................................ 144 170
------- -------
Total current assets....................................... 20,994 20,003
Plant and equipment--at cost:
Equipment, furniture and fixtures............................ 6,222 5,850
Leasehold improvements....................................... 2,098 2,038
------- -------
8,320 7,888
Less accumulated depreciation and amortization............... 7,200 6,602
------- -------
1,120 1,286
Other Assets:
Notes receivable............................................. 1,693 1,797
Cash surrender value of life insurance....................... 1,359 1,266
Other........................................................ 317 43
------- -------
3,369 3,106
------- -------
Total assets............................................... $25,483 $24,395
======= =======
Current liabilities:
Notes payable to officers and shareholders................... $11,965 $12,051
Undistributed taxable earnings............................... 2,368 2,311
Accounts payable............................................. 2,564 1,829
Accrued liabilities.......................................... 2,375 2,257
------- -------
Total current liabilities.................................. 19,272 18,448
Commitments and contingencies.................................. -- --
Shareholders' equity
6% cumulative preferred shares, Class A--authorized, 1,000
shares of $100 par value; none issued....................... -- --
Preferred shares, Class B--authorized, 3,000 shares of $100
par value; none issued...................................... -- --
Class A voting common stock--authorized, 50,000 shares of
$.10 par value; issued and outstanding 21,106 shares........ 2 2
Class B non-voting common stock--authorized, 250,000 shares
of $.10 par value; issued and outstanding 189,954 shares.... 19 19
Retained earnings............................................ 6,190 5,926
------- -------
6,211 5,947
------- -------
Total liabilities and shareholders' equity................. $25,483 $24,395
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-30
<PAGE>
TRU-PART MANUFACTURING CORPORATION
STATEMENTS OF EARNINGS
Fifty-two weeks ended November 28, 1998,
November 29, 1997 and fifty-three weeks ended November 30, 1996
(In Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net sales............................................ $65,610 $66,366 $65,771
Cost of sales
Inventory at beginning of year..................... 6,690 6,227 8,803
Purchases.......................................... 40,003 40,826 37,301
Freight-in......................................... 1,293 1,203 1,046
------- ------- -------
47,986 48,256 47,150
Less inventory at end of year........................ 7,049 6,690 6,227
------- ------- -------
40,937 41,566 40,923
------- ------- -------
Gross profit..................................... 24,673 24,800 24,848
Commissions.......................................... 4,841 4,910 4,920
------- ------- -------
Gross profit after commissions................... 19,832 19,890 19,928
Operating expenses
Warehouse.......................................... 6,858 6,578 6,784
Selling............................................ 3,646 3,733 3,572
Administration..................................... 4,810 5,158 5,264
Shipping........................................... 1,386 1,344 995
------- ------- -------
16,700 16,813 16,615
------- ------- -------
Operating profit................................. 3,132 3,077 3,313
Other income (expense)
Interest expense................................... (991) (950) (1,174)
Interest income.................................... 557 514 425
Miscellaneous...................................... (66) (74) (32)
------- ------- -------
(500) (510) (781)
------- ------- -------
Net earnings..................................... $ 2,632 $ 2,567 $ 2,532
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-31
<PAGE>
TRU-PART MANUFACTURING CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
Fifty-two weeks ended November 28, 1998,
November 29, 1997 and fifty-three weeks ended November 30, 1996
(In Thousands, Except Share Information)
<TABLE>
<CAPTION>
Class A voting Class B non-voting
common stock common stock
------------------ ------------------
Number of Number of
shares shares Retained
outstanding Amount outstanding Amount earnings Total
----------- ------ ----------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at November 25,
1995................... 21,106 $ 2 189,954 $ 19 $ 6,611 $ 6,632
Net earnings.......... -- -- -- -- 2,532 2,532
Distributions to
shareholders......... -- -- -- -- (2,967) (2,967)
------ ---- ------- ---- ------- -------
Balance at November 30,
1996................... 21,106 2 189,954 19 6,176 6,197
Net earnings.......... -- -- -- -- 2,567 2,567
Distributions to
shareholders......... -- -- -- -- (2,817) (2,817)
------ ---- ------- ---- ------- -------
Balance at November 29,
1997................... 21,106 2 189,954 19 5,926 5,947
Net earnings.......... -- -- -- -- 2,632 2,632
Distributions to
shareholders......... -- -- -- -- (2,368) (2,368)
------ ---- ------- ---- ------- -------
Balance at November 28,
1998................... 21,106 $ 2 189,954 $ 19 $ 6,190 $ 6,211
====== ==== ======= ==== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-32
<PAGE>
TRU-PART MANUFACTURING CORPORATION
STATEMENTS OF CASH FLOWS
Fifty-two weeks ended November 28, 1998,
November 29, 1997 and fifty-three weeks ended November 30, 1996
(In Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings...................................... $ 2,632 $ 2,567 $ 2,532
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization................... 641 980 1,002
Changes in operating assets and liabilities:
Accounts receivable........................... (197) (532) (960)
Merchandise inventories....................... (359) (462) 2,575
Other current assets.......................... 34 (35) 42
Accounts payable.............................. 735 (492) 24
Accrued liabilities........................... 118 133 31
Other assets.................................. -- (27) --
------- ------- -------
Net cash provided by operating activities... 3,604 2,132 5,246
Cash flows from investing activities:
Proceeds from sale of held-to-maturity securities. -- -- 1,978
Purchases of plant and equipment.................. (432) (296) (283)
Payments received on notes receivable............. 96 90 81
Increase in cash surrender value of life
insurance........................................ (93) (97) (93)
Purchase of other assets.......................... (317) -- --
------- ------- -------
Net cash provided by (used in) investing
activities................................. (746) (303) 1,683
Cash flows from financing activities:
Proceeds on notes payable to officers and
shareholders..................................... 1,586 -- --
Payments on notes payable to officers and
shareholders..................................... (1,672) (2,917) (503)
Undistributed taxable earnings.................... (2,311) -- --
Distributions to shareholders..................... -- -- (469)
Principal payments on long-term obligations....... -- -- (2,200)
------- ------- -------
Net cash used in financing activities....... (2,397) (2,917) (3,172)
------- ------- -------
Net increase (decrease) in cash and cash
equivalents........................................ 461 (1,088) 3,757
Cash and cash equivalents at beginning of period.... 6,999 8,087 4,330
------- ------- -------
Cash and cash equivalents at end of period.......... $ 7,460 $ 6,999 $ 8,087
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-33
<PAGE>
Supplemental disclosures of cash flow information:
Cash paid for interest was $991, $949 and $1,177 for the periods ended
November 28, 1998, November 29, 1997 and November 30, 1996.
Supplemental disclosure of noncash financing activities:
For the periods ended November 28, 1998, November 29, 1997 and November
30, 1996, the Company recorded undistributed taxable earnings in the amount
of $2,368, $2,311 and $2,026.
For the period ended November 29, 1997 and November 30, 1996,
undistributed taxable earnings in the amount of $2,532 and $472, were
transferred to notes payable to officers and shareholders.
F-34
<PAGE>
TRU-PART MANUFACTURING CORPORATION
NOTES TO FINANCIAL STATEMENTS
November 28, 1998, November 29, 1997 and November 30, 1996
(In Thousands)
Note A--Summary of Significant Accounting Policies
The company is a distributor of farm machinery replacement parts with
warehouses located in St. Paul, Minnesota; Sacramento, California; Dallas,
Texas; Nashville, Tennessee and Richmond, Virginia. Its customers are primarily
farm implement dealers operating throughout the United States. A summary of
significant accounting policies consistently applied in the preparation of the
accompanying financial statements follows:
Cash and Cash Equivalents
The company considers highly liquid temporary investments purchased with an
original maturity of three months or less to be cash equivalents. Substantially
all cash and cash equivalents are held in a money market fund at one financial
institution located in Minnesota.
Accounts Receivable
The company grants credit to its customers in the normal course of business,
but generally does not require collateral or any other security to support
amounts due. The company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is provided. If amounts become
uncollectible, they are charged to operations when that determination is made.
Merchandise Inventories
Merchandise inventories are stated at the lower of cost (determined by the
last-in, first-out method) or market.
Depreciation and Amortization
Depreciation and amortization are provided in amounts sufficient to relate
the cost of assets to operations over their estimated service lives using both
straight-line and accelerated methods.
Use of Estimates
Preparation of the company's financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and related revenues and expenses. Actual results could differ from
these estimates.
Fiscal Year
The company is on a fifty-two, fifty-three week year which ends on the last
Saturday in November. Fiscal 1998 and 1997 each consisted of fifty-two weeks.
Fiscal 1996 consisted of fifty-three weeks.
Note B--Merchandise Inventories
If the first-in, first-out method of inventory accounting had been used by
the company, merchandise inventories would have been approximately $6,512 and
$6,474 higher than that reported at November 28, 1998 and November 29, 1997.
F-35
<PAGE>
TRU-PART MANUFACTURING CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
November 28, 1998, November 29, 1997 and November 30, 1996
(In Thousands)
Note C--Notes Receivable
Notes receivable consist of the following:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Note receivable from a partnership related through common
ownership, interest at 8%, due in monthly installments of
principal and interest through February 2013,
collateralized by a building leased by the company (see
note H)................................................... $1,120 $1,161
Note receivable from a partnership related through common
ownership, interest at the Company's borrowing rate
(effective rates of 7.6% as of November 28, 1998 and
November 29, 1997), due in monthly installments of
principal and interest through November 2001,
collateralized by land and building leased by the company
(see note H).............................................. 647 675
Note receivable from a partnership related through common
ownership, interest at the Company's borrowing rate
(effective rates of 7.6% as of November 28, 1998 and
November 29, 1997), due in monthly installments of
principal and interest through April 2000,
uncollateralized.......................................... 30 57
------ ------
1,797 1,893
Less current portion....................................... (104) (96)
------ ------
$1,693 $1,797
====== ======
</TABLE>
Interest income received from related parties was approximately $145, $151
and $149 for the periods ended November 28, 1998, November 29, 1997 and
November 30, 1996.
Note D--Credit Agreement
At November 28, 1998 and November 29, 1997, the company had a $1,000
revolving line of credit available under a credit agreement with a bank. The
availability under the line varies during the year based on the requirements of
the company. During the year ended November 28, 1998, the largest balance
outstanding under the line at any time was $4,500. The company can choose one
of three interest rate options as follows: 1) prime rate, 2) reserve adjusted
CD rate plus 2.0%, or 3) LIBOR rate plus 2.0%. The line expires on January 31,
1999, at which time management expects to renew this line at substantially the
same terms and conditions. There were no balances outstanding under this
agreement at November 28, 1998 and November 29, 1997.
The credit agreement is collateralized by substantially all assets and
contains certain restrictive covenants which require the company to maintain,
among other things, specified levels of debt service coverage and subordinated
debt to officers and shareholders (note E). At November 28, 1998, the company
was in compliance with all covenants.
Note E--Notes Payable to Officers and Shareholders
Notes payable to officers and shareholders are payable upon demand and bear
interest at the company's borrowing rate (effective rates of 7.6% as of
November 28, 1998 and November 29, 1997). Interest expense on these notes was
approximately $924, $910 and $925 for the periods ended November 28, 1998,
November 29, 1997 and November 30, 1996.
Note F--Income Taxes
Income taxes on net earnings of the company are payable personally by its
shareholders pursuant to an election under Subchapter S of the Internal Revenue
Code not to have the company taxed as a corporation. Accordingly, no provision
has been made for income taxes. If this election had not been made, income tax
expense would have been approximately $1,085, $1,061 and $970 for the periods
ended November 28, 1998, November 29, 1997 and November 30, 1996.
F-36
<PAGE>
TRU-PART MANUFACTURING CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
November 28, 1998, November 29, 1997 and November 30, 1996
(In Thousands)
Note G--Employee Benefit Plans
The company has a discretionary profit sharing trust for the benefit of all
non-commissioned and non-union employees who have completed at least one year
of service, as defined in the trust. Employer contributions for profit sharing
for the periods ended November 28, 1998, November 29, 1997 and November 30,
1996, were approximately $827, $835 and $807.
The company has a thrift plan for commissioned employees whereby the company
matches employee contributions up to specified limitations. The company's
contributions for the periods ended November 28, 1998, November 29, 1997 and
November 30, 1996 were approximately $123, $133 and $131.
The company has a target benefit retirement plan for all hourly employees
covered by a bargaining agreement with a union. The company makes an annual
contribution to the plan equal to an amount required to fully fund the plan.
The contributions to the plan for each of the periods ended November 28, 1998,
November 29, 1997 and November 30, 1996 were approximately $38, $38 and $43.
Note H--Commitments and Contingencies
Repurchase Agreement
The company has an agreement with a major shareholder under which, upon the
death of the shareholder and upon written request, the company must purchase
the stock owned by the shareholder and his immediate family, unless prohibited
by law. The purchase price will be the fair market value of the stock, as
determined by an independent appraisal. The company carries approximately
$2,000 of life insurance coverage on the shareholder and the insurance proceeds
are to be used to help fund the purchase price with the balance to be paid in
cash in accordance with the terms specified in the agreement. In fiscal year
1998, the company did not have an appraisal performed on the fair market value
of the company. Management believes the company has adequate resources
available to fund the purchase price.
Leases
The company leases office and warehouse facilities under various operating
leases which expire in 2001 - 2003. Substantially all of these facilities are
owned by business entities whose principal shareholders are also shareholders
of Tru-Part Manufacturing Corporation. In addition to rent, the leases require
the company to pay all operating expenses, including insurance, real estate
taxes, maintenance, and utilities. The company has the option to renew all
leases for an additional five years.
Future minimum rental payments under these operating leases are as follows:
<TABLE>
<CAPTION>
Fiscal year ending the last Saturday in November
------------------------------------------------
<S> <C>
1999............................................................. $ 845
2000............................................................. 845
2001............................................................. 835
2002............................................................. 727
2003............................................................. 83
------
$3,335
======
</TABLE>
F-37
<PAGE>
TRU-PART MANUFACTURING CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
November 28, 1998, November 29, 1997 and November 30, 1996
(In Thousands)
Rent expense under all operating leases, substantially all of which was paid
to related parties, was approximately $762, $613 and $614 for the periods ended
November 28, 1998, November 29, 1997 and November, 1996.
Note I--Risks and Uncertainties
The Year 2000 issue relates to limitations in computer systems and
applications that may prevent proper recognition of the Year 2000. The
potential effect of the Year 2000 issue on the company and its business
partners will not be fully determinable until the year 2000 and thereafter. If
Year 2000 modifications are not properly completed either by the company or
entities with whom the company conducts business the company's revenues and
financial condition could be adversely impacted.
F-38
<PAGE>
TRU-PART MANUFACTURING CORPORATION
CONDENSED BALANCE SHEET
May 21, 1999
(In Thousands, Except Share Information)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Current assets:
Accounts receivable.................................................. $14,202
Merchandise inventories.............................................. 7,326
Other current assets................................................. 201
-------
Total current assets............................................... 21,729
Property, plant, and equipment, net.................................... 964
Other assets........................................................... 3,515
-------
$26,208
=======
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C>
Current liabilities:
Notes payable to officers and shareholders........................... $12,419
Accounts payable and checks written in excess of bank balance........ 3,042
Accrued expenses..................................................... 2,667
Current maturities of long-term debt................................. 200
-------
Total current liabilities.......................................... 18,328
Stockholders' equity:
Class A voting common stock of $0.10 par value; authorized--50,000
shares; issued and outstanding--21,106 shares....................... 2
Class B non-voting common stock of $0.10 par value; authorized--
250,000 shares; issued and outstanding--189,954 shares.............. 19
Retained earnings.................................................... 7,859
-------
7,880
-------
$26,208
=======
</TABLE>
See accompanying notes to the condensed financial statements.
F-39
<PAGE>
TRU-PART MANUFACTURING CORPORATION
CONDENSED STATEMENTS OF EARNINGS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended,
---------------
May 21, May 22,
1999 1998
------- -------
<S> <C> <C>
Net sales...................................................... $34,331 $34,985
Cost of sales.................................................. 21,450 22,008
------- -------
Gross profit................................................... 12,881 12,977
Selling, general, and administrative expenses.................. 10,990 10,780
------- -------
Income from operations......................................... 1,891 2,197
Interest and other expense, net................................ 222 292
------- -------
Net earnings................................................... $ 1,669 $ 1,905
======= =======
</TABLE>
See accompanying notes to the condensed financial statements.
F-40
<PAGE>
TRU-PART MANUFACTURING CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended,
----------------
May 21, May 22,
1999 1998
------- -------
<S> <C> <C>
Operating Activities
Net income.................................................... $1,669 $1,905
Adjustments to reconcile net income to net cash and cash
equivalents used in operating activities:
Depreciation and amortization................................. 225 354
Changes in operating assets and liabilities:
Accounts receivable......................................... (7,861) (9,053)
Merchandise inventories..................................... (277) (26)
Other assets................................................ (57) 35
Accounts payable and accrued expenses....................... 770 942
------ ------
Net cash and cash equivalents used in operating
activities............................................... (5,531) (5,843)
------ ------
Investing activities
Purchase of equipment, net.................................... (51) (123)
Payments received on notes receivable......................... 39 47
Increase in other assets...................................... (202) (89)
------ ------
Net cash and cash equivalents used in investing
activities............................................... (214) (165)
------ ------
Financing activities
(Payments) proceeds from notes payable to officers and
shareholders................................................. (1,915) 400
Net proceeds on bank line of credit........................... 200 3,500
Undistributed taxable earnings................................ -- (2,311)
------ ------
Net cash and cash equivalents (used in) provided by financing
activities................................................... (1,715) 1,589
------ ------
Net decrease in cash and cash equivalents..................... (7,460) (4,419)
Cash and cash equivalents, at beginning of period............. 7,460 6,999
------ ------
Cash and cash equivalents, at end of period................... $ -- $2,580
====== ======
</TABLE>
See accompanying notes to the condensed financial statements.
F-41
<PAGE>
TRU-PART MANUFACTURING CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
May 21, 1999 and May 22, 1998
(In Thousands)
(Unaudited)
1. Formation and Basis of Presentation
Tru-Part Manufacturing Corporation (the Company) is a distributor of farm
machinery replacement parts with warehouses located in St. Paul, Minnesota;
Sacramento, California; Dallas, Texas; Nashville, Tennessee and Richmond,
Virginia. Its customers are primarily farm implement dealers operating
throughout the United States.
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with instruction to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six month periods ended May 21, 1999
and May 22, 1998 are not necessarily indicative of the results that may be
expected for the fiscal year ending November 30, 1999. These financial
statements should be read in conjunction with the financial statements,
including the notes thereto, for the fiscal year ended November 28, 1998.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
2. Notes Payable to Officers and Shareholders
Notes payable to officers and shareholders are payable upon demand and bear
interest at the Company's borrowing rate (rates vary from 6.4% to 8.0% for the
unaudited twenty-five week periods ended May 21, 1999 and 7.5% to 8.0% for the
unaudited twenty-five week periods ended May 22, 1998). Interest expense on
these notes was approximately $385 and $470 for the twenty-five week periods
ended May 21, 1999 and May 22, 1998.
3. Risks and Uncertainties
The Year 2000 issue relates to limitations in computer systems and
applications that may prevent proper recognition of the Year 2000. The
potential effect of the Year 2000 issue on the Company and its business
partners will not be fully determinable until the year 2000 and thereafter. If
Year 2000 modifications are not properly completed either by the Company or
entities with whom the Company conducts business, the Company's revenues and
financial condition could be adversely impacted.
F-42
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Wood's Board of Directors
Woods Equipment Company
We have audited the accompanying balance sheets of Central Fabricators, Inc.
as of December 31, 1998 and 1997, and the related statements of income, changes
in stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Central Fabricators, Inc.
at December 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Chicago, Illinois
June 18, 1999
F-43
<PAGE>
CENTRAL FABRICATORS, INC.
BALANCE SHEETS
(In Thousands, Except Shares Information)
<TABLE>
<CAPTION>
December 31
----------------
1998 1997
------- -------
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................. $ 604 $ 603
Trade accounts receivable.................................. 1,714 1,532
Inventories................................................ 2,421 1,923
Prepaid expenses and other current assets.................. 50 1
------- -------
Total current assets..................................... 4,789 4,059
Property, plant, and equipment:
Land....................................................... 7 7
Buildings and improvements................................. 215 186
Machinery and equipment.................................... 1,948 1,854
Office furniture, fixtures, and equipment.................. 294 247
------- -------
2,464 2,294
Less: Accumulated depreciation............................. (1,599) (1,346)
------- -------
865 948
------- -------
$5,654 $ 5,007
======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt....................... $ 302 $ 134
Note payable--Stockholders................................. 1,665 1,600
Accounts payable........................................... 648 652
Accrued expenses........................................... 445 416
------- -------
Total current liabilities................................ 3,060 2,802
Long-term debt, less current maturities...................... 17 19
Stockholders' equity:
Common stock, no par value; authorized--2,000 shares;
issued--1,000 shares...................................... -- --
Additional paid-in capital................................. 31 31
Retained earnings.......................................... 2,546 2,155
------- -------
2,577 2,186
------- -------
$ 5,654 $ 5,007
======= =======
</TABLE>
See accompanying notes to the financial statements.
F-44
<PAGE>
CENTRAL FABRICATORS, INC.
STATEMENTS OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
Year ended
December 31
----------------
1998 1997
------- -------
<S> <C> <C>
Net sales..................................................... $22,901 $18,629
Cost of sales................................................. 16,628 13,216
------- -------
Gross profit.................................................. 6,273 5,413
Operating expenses:
Selling..................................................... 546 674
General and administrative.................................. 2,319 1,928
Engineering................................................. 577 516
Other operating (income) expenses, net...................... (3) (2)
------- -------
3,439 3,116
------- -------
Operating income.............................................. 2,834 2,297
Other income (expense):
Interest expense............................................ (178) (118)
Interest income............................................. 25 26
------- -------
(153) (92)
------- -------
Net income.................................................... $ 2,681 $ 2,205
======= =======
</TABLE>
See accompanying notes to the financial statements.
F-45
<PAGE>
CENTRAL FABRICATORS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands, Except Shares Information)
<TABLE>
<CAPTION>
Number of
Shares of Additional
Common Common Paid-In Retained
Stock Stock Capital Earnings Total
--------- ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997........ 1,000 $-- $ 31 $ 2,115 $ 2,146
Stockholders' distributions....... -- -- -- (2,165) (2,165)
Net income........................ -- -- -- 2,205 2,205
----- ---- ---- ------- -------
Balance at December 31, 1997...... 1,000 -- 31 2,155 2,186
Stockholders' distributions....... -- -- -- (2,290) (2,290)
Net income........................ -- -- -- 2,681 2,681
----- ---- ---- ------- -------
Balance at December 31, 1998...... 1,000 $-- $ 31 $ 2,546 $ 2,577
===== ==== ==== ======= =======
</TABLE>
See accompanying notes to the financial statements.
F-46
<PAGE>
CENTRAL FABRICATORS, INC.
STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Year ended
December 31
--------------
1998 1997
------ ------
<S> <C> <C>
Operating activities
Net income.................................................... $2,681 $2,205
Adjustments to reconcile net income to net cash and cash
equivalents provided by operating activities:
Depreciation................................................ 298 243
Changes in operating assets and liabilities:
Trade accounts receivable................................... (182) (441)
Inventories................................................. (498) (138)
Prepaid expenses and other current assets................... (49) 33
Accounts payable............................................ (4) 153
Accrued expenses............................................ 29 103
------ ------
Net cash and cash equivalents provided by operating
activities............................................... 2,275 2,158
Investing activities
Purchases of equipment, net................................... (215) (493)
------ ------
Net cash and cash equivalents used in investing
activities............................................... (215) (493)
Financing activities
Payments on long-term debt.................................... (134) (28)
Proceeds from long-term debt.................................. 300 130
Distributions to stockholders................................. (1,260) (1,180)
Payments on notes payable-stockholders........................ (965) (685)
------ ------
Net cash and cash equivalents used in financing
activities............................................... (2,059) (1,763)
------ ------
Net increase (decrease) in cash and cash equivalents.......... 1 (98)
Cash and cash equivalents at beginning of year................ 603 701
------ ------
Cash and cash equivalents at end of year...................... $ 604 $ 603
====== ======
Supplemental cash flow information
Cash paid for interest........................................ $ 218 $ 78
====== ======
Noncash activities
Distributions declared in exchange for notes.................. $1,030 $ 986
====== ======
</TABLE>
See accompanying notes to the financial statements.
F-47
<PAGE>
CENTRAL FABRICATORS, INC.
NOTES TO FINANCIAL STATEMENTS
(In Thousands)
December 31, 1998 and 1997
1. Description of Business
Central Fabricators, Inc. (the Company) designs, manufactures and sells
heavy duty attachments for equipment, utilized principally in the construction
market. The Company sells its products through two channels, OEMs (original
equipment manufacturers) and dealerships. The Company manufactures between 150
and 200 items in a number of product lines including buckets, latches, clamps
and hammer brackets. The average lifespan of the products range from one to
five years due to the nature of the applications for which they are used.
2. Summary of Significant Accounting Policies
Revenue Recognition
Sales are generally recognized upon shipment of the related equipment and
replacement parts. Revenue on sales is recorded net of anticipated discounts.
Financial Instruments
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. Credit
risks with respect to trade receivables are limited due to the large number of
customers comprising the Company's customer base. The Company performs ongoing
credit evaluations of its customers. The Company does not have an allowance for
doubtful accounts and for the years ended December 31, 1998 and 1997, there
have been no provisions for doubtful accounts.
The Company maintains cash balances in banks in excess of amounts insured by
the Federal Deposit Insurance Corporation. At December 31, 1998 and 1997,
uninsured cash balances totaled $406 and $464, respectively.
Cash Equivalents
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market, determined by the
first in, first out (FIFO) method.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation thereon is
computed using principally accelerated methods over estimated useful lives of
the respective assets as follows:
<TABLE>
<S> <C>
Buildings and improvements............................... 31.5 to 39 years
Machinery and equipment.................................. 5 to 10 years
Office furniture, fixtures, and equipment................ 5 to 7 years
</TABLE>
Warranty Obligations
The Company's products are generally under limited warranty for a period
ranging from ninety days to one year. The estimated cost of warranty
obligations is recognized at the time of sale.
F-48
<PAGE>
CENTRAL FABRICATORS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In Thousands)
Income Taxes
The Company has elected by unanimous consent of its stockholders to be taxed
under the provisions of Subchapter S of the Internal Revenue Code. Under those
provisions, the Company does not pay federal and state corporate income taxes
on its taxable income. Instead, the stockholders are liable for individual
income taxes on their respective shares of the Company's taxable income.
Advertising Costs
The Company expenses the costs of advertising when incurred. Advertising
expense was $51 and $53 in 1998 and 1997, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31
-------------
1998 1997
------ ------
<S> <C> <C>
Raw materials............................................... $1,363 $ 816
Work in process............................................. 697 664
Finished goods.............................................. 361 443
------ ------
Total inventories........................................... $2,421 $1,923
====== ======
</TABLE>
4. Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December
31
---------
1998 1997
---- ----
<S> <C> <C>
Salaries, wages, and employee benefits......................... $320 $247
Interest....................................................... -- 40
Property, payroll, and other taxes............................. 83 82
Other.......................................................... 42 47
---- ----
$445 $416
==== ====
</TABLE>
5. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31
-----------
1998 1997
----- -----
<S> <C> <C>
Note payable to a municipality in monthly payments,
including interest at 4.25%, though June 17, 2006.......... $ 19 $ 21
Note payable to a bank paid in 1998......................... -- 2
Note payable to a bank paid in 1998......................... -- 130
Note payable to a bank due May 20, 1999, including interest
at 7.50%................................................... 300 --
----- -----
319 153
Less: Current maturities.................................... 302 134
----- -----
$ 17 $ 19
===== =====
</TABLE>
F-49
<PAGE>
CENTRAL FABRICATORS, INC.
NOTES TO FINANCIAL STATEMENTS--(Concluded)
(In Thousands)
Future maturities of long-term debt, subsequent to December 31, 1998 are as
follows:
<TABLE>
<S> <C>
1999................................................................. $302
2000................................................................. 2
2001................................................................. 2
2002................................................................. 3
2003................................................................. 3
Thereafter........................................................... 7
----
$319
====
</TABLE>
6. Employee Benefit Plan
The Company maintains a defined-contribution and 401(k) plan covering
substantially all employees. The plan provides for a matching contribution by
the Company of 50% of the employee's contribution up to 4% of the employee's
eligible compensation. Total Company contributions during 1998 and 1997 and
were approximately $62 and 49, respectively.
7. Lease Commitments
The Company leases certain facilities, office equipment, and transportation
equipment under various noncancelable operating lease agreements. Future
minimum lease payments under noncancelable operating leases with initial or
remaining lease terms in excess of one year at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
Unrelated Related
Parties Parties Total
--------- ------- ------
<S> <C> <C> <C>
1999............................................. $30 $ 469 $ 499
2000............................................. 20 482 502
2001............................................. 8 496 504
2002............................................. -- 510 510
2003............................................. -- 524 524
Thereafter....................................... -- 1,140 1,140
--- ------ ------
$58 $3,621 $3,679
=== ====== ======
</TABLE>
Total rent expense under all operating leases for 1998 and 1997 was
approximately $484 and $455, respectively, of which $452 and $438,
respectively, was with related parties.
8. Other Related Party Transactions
The following transactions occurred between the Company and certain related
parties:
Note payable to stockholders as of December 31, 1998 and 1997 for $1,665 and
$1,600, respectively. The notes are due on demand and incur interest at
approximately 8.5% per annum.
The Company also incurred general and administrative expenses associated
with certain related parties totaling approximately $111 and $100 in 1998 and
1997, respectively.
9. Major Customers
The Company conducts business with two major OEM customers that each
comprised approximately 19% and 17% of net sales for 1998 (approximately 19%
and 14% in 1997). The accounts receivable balance for each of these two
customers at both December 31, 1998 and 1997, was approximately 16% and 12%,
respectively.
The Company also conducts business with one major dealership that comprised
approximately 11% and 10% of net sales for 1998 and 1997, respectively.
F-50
<PAGE>
CENTRAL FABRICATORS, INC.
CONDENSED BALANCE SHEET
June 30, 1999
(In Thousands, Except Shares Information)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
Current assets:
Cash and cash equivalents............................................. $ 136
Trade accounts receivable............................................. 3,087
Inventories........................................................... 2,310
Prepaid expenses and other current assets............................. 1
------
Total current assets................................................ 5,534
Property, plant, and equipment, net..................................... 766
------
$6,300
======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
<S> <C>
Current liabilities:
Current maturities of long-term debt.................................. $ 300
Note payable--Stockholders............................................ 2,800
Accounts payable...................................................... 993
Accrued expenses...................................................... 493
------
Total current liabilities........................................... 4,586
Long-term debt, less current maturities................................. 18
Stockholders' equity:
Common stock, no par value; authorized--2,000 shares; issued--1,000
shares............................................................... --
Additional paid-in capital............................................ 31
Retained earnings..................................................... 1,665
------
1,696
------
$6,300
======
</TABLE>
See accompanying notes to the condensed financial statements
F-51
<PAGE>
CENTRAL FABRICATORS, INC.
CONDENSED STATEMENTS OF INCOME
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------
1999 1998
-------- --------
<S> <C> <C>
Net sales.................................................... $ 11,910 $ 12,388
Cost of sales................................................ 8,494 8,882
-------- --------
Gross profit................................................. 3,416 3,506
Selling, general, and administrative expenses................ 1,852 1,703
-------- --------
Income from operations....................................... 1,564 1,803
Interest and other expense, net.............................. 92 74
-------- --------
Net income................................................... $ 1,472 $ 1,729
======== ========
</TABLE>
See accompanying notes to the condensed financial statements
F-52
<PAGE>
CENTRAL FABRICATORS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------
1999 1998
-------- --------
<S> <C> <C>
Operating activities
Net income................................................ $ 1,472 $ 1,729
Adjustments to reconcile net income to net cash and cash
equivalents provided by operating activities
Depreciation............................................ 142 134
Changes in operating assets and liabilities:
Trade accounts receivables............................ (1,373) (1,437)
Inventories........................................... 111 26
Prepaid expenses and other current assets............. 49 (5)
Accounts payable and accrued expenses................. 393 532
-------- --------
Net cash and cash equivalents provided by operating
activities........................................... 794 979
Investing activities
Purchases of equipment, net............................... (43) (9)
-------- --------
Net cash and cash equivalents used in investing
activities............................................... (43) (9)
Financing activities
Payment on long-term debt................................. (1) (133)
Payment on shareholder distributions...................... (1,218) (1,017)
-------- --------
Net cash and cash equivalents used in financing
activities........................................... (1,219) (1,150)
-------- --------
Net decrease in cash and cash equivalents................. (468) (180)
Cash and cash equivalents, at beginning of period......... 604 603
-------- --------
Cash and cash equivalents, at end of period............... $ 136 $ 423
======== ========
</TABLE>
See accompanying notes to the condensed financial statements
F-53
<PAGE>
CENTRAL FABRICATORS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 1999 and 1998
(In Thousands)
(Unaudited)
1. Formation and Basis of Presentation
Central Fabricators, Inc. (the Company) designs, manufactures and sells
heavy duty attachments for equipment, utilized principally in the construction
market. The Company sells its products through two channels, OEMs (original
equipment manufacturers) and dealerships. The Company manufactures between 150
and 200 items across a number of product lines including buckets, latches,
clamps, and hammer brackets. The average life-span of the products range from
one to five years due to the nature of the applications for which they are
used.
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with instruction to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six month period ended June 30, 1999
are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 1999. These financial statements should be read
in conjunction with the financial statements, including the notes thereto, for
the year ended December 31, 1998.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. Related Party Expenses
<TABLE>
<CAPTION>
Six Months Ended June
30,
-----------------------
1999 1998
----------- -----------
(Dollars in Thousands)
<S> <C> <C>
Note payable to stockholders, due on demand and
incur interest @ approximately 8.5% per annum.. $ 2,800 $ 2,169
General and Administrative expenses............. 54 50
</TABLE>
3. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30,
1999
--------
<S> <C>
Raw materials.................................................... $1,067
Work in process.................................................. 823
Finished goods................................................... 420
------
Total inventories................................................ $2,310
======
</TABLE>
F-54
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Alitec Corporation:
We have audited the accompanying balance sheet of Alitec Corporation--
Attachments Division as of December 31, 1998 and 1997, and the related
statements of income and accumulate deficit and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 the significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above, present fairly,
in all material respects, the financial position of Alitec Corporation--
Attachments Division as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
August 31, 1999
5342 West Vermont Street . Indianapolis, Indiana 46224 . (317) 241-2999
Member Firm of CPA Associates International, Inc.
F-55
<PAGE>
ALITEC CORPORATION--ATTACHMENTS DIVISION
BALANCE SHEETS
December 31, 1998 and 1997
(In Thousands, Except Shares Information)
<TABLE>
<CAPTION>
ASSETS 1998 1997
------ ------ ------
<S> <C> <C>
Current Assets
Cash.......................................................... $ -- $ 1
Trade accounts receivable..................................... 684 999
Other receivables............................................. -- --
Inventories................................................... 1,651 1,121
Prepayments................................................... 1 5
Refundable income taxes....................................... 256 --
Deferred tax asset............................................ 30 --
------ ------
Total current assets........................................ 2,622 2,126
------ ------
Property and Equipment.........................................
Leasehold improvements........................................ 83 83
Plant equipment............................................... 746 891
Office furniture and equipment................................ 208 167
Vehicles...................................................... 12 12
Construction in process....................................... 5 --
------ ------
1,054 1,153
Accumulated depreciation and amortization..................... (470) (394)
------ ------
Net property and equipment.................................. 584 759
------ ------
Other Assets
Goodwill, net of accumulated amortization of $262 and $209 in
1998 and 1997, respectively.................................. 538 591
Patents, product licenses and agreements, net of accumulated
amortization of $79 and $61 in 1998 and 1997, respectively... 32 50
Deferred tax assets........................................... 46 --
------ ------
Total other assets.......................................... 616 641
------ ------
$3,822 $3,526
====== ======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
<S> <C> <C>
Current Liabilities
Checks issued in excess of bank balance....................... $ 166 $ 150
Bank line of credit........................................... 2,925 1,987
Current portion of notes payable.............................. 196 207
Current portion of capital lease obligations.................. 11 10
Trade accounts payable........................................ 608 608
Accrued payroll and related benefits.......................... 76 84
Accrued property taxes........................................ 61 41
Accrued warranties............................................ 20 39
Other accruals................................................ 20 19
------ ------
Total current liabilities................................... 4,083 3,145
------ ------
Long-Term Liabilities
Notes payable, net of current portion......................... 717 644
Capital lease obligations, net of current portion............. 10 20
------ ------
Total long-term liabilities................................... 727 664
------ ------
Total liabilities........................................... 4,810 3,809
------ ------
Commitments and Contingencies (Notes 8, 10 and 11)
Shareholders' Deficit
Common stock, no par value, 2,800 shares authorized, 1,263
shares issued and outstanding................................ 49 49
Additional paid-in capital.................................... 43 43
Accumulated deficit........................................... (1,080) (375)
------ ------
Total shareholders' deficit................................. (988) (283)
------ ------
$3,822 $3,526
====== ======
</TABLE>
See independent auditors' report and the accompanying notes to financial
statements.
F-56
<PAGE>
ALITEC CORPORATION--ATTACHMENTS DIVISION
STATEMENTS OF INCOME AND ACCUMULATED DEFICIT
For the Years Ended December 31, 1998 and 1997
(In Thousands)
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Net Sales..................................................... $ 9,157 $ 7,740
Cost of Goods Sold............................................ 5,652 5,054
------- -------
Gross Profit.................................................. 3,505 2,686
Gross Profit Percentage....................................... 38.3% 34.7%
------- -------
Selling, General, and Administrative Expenses................. 1,970 1,561
------- -------
Operating Income.............................................. 1,535 1,125
------- -------
Other Income (Expense)
Interest expense............................................ (237) (184)
Interest income............................................. 2 3
Gain on sale of assets...................................... -- 172
Miscellaneous income........................................ 100 6
------- -------
Total other income (expense).............................. (135) (3)
------- -------
Income Before Income Taxes.................................... 1,400 1,122
------- -------
Income Tax Expense (Benefit)
Current..................................................... 563 --
Deferred.................................................... (76) --
------- -------
Total income tax expense (benefit)........................ 487 --
------- -------
Net Income.................................................... 913 1,122
Retained Earnings (Accumulated Deficit), Beginning of Year.... (375) 130
Shareholder Distributions..................................... (325) (75)
Intracompany Advances......................................... (1,293) (1,552)
------- -------
Accumulated Deficit, End of Year.............................. $(1,080) $ (375)
======= =======
</TABLE>
See independent auditior' report and accompanying notes to financial
statements.
F-57
<PAGE>
ALITEC CORPORATION--ATTACHMENTS DIVISION
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998 and 1997
(In Thousands)
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Cash Flows from Operating Activities
Cash received from customers................................ $ 9,472 $ 7,603
Cash paid to suppliers and employees........................ (7,964) (6,251)
Interest paid............................................... (235) (166)
Interest received........................................... 2 3
Income taxes paid........................................... (256) --
Other cash received......................................... 99 6
------- -------
Net cash provided by operating activities................. 1,118 1,195
------- -------
Cash Flows from Investing Activities
Proceeds from sale of property and equipment................ 182 11
Capital expenditures........................................ (110) (102)
Cost of patents............................................. -- (4)
------- -------
Net cash provided by (used in) investing activities....... 72 (95)
------- -------
Cash Flows from Financing Activities
Net borrowings on lines of credit........................... 938 593
Proceeds from long term debt................................ -- 300
Principal payments on long term debt........................ (428) (346)
Principal payments on capital lease obligations............. (9) (20)
Intracompany advances....................................... (1,367) (1,552)
Shareholder distributions................................... (325) (75)
------- -------
Net cash used in financing activities..................... (1,191) (1,100)
------- -------
Net Decrease in Cash.......................................... (1) --
Cash, Beginning of Year....................................... 1 1
------- -------
Cash, End of Year............................................. $ -- $ 1
======= =======
</TABLE>
See independent auditors' report and the accompanying notes to financial
statements.
F-58
<PAGE>
ALITEC CORPORATION--ATTACHMENTS DIVISION
STATEMENTS OF CASH FLOWS, CONTINUED
For the Years Ended December 31, 1998 and 1997
(In Thousands)
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Net Income...................................................... $ 913 $1,122
------ ------
Adjustments to Reconcile Net Income to Net Cash
Provided By Operating Activities
Depreciation and amortization................................. 175 191
Gain on sale of fixed assets.................................. -- (172)
Noncash rent expense.......................................... -- 20
Noncash tax expense........................................... 563 --
(Increase) decrease in operating assets:
Trade accounts receivable................................... 314 (137)
Other receivables........................................... -- 1
Inventory................................................... (530) (170)
Prepayments................................................. 5 19
Refundable income taxes..................................... (256) --
Deferred tax asset.......................................... (76) --
Increase (decrease) in operating liabilities:
Checks issued in excess of bank balance..................... 16 147
Trade accounts payable...................................... 1 80
Accrued payroll and related benefits........................ (8) 47
Accrued property taxes...................................... 20 22
Accrued warranties.......................................... (19) 6
Other accruals.............................................. -- 19
------ ------
Total adjustments......................................... 205 73
------ ------
Net Cash Provided By Operating Activities....................... $1,118 $1,195
====== ======
</TABLE>
See independent auditors' report and the accompanying notes to financial
statements.
F-59
<PAGE>
ALITEC CORPORATION--ATTACHMENTS DIVISION
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
1. Summary of Significant Accounting Policies
Nature of Business
Alitec Corporation (the Company) is an Indiana corporation that manufactures
construction equipment and implements. The Company's products are sold
throughout the world. The majority of the sales are in North America.
Basis of Presentation
These financial statements represent the activities of the Attachments
Division of Alitec Corporation. The Company maintains separate records for the
activities of the division.
The accompanying financial statements have been prepared on the accrual
basis of accounting. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents. There were no cash equivalents as of December 31,
1998 and 1997.
Inventory
Inventory is carried at the lower of cost or market. Cost on finished goods
inventory is determined by specific identification and cost on parts and
materials inventory is determined on a weighted average method.
Property and Equipment
Property and equipment is recorded at cost and depreciation is provided over
the estimated useful lives of the assets using accelerated and straight-line
methods. Repairs and maintenance are charged against expense as incurred.
Goodwill
Goodwill is amortized on the straight-line basis over fifteen years.
Patents, Product Licenses and Agreements
The costs incurred to develop and defend patents are capitalized and are
amortized on a straight-line basis over estimated useful lives which range from
five to fifteen years.
The Company has purchased the production and sales rights for various
products. These costs have been capitalized and are being amortized on a
straight-line basis over estimated useful lives which range from five to six
years.
F-60
<PAGE>
ALITEC CORPORATION--ATTACHMENTS DIVISION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
Warranty Costs
The Company sells the majority of its products with repair warranties. The
December 31, 1998 and 1997 balance sheets include estimated liabilities for
product warranties of $20 and $39, respectively. The liabilities are based on
estimates of future costs associated with fulfilling the warranty obligations.
The estimates are derived from historical cost experience.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risks consist principally of accounts receivable. The
majority of the Company's sales are to construction and utility equipment
dealers and manufacturers. The Company performs credit evaluations of
customers' financial condition and historically has not incurred significant
credit related losses.
Noncash Transactions
For purposes of the statement of cash flows, the following noncash
transactions occurred in 1997 and 1998:
1) 1997 - $500, when a related company purchased land and buildings and
assumed the mortgage payable
2) 1997 - $24, when the Company entered into a capital lease obligation to
acquire equipment
3) 1998 - $563, when a tax provision is calculated on the Company's
Attachments Division. at a corporate level, the divisions' results
combine to produce no taxable income. However, when the Attachments
Division is analyzed individually, it produces taxable income and
current tax expense.
2. Inventories
Inventories at December 31, 1998 and 1997 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Finished goods.............................................. $ 217 $ 231
Parts and materials......................................... 1,434 890
------ ------
$1,651 $1,121
====== ======
</TABLE>
3. Bank Lines of Credit
The Company has a line of credit arrangement with a bank that matures in
June 1999 and bears interest at .25% above the bank's prime rate (a total of
8.0% at December 31, 1998). The maximum amount available under this line is
$3,200. At December 31, 1998, $2,925 was outstanding on the line. The Company
had two lines of credit at December 31, 1997 that were limited to a total of
$2,100 and had an outstanding balance of $1,987 at December 31, 1997.
At December 31, 1998, the line of credit and term notes payable to the bank
are secured by a security agreement covering substantially all assets of the
Company, a mortgage lien on the building owned by an entity related through
common ownership, and personal guarantee of $1,000 from each of two
shareholders. The debt agreement includes certain restrictive covenants, which
have been met or waived as of December 31, 1998.
F-61
<PAGE>
ALITEC CORPORATION--ATTACHMENTS DIVISION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
4. Notes Payable
Notes payable consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Note payable to bank, bearing interest at 7.25%, payable in
monthly installments of $22 including interest through
January 2003, secured by all business assets................ $913 $--
Note payable to bank, bearing interest at 7.60%, payable in
monthly installments of $3 including interest through
December 1998, refinanced during 1998....................... -- 99
Note payable to bank, bearing interest at 8.15%, payable in
monthly installments of $8, refinanced during 1998.......... -- 326
Note payable to bank, bearing interest at 7.98%, payable in
monthly installments of $5, refinanced during 1998.......... -- 154
Note payable to bank, bearing interest at 9.09%, payable in
monthly installments of $6, refinanced during 1998.......... -- 272
---- ----
913 851
Less current portion........................................ (196) (207)
---- ----
Long-term portion........................................... $717 $644
==== ====
</TABLE>
Aggregate maturities of note payable for the years ending December 31 are
follows:
<TABLE>
<S> <C>
1999................................................................. $196
2000................................................................. 215
2001................................................................. 231
2002................................................................. 249
2003................................................................. 22
----
$913
====
</TABLE>
5. Capital Lease Obligations
The Company has entered into capital lease obligations for the purchase of
equipment with a total acquisition cost of $44 as of December 31, 1998 and,
1997. The terms of the capital lease agreements provide for aggregate monthly
lease payments of $1. Accumulated amortization on the related equipment was $13
and $6 as of December 31, 1998 and 1997, respectively.
Future minimum lease payments for the years ended December 31 are as
follows:
<TABLE>
<S> <C>
1999................................................................ $ 11
2000................................................................ 10
2000................................................................ 1
----
22
Less amount representing interest from 5.90% to 7.37%............... (1)
----
Present value of net minimum capital lease payments................. 21
Less current portion................................................ (11)
----
Long-term portion................................................... $10
====
</TABLE>
F-62
<PAGE>
ALITEC CORPORATION--ATTACHMENTS DIVISION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
6. Income Taxes and Change in Tax Status
Prior to 1998, the Company's shareholders elected, under provisions of the
Internal Revenue Code, to have the Company's income taxed directly to them.
Accordingly, no federal and state income taxes have been included in the 1997
financial statements.
In 1998, the Company elected to revoke its S-Corporation status for tax
purposes effective January 1, 1998. Effective with the change, income taxes are
provided for the tax effects of transactions reported in the financial
statements and consist of taxes currently due plus deferred taxes related to
timing differences between financial statement earnings and taxable income.
These book and tax differences relate to deprecation and amortization methods,
other accrued expenses.
Income taxes are as follows for the year ended December 31, 1998:
<TABLE>
<S> <C>
Federal............................................. $445
State............................................... 118
----
563
Deferred............................................ (76)
----
$487
====
</TABLE>
7. Profit Sharing Plan
The Company established a defined contribution 401(k) profit sharing plan.
All employees who are at least 21 years old and have one year of service are
eligible to participate in the plan. The plan provides for increased vesting
each year with full vesting after six years of participation. The plan provides
for employee contributions and discretionary employer contributions. Employer
contributions for the years ended December 31, 1998 and 1997 were $27 and $19,
respectively.
8. Operating Leases
The Company leases facilities, office equipment and vehicles under operating
leases with terms extending through June 2002. Annual rent expense under such
operating leases was $113 and $67 for the years ended December 31, 1998 and
1997, respectively.
The future minimum payments for the leases are as follows for the years
ending December 31:
<TABLE>
<S> <C>
1999................................................ $105
2000................................................ 95
2001................................................ 90
2002................................................ 45
----
$335
====
</TABLE>
9. Related Party Transactions
The Company leases its facility under an operating lease from an entity
related through common ownership. The lease extends through October 2001 and
requires annual rental payments totaling $90. Rent expense under the operating
lease was $92 and $49 for the years ending December 31, 1998 and 1997,
respectively. The future minimum payments and the rent expense related to these
leases have been included in the information reported in Note 8.
F-63
<PAGE>
ALITEC CORPORATION--ATTACHMENTS DIVISION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
The Company previously owned land and buildings in Brownsburg, Indiana.
These facilities serve as the Company's manufacturing plant and offices. During
1997, the Company sold these facilities for $500 to an entity related through
common ownership. The Company now leases the facilities from the related party
under an operating lease.
Intracompany advances and payments have been reflected in retained earnings
(accumulated deficit). The beginning balance of accumulated deficit reflects a
reduction for intracompany receivables at December 31, 1996.
10. Major Customers
During the years ended December 31, 1998 and 1997, the Company had one and
two major customers, respectively, with sales exceeding 10% of the Company's
total sales. Sales to these customers totaled $3,183 and $4,038 for the years
ended December 31, 1998 and 1997, respectively.
11. Subsequent Event
Effective July 1999, the shareholders of the Company sold the shares of the
Company to another entity. The Company's line of credit agreement and note
payable agreement have subsequently been paid in full.
F-64
<PAGE>
ALITEC CORPORATION
ATTACHMENTS DIVISION
CONDENSED BALANCE SHEET
June 30, 1999
(In Thousands, Except Share Information)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
Current assets:
Cash and cash equivalents........................................... $ 5
Trade accounts receivable........................................... 1,684
Inventories......................................................... 1,645
Prepaid expenses and other current assets........................... 77
-------
Total current assets.............................................. 3,411
Property, plant, and equipment, net................................... 685
Other assets.......................................................... 559
-------
4,655
=======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
<S> <C>
Current liabilities:
Current maturities of long-term debt................................ 4,028
Accounts payable.................................................... 1,104
Accrued expenses.................................................... 434
-------
Total current liabilities......................................... 5,566
Long-term debt, less current maturities............................... 5
Deferred tax liability................................................ 68
Shareholders' equity:
Common stock, no par value; authorized--2,800 shares; issued--
1,263 shares....................................................... 49
Additional paid-in capital.......................................... 43
Retained earnings................................................... (1,076)
-------
(984)
-------
$ 4,655
=======
</TABLE>
See accompanying notes to the condensed financial statements.
F-65
<PAGE>
ALITEC CORPORATION
ATTACHMENTS DIVISION
CONDENSED STATEMENTS OF INCOME
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June
30,
-------------
1999 1998
------ ------
<S> <C> <C>
Net sales........................................................ $5,028 $5,197
Cost of sales.................................................... 3,300 3,450
------ ------
Gross profit..................................................... 1,728 1,747
Selling, general and administrative expenses..................... 910 870
------ ------
Income from operations........................................... 818 877
Interest and other expense, net.................................. 109 60
------ ------
Income before income taxes....................................... 709 817
Income taxes..................................................... 551 370
------ ------
Net income....................................................... $ 158 $ 447
====== ======
</TABLE>
See accompanying notes to the condensed financial statements.
F-66
<PAGE>
ALITEC CORPORATION
ATTACHMENTS DIVISION
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
---------------- ---
1999 1998
------- -------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Cash received from customers............................ $ 3,940 $ 4,792
Cash paid to suppliers and employees.................... (3,758) (4,819)
Interest paid........................................... (142) (115)
Interest received....................................... -- 2
Income taxes............................................ -- (169)
Other cash received..................................... 34 54
------- -------
Net cash provided by (used in) operating activities... 74 (255)
------- -------
Cash Flows from Investing Activities:
Construction in process................................. (48) --
Increase in intangible.................................. (29) --
Capital expenditures.................................... (106) (45)
------- -------
Net cash used in investing activities................. (183) (45)
------- -------
Cash Flows from Financing Activities:
Net borrowings on bank line of credit................... 275 905
Proceeds on issuance of notes payable................... -- 762
Principal payments on notes payable..................... (95) (392)
Principal payments on capital lease obligations......... (5) (5)
Intracompany advances................................... (61) (646)
Shareholder distributions............................... -- (325)
------- -------
Net cash provided by financing activities............. 114 299
------- -------
Net Increase (Decrease) in Cash........................... 5 (1)
Cash, Beginning of Period................................. -- 1
------- -------
Cash, End of Period....................................... $ 5 $ --
======= =======
</TABLE>
See accompanying notes to the condensed financial statements.
F-67
<PAGE>
ALITEC CORPORATION
ATTACHMENTS DIVISION
CONDENSED STATEMENTS OF CASH FLOWS--(Continued)
(In Thousands)
(Unaudited)
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES
<TABLE>
<CAPTION>
Six Months
Ended June
30,
--------------
1999 1998
------- -----
<S> <C> <C>
Net Income.................................................... $ 158 $ 447
------- -----
Adjustments to Reconcile Net Income to Net Cash Provided by
(Used In) Operating Activities:
Depreciation and amortization .............................. 89 71
(Increase) decrease in operating assets:
Trade accounts receivable................................. (1,035) (406)
Inventory................................................. 6 (391)
Prepayments............................................... (35) (35)
Refundable income taxes................................... 255 --
Deferred tax asset........................................ 29 (33)
Increase (decrease) in operating liabilities:
Checks issued in excess of bank balance................... (166) (142)
Trade accounts payable.................................... 495 575
Intercompany payables..................................... -- (552)
Accrued payroll and related benefits...................... 4 (26)
Accrued property taxes.................................... (11) 16
Accrued warranties........................................ 9 (4)
Other accruals............................................ 10 (9)
Accrued income taxes...................................... 247 184
Deferred tax liability.................................... 19 50
------- -----
Total adjustments....................................... (84) (702)
------- -----
Net Cash Provided by (Used In) Operating Activities........... $ 74 $(255)
======= =====
</TABLE>
See accompanying notes to the condensed financial statements.
F-68
<PAGE>
ALITEC CORPORATION
ATTACHMENTS DIVISION
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 1999 and 1998
(In Thousands)
(Unaudited)
1. Formation and Basis of Presentation
Nature of Business
Alitec Corporation Attachments Division (the Company) is an Indiana
corporation that manufactures construction equipment and implements. The
Company's products are sold throughout the world.
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with instruction to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six month period ended June 30, 1999
are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 1999. These financial statements should be read
in conjunction with the financial statements, including the notes thereto, for
the year ended December 31, 1998.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. Related Party Expenses
The Company leases facilities under operating leases from an entity related
through common ownership. The leases extend through October 2001 and June 2002
and require annual rental payments totaling $90.
3. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30,
1999
--------
<S> <C>
Parts and materials.............................................. $ 176
Finished goods................................................... 1,469
------
Total inventories............................................ $1,645
======
</TABLE>
F-69
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Woods Equipment Company
Exchange Offer for
$51,927,000 at Maturity of
15.0% Senior Discount Debentures due 2011
WEC Company
Exchange Offer for
$130,000,000 of
12.0% Senior Notes due 2009
----------------
PROSPECTUS
----------------
October 26, 1999
You should rely only on information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, these securities only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus.
Dealer Prospectus Delivery Obligation
Until January 24, 2000, all dealers that buy, sell or trade in the exchange
securities may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II: INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20: Indemnification of Directors and Officers.
Woods and WEC are each incorporated under the laws of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware ("DGCL")
provides that a Delaware corporation may indemnify any persons who are, or are
threatened to be made, parties to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation), by reason of the
fact that such person is or was an officer, director, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, provided such person acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was illegal. A
Delaware corporation may indemnify any persons who are, or are threatened to be
made, a party to any threatened, pending or completed action or suit by or in
the right of the corporation by reason of the fact that such person was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit, provided such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests except that no indemnification
is permitted without judicial approval if the officer or director is adjudged
to be liable to the corporation. Where an officer or director is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director has actually and reasonably incurred.
Article EIGHT of Restated Certificate of Incorporation of Woods and Article
EIGHTH of the Certificate of Incorporation of WEC provides that, to the fullest
extent permitted by the DGCL as the same exists or may hereafter be amended, a
director of the corporation shall not be liable to the corporation or its
stockholders for monetary damages for a breach of fiduciary duty as a director.
Any repeal or modification of such provision shall not adversely affect any
right or protection of a director of the corporation existing at the time of
such repeal or modification.
Article VII of the by-laws of Woods and WEC each provide that the
corporation shall indemnify (a) any person who was a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the corporation to procure a judgment in its favor by reason of
the fact that such person is or was a director, officer, employee or agent of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit, and
(b) any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or who is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with any such
action, suit or proceeding, in each case to the fullest extent permissible
under Section 145 of the DGCL, or the indemnification provisions of any
successor statute.
In addition, the by-laws provide that directors of the corporation shall be
liable to the corporation or its stockholder for monetary damages for breach of
fiduciary duty as a director, in the manner and to the fullest extent provided
in the certificate of incorporation of the corporation and in Section 102 of
the DGCL, as the same now exists or may hereafter be amended. No amendment to
or repeal of this provision shall apply to or
II-1
<PAGE>
have any effect on the liability or alleged liability of any director of the
corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
The by-laws provide that the foregoing provisions shall be deemed to be a
contract between the corporation and each director and officer who serves in
such capacity at any time while such by-law is in effect, any repeal or
modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any action,
suit or proceeding theretofore or thereafter brought based in whole or in part
upon any such state of facts. The foregoing rights of indemnification shall not
be deemed exclusive of any other rights to which any director or officer may be
entitled apart from the provisions of Article VII. The board of directors in
its discretion shall have power on behalf of the corporation to indemnify any
person, other than a director or officer, made a party to any action, suit or
proceeding by reason of the fact that he, his testator or intestate is or was
an employee of the corporation.
Item 21. Exhibits.
(a) The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S> <C>
2.1 Stock Purchase Agreement, dated July 6, 1999, among WEC
Company and the stockholders of Central Fabricators, Inc.
named therein.
2.2 Amendment to Stock Purchase Agreement, dated July 28,
1999, among WEC Company and the stockholders of Central
Fabricators, Inc. named therein.
2.3 Asset Purchase Agreement, dated July 1, 1999, among WEC
Company and Tru-Part Manufacturing Corporation, CAL
Properties and the shareholders of Tru-Part Manufacturing
Corporation named therein.
2.4 Amendment to Asset Purchase Agreement, dated July 28,
1999, among WEC Company and Tru-Part Manufacturing
Corporation, CAL Properties and the shareholders of Tru-
Part Manufacturing Corporation named therein.
2.5 Stock Purchase Agreement, dated July 30, 1999, among WEC
Company, the shareholders of Alitec Corporation named
therein and Zanetis Enterprises, LLC.
2.6 Recapitalization Agreement, dated as of July 28, 1998, by
and among Woods Equipment Company, Madison Dearborn
Capital Partners II, L.P., the stockholders of Woods
Equipment Company and Brian P. Simmons, as sellers'
representative.
*3.1 Restated Certificate of Incorporation of Woods Equipment
Company, as amended.
*3.2 Amended and Restated By-laws of Woods Equipment Company,
as amended.
3.3 Certificate of Incorporation of WEC Company.
3.4 By-laws of WEC Company.
4.1 Stockholders Agreement, dated as of August 7, 1998, among
Woods Equipment Company, Madison Dearborn Capital Partners
II, L.P., Code Hennessy & Simmons L.L.C., as trustee for
certain persons named in a Trust Agreement, and the other
stockholders named therein.
4.2 Securityholders Agreement, dated July 28, 1999, among
Woods Equipment Company, Madison Dearborn Capital Partners
II, L.P. and Credit Suisse First Boston Corporation.
4.3 Registration Rights Agreement, dated July 28, 1999,
between Credit Suisse First Boston Corporation, Woods
Equipment Company and WEC Company.
4.4 Indenture, dated July 28, 1999, between Woods Equipment
Company, and United States Trust Company of Texas, N.A.,
as trustee, relating to the Senior Discount Debentures.
4.5 Indenture, dated July 28, 1999, between Woods Equipment
Company, WEC Company and United States Trust Company of
New York, as trustee, relating to the Senior Notes.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S> <C>
4.6 Amended and Restated Credit Agreement, dated as of July
28, 1999, among Woods Equipment Company, as parent
guarantor, WEC Company and Credit Suisse First Boston, New
York Branch, as administrative agent, and the other
financial institutions named therein.
4.7 Contingent Stock Purchase Warrant, dated August 7, 1998,
issued by Woods Equipment Company to Code, Hennessy &
Simmons L.L.C., as trustee for certain persons named in a
Trust Agreement.
5.1 Opinion of Kirkland & Ellis regarding the validity of the
securities offered hereby.
*8.1 Opinion of Kirkland & Ellis regarding federal income tax
consequences of the exchange offers.
10.1 1999 Key Employee Stock Option Plan.
10.2 Form of Stock Option Grant to Key Employees.
10.3 Purchase Agreement, dated July 23, 1999, among Woods
Equipment Company, WEC Company and Credit Suisse First
Boston Corporation.
10.4 Form of Executive Stock Agreement, dated August 7, 1998,
between Woods Equipment Company and certain employees
thereof.
*10.5 Form of Promissory Note, dated August 7, 1998, issued by
certain employees of Woods Equipment Company to Woods
Equipment Company.
10.6 Management Services Agreement, dated August 7, 1998,
between Woods Equipment Company and Madison Dearborn
Partners, Inc.
12.1 Statement re Computation of Ratios.
21.1 Subsidiaries of Woods Equipment Company.
*23.1 Consent of Ernst & Young LLP.
*23.2 Consent of Grant Thornton LLP.
*23.3 Consent of Greenwalt, Sponsel & Co., Inc.
*23.4 Consents of Kirkland & Ellis (included in Exhibits 5.1 and
8.1).
24.1 Powers of Attorney re Signature on Registration Statement
(included on pages II-6 through II-8 of Part II).
25.1 Statement of Eligibility of Trustee on Form T-1 under the
Trust Indenture Act of 1939 of United States Trust Company
of Texas, N.A.
25.2 Statement of Eligibility of Trustee on Form T-1 under the
Trust Indenture Act of 1939 of United States Trust Company
of New York.
27.1 Financial Data Schedule.
*99.1 Form of Letter of Transmittal for the Senior Discount
Debentures.
*99.2 Form of Letter of Transmittal for the Senior Notes.
*99.3 Form of Notice of Guaranteed Delivery for the Senior
Discount Debentures.
*99.4 Form of Notice of Guaranteed Delivery for the Senior
Notes.
*99.5 Form of Tender Instructions for the Senior Discount
Debentures.
*99.6 Form of Tender Instructions for the Senior Notes.
</TABLE>
- --------
* Filed herewith. All other exhibits listed in the table were previously
filed.
II-3
<PAGE>
(b) No financial statement schedules are required to be filed herewith
pursuant to this Item except as listed below:
Schedule II-Reserves
Item 22. Undertakings.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
WEC and Woods pursuant to the provisions of their respective certificates of
incorporation, by-laws, or otherwise, WEC and Woods have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by WEC or Woods of expenses incurred
or paid by a directors, officer or controlling person of WEC or Woods 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, WEC and/or Woods, as the case may be, will, unless in the opinion
of their counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
(b) The undersigned registrants hereby undertake to respond to requests for
information that are 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.
(c) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
The undersigned registrants hereby undertake:
(1) 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.
(2) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(b) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(3) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(4) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the exchange offer.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Woods Equipment
Company duly caused this Amendment No. 1 to Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Rockford, State of Illinois, on the 25th day of October, 1999.
Woods Equipment Company
/s/ Thomas J. Laird
By___________________________________
Thomas J. Laird
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated on the 25th day of October, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
* Chairman
___________________________________________
Paul R. Wood
/s/ Thomas J. Laird President, Chief Executive Officer
___________________________________________ (principal executive officer) and
Thomas J. Laird Director
* Chief Operating Officer and Director
___________________________________________
Michael S. Carney
* Director
___________________________________________
Timothy M. Hurd
___________________________________________ Director
Paul R. Lederer
* Director
___________________________________________
Thomas R. Reusche
* Vice President and Chief Financial Officer
___________________________________________ (principal financial and accounting
D. Stephen Crider officer)
</TABLE>
*The undersigned, by signing his name hereto, does hereby sign and execute
the Amendment No. 1 to Registration Statement on Form S-4 on behalf of the
above-named officers and directors of the Registrant pursuant to the Power of
Attorney executed by such officer and/or director and filed with the
Commission.
/s/ Thomas J. Laird
By: ____________________________
Thomas J. Laird
Attorney-in-Fact
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, WEC Company duly
caused this Amendment No. 1 to Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Rockford, State of Illinois, on the 25th day of October, 1999.
Wec Company
/s/ Thomas J. Laird
By: _________________________________
Thomas J. Laird
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated on the 25th day of October, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
* Director
___________________________________________
Paul R. Wood
/s/ Thomas J. Laird President, Chief Executive Officer
___________________________________________ (principal executive officer)
Thomas J. Laird
* Vice President and Chief Financial Officer
___________________________________________ (principal financial and accounting
D. Stephen Crider officer)
</TABLE>
*The undersigned, by signing his name hereto, does hereby sign and execute
the Amendment No. 1 to Registration Statement on Form S-4 on behalf of the
above-named officers and directors of the Registrant pursuant to the Power of
Attorney executed by such officer and/or director and filed with the
Commission.
/s/ Thomas J. Laird
By: ____________________________
Thomas J. Laird
Attorney-in-Fact
II-6
<PAGE>
Woods Equipment Company
Valuation and Qualifying Accounts
(Dollars in thousands)
Schedule II--Reserves
<TABLE>
<CAPTION>
Additions Uncollectible
Balance Charged Balances Balance
at to Costs Written Off at end
Beginning and Net of of
of Period Expenses Recoveries Other Period
--------- --------- ------------- ----- -------
<S> <C> <C> <C> <C> <C>
Year Ended December 28, 1996:
Reserves and allowances
deducted from asset accounts:
Bad debt reserve............ $ 300 $(240) $ 60 $-- $ 120
Deferred tax asset reserve.. -- -- -- -- --
Inventory reserves.......... 781 -- (334) -- 447
LIFO reserve................ 1,143 (407) -- -- 736
Year Ended December 27, 1997:
Bad debt reserve............ 120 80 (80) -- 120
Deferred tax asset reserve.. -- -- -- -- --
Inventory reserves.......... 447 225 -- -- 672
LIFO reserve................ 736 431 -- -- 1,167
Year Ended January 2, 1999:
Bad debt reserve............ 120 28 (28) -- 120
Deferred tax asset reserve.. -- -- -- 602 602
Inventory reserves.......... 672 157 (202) 143 770
LIFO reserve................ 1,167 315 -- -- 1,482
</TABLE>
S-1
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
WOODS EQUIPMENT COMPANY
ONE: The name of the Corporation is Woods Equipment Company.
---
TWO: The registered office of the Corporation within the State of
---
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle,
19805. The name of its registered agent at such address is Corporation Service
Company.
THREE: The nature of the business or purpose to be conducted or
-----
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of Delaware
("DGCL").
----
FOUR:
----
AUTHORIZED SHARES The total number of shares of all classes of
-----------------
capital stock which the Corporation has authority to issue is 1,050,000 shares,
consisting of:
(1) 50,000 shares of 8% Cumulative Redeemable Preferred Stock, par
value $.0l per share (the "Preferred Stock"); and
---------------
(2) 1,000,000 shares of Common Stock, par value $.0l per share (the
"Common Stock").
-------------
The Preferred Stock and the Common Stock are collectively referred to
herein as "Stock." The shares of Stock shall have the rights, preferences and
-----
limitations set forth below.
-1-
<PAGE>
A. PREFERRED STOCK
---------------
Section 1. Dividends.
---------
1A. General Obligation. When and as declared by the Corporation's
------------------
Board of Directors (the "Board") and to the extent permitted by law, the
-----
Corporation shall pay preferential dividends in cash to the holders of the
Preferred Stock as provided in this Section 1. Except as provided in Paragraph
4B hereof, dividends on each share of the Preferred Stock (a "Preferred Share")
---------------
shall accrue on a daily basis at the rate (any such rate, the "Dividend Rate")
-------------
of 8% per annum of the sum of the Liquidation Value thereof plus all accumulated
and unpaid dividends thereon from and including the date of issuance of such
Preferred Share to and including the first to occur of (i) the date on which the
Liquidation Value of such Preferred Share (plus all accrued and unpaid dividends
thereon) is paid to the holder thereof in connection with the liquidation of the
Corporation or the redemption of such Preferred Share by the Corporation or (ii)
the date on which such share is otherwise acquired by the Corporation. Such
dividends shall accrue whether or not they have been declared and whether or not
there are profits, surplus or other funds of the Corporation legally available
for the payment of dividends. The date on which the Corporation initially
issues any Preferred Share shall be deemed to be its "date of issuance"
----------------
regardless of the number of times transfer of such Preferred Share is made on
the stock records maintained by or for the Corporation and regardless of the
number of certificates which may be issued to evidence such Preferred Share.
1B. Dividend Reference Dates. To the extent not paid on March 31,
------------------------
June 30, September 30 and December 31 of each year, beginning on March 31, June
30, September 30 and December 31 following the date of issuance of a Preferred
Share (the "Dividend Reference Dates"), all dividends which have accrued on such
------------------------
Preferred Share outstanding during the three-month period (or other period in
the case of the initial Dividend Reference Date) ending upon each such Dividend
Reference Date shall be accumulated and shall remain accumulated dividends with
respect to such Preferred Share until paid to the holder thereof.
1C. Distribution of Partial Dividend Payments. Except as otherwise
-----------------------------------------
provided herein, if at any time the Corporation pays less than the total amount
of dividends then accrued with respect to the Preferred Shares, such payment
shall be distributed pro rata among the holders thereof based upon the number of
Preferred Shares held by each such holder.
Section 2. Liquidation. Upon any liquidation, dissolution or winding
-----------
up of the Corporation (whether voluntary or involuntary), each holder of
Preferred Shares shall be entitled to be paid, before any distribution or
payment is made upon any Junior Securities, an amount in cash equal to the
aggregate Liquidation Value of all Preferred Shares held by such holder (plus
all accrued and unpaid dividends thereon), and the holders of Preferred Shares
shall not be entitled to any further payment. If upon any such liquidation,
dissolution or winding up of the Corporation, the Corporation's assets to be
distributed among the holders of the Preferred Shares are insufficient to
-2-
<PAGE>
permit payment to such holders of the aggregate amount which they are entitled
to be paid under this Section 2, then the entire assets available to be
distributed to the Corporation's stockholders shall be distributed pro rata
among such holders based upon the number of Preferred Shares held by each such
holder. Prior to the liquidation, dissolution or winding up of the Corporation,
the Corporation shall declare for payment all accrued and unpaid dividends with
respect to the Preferred Shares. Not less than 60 days prior to the payment date
stated therein, the Corporation shall mail written notice of any such
liquidation, dissolution or winding up to each record holder of Preferred
Shares, setting forth in reasonable detail the amount of proceeds to be paid
with respect to each Preferred Share and each share of Common Stock in
connection with such liquidation, dissolution or winding up. Neither the
consolidation or merger of the Corporation into or with any other entity or
entities (whether or not the Corporation is the surviving entity), nor the sale
or transfer by the Corporation of all or any part of its assets, nor the
reduction of the capital stock of the Corporation nor any other form of
recapitalization or reorganization affecting the Corporation shall be deemed to
be a liquidation, dissolution or winding up of the Corporation within the
meaning of this Section 2.
Section 3. Priority of Preferred Shares on Dividends and Redemptions.
---------------------------------------------------------
So long as any Preferred Shares remain outstanding, without the prior written
consent of the holders of a majority of the outstanding Preferred Shares, the
Corporation shall not, nor shall it permit any Subsidiary to, redeem, purchase
or otherwise acquire directly or indirectly any Junior Securities, nor shall the
Corporation directly or indirectly pay or declare any dividend or make any
distribution upon (i) any Junior Securities or (ii) any equity securities issued
by the Subsidiaries other than any Subsidiary which is directly or indirectly
wholly-owned by the Corporation; provided that the Corporation may repurchase
shares of Common Stock in accordance with the provisions of the Stockholders
Agreement.
Section 4. Redemptions.
-----------
4A. Scheduled Redemption. The Corporation shall redeem (the
--------------------
"Scheduled Redemption") all of the shares of Preferred Stock (or such lesser
- ---------------------
number then outstanding) on December 31, 2018 (the "Scheduled Redemption Date"),
-------------------------
at a price per Preferred Share equal to the Liquidation Value thereof (plus all
accrued and unpaid dividends thereon).
4B. Optional Redemptions. The Corporation may at any time make an
--------------------
offer to the holders of Preferred Shares to redeem all (but not less than all)
of the Preferred Shares then outstanding (the "Redemption Offer"). After the
----------------
Corporation provides notice of a Redemption Offer in accordance with paragraph
4D hereof, each holder of Preferred Shares who wishes to accept the Redemption
Offer shall provide written notice (an "Acceptance Notice") to the Corporation
-----------------
of its acceptance of the Redemption Offer within fifteen (15) days after the
Redemption Notice has been given to such holder. With respect to a holder of
Preferred Shares, if an Acceptance Notice is not received by the Corporation
within such fifteen-day period, the holder of such Preferred Shares shall be
deemed to have declined the Redemption Offer. Upon any such accepted
redemption, the
-3-
<PAGE>
Corporation shall pay a price per Preferred Share equal to the Liquidation Value
thereof (plus all accrued and unpaid dividends thereon). Redemptions made
pursuant to this paragraph shall not relieve the Corporation of its obligation
to redeem Preferred Shares on the Scheduled Redemption Date.
In the event that the Corporation does not make a Redemption Offer
prior to December 31, 2006, then the Dividend Rate shall be 12% per annum of the
sum of the Liquidation Value thereof plus all accumulated and unpaid dividends
thereon from and including January 1, 2007 to and including the first to occur
of (i) the date on which the Liquidation Value of such Preferred Share (plus all
accrued and unpaid dividends thereon) is paid to the holder thereof in
connection with the liquidation of the Corporation or the redemption of such
Preferred Share by the Corporation or (ii) the date on which such share is
otherwise acquired by the Corporation.
In the event that the Corporation makes a Redemption Offer and the
holder of a Preferred Share elects not to have such share redeemed (or is deemed
to have declined such offer), then (i) the Dividend Rate with respect to such
Preferred Share shall be 5% per annum of the sum of the Liquidation Value
thereof plus all accumulated and unpaid dividends thereon from and including the
date after the Redemption Date specified in the Redemption Notice and including
the first to occur of (A) the date on which the Liquidation Value of such
Preferred Share (plus all accrued and unpaid dividends thereon) is paid to the
holder thereof in connection with the liquidation of the Corporation or the
redemption of such Preferred Share by the Corporation or (B) the date on which
such share is otherwise acquired by the Corporation and (ii) at the option of
the Corporation, upon delivery of prior written notice to the holder of such
Preferred Share, dividends on such Preferred Share may be paid to such holder by
the issuance of additional Preferred Shares (based on the Liquidation Value of
such shares), in an amount equal to such dividend ("PIK Dividends"); provided,
-------------
however, that after December 31, 2013, no dividends shall be PIK Dividends, and
all dividends shall be paid in cash, as provided in Section 1 above.
4C. Redemption Payments. For each Preferred Share which is to be
-------------------
redeemed hereunder, the Corporation shall be obligated on the Redemption Date to
pay to the holder thereof (upon surrender by such holder at the Corporation's
principal office of the certificate representing such Preferred Share) an amount
in immediately available funds equal to the Liquidation Value of such Preferred
Share (plus all accrued and unpaid dividends thereon). If the funds of the
Corporation legally available for redemption of Preferred Shares on any
Redemption Date are insufficient to redeem the total number of Preferred Shares
to be redeemed on such date, those funds which are legally available shall be
used to redeem the maximum possible number of Preferred Shares pro rata among
the holders of the Preferred Shares to be redeemed based upon the number of
Preferred Shares held by each such holder (plus all accrued and unpaid dividends
thereon). At any time thereafter when additional funds of the Corporation are
legally available for the redemption of Preferred Shares, such funds shall
immediately be used to redeem the balance of the Preferred Shares
-4-
<PAGE>
which the Corporation has become obligated to redeem on any Redemption Date but
which it has not redeemed.
4D. Notice of Redemption. Except as otherwise provided herein, the
--------------------
Corporation shall mail written notice (a "Redemption Notice") of the Scheduled
-----------------
Redemption and of the Redemption Offer to each record holder thereof not more
than 60 nor less than 30 days prior to the date on which such redemption is to
be made ("Redemption Date"). In case fewer than the total number of Preferred
---------------
Shares represented by any certificate are redeemed, a new certificate
representing the number of unredeemed Preferred Shares shall be issued to the
holder thereof without cost to such holder within five business days after
surrender of the certificate representing the redeemed Preferred Shares.
4E. Dividends After Redemption Date. No Preferred Share shall be
-------------------------------
entitled to any dividends accruing after the date on which the Liquidation Value
of such Preferred Share (plus all accrued and unpaid dividends thereon) is paid
to the holder of such Preferred Share. On such date, all rights of the holder
of such Preferred Share shall cease, and such Preferred Share shall no longer be
deemed to be issued and outstanding.
4F. Redeemed or Otherwise Acquired Shares. Any Preferred Shares
-------------------------------------
which are redeemed or otherwise acquired by the Corporation shall be canceled
and retired to authorized but unissued shares and shall not be reissued, sold or
transferred.
Section 5. Voting Rights. Except as otherwise provided herein and as
-------------
otherwise required by applicable law, the Preferred Shares shall have no voting
rights; provided that each holder of Preferred Shares shall be entitled to
notice of all stockholders meetings at the same time and in the same manner as
notice is given to all stockholders entitled to vote at such meetings.
Section 6. Registration of Transfer. The Corporation shall keep at
------------------------
its principal office a register for the registration of Preferred Shares. Upon
the surrender of any certificate representing Preferred Shares at such place,
the Corporation shall, at the request of the record holder of such certificate,
execute and deliver (at the Corporation's expense) a new certificate or
certificates in exchange therefor representing in the aggregate the number of
Preferred Shares represented by the surrendered certificate. Each such new
certificate shall be registered in such name and shall represent such number of
Preferred Shares as is requested by the holder of the surrendered certificate
and shall be substantially identical in form to the surrendered certificate, and
dividends shall accrue on the Preferred Shares represented by such new
certificate from the date to which dividends have been fully paid on such
Preferred Shares represented by the surrendered certificate.
-5-
<PAGE>
Section 7. Replacement. Upon receipt of evidence reasonably
-----------
satisfactory to the Corporation (an affidavit of the registered holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing shares of Preferred Shares, and in the case of any
such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation (provided that if the holder is a financial
institution or other institutional investor its own agreement shall be
satisfactory), or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
Preferred Shares represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate, and dividends shall accrue on the Preferred Shares represented by
such new certificate from the date to which dividends have been fully paid on
such lost, stolen, destroyed or mutilated certificate.
Section 8. Events of Noncompliance.
-----------------------
8A. Definition. An Event of Noncompliance shall have occurred if the
----------
Corporation fails to make any redemption payment with respect to the Preferred
Shares which it is required to make hereunder, whether or not such payment is
legally permissible or is prohibited by any agreement to which the Corporation
is subject.
8B. Consequences of an Event of Noncompliance. If an Event of
-----------------------------------------
Noncompliance has occurred, the number of directors constituting the
Corporation's board of directors shall, at the request of the holders of a
majority of the Preferred Shares then outstanding, be increased by one director,
and the holders of Preferred Shares shall have the special right, voting
separately as a single class (with each share being entitled to one vote) and to
the exclusion of all other classes of the Corporation's stock, to elect one
individual to fill such newly created directorship, to remove any individuals
elected to such directorship and to fill any vacancies in such directorship.
The special right of the holders of Preferred Shares to elect a member of the
Board of Directors may be exercised at the special meeting called pursuant to
this subparagraph (2) and, to the extent and in the manner permitted by
applicable law, pursuant to a written consent in lieu of a stockholders meeting.
Such special right shall continue until such time as there is no longer an Event
of Noncompliance in existence, at which time such special right shall terminate
subject to revesting upon the occurrence and continuation of any Event of
Noncompliance which gives rise to such special right hereunder.
At any time when such special right has vested in the holders of
Preferred Shares, a proper officer of the Corporation shall, upon the written
request of the holder of at least 10% of the Preferred Shares then outstanding,
addressed to the secretary of the Corporation, call a special meeting of the
holders of Preferred Shares for the purpose of electing directors pursuant to
this subparagraph. Such meeting shall be held at the earliest legally
permissible date at the principal office of the Corporation, or at such other
place designated by the holders of at least 10% of the Preferred Shares then
outstanding. If such meeting has not been called by a proper officer of the
-6-
<PAGE>
Corporation within 10 days after personal service of such written request upon
the secretary of the Corporation or within 20 days after mailing the same to the
secretary of the Corporation at its principal office, then the holders of at
least 10% of the Preferred Shares then outstanding may designate in writing one
of their number to call such meeting at the expense of the Corporation, and such
meeting may be called by such Person so designated upon the notice required for
annual meetings of stockholders and shall be held at the Corporation's principal
office, or at such other place designated by the holders of at least 10% of the
Preferred Shares then outstanding. Any holder of Preferred Shares so designated
shall be given access to the stock record books of the Corporation for the
purpose of causing a meeting of stockholders to be called pursuant to this
subparagraph.
At any meeting or at any adjournment thereof at which the holders
of Preferred Shares have the special right to elect a director, the presence, in
person or by proxy, of the holders of a majority of the Preferred Shares then
outstanding shall be required to constitute a quorum for the election or removal
of any director by the holders of the Preferred Shares exercising such special
right. The vote of a majority of such quorum shall be required to elect or
remove any such director.
Any director so elected by the holders of Preferred Shares shall
continue to serve as a director until the expiration of the lesser of (a) a
period of six months following the date on which there is no longer any Event of
Noncompliance in existence or (b) the remaining period of the full term for
which such director has been elected. After the expiration of such six-month
period or when the full term for which such director has been elected ceases
(provided that the special right to elect directors has terminated), as the case
may be, the number of directors constituting the board of directors of the
Corporation shall decrease to such number as constituted the whole board of
directors of the Corporation immediately prior to the occurrence of the Event or
Events of Noncompliance giving rise to the special right to elect directors.
Section 9. Definitions. For purposes of this Part A, the following
-----------
terms shall have the following definitions:
"Junior Securities" means any capital stock or other equity securities
-----------------
of the Corporation, except for the Preferred Stock.
"Liquidation Value" of any Preferred Share as of any particular date
-----------------
shall be equal to $1,000.00.
"Recapitalization Agreement" means the Recapitalization Agreement,
---------------------------
dated as of July 28, 1998, by and among the Corporation and the Persons named
therein.
"Redemption Date" as to any Preferred Share means the date specified
---------------
in the Redemption Notice for the Redemption Offer and the Scheduled Redemption
Date for the Scheduled
-7-
<PAGE>
Redemption; provided that, unless otherwise provided herein, no such date shall
be a Redemption Date unless the Liquidation Value of such Preferred Share (plus
all accrued and unpaid dividends thereon and any required premium with respect
thereto) is actually paid in full on such date, and if not so paid in full, the
Redemption Date shall be the date on which such amount is fully paid.
"Stockholders Agreement" means the Stockholders Agreement, dated as of
----------------------
August 7, 1998, by and among the Corporation and the stockholders named therein,
as amended from time to time.
"Subsidiary" means any corporation of which the shares of outstanding
----------
capital stock possessing the voting power (under ordinary circumstances) in
electing the board of directors are, at the time as of which any determination
is being made, owned by the Corporation either directly or indirectly through
Subsidiaries.
Section 10. Amendment and Waiver. No amendment, modification or
--------------------
waiver shall be binding or effective with respect to any provision of this Part
A hereof without the prior written consent of the holders of a majority of the
Preferred Shares outstanding at the time such action is taken; provided that no
such action shall change (a) the rate at which or the manner in which dividends
on the Preferred Shares accrue or the times at which such dividends become
payable or the amount payable on redemption of the Preferred Shares or the times
at which redemption of Preferred Shares is to occur, without the prior written
consent of the holders of at least 75% of the Preferred Shares then outstanding
or (b) the percentage required to approve any change described in clause (a)
above, without the prior written consent of the holders of at least 75% of the
Preferred Shares then outstanding; and provided further that no change in the
terms hereof may be accomplished by merger or consolidation of the Corporation
with another corporation or entity unless the Corporation has obtained the prior
written consent of the holders of the applicable percentage of the Preferred
Shares then outstanding. In exercising its rights hereunder, the Company shall
exercise such rights in the same manner with respect to each holder of Preferred
Shares. The Company shall not enter into any other agreement or conduct any
course of dealing which alters the rights or obligations of any holder of
Preferred Shares with respect thereto, without first offering to each other
holder of Preferred Shares the opportunity to enter into such agreement or
course of dealing. The failure of any party at any time to insist upon strict
performance of any condition, promise, agreement or understanding set forth
herein shall not be construed as a waiver or relinquishment of the right to
insist upon strict performance of the same or any other condition, promise,
agreement or understanding at a future time.
Section 11. Notices. Except as otherwise expressly provided
-------
hereunder, all notices referred to herein shall be in writing and shall be
delivered by registered or certified mail, return receipt requested and postage
prepaid, or by reputable overnight courier service, charges prepaid, and shall
be deemed to have been given when so mailed or sent (i) to the Corporation, at
its principal
-8-
<PAGE>
executive offices and (ii) to any stockholder, at such holder's address as it
appears in the stock records of the Corporation (unless otherwise indicated by
any such holder).
B. COMMON STOCK
------------
Section 1. Voting Rights. Except as otherwise provided in this Part
-------------
B or as otherwise required by applicable law, holders of Common Stock shall be
entitled to one (1) vote per share on all matters to be voted on by the
stockholders of the Corporation.
Section 2. Dividends. After dividends on the Preferred Stock shall
---------
have been paid or set apart for payment (to the extent such Preferred Stock may
be entitled thereto), subject to the provisions of Section 3 of Part A, the
Board may declare a dividend upon the Common Stock out of the unrestricted and
unreserved surplus of the Corporation. As and when dividends are declared or
paid thereon, whether in cash, property or securities of the Corporation, the
holders of Common Stock shall be entitled to participate in such dividends
ratably on a per share basis.
Section 3. Liquidation. Subject to the provisions of the Preferred
-----------
Stock, the holders of the Common Stock shall be entitled to participate ratably
on a per share basis in all distributions to the holders of Common Stock in any
liquidation, dissolution or winding up of the Corporation.
Section 4. Registration of Transfer. The Corporation shall keep at
------------------------
its principal office (or such other place as the Corporation reasonably
designates) a register for the registration of shares of the Common Stock. Upon
the surrender of any certificate representing shares of any class of Common
Stock at such place, the Corporation shall, at the request of the registered
holder of such certificate, execute and deliver a new certificate or
certificates in exchange therefor representing in the aggregate the number of
shares of such class represented by the surrendered certificate, and the
Corporation forthwith shall cancel such surrendered certificate. Each such new
certificate will be registered in such name and will represent such number of
shares of such class as is requested by the holder of the surrendered
certificate and will be substantially identical in form to the surrendered
certificate. The issuance of new certificates shall be made without charge to
the holders of the surrendered certificates for any issuance tax in respect
thereof or other cost incurred by the Corporation in connection with such
issuance.
Section 5. Replacement. Upon receipt of evidence reasonably
-----------
satisfactory to the Corporation (an affidavit of the registered holder will be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing one or more shares of any class of Common Stock, and
in the case of any such loss, theft or destruction, upon receipt of indemnity
reasonably satisfactory to the Corporation (provided that if the holder is a
financial institution or other institutional investor its own agreement will be
satisfactory), or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
shares of
-9-
<PAGE>
such class represented by such lost, stolen, destroyed or mutilated certificate
and dated the date of such lost, stolen, destroyed or mutilated certificate.
Section 6. Notices. All notices referred to herein shall be in
-------
writing, shall be delivered personally or by first class mail, postage prepaid,
and shall be deemed to have been given when so delivered or mailed to the
Corporation at its principal executive offices and to any stockholder at such
holder's address as it appears in the stock records of the Corporation (unless
otherwise specified in a written notice to the Corporation by such holder), and
said Amended and Restated Certificate of Incorporation shall continue in full
force and effect until further amended and changed in the manner prescribed by
the provisions of the DGCL.
FIVE: The Corporation is to have perpetual existence.
----
SIX: In furtherance and not in limitation of the powers conferred by
---
statute, the Board of Directors of the Corporation is expressly authorized to
make, alter or repeal the by-laws of the Corporation.
SEVEN: Meetings of stockholders may be held within or without the
-----
State of Delaware, as the by-laws of the Corporation may provide. The books of
the Corporation may be kept outside the State of Delaware at such place or
places as may be designated from time to time by the board of directors or in
the by-laws of the Corporation. Election of directors need not be by written
ballot unless the by-laws of the Corporation so provide.
EIGHT: To the fullest extent permitted by the DGCL as the same exists
-----
or may here after be amended, a director of this Corporation shall not be liable
to the Corporation or its stockholders for monetary damages for a breach of
fiduciary duty as a director. Any repeal or modification of this Article EIGHT
shall not adversely affect any right or protection of a director of the
corporation existing at the time of such repeal or modification.
NINE: The Corporation reserves the right to amend, alter, change or
----
repeal any provision contained in this certificate of incorporation in the
manner now or hereafter prescribed herein and by the DGCL, and all rights
conferred upon stockholders herein are granted subject to this reservation.
-10-
<PAGE>
TEN: The Corporation expressly elects to be governed by Section 203
---
of the DGCL.
* * * *
-11-
<PAGE>
AMENDMENTS TO RESTATED CERTIFICATE OF INCORPORATION
Article FOUR of the Restated Certificate of Incorporation is hereby amended
by deleting the first paragraph therein in its entirety and replacing it with
the following:
"FOUR:
AUTHORIZED SHARES The total number of shares of all classes of capital
stock which the Corporation has authority to issue is 5,600,000 shares,
consisting of:
(1) 100,000 shares of 8% Cumulative Redeemable Preferred Stock, par value
$.01 per share (the "Preferred Stock");
(2) 500,000 shares of Preferred Stock, par value $.01 per share (the
"Series Preferred Stock"); and
(3) 5,000,000 shares of Common Stock, par value $.01 per share (the
"Common Stock").
The Preferred Stock, the Series Preferred Stock and the Common Stock are
collectively referred to herein as "Stock." The shares of Stock shall have the
rights, preferences and limitations set forth below."
Article FOUR of the Restated Certificate of Incorporation is hereby amended
by adding the following new section entitled "B-1 Series Preferred Stock"
immediately after Section 11 of Part A of Article FOUR:
"B-1. SERIES PREFERRED STOCK
(a) The Board of Directors of the Corporation is authorized, subject to
limitations prescribed by law and the provisions of this Article FOUR, to
provide for the issuance of shares of the Series Preferred Stock in series, and
by filing a certificate pursuant to the General Corporation Law of the State of
Delaware, to establish from time to time the number of shares to be included in
each such series and to fix the designations, powers, preferences and rights of
the shares of each such series and the qualifications, limitations or
restrictions thereof.
(b) The Series Preferred Stock may be issued from time to time in one or
more series, the shares of each series to have such powers, designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof,
A-1
<PAGE>
as are stated and expressed herein or in a resolution or resolutions providing
for the issuance of such series, adopted by the Board of Directors as
hereinafter provided.
(c) Authority is hereby expressly granted to the Board of Directors,
subject to the provisions of this Section B-1, to authorize the issuance of one
or more series of Series Preferred Stock, and with respect to each such series
to fix by resolution or resolutions providing for the issuance of such series:
(i) the number of shares constituting the series and the
distinctive designation of the series;
(ii) the dividend rate on the shares of the series, whether
dividends will be cumulative and, if so, from which date or
dates, and the relative rights of priority, if any, of payment
of dividends on shares of the series;
(iii) whether the series shall have voting rights, in addition to the
voting rights provided by law and, if so, the terms of such
voting rights;
(iv) whether the series shall have conversion privileges, and, if
so, the terms and conditions of such conversion, including
provision for adjustment of the conversion rate in such events
as the Board of Directors shall determine;
(v) whether or not the shares of that series shall be redeemable or
exchangeable and, if so, the terms and conditions of such
redemption or exchange, as the case may be, and the amount per
share payable in case of redemption, which amount may vary
under different conditions and at different redemption dates;
(vi) whether the series shall have a sinking fund for the redemption
or purchase of shares of that series and, if so, the terms and
amount of such sinking fund; and
(vii) the rights of the shares of the series in the event of
voluntary or involuntary liquidation, dissolution or winding up
of the Corporation and the relative rights or priority, if any,
of payment of shares of the series. Except for any difference
so provided by the Board of Directors, the shares of all series
of Serial Preferred Stock will rank on a parity with respect to
the payment of dividends and the distribution of assets upon
liquidation.
A-2
<PAGE>
(d) Series Identical; Rank. All shares of any one series of Series
Preferred Stock shall be identical with each other in all respects, except that
shares of any one series issued at different times may differ as to the dates
from which dividends, if any, thereon shall be cumulative; and all series shall
rank equally and be identical in all respects, except as permitted by the
foregoing provisions of paragraph (c) hereof; and all shares of Series Preferred
Stock shall rank senior to the Common Stock both as to dividends and upon
liquidation.
(e) Liquidation. In the event of any liquidation, dissolution or winding
up of the Corporation, before any payment or distribution of the assets of the
Corporation (whether capital or surplus) shall be made to or set apart for the
holders of any class or classes of stock of the Corporation ranking junior to
the Series Preferred Stock upon liquidation, the holders of the shares of the
Series Preferred Stock shall be entitled to receive payment at the rate fixed
herein or in the resolution or resolutions adopted by the Board of Directors
providing for the issue of such series, plus (if dividends on shares of such
series of Series Preferred Stock shall be cumulative) an amount equal to all
dividends (whether or not earned or declared) accumulated to the date of final
distribution to such holders; but they shall be entitled to no further payment.
If, upon any liquidation, dissolution or winding up of the Corporation, the
assets of the Corporation or proceeds thereof, distributable among the holders
of the shares of the Series Preferred Stock shall be insufficient to pay in full
the preferential amount aforesaid, then such assets, or the proceeds thereof,
shall be distributed among such holders ratably in accordance with the
respective amounts which would be payable on such shares if all amounts payable
thereon were paid in full.
(f) Voting Rights. Except as shall be otherwise stated and expressed
herein or in the resolution or resolutions of the Board of Directors providing
for the issue of any series and except as otherwise required by the laws of the
State of Delaware, the holders of shares of Series Preferred Stock shall have,
with respect to such shares, no right or power to vote on any question or in any
proceeding or to be represented at, or to receive notice of, any meeting of
stockholders.
(g) Reacquired Shares. Shares of any Series Preferred Stock which shall be
issued and thereafter acquired by the Corporation through purchase, redemption,
exchange, conversion or otherwise shall return to the status of authorized but
unissued Series Preferred Stock unless otherwise provided in the resolution or
resolutions of the Board of Directors.
(h) Increase/Decrease in Authorized Shares of a Series. Unless otherwise
provided in the resolution or resolutions of the Board of Directors providing
for the issuance thereof, the number of authorized shares of stock of any such
series may be increased or decreased (but not below the number of shares thereof
outstanding) by resolution or resolutions of the Board of Directors. In case the
number of shares of any such series of Series Preferred Stock shall be
decreased, the shares representing such decrease shall, unless otherwise
provided in the resolution or resolutions of the Board of Directors providing
for the issuance thereof, resume the status of authorized but unissued Series
Preferred Stock, undesignated as to series."
A-3
<PAGE>
EXHIBIT 3.2
BY-LAWS
-------
OF
--
WOODS HOLDING CORP.
-------------------
ARTICLE I
---------
Offices
-------
Section 1. The registered office shall be in the City of Dover,
County of Kent, State of Delaware.
Section 2. The corporation may also have offices at such other
places both within and without the State of Delaware as the board of directors
may from time to time determine or the business of the corporation may require.
ARTICLE II
----------
Meetings of Stockholders
------------------------
Section 1. All meetings of the stockholders shall be held at such
place as may be fixed from time to time by the board of directors and stated in
the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders shall be held on the
first Monday of February of each year if not a legal holiday, and if a legal
holiday, then on the next business day following, at 10:00 a.m., or at such
other date and time as shall
<PAGE>
be designated from time to time by the board of directors and stated in the
notice of the meeting or in a duly executed waiver of notice thereof, at which
the stockholders shall elect by a plurality vote a board of directors, and
transact such other business as may properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place,
date and hour of the meeting shall be given to each stockholder entitled to vote
at such meeting not less than ten (10) nor more than sixty (60) days before the
date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten (10) days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the
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<PAGE>
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president, and shall be called by the
president or secretary at the request in writing of a majority of the board of
directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
Section 6. Written notice of a special meeting stating the place,
date and hour of the meeting and the purpose or purposes for which the meeting
is called, shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
Section 7. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all
3
<PAGE>
meetings of the stockholders for the transaction of business except as otherwise
provided by statute or by the certificate of incorporation. If, however, such
quorum shall not be present or represented at any meeting of the stockholders,
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented any business may be transacted which might have been transacted at
the meeting as originally notified. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of statute or of the
certificate of incorporation, a different vote is required, in which case such
express provision shall govern and control the decision of such
4
<PAGE>
question.
Section 10. Each stockholder shall, at every meeting of the
stockholders, be entitled to one vote in person or by proxy for each share of
the capital stock having voting power held by such stockholder, but no proxy
shall be voted on after three years from its date, unless the proxy provides for
a longer period.
Section 11. Any action required to be taken at any annual or special
meeting of stockholders of the corporation, or any action which may be taken at
any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
ARTICLE III
-----------
Directors
---------
Section 1. The number of directors which shall
5
<PAGE>
constitute the whole board shall be not less one (1) nor more than nine (9). The
number of directors of the corporation may be increased or decreased from time
to time within this range of one (1) to nine (9) directors, without further
amendment to this section, only by the affirmative vote of a majority of
directors then entitled to vote thereon. The directors shall be elected at the
annual meeting of the stockholders, except as provided in Section 2 of this
Article, and each director elected shall hold office until his successor is
elected and qualified or until his earlier resignation or removal. Directors
need not be stockholders.
Section 2. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, though less than a quorum, or by the
sole remaining director, and each director so chosen shall hold office until his
successor is elected and qualified, or until his earlier resignation or removal.
If there are no directors in office, then an election of directors may be held
in the manner provided by statute.
Section 3. The business of the corporation shall be managed by or
under the direction of the board of directors which may exercise all such powers
of the corporation and do all such
6
<PAGE>
lawful acts as are not by statute or by the certificate of incorporation or by
these by-laws directed or required to be exercised or done by the stockholders.
Meetings of the Board of Directors
----------------------------------
Section 4. The board of directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. The first meeting of each newly elected board of
directors shall be held at such time and place as shall be fixed by the vote of
the stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
board of directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the board of directors, or as shall be specified in a
written waiver of notice signed by all of the directors.
Section 6. Regular meetings of the board of directors may be held
without notice at such time and at such place as shall
7
<PAGE>
from time to time be determined by the board.
Section 7. Special meetings of the board may be called by the
president on two (2) days' notice to each director, either personally or by mail
or by telegram; special meetings shall be called by the president in like manner
and on like notice on the written request of two or more directors.
Section 8. At all meetings of the board a majority of the total
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum shall not be present at any meeting of the board of
directors the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation or these by-laws, any action required or permitted to be taken at
any meeting of the board of directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
8
<PAGE>
minutes of proceedings of the board or committee.
Compensation of Directors
-------------------------
Section 10. The directors may be paid their expenses, if any, of
attendance at each meeting of the board of directors and may be paid a fixed sum
for attendance at each meeting of the board of directors or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
ARTICLE IV
----------
Notices
-------
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these by-laws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may
9
<PAGE>
also be given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
by-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
---------
Officers
--------
Section 1. The officers of the corporation shall be chosen by the
board of directors and shall be a chairman of the board, a president, a
vice-president, a secretary and a treasurer. The board of directors may elect
additional vice-presidents and one or more assistant secretaries and assistant
treasurers. Any number of offices may be held by the same person, unless the
certificate of incorporation or these by-laws otherwise provide.
Section 2. The board of directors at its first meeting after each
annual meeting of stockholders shall choose a chairman of the board, a
president, one or more vice-presidents, a secretary and a treasurer.
Section 3. The board of directors may appoint such other officers
and agents as it shall deem necessary who shall hold
10
<PAGE>
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the board.
Section 4. The salaries of all officers and agents of the
corporation shall fixed by the board of directors.
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by the
board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
corporation may be filled by the board of directors.
The Chairman of the Board
-------------------------
Section 6. The chairman of the board, if there be a chairman,
shall preside at all meetings of the stockholders, of the board of directors and
of the executive committee, if any, and he shall have such other powers and
duties as the board of directors may from time to time prescribe. He may execute
contracts in the name of the corporation. He may sign, with the secretary,
assistant secretary, treasurer or assistant treasurer, certificates for shares
of the corporation, and may sign any policies, deeds, mortgages, bonds,
contracts, or other instruments which the board of directors have authorized to
be executed except in cases where
11
<PAGE>
the signing and execution thereof shall be expressly delegated by the board of
directors or by these by-laws to some other officer or agent of the corporation,
or shall be required by law to be otherwise signed or executed.
The President
-------------
Section 7. The president shall be the chief executive officer of the
corporation and shall have the general direction of the affairs of the
corporation except as otherwise prescribed by the board of directors. In the
absence of the chairman of the board, he shall preside at all meetings of the
stockholders, of the board of directors and of the executive committee, if any,
and shall designate the acting secretary for such meetings to take the minutes
thereof for delivery to the secretary. He may execute contracts in the name of
the corporation and appoint and discharge agents and employees of the
corporation. He may sign, with the secretary, assistant secretary, treasurer or
assistant treasurer, certificates for shares of the corporation, and may sign
any policies, deeds, mortgages, bonds, contracts, or other instruments which the
board of directors have authorized to be executed except in cases where the
signing and execution thereof shall be expressly delegated by the board of
directors or by these by-laws to some other officer or agent of the corporation,
or shall be required by
12
<PAGE>
law to be otherwise signed or executed; appoint and discharge agents and
employees of the corporation, and in general, shall perform all duties incident
to the office of president. The president shall be ex-officio a member of all
committees.
The Vice-Presidents
-------------------
Section 8. In the absence of the president or in the event of his
inability or refusal to act, the vice-president, if there be any, (or in the
event there be more than one vice-president, the vice-presidents in the order
designated, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice-presidents shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
The Secretary and Assistant Secretary
-------------------------------------
Section 9. The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all proceedings of the
meetings of the corporation and of the board of directors in a book to be kept
for that purpose and shall perform like duties for the standing committees when
required. He shall give, or cause to be given, notice of all
13
<PAGE>
meetings of the stockholders and special meetings of the board of directors,
and shall perform such other duties as may be prescribed by the board of
directors or president, under whose supervision he shall be. He shall have
custody of the corporate seal of the corporation and he, or an assistant
secretary, shall have authority to affix the same to any instrument requiring it
and when so affixed, it may be attested by his signature or by the signature of
such assistant secretary. The board of directors may give general authority to
any other officer to affix the seal of the corporation and to attest the
affixing by his signature.
Section 10. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe.
The Treasurer and Assistant Treasurers
--------------------------------------
Section 11. The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the
14
<PAGE>
corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the corporation in such depositories as may be designated
by the board of directors.
Section 12. He shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors, at
its regular meetings, or when the board of directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 13. If required by the board of directors, he shall give the
corporation a bond (which shall be renewed every six (6) years) in such sum and
with such surety or sureties as shall be satisfactory to the board of directors
for the faithful performance of the duties of his office and for the restoration
to the corporation, in case of his death, resignation, retirement or removal
from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
corporation.
Section 14. The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the board of directors
(or if there be no such determination,
15
<PAGE>
then in the order of their election), shall, in the absence of the treasurer or
in the event of his inability or refusal to act, perform the duties and exercise
the powers of the treasurer and shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
ARTICLE VI
----------
Certificate of Stock
--------------------
Section 1. Every holder of stock in the corporation shall be entitled
to have a certificate, signed by, or in the name of the corporation by the
president or a vice president and the treasurer or an assistant treasurer, or
the secretary or an assistant secretary of the corporation, certifying the
number of shares owned by him in the corporation.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the corporation shall issue to represent such
class or series of stock, provided that, except as
16
<PAGE>
otherwise provided in Section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Section 2. Where a certificate is countersigned (i) by a transfer
agent other than the corporation or its employee, or (ii) by a registrar other
than the corporation or its employee, any of or all the signatures of the
officers of the corporation may be a facsimile. In case any officer who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be an officer before such certificate is issued, it may be issued
by the corporation with the same effect as if he were such officer at the date
of issue.
Lost Certificates
-----------------
Section 3. The board of directors may direct a new certificate or
certificates to be issued in place of any certificate theretofore issued by the
corporation
17
<PAGE>
alleged to have been lost, stolen or destroyed, upon the making of an affidavit
of the fact by the person claiming the certificate of stock to be lost, stolen
or destroyed. When authorizing such issue of a new certificate or certificates,
the board of directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or to give the corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
Transfers of Stock
------------------
Section 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Fixing Record Date
------------------
Section 5. In order that the corporation may
18
<PAGE>
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the board of directors may fix a new
record date for the adjourned meeting.
Registered Stockholders
-----------------------
Section 6. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or
19
<PAGE>
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware.
ARTICLE VII
-----------
Indemnification
---------------
Section 1. In General. The corporation shall indemnify (a) any
----------
person who was a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person is or was
a director, officer, employee or agent of the corporation or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit,
and (b) any person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or who is or was serving at the
request of the
20
<PAGE>
corporation as a director, officer, employee or agent or another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with any such action, suit
or proceeding, in each case to the fullest extent permissible under Section 145
of the Delaware General Corporation Law, as amended from time to time (the
"GCL"), or the indemnification provisions of any successor statute.
Section 2. Exculpation. No director of the corporation shall be liable
-----------
to the corporation or its stockholder for monetary damages for breach of
fiduciary duty as a director, in the manner and to the fullest extent provided
in the Certificate of Incorporation of the corporation and in Section 102 of the
GCL, as the same now exists or may hereafter be amended. No amendment to or
repeal of this Article VII shall apply to or have any effect on the liability or
alleged liability of any director of the corporation for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
Section 3. No Diminution by Amendment of By-law; Non-exclusive Effect.
----------------------------------------------------------
The foregoing provisions of this Article VII shall be deemed to be a contract
between the corporation and each director and officer who serves in such
capacity at any time while
21
<PAGE>
this by-law is in effect, any repeal or modification thereof shall not affect
any rights or obligations then existing with respect to any state of facts then
or theretofore existing or any action, suit or proceeding theretofore or
thereafter brought based in whole or in part upon any such state of facts. The
foregoing rights of indemnification shall not be deemed exclusive of any
other rights to which any director or officer may be entitled apart from the
provisions of this Article VII. The board of directors in its discretion shall
have power on behalf of the corporation to indemnify any person, other than a
director or officer, made a party to any action, suit or proceeding by reason
of the fact that he, his testator or intestate is or was an employee of the
corporation.
ARTICLE VIII
------------
Amendments
----------
These by-laws may be altered, amended or repealed or new by-laws may
be adopted by the board of directors at any regular meeting of the board of
directors or at any special meeting of the board of directors.
22
<PAGE>
Article II, Section 5 of the By-Laws of Woods Equipment Company is hereby
amended by deleting the last sentence thereof and replacing it with the
following:
"Such request shall state the purpose or purposes of the proposed meeting and
must include the information required by Section 12 of these By-Laws."
Article II of the By-Laws of Woods Equipment Company is hereby amended by
adding the following Section 12 immediately following the existing Section 11 of
Article II:
"Section 12. At an annual meeting of the stockholders, only such business shall
be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be (i) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, (ii) brought before the meeting by or at the direction
of the Board of Directors or (iii) otherwise properly brought before the meeting
by a stockholder. For business to be properly brought before an annual meeting
by a stockholder, the stockholder must have given timely notice thereof in
writing to the secretary of the Corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the Corporation, not less than sixty (60) days nor more than ninety
(90) days prior to the meeting; provided, however, that in the event that less
than 70 days' notice or prior public announcement of the date of the meeting is
given or made to stockholders, notice by the stockholder to be timely must be so
received not later than the close of business on the 10th day following the date
on which such notice of the date of the annual meeting was mailed or such public
announcement was made. A stockholder's notice to the secretary shall set forth
as to each matter the stockholder proposes to bring before the annual meeting
(i) a brief description of the business desired to be brought before the annual
meeting, (ii) the name and address, as they appear on the Corporation's books,
of the stockholder proposing such business, (iii) the class and number of shares
of the Corporation which are beneficially owned by the stockholder and (iv) any
material interest of the stockholder in such business. Notwithstanding anything
in these By-laws to the contrary, no business shall be conducted at an annual
meeting except in accordance with the procedures set forth in this section. The
presiding officer of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting and in accordance with the provisions of this section; if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall be transacted. For purposes of this section,
"public announcement" shall mean disclosure in a press release reported by Dow
Jones News Service, Associated Press or a comparable national news service.
Nothing in this section shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the Corporation's proxy statement pursuant to
Rule 14a-8 under the Securities Exchange Act of 1934, as amended.
<PAGE>
KIRKLAND & ELLIS
PARTNERSHIPS INCLUDING PROFESSIONAL CORPORATIONS
200 East Randolph Drive
Chicago, Illinois 60601
To Call Writer Directly: (312) 861-2000 Facsimile:
(312) 861-2000 (312) 861-2200
Exhibit 8.1
October 26, 1999
Woods Equipment Company
WEC Company
6944 Newburg Road
Rockford, IL 61108
Re: Woods Equipment Company
WEC Company
Registration Statement on Form S-4
----------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Woods Equipment Company, a
Delaware corporation ("Woods") and WEC Company, a Delaware corporation ("WEC"
and together with Woods, the "Issuers"), in connection with the proposed
registration by the Issuers of their respective offers to exchange (the
"Exchange Offers") up to $130,000,000 in aggregate principal amount of WEC's 12%
Senior Notes due 2009, Series B (the "Exchange Notes") in exchange for an in
replacement of WEC's 12% Senior Notes due 2009 (the "Old Notes") and up to
$51,927,000 in aggregate principal amount at maturity of Woods' 15% Senior
Discount Debentures due 2011, Series B (the "Exchange Debentures" and, together
with the Exchange Notes, the "Exchange Securities") in exchange for and in
replacement of Woods' 15% Senior Discount Debentures due 2011 (the "Old
Debentures"), pursuant to a Registration Statement on Form S-4, originally filed
with the Securities and Exchange Commission (the "Commission") on October 8,
1999, under the Securities Act of 1933, as amended (the "Act") (such
Registration Statement, as amended or supplemented is hereinafter referred to as
the "Registration Statement").
<PAGE>
You have requested our opinion as to the United States federal income
tax consequences of the Exchange Offers. In preparing our opinion, we have
reviewed and relied upon the Issuers' Registration Statement and such other
documents as we have deemed necessary.
On the basis of the foregoing, it is our opinion that the exchange of
the Old Notes for the Exchange Notes and the Old Debentures for the Exchange
Debentures pursuant to the Exchange Offers will not be treated as an "exchange"
for United States federal income tax purposes.
The opinion set forth above is based upon the applicable provisions of
the Internal Revenue Code of 1986, as amended, the Treasury Regulations
promulgated or proposed thereunder, current positions of the Internal Revenue
Service (the "IRS") contained in published revenue rulings, revenue procedures
and announcements, existing judicial decisions and other applicable authorities.
No tax ruling has been sought from the IRS with respect to any of the matters
discussed herein. Unlike a ruling from the IRS, an opinion of counsel is not
binding on the IRS. Hence, no assurance can be given that the opinion stated in
this letter will not be successfully challenged by the IRS or by a court. We
express no opinion concerning any tax consequences of the Exchange Offers except
as expressly set forth above.
We hereby consent to the filing of this opinion as Exhibit 8.1 to the
Registration Statement. We also consent to the reference to our firm under the
heading "United States Federal Income Tax Consequences." In giving this consent,
we do not hereby admit that we are in the category of persons whose consent is
required under Section 7 of the Act or the rules and regulations of the
Commission promulgated thereunder.
Sincerely,
/s/ KIRKLAND & ELLIS
Kirkland & Ellis
<PAGE>
Exhibit 10.5
$100,000.00 August 7, 1998
PROMISSORY NOTE
FOR VALUE RECEIVED, MICHAEL CARNEY ("Maker"), hereby promises to pay to the
order of WOODS EQUIPMENT COMPANY, a Delaware corporation ("Payee"), at such
place as Payee shall designate to Maker from time to time in writing, the
principal sum of One Hundred Thousand and no/100 Dollars ($100,000), on the
terms and conditions set forth herein. This Promissory Note shall bear interest
(computed on the basis of a 360-day year, counting the number of actual days
elapsed) on the principal balance outstanding from time to time from the date
hereof at the rate of eight (8%) percent per annum.
The principal balance of this Promissory Note and all accrued and unpaid
interest shall be paid on fifth anniversary of the date hereof.
Without affecting the liability of any maker, endorser, surety or
guarantor, Payee may, without notice, grant renewals or extensions, accept
partial payments, or agree not to sue any party liable on this Promissory Note.
Whenever possible, each provision of this Promissory Note shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Promissory Note shall be prohibited by or invalid
under such law, such provision shall be severable and be ineffective to the
extent of such prohibition or invalidity, without invalidating the remaining
provisions of this Promissory Note.
This Promissory Note shall be binding upon Maker and its successors and
assigns, and shall inure to the benefit of Payee and its successors and assigns.
Maker's rights, obligations and interests in and under this Promissory Note may
be assigned, sold, transferred or conveyed with the prior written consent of
Payee, which consent shall not unreasonably be withheld.
This Promissory Note and the rights of the parties hereunder shall be
governed by and construed in accordance with the internal laws of the State of
Illinois.
IN WITNESS WHEREOF, Maker, intending to be legally bound hereby, has duly
executed this Note on the date first set forth above.
MICHAEL CARNEY
/s/ Michael Carney
------------------
<PAGE>
Note to Exhibit 10.5
In accordance with Instruction 2 to Item 601 of Regulation S-K, the
Registrants have filed a single copy of the Promissory Note. The Registrants
have omitted filing Promissory Notes for the following executive officers, which
are identical to the filed Promissory Notes except as otherwise noted:
<TABLE>
<CAPTION>
Principal
Name Amount Due Date
---- --------- --------
<S> <C> <C>
Steven M. Vandemore $ 78,000 April 15, 2000
David Stephen Crider $285,000 August 7, 1999
</TABLE>
<PAGE>
Exhibit 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report, dated February 19, 1999, except for Note 15, as to which the
date is July 23, 1999, on the consolidated balance sheets of Woods Equipment
Company as of January 2, 1999 and December 27, 1997, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for each of the three fiscal years in the period ended January 2, 1999 and
our report, dated June 18, 1999, on the balance sheets of Central Fabricators,
Inc. as of December 31, 1998 and 1997, and the related statements of income,
changes in stockholders' equity, and cash flows for the years then ended; in the
Registration Statement (Form S-4 No. 333-88759) and related Prospectus of Woods
Equipment Company and WEC Company for the registration of $51,927,000 of 15.0%
Senior Discount Debentures due 2011, Series B, of Woods Equipment Company, and
$130,000,000 of 12.0% Senior Notes due 2009, Series B, of WEC Company.
Ernst & Young LLP
Chicago, Illinois
October 26, 1999
<PAGE>
Exhibit 23.2
------------
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated December 17, 1998, accompanying the
financial statements of Tru-Part Manufacturing Corporation contained in the
Registration Statement. We consent to the use of the aforementioned report in
the Registration Statement, and to the use of our name as it appears under the
caption "Experts."
/s/ GRANT THORNTON LLP
Minneapolis, Minnesota
October 26, 1999
<PAGE>
Greenwalt Sponsel & Co., Inc.
Consultants to Management Certified Public Accountants
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our audit report dated August 31, 1999, accompanying the audited
financial statements of Alitec Corporation Attachments Division contained in the
Registration Statement. We have issued our review report dated September 10,
1999, related to the reviewed financial statements of Alitec Corporation
Attachments Division contained in the Registration Statement. We consent to use
of the aforementioned reports in the Registration Statement, and to the use of
our name as it appears under the caption "Experts."
/s/ Greenwalt Sponsel & Co., Inc.
October 26, 1999
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
To Tender for Exchange
15% Senior Discount Debentures due 2011
of
WOODS EQUIPMENT COMPANY
Pursuant to the Prospectus Dated October 26, 1999
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON NOVEMBER 29, 1999 UNLESS EXTENDED (THE "EXPIRATION DATE").
PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS
If you desire to accept the Exchange Offer, this Letter of Transmittal should
be completed, signed, and submitted to the Exchange Agent:
By Registered or Certified Mail: Overnight Courier & By Hand After 4:30
United States Trust Company of New P.M.:
York United States Trust Company of New
P.O. Box 844, Cooper Station York
New York, New York 10276-0844 770 Broadway, 13th Floor
Attention: Corporate Trust Operations New York, New York 10003
Attention: Corporate Trust Operations
By Hand Before 4:30 P.M.:
United States Trust Company of New Facsimile Transmission:
York (212) 420-6211
111 Broadway
New York, New York 10006 Confirm by Telephone:
Attention: Lower Level Corporate Trust (800) 548-6565
Window
Delivery of this Letter of Transmittal to an address other than as set
forth above will not constitute a valid delivery.
For any questions regarding this Letter of Transmittal or for any
additional information, you may contact the Exchange Agent by telephone at
(800) 548-6565, or by facsimile at (212) 420-6211.
The undersigned hereby acknowledges receipt of the Prospectus, dated
October 26, 1999 (the "Prospectus"), of Woods Equipment Company, a Delaware
corporation ("Company"), and this Letter of Transmittal (the "Letter of
Transmittal"), that together constitute the Company's offer (the "Exchange
Offer") to exchange $1,000 in principal amount at maturity of its 15% Senior
Discount Debentures due 2011, Series B (the "Exchange Debentures"), which have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a Registration Statement, for each $1,000 in principal
amount at maturity of its outstanding 15% Senior Discount Debentures due 2011
(the "Debentures"), of which $51,927,000 aggregate principal amount at
maturity is outstanding. Capitalized terms used but not defined herein have
the meanings ascribed to them in the Prospectus.
The undersigned hereby tenders the Debentures described in Box 1 below (the
"Tendered Debentures") pursuant to the terms and conditions described in the
Prospectus and this Letter of Transmittal. The undersigned is the registered
owner of all the Tendered Debentures and the undersigned represents that it
has received from each beneficial owner of the Tendered Debentures
("Beneficial Owners") a duly completed and executed form of "Instruction to
Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner" accompanying this Letter of Transmittal, instructing the
undersigned to take the action described in this Letter of Transmittal.
1
<PAGE>
Subject to, and effective upon, the acceptance for exchange of the Tendered
Debentures, the undersigned hereby exchanges, assigns and transfers to, or
upon the order of, the Company all right, title, and interest in, to and under
the Tendered Debentures.
Please issue the Exchange Debentures exchanged for Tendered Debentures in
the name(s) of the undersigned. Similarly, unless otherwise indicated under
"Special Delivery Instructions" below (Box 3), please send or cause to be sent
the certificates for the Exchange Debentures (and accompanying documents, as
appropriate) to the undersigned at the address shown below in Box 1.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the true and lawful agent and attorney in fact of the undersigned
with respect to the Tendered Debentures, with full power of substitution (such
power of attorney being deemed to be an irrevocable power coupled with an
interest), to (i) deliver the Tendered Debentures to the Company or cause
ownership of the Tendered Debentures to be transferred to, or upon the order
of, the Company, on the books of the registrar for the Debentures and deliver
all accompanying evidences of transfer and authenticity to, or upon the order
of, the Company upon receipt by the Exchange Agent, as the undersigned's
agent, of the Exchange Debentures to which the undersigned is entitled upon
acceptance by the Company of the Tendered Debentures pursuant to the Exchange
Offer, and (ii) receive all benefits and otherwise exercise all rights of
beneficial ownership of the Tendered Debentures, all in accordance with the
terms of the Exchange Offer.
The undersigned understands that tenders of Debentures pursuant to the
procedures described under the caption "The Exchange Offers" in the Prospectus
and in the instructions hereto will constitute a binding agreement between the
undersigned and the Company upon the terms and subject to the conditions of
the Exchange Offer, subject only to withdrawal of such tenders on the terms
set forth in the Prospectus under the caption "The Exchange Offers--Withdrawal
of Tenders." All authority herein conferred or agreed to be conferred shall
survive the death or incapacity of the undersigned and any Beneficial
Owner(s), and every obligation of the undersigned or any Beneficial Owner(s)
hereunder shall be binding upon the heirs, representatives, successors, and
assigns of the undersigned and such Beneficial Owner(s).
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign, and transfer the
Tendered Debentures and that the Company will acquire good and unencumbered
title thereto, free and clear of all liens, restrictions, charges,
encumbrances, and adverse claims when the Tendered Debentures are acquired by
the Company as contemplated herein. The undersigned and each Beneficial Owner
will, upon request, execute and deliver any additional documents reasonably
requested by the Company or the Exchange Agent as necessary or desirable to
complete and give effect to the transactions contemplated hereby.
The undersigned hereby represents and warrants that the information set
forth in Box 2 is true and correct.
By accepting the Exchange Offer, the undersigned hereby represents and
warrants that (i) the Exchange Debentures to be acquired by the undersigned
and any Beneficial Owner(s) in connection with the Exchange Offer are being
acquired by the undersigned and any Beneficial Owner(s) in the ordinary course
of business of the undersigned and any Beneficial Owner(s), (ii) the
undersigned and each Beneficial Owner are not participating, do not intend to
participate, and have no arrangement or understanding with any person to
participate, in the distribution of the Exchange Debentures, (iii) except as
otherwise disclosed in writing herewith, neither the undersigned nor any
Beneficial Owner is an "affiliate," as defined in Rule 405 under the
Securities Act, of the Company, and (iv) the undersigned and each Beneficial
Owner acknowledge and agree that any person participating in the Exchange
Offer with the intention or for the purpose of distributing the Exchange
Debentures must comply with the registration and prospectus delivery
requirements of the Securities Act, in connection with a secondary resale of
the Exchange Debentures acquired by such person and cannot rely on the
position of the Staff of the Securities and Exchange Commission (the
"Commission") set forth in the no-action letters that are discussed in the
section of the Prospectus entitled "The Exchange Offers." In addition, by
2
<PAGE>
accepting the Exchange Offer, the undersigned hereby (i) represents and
warrants that, if the undersigned or any Beneficial Owner of the Debentures is
a Participating Broker-Dealer, such Participating Broker-Dealer acquired the
Debentures for its own account as a result of market-making activities or
other trading activities and has not entered into any arrangement or
understanding with the Company or any "affiliate" of the Company (within the
meaning of Rule 405 under the Securities Act) to distribute the Exchange
Debentures to be received in the Exchange Offer, and (ii) acknowledges that,
by receiving Exchange Debentures for its own account in exchange for
Debentures, where such Debentures were acquired as a result of market-making
activities or other trading activities, such Participating Broker-Dealer will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Debentures.
[_]CHECK HERE IF TENDERED DEBENTURES ARE BEING DELIVERED HEREWITH.
[_]CHECK HERE IF TENDERED DEBENTURES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND
COMPLETE "USE OF GUARANTEED DELIVERY" BELOW (Box 4).
[_]CHECK HERE IF TENDERED DEBENTURES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE "USE OF BOOK-ENTRY TRANSFER"
BELOW (Box 5).
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING THE BOXES
BOX 1
DESCRIPTION OF DEBENTURES TENDERED
(Attach additional signed pages, if necessary)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Name(s) and Address(es) of
Registered Debenture Holder(s), Aggregate Principal
exactly as name(s) appear(s) on Certificate Amount at Maturity Aggregate Principal
Debenture Certificate(s) Number(s) Represented by Amount at Maturity
(Please fill in, if blank) of Debentures* Certificate(s) Tendered**
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
</TABLE>
Total
- -------------------------------------------------------------------------------
*Need not be completed by persons tendering by book-entry transfer.
**The minimum permitted tender is $1,000 in principal amount at maturity of
Debentures. All other tenders must be in integral multiples of $1,000 of
principal amount at maturity. Unless otherwise indicated in this column,
the principal amount at maturity of all Debenture Certificates identified
in this Box 1 or delivered to the Exchange Agent herewith shall be deemed
tendered. See Instruction 4.
3
<PAGE>
BOX 2
BENEFICIAL OWNER(S)
- --------------------------------------------------------------------------------
State of Principal Residence of Each Principal Amount at Maturity of
Beneficial Owner of Tendered Debentures Tendered Debentures
Held for Account of Beneficial Owner
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BOX 3
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 5, 6 and 7)
TO BE COMPLETED ONLY IF EXCHANGE DEBENTURES EXCHANGED FOR DEBENTURES AND
UNTENDERED DEBENTURES ARE TO BE SENT TO SOMEONE OTHER THAN THE UNDERSIGNED,
OR TO THE UNDERSIGNED AT AN ADDRESS OTHER THAN THAT SHOWN ABOVE.
Mail Exchange Debenture(s) and any untendered Debentures to: ________________
Name(s): ____________________________________________________________________
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
(please print)
Address: ____________________________________________________________________
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
(include Zip Code)
Tax Identification or
Social Security No.: ________________________________________________________
BOX 4
USE OF GUARANTEED DELIVERY
(See Instruction 2)
TO BE COMPLETED ONLY IF DEBENTURES ARE BEING TENDERED BY MEANS OF A NOTICE
OF GUARANTEED DELIVERY.
Name(s) of Registered Holder(s): ____________________________________________
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery: _________________________
Name of Institution which Guaranteed Delivery: ______________________________
4
<PAGE>
BOX 5
USE OF BOOK-ENTRY TRANSFER
(See Instruction 1)
TO BE COMPLETED ONLY IF DELIVERY OF TENDERED DEBENTURES IS TO BE MADE BY
BOOK-ENTRY TRANSFER.
Name of Tendering Institution: ______________________________________________
Account Number: _____________________________________________________________
Transaction Code Number: ____________________________________________________
BOX 6
TENDERING HOLDER SIGNATURE
(See Instructions 1 and 5)
In Addition, Complete Substitute Form W-9
- --------------------------------------------------------------------------------
X ___________________________________
X ___________________________________ Signature Guarantee _________________
(Signature of Registered Holder(s) (If required by Instruction 5)
or Authorized Signatory)
Authorized Signature ________________
Note: The above lines must be signed
by the registered holder(s) of
Debentures as their name(s)
appear(s) on the Debentures or by
person(s) authorized to become
registered holder(s) (evidence of
such authorization must be
transmitted with this Letter of
Transmittal). If signature is by a
trustee, executor, administrator,
guardian, attorney-in-fact, officer,
or other person acting in a
fiduciary or representative
capacity, such person must set forth
his or her full title below. See
Instruction 5.
X ___________________________________
Name: _______________________________
(please print)
Title: ______________________________
Name of Firm: _______________________
(Must be an Eligible Institution as
defined in Instruction 2)
Address: ____________________________
-------------------------------------
-------------------------------------
(include Zip Code)
Area Code and Telephone Number: _____
Name(s): ____________________________ Dated: ______________________________
-------------------------------------
-------------------------------------
Capacity: ___________________________
Street Address: _____________________
-------------------------------------
-------------------------------------
(include Zip Code)
Area Code and Telephone Number: _____
Tax Identification or Social
Security Number: ____________________
5
<PAGE>
BOX 7
BROKER-DEALER STATUS
- -------------------------------------------------------------------------------
[_]
Check this box if the Beneficial Owner of the Debentures is a
Participating Broker-Dealer and such Participating Broker-Dealer acquired
the Debentures for its own account as a result of market-making
activities or other trading activities. If this box is checked, please
send via facsimile a copy of this Letter of Transmittal to Woods
Equipment Company, attention Chief Financial Officer, facsimile (815)
381-6047.
PAYORS' NAME: WOODS EQUIPMENT COMPANY
- -------------------------------------------------------------------------------
Name (if joint names, list first and circle the name of
SUBSTITUTE the person or entity whose number you enter in Part 1
below. See instructions if your name has changed.)
Form W-9
-------------------------------------------------------------
Department of Address
the Treasury -------------------------------------------------------------
City, State and ZIP Code
Internal Revenue Part 1--PLEASE PROVIDE YOUR TAXPAYER Social
Service IDENTIFICATION NUMBER ("TIN") IN THE BOX Security
AT RIGHT AND CERTIFY BY SIGNING AND Number
DATING BELOW
-------------------------------------------------------------
List account number(s) here (optional)
-------------------------------------------------------------
or TIN
-------------------------------------------------------------
Part 2--Check the box if you are NOT subject to backup
withholding under the provisions of section 3406(a)(1)(C)
of the Internal Revenue Code because (1) you have not
been notified that you are subject to backup withholding
as a result of failure to report all interest or
dividends or (2) the Internal Revenue Service has
notified you that you are no longer subject to backup
withholding. [_]
CERTIFICATION--UNDER THE PENALTIES OF Part 3--
PERJURY, I CERTIFY THAT THE INFORMATION
PROVIDED ON THIS FORM IS TRUE, CORRECT
AND COMPLETE.
Awaiting
TIN [_]
SIGNATURE DATE
-------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
6
<PAGE>
WOODS EQUIPMENT COMPANY
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Debentures. A properly
completed and duly executed copy of this Letter of Transmittal, including
Substitute Form W-9, and any other documents required by this Letter of
Transmittal must be received by the Exchange Agent at its address set forth
herein, and either certificates for Tendered Debentures must be received by
the Exchange Agent at its address set forth herein or such Tendered Debentures
must be transferred pursuant to the procedures for book-entry transfer
described in the Prospectus under the caption "The Exchange Offers--Procedures
for Tendering" (and a confirmation of such transfer received by the Exchange
Agent), in each case prior to 5:00 p.m., New York City time, on the Expiration
Date. The method of delivery of certificates for Tendered Debentures, this
Letter of Transmittal and all other required documents to the Exchange Agent
is at the election and risk of the tendering holder and the delivery will be
deemed made only when actually received by the Exchange Agent. If delivery is
by mail, registered mail with return receipt requested, properly insured, is
recommended. Instead of delivery by mail, it is recommended that the Holder
use an overnight or hand delivery service. In all cases, sufficient time
should be allowed to assure timely delivery. No Letter of Transmittal or
Debentures should be sent to the Company. Neither the Company nor the
registrar is under any obligation to notify any tendering holder of the
Company's acceptance of Tendered Debentures prior to the closing of the
Exchange Offer.
2. Guaranteed Delivery Procedures. Holders who wish to tender their
Debentures but whose Debentures are not immediately available, and who cannot
deliver their Debentures, this Letter of Transmittal or any other documents
required hereby to the Exchange Agent prior to the Expiration Date must tender
their Debentures according to the guaranteed delivery procedures set forth
below, including completion of Box 4. Pursuant to such procedures: (i) such
tender must be made by or through a firm which is a member of a recognized
Medallion Program approved by the Securities Transfer Association Inc. (an
"Eligible Institution") and the Notice of Guaranteed Delivery must be signed
by the holder; (ii) prior to the Expiration Date, the Exchange Agent must have
received from the holder and the Eligible Institution a properly completed and
duly executed Notice of Guaranteed Delivery (by mail, hand delivery or
facsimile transmission) setting forth the name and address of the holder, the
certificate number(s) of the Tendered Debentures and the principal amount at
maturity of Tendered Debentures, stating that the tender is being made thereby
and guaranteeing that, within five New York Stock Exchange trading days after
the Expiration Date, this Letter of Transmittal together with the
certificate(s) representing the Debentures and any other required documents
will be deposited by the Eligible Institution with the Exchange Agent; and
(iii) such properly completed and executed Letter of Transmittal, as well as
all other documents required by this Letter of Transmittal and the
certificate(s) representing all Tendered Debentures in proper form for
transfer, must be received by the Exchange Agent within five New York Stock
Exchange trading days after the Expiration Date. Any holder who wishes to
tender Debentures pursuant to the guaranteed delivery procedures described
above must ensure that the Exchange Agent receives the Notice of Guaranteed
Delivery relating to such Debentures prior to 5:00 p.m., New York City time,
on the Expiration Date. Failure to complete the guaranteed delivery procedures
outlined above will not, of itself, affect the validity or effect a revocation
of any Letter of Transmittal form properly completed and executed by an
Eligible Holder who attempted to use the guaranteed delivery process.
3. Beneficial Owner Instructions to Registered Holders. Only a holder in
whose name Tendered Debentures are registered on the books of the registrar
(or the legal representative or attorney-in-fact of such registered holder)
may execute and deliver this Letter of Transmittal. Any Beneficial Owner of
Tendered Debentures who is not the registered holder must arrange promptly
with the registered holder to execute and deliver this Letter of Transmittal
on his or her behalf through the execution and delivery to the registered
holder of the Instructions to Registered Holder and/or Book-Entry Transfer
Facility Participant from Beneficial Owner form accompanying this Letter of
Transmittal.
7
<PAGE>
4. Partial Tenders. Tenders of Debentures will be accepted only in integral
multiples of $1,000 in principal amount at maturity. If less than the entire
principal amount at maturity of Debentures held by the holder is tendered, the
tendering holder should fill in the principal amount at maturity tendered in
the column labeled "Aggregate Principal Amount at Maturity Tendered" of the
box entitled "Description of Debentures Tendered" (Box 1) above. The entire
principal amount at maturity of Debentures delivered to the Exchange Agent
will be deemed to have been tendered unless otherwise indicated. If the entire
principal amount at maturity of all Debentures held by the holder is not
tendered, then Debentures for the principal amount at maturity of Debentures
not tendered and Exchange Debentures issued in exchange for any Debentures
tendered and accepted will be sent to the Holder at his or her registered
address, unless a different address is provided in the appropriate box on this
Letter of Transmittal, as soon as practicable following the Expiration Date.
5. Signatures on the Letter of Transmittal; Bond Powers and Endorsements;
Guarantee of Signatures. If this Letter of Transmittal is signed by the
registered holder(s) of the Tendered Debentures, the signature must correspond
with the name(s) as written on the face of the Tendered Debentures without
alteration, enlargement or any change whatsoever.
If any of the Tendered Debentures are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal. If any Tendered
Debentures are held in different names, it will be necessary to complete, sign
and submit as many separate copies of the Letter of Transmittal as there are
different names in which Tendered Debentures are held.
If this Letter of Transmittal is signed by the registered holder(s) of
Tendered Debentures, and Exchange Debentures issued in exchange therefor are
to be issued (and any untendered principal amount at maturity of Debentures is
to be reissued) in the name of the registered holder(s), then such registered
holder(s) need not and should not endorse any Tendered Debentures, nor provide
a separate bond power. In any other case, such registered holder(s) must
either properly endorse the Tendered Debentures or transmit a properly
completed separate bond power with this Letter of Transmittal, with the
signature(s) on the endorsement or bond power guaranteed by an Eligible
Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of any Tendered Debentures, such Tendered Debentures must
be endorsed or accompanied by appropriate bond powers, in each case, signed as
the name(s) of the registered holder(s) appear(s) on the Tendered Debentures,
with the signature(s) on the endorsement or bond power guaranteed by an
Eligible Institution.
If this Letter of Transmittal or any Tendered Debentures 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 this Letter of Transmittal.
Endorsements on Tendered Debentures or signatures on bond powers required
by this Instruction 5 must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution unless the Tendered Debentures are tendered (i) by a registered
holder who has not completed the box set forth herein entitled "Special
Delivery Instructions" (Box 3) or (ii) by an Eligible Institution.
6. Special Delivery Instructions. Tendering holders should indicate, in the
applicable box (Box 3), the name and address to which the Exchange Debentures
and/or substitute Debentures for principal amounts at maturity not tendered or
not accepted for exchange are to be sent, if different from the name and
address of the person signing this Letter of Transmittal. In the case of
issuance in a different name, the taxpayer identification or social security
number of the person named must also be indicated.
8
<PAGE>
7. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the exchange of Tendered Debentures pursuant to the Exchange
Offer. If, however, a transfer tax is imposed for any reason other than the
transfer and exchange of Tendered Debentures pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or on any other person) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with this Letter of Transmittal, the amount of such transfer taxes
will be billed directly to such tendering holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Tendered Debentures listed in this
Letter of Transmittal.
8. Tax Identification Number. Federal income tax law requires that the
holder(s) of any Tendered Debentures which are accepted for exchange must
provide the Company (as payor) with its correct taxpayer identification number
("TIN"), which, in the case of a holder who is an individual, is his or her
social security number. If the Company is not provided with the correct TIN,
the Holder may be subject to backup withholding and a $50 penalty imposed by
the Internal Revenue Service. (If withholding results in an over-payment of
taxes, a refund may be obtained.) Certain holders (including, among others,
all corporations and certain foreign individuals) are not subject to these
backup withholding and reporting requirements. See the enclosed "Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9"
for additional instructions.
To prevent backup withholding, each holder of Tendered Debentures must
provide such holder's correct TIN by completing the Substitute Form W-9 set
forth herein, certifying that the TIN provided is correct (or that such holder
is awaiting a TIN), and that (i) the holder has not been notified by the
Internal Revenue Service that such holder is subject to backup withholding as
a result of failure to report all interest or dividends or (ii) the Internal
Revenue Service has notified the holder that such holder is no longer subject
to backup withholding. If the Tendered Debentures are registered in more than
one name or are not in the name of the actual owner, consult the "Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9"
for information on which TIN to report.
The Company reserves the right in its sole discretion to take whatever
steps are necessary to comply with the Company's obligation regarding backup
withholding.
9. Validity of Tenders. All questions as to the validity, form, eligibility
(including time of receipt), acceptance and withdrawal of Tendered Debentures
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the right to reject any and
all Debentures not validly tendered or any Debentures the Company's acceptance
of which would, in the opinion of the Company or its counsel, be unlawful. The
Company also reserves the right to waive any conditions of the Exchange Offer
or defects or irregularities in tenders of Debentures as to any ineligibility
of any holder who seeks to tender Debentures in the Exchange Offer. The
interpretation of the terms and conditions of the Exchange Offer (including
this Letter of Transmittal and the instructions hereto) by the Company shall
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Debentures must be cured within
such time as the Company shall determine. Neither the Company, the Exchange
Agent nor any other person shall be under any duty to give notification of
defects or irregularities with respect to tenders of Debentures, nor shall any
of them incur any liability for failure to give such notification. Tenders of
Debentures will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Debentures received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in this Letter of
Transmittal, as soon as practicable following the Expiration Date.
10. Waiver of Conditions. The Company reserves the absolute right to amend,
waive or modify any of the conditions in the Exchange Offer in the case of any
Tendered Debentures.
11. No Conditional Tender. No alternative, conditional, irregular, or
contingent tender of Debentures or transmittal of this Letter of Transmittal
will be accepted.
9
<PAGE>
12. Mutilated, Lost, Stolen or Destroyed Debentures. Any tendering Holder
whose Debentures have been mutilated, lost, stolen or destroyed should contact
the Exchange Agent at the address indicated herein for further instructions.
13. Requests for Assistance or Additional Copies. Questions and requests
for assistance and requests for additional copies of the Prospectus or this
Letter of Transmittal may be directed to the Exchange Agent at the address
indicated herein. Holders may also contact their broker, dealer, commercial
bank, trust company or other nominee for assistance concerning the Exchange
Offer.
14. Acceptance of Tendered Debentures and Issuance of Debentures; Return of
Debentures.
Subject to the terms and conditions of the Exchange Offer, the Company will
accept for exchange all validly tendered Debentures as soon as practicable
after the Expiration Date and will issue Exchange Debentures therefor as soon
as practicable thereafter. For purposes of the Exchange Offer, the Company
shall be deemed to have accepted tendered Debentures when, as and if the
Company has given written or oral notice (immediately followed in writing)
thereof to the Exchange Agent. If any Tendered Debentures are not exchanged
pursuant to the Exchange Offer for any reason, such unexchanged Debentures
will be returned, without expense, to the undersigned at the address shown in
Box 1 or at a different address as may be indicated herein under "Special
Delivery Instructions" (Box 3).
15. Withdrawal. Tenders may be withdrawn only pursuant to the procedures
set forth in the Prospectus under the caption "The Exchange Offers."
10
<PAGE>
LETTER OF TRANSMITTAL
To Tender for Exchange
12% Senior Notes due 2009
of
WEC COMPANY
Pursuant to the Prospectus Dated October 26, 1999
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON NOVEMBER 29, 1999 UNLESS EXTENDED (THE "EXPIRATION DATE").
PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS
If you desire to accept the Exchange Offer, this Letter of Transmittal should
be completed, signed, and submitted to the Exchange Agent:
By Registered or Certified Mail: Overnight Courier & By Hand After 4:30
United States Trust Company of New P.M.:
York United States Trust Company of New
P.O. Box 844, Cooper Station York
New York, New York 10276-0844 770 Broadway, 13th Floor
Attention: Corporate Trust Operations New York, New York 10003
Attention: Corporate Trust Operations
By Hand Before 4:30 P.M.:
United States Trust Company of New Facsimile Transmission:
York (212) 420-6211
111 Broadway
New York, New York 10006 Confirm by Telephone:
Attention: Lower Level Corporate Trust (800) 548-6565
Window
Delivery of this Letter of Transmittal to an address other than as set
forth above will not constitute a valid delivery.
For any questions regarding this Letter of Transmittal or for any
additional information, you may contact the Exchange Agent by telephone at
(800) 548-6565, or by facsimile at (212) 420-6211.
The undersigned hereby acknowledges receipt of the Prospectus, dated
October 26, 1999 (the "Prospectus"), of WEC Company, a Delaware corporation
("Company"), and this Letter of Transmittal (the "Letter of Transmittal"),
that together constitute the Company's offer (the "Exchange Offer") to
exchange $1,000 in principal amount of its 12% Senior Notes due 2009, Series B
(the "Exchange Notes"), which have been registered under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to a Registration Statement,
for each $1,000 in principal amount of its outstanding 12% Senior Notes due
2009 (the "Notes"), of which $130,000,000 aggregate principal amount is
outstanding. Capitalized terms used but not defined herein have the meanings
ascribed to them in the Prospectus.
The undersigned hereby tenders the Notes described in Box 1 below (the
"Tendered Notes") pursuant to the terms and conditions described in the
Prospectus and this Letter of Transmittal. The undersigned is the registered
owner of all the Tendered Notes and the undersigned represents that it has
received from each beneficial owner of the Tendered Notes ("Beneficial
Owners") a duly completed and executed form of "Instruction to Registered
Holder and/or Book-Entry Transfer Facility Participant from Beneficial Owner"
accompanying this Letter of Transmittal, instructing the undersigned to take
the action described in this Letter of Transmittal.
<PAGE>
Subject to, and effective upon, the acceptance for exchange of the Tendered
Notes, the undersigned hereby exchanges, assigns and transfers to, or upon the
order of, the Company all right, title, and interest in, to and under the
Tendered Notes.
Please issue the Exchange Notes exchanged for Tendered Notes in the name(s)
of the undersigned. Similarly, unless otherwise indicated under "Special
Delivery Instructions" below (Box 3), please send or cause to be sent the
certificates for the Exchange Notes (and accompanying documents, as
appropriate) to the undersigned at the address shown below in Box 1.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the true and lawful agent and attorney in fact of the undersigned
with respect to the Tendered Notes, with full power of substitution (such
power of attorney being deemed to be an irrevocable power coupled with an
interest), to (i) deliver the Tendered Notes to the Company or cause ownership
of the Tendered Notes to be transferred to, or upon the order of, the Company,
on the books of the registrar for the Notes and deliver all accompanying
evidences of transfer and authenticity to, or upon the order of, the Company
upon receipt by the Exchange Agent, as the undersigned's agent, of the
Exchange Notes to which the undersigned is entitled upon acceptance by the
Company of the Tendered Notes pursuant to the Exchange Offer, and (ii) receive
all benefits and otherwise exercise all rights of beneficial ownership of the
Tendered Notes, all in accordance with the terms of the Exchange Offer.
The undersigned understands that tenders of Notes pursuant to the
procedures described under the caption "The Exchange Offers" in the Prospectus
and in the instructions hereto will constitute a binding agreement between the
undersigned and the Company upon the terms and subject to the conditions of
the Exchange Offer, subject only to withdrawal of such tenders on the terms
set forth in the Prospectus under the caption "The Exchange Offers--Withdrawal
of Tenders." All authority herein conferred or agreed to be conferred shall
survive the death or incapacity of the undersigned and any Beneficial
Owner(s), and every obligation of the undersigned or any Beneficial Owner(s)
hereunder shall be binding upon the heirs, representatives, successors, and
assigns of the undersigned and such Beneficial Owner(s).
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign, and transfer the
Tendered Notes and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges, encumbrances, and
adverse claims when the Tendered Notes are acquired by the Company as
contemplated herein. The undersigned and each Beneficial Owner will, upon
request, execute and deliver any additional documents reasonably requested by
the Company or the Exchange Agent as necessary or desirable to complete and
give effect to the transactions contemplated hereby.
The undersigned hereby represents and warrants that the information set
forth in Box 2 is true and correct.
By accepting the Exchange Offer, the undersigned hereby represents and
warrants that (i) the Exchange Notes to be acquired by the undersigned and any
Beneficial Owner(s) in connection with the Exchange Offer are being acquired
by the undersigned and any Beneficial Owner(s) in the ordinary course of
business of the undersigned and any Beneficial Owner(s), (ii) the undersigned
and each Beneficial Owner are not participating, do not intend to participate,
and have no arrangement or understanding with any person to participate, in
the distribution of the Exchange Notes, (iii) except as otherwise disclosed in
writing herewith, neither the undersigned nor any Beneficial Owner is an
"affiliate," as defined in Rule 405 under the Securities Act, of the Company,
and (iv) the undersigned and each Beneficial Owner acknowledge and agree that
any person participating in the Exchange Offer with the intention or for the
purpose of distributing the Exchange Notes must comply with the registration
and prospectus delivery requirements of the Securities Act, in connection with
a secondary resale of the Exchange Notes acquired by such person and cannot
rely on the position of the Staff of the Securities and Exchange Commission
(the "Commission") set forth in the no-action letters that are discussed in
the section of the Prospectus entitled "The Exchange Offers." In addition, by
accepting the Exchange Offer, the undersigned hereby (i) represents and
warrants that, if the undersigned or any Beneficial Owner of the Notes is a
Participating Broker-Dealer, such Participating Broker-Dealer acquired the
Notes for its own account as a result of market-making activities or other
trading activities and has not entered into any arrangement or
<PAGE>
understanding with the Company or any "affiliate" of the Company (within the
meaning of Rule 405 under the Securities Act) to distribute the Exchange Notes
to be received in the Exchange Offer, and (ii) acknowledges that, by receiving
Exchange Notes for its own account in exchange for Notes, where such Notes
were acquired as a result of market-making activities or other trading
activities, such Participating Broker-Dealer will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such
Exchange Notes.
[_]CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED HEREWITH.
[_]CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND COMPLETE
"USE OF GUARANTEED DELIVERY" BELOW (Box 4).
[_]CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE "USE OF BOOK-ENTRY TRANSFER" BELOW (Box 5).
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING THE BOXES
BOX 1
DESCRIPTION OF NOTES TENDERED
(Attach additional signed pages, if necessary)
<TABLE>
- ----------------------------------------------------------------------
<CAPTION>
Name(s) and
Address(es) of
Registered
Note
Holder(s),
exactly as
name(s)
appear(s) on
Note
Certificate(s) Certificate Aggregate Principal
(Please fill Number(s) Amount Represented Aggregate Principal
in, if blank) of Notes* by Certificate(s) Amount Tendered**
- ----------------------------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Total
- ----------------------------------------------------------------------
</TABLE>
*Need not be completed by persons tendering by book-entry transfer.
**The minimum permitted tender is $1,000 in principal amount of Notes. All
other tenders must be in integral multiples of $1,000 of principal amount.
Unless otherwise indicated in this column, the principal amount of all Note
Certificates identified in this Box 1 or delivered to the Exchange Agent
herewith shall be deemed tendered. See Instruction 4.
BOX 2
BENEFICIAL OWNER(S)
<TABLE>
- ------------------------------------------------------------------------------
<CAPTION>
State of Principal Residence of Each Principal Amount of Tendered Notes
Beneficial Owner of Tendered Notes Held for Account of Beneficial Owner
<S> <C>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
<PAGE>
BOX 3
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 5, 6 and 7)
TO BE COMPLETED ONLY IF EXCHANGE NOTES EXCHANGED FOR NOTES AND UNTENDERED
NOTES ARE TO BE SENT TO SOMEONE OTHER THAN THE UNDERSIGNED, OR TO THE
UNDERSIGNED AT AN ADDRESS OTHER THAN THAT SHOWN ABOVE.
Mail Exchange Note(s) and any untendered Notes to: __________________________
Name(s): ____________________________________________________________________
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
(please print)
Address: ____________________________________________________________________
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
(include Zip Code)
Tax Identification or
Social Security No.: ________________________________________________________
BOX 4
USE OF GUARANTEED DELIVERY
(See Instruction 2)
TO BE COMPLETED ONLY IF NOTES ARE BEING TENDERED BY MEANS OF A NOTICE OF
GUARANTEED DELIVERY.
Name(s) of Registered Holder(s): ____________________________________________
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery: _________________________
Name of Institution which Guaranteed Delivery: ______________________________
BOX 5
USE OF BOOK-ENTRY TRANSFER
(See Instruction 1)
TO BE COMPLETED ONLY IF DELIVERY OF TENDERED NOTES IS TO BE MADE BY BOOK-
ENTRY TRANSFER.
Name of Tendering Institution: ______________________________________________
Account Number: _____________________________________________________________
Transaction Code Number: ____________________________________________________
<PAGE>
BOX 6
TENDERING HOLDER SIGNATURE
(See Instructions 1 and 5)
In Addition, Complete Substitute Form W-9
- --------------------------------------------------------------------------------
X ___________________________________ Signature Guarantee _________________
(If required by Instruction 5)
X ___________________________________
(Signature of Registered Holder(s) Authorized Signature ________________
or
Authorized Signatory) X ___________________________________
Note: The above lines must be signed Name: _______________________________
by the registered holder(s) of Notes (please print)
as their name(s) appear(s) on the
Notes or by person(s) authorized to
become registered holder(s)
(evidence of such authorization must
be transmitted with this Letter of
Transmittal). If signature is by a
trustee, executor, administrator,
guardian, attorney-in-fact, officer,
or other person acting in a
fiduciary or representative
capacity, such person must set forth
his or her full title below. See
Instruction 5.
Title: ______________________________
Name of Firm: _______________________
(Must be an Eligible Institution as
defined in Instruction 2)
Address: ____________________________
-------------------------------------
-------------------------------------
(include Zip Code)
Area Code and Telephone Number: _____
Name(s): ____________________________ Dated: ______________________________
-------------------------------------
-------------------------------------
Capacity: ___________________________
Street Address: _____________________
-------------------------------------
-------------------------------------
(include Zip Code)
Area Code and Telephone Number: _____
Tax Identification or Social
Security Number: ____________________
BOX 7
BROKER-DEALER STATUS
- --------------------------------------------------------------------------------
Check this box if the Beneficial Owner of the Notes is a Participating
Broker-Dealer and such Participating Broker-Dealer acquired the Notes
for its own account as a result of market-making activities or other
trading activities. If this box is checked, please send via facsimile
a copy of this Letter of Transmittal to WEC Company, attention Chief
Financial Officer, facsimile (815) 381-6047.
[_]
<PAGE>
PAYORS' NAME: WEC COMPANY
- -------------------------------------------------------------------------------
Name (if joint names, list first and circle the name of
the person or entity whose number you enter in Part 1
SUBSTITUTE below. See instructions if your name has changed.)
Form W-9 -------------------------------------------------------------
Address
Department of -------------------------------------------------------------
the Treasury City, State and ZIP Code
Internal -------------------------------------------------------------
Revenue List account number(s) here (optional)
-------------------------------------------------------------
Service Part 1--PLEASE PROVIDE YOUR TAXPAYER Social
IDENTIFICATION NUMBER ("TIN") IN THE BOX Security
AT RIGHT AND CERTIFY BY SIGNING AND Number
DATING BELOW
or TIN
-------------------------------------------------------------
Part 2--Check the box if you are NOT subject to backup
withholding under the provisions of section 3406(a)(1)(C)
of the Internal Revenue Code because (1) you have not
been notified that you are subject to backup withholding
as a result of failure to report all interest or
dividends or (2) the Internal Revenue Service has
notified you that you are no longer subject to backup
withholding. [_]
CERTIFICATION--UNDER THE PENALTIES OF Part 3--
PERJURY, I CERTIFY THAT THE INFORMATION
PROVIDED ON THIS FORM IS TRUE, CORRECT
AND COMPLETE.
-------------------------------------------------------------
Awaiting
TIN [_]
SIGNATURE DATE
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
6
<PAGE>
WEC COMPANY
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Notes. A properly completed
and duly executed copy of this Letter of Transmittal, including Substitute
Form W-9, and any other documents required by this Letter of Transmittal must
be received by the Exchange Agent at its address set forth herein, and either
certificates for Tendered Notes must be received by the Exchange Agent at its
address set forth herein or such Tendered Notes must be transferred pursuant
to the procedures for book-entry transfer described in the Prospectus under
the caption "The Exchange Offers--Procedures for Tendering" (and a
confirmation of such transfer received by the Exchange Agent), in each case
prior to 5:00 p.m., New York City time, on the Expiration Date. The method of
delivery of certificates for Tendered Notes, this Letter of Transmittal and
all other required documents to the Exchange Agent is at the election and risk
of the tendering holder and the delivery will be deemed made only when
actually received by the Exchange Agent. If delivery is by mail, registered
mail with return receipt requested, properly insured, is recommended. Instead
of delivery by mail, it is recommended that the Holder use an overnight or
hand delivery service. In all cases, sufficient time should be allowed to
assure timely delivery. No Letter of Transmittal or Notes should be sent to
the Company. Neither the Company nor the registrar is under any obligation to
notify any tendering holder of the Company's acceptance of Tendered Notes
prior to the closing of the Exchange Offer.
2. Guaranteed Delivery Procedures. Holders who wish to tender their Notes
but whose Notes are not immediately available, and who cannot deliver their
Notes, this Letter of Transmittal or any other documents required hereby to
the Exchange Agent prior to the Expiration Date must tender their Notes
according to the guaranteed delivery procedures set forth below, including
completion of Box 4. Pursuant to such procedures: (i) such tender must be made
by or through a firm which is a member of a recognized Medallion Program
approved by the Securities Transfer Association Inc. (an "Eligible
Institution") and the Notice of Guaranteed Delivery must be signed by the
holder; (ii) prior to the Expiration Date, the Exchange Agent must have
received from the holder and the Eligible Institution a properly completed and
duly executed Notice of Guaranteed Delivery (by mail, hand delivery or
facsimile transmission) setting forth the name and address of the holder, the
certificate number(s) of the Tendered Notes and the principal amount of
Tendered Notes, stating that the tender is being made thereby and guaranteeing
that, within five New York Stock Exchange trading days after the Expiration
Date, this Letter of Transmittal together with the certificate(s) representing
the Notes and any other required documents will be deposited by the Eligible
Institution with the Exchange Agent; and (iii) such properly completed and
executed Letter of Transmittal, as well as all other documents required by
this Letter of Transmittal and the certificate(s) representing all Tendered
Notes in proper form for transfer, must be received by the Exchange Agent
within five New York Stock Exchange trading days after the Expiration Date.
Any holder who wishes to tender Notes pursuant to the guaranteed delivery
procedures described above must ensure that the Exchange Agent receives the
Notice of Guaranteed Delivery relating to such Notes prior to 5:00 p.m., New
York City time, on the Expiration Date. Failure to complete the guaranteed
delivery procedures outlined above will not, of itself, affect the validity or
effect a revocation of any Letter of Transmittal form properly completed and
executed by an Eligible Holder who attempted to use the guaranteed delivery
process.
3. Beneficial Owner Instructions to Registered Holders. Only a holder in
whose name Tendered Notes are registered on the books of the registrar (or the
legal representative or attorney-in-fact of such registered holder) may
execute and deliver this Letter of Transmittal. Any Beneficial Owner of
Tendered Notes who is not the registered holder must arrange promptly with the
registered holder to execute and deliver this Letter of Transmittal on his or
her behalf through the execution and delivery to the registered holder of the
Instructions to Registered Holder and/or Book-Entry Transfer Facility
Participant from Beneficial Owner form accompanying this Letter of
Transmittal.
<PAGE>
4. Partial Tenders. Tenders of Notes will be accepted only in integral
multiples of $1,000 in principal amount. If less than the entire principal
amount of Notes held by the holder is tendered, the tendering holder should
fill in the principal amount tendered in the column labeled "Aggregate
Principal Amount Tendered" of the box entitled "Description of Notes Tendered"
(Box 1) above. The entire principal amount of Notes delivered to the Exchange
Agent will be deemed to have been tendered unless otherwise indicated. If the
entire principal amount of all Notes held by the holder is not tendered, then
Notes for the principal amount of Notes not tendered and Exchange Notes issued
in exchange for any Notes tendered and accepted will be sent to the Holder at
his or her registered address, unless a different address is provided in the
appropriate box on this Letter of Transmittal, as soon as practicable
following the Expiration Date.
5. Signatures on the Letter of Transmittal; Bond Powers and Endorsements;
Guarantee of Signatures. If this Letter of Transmittal is signed by the
registered holder(s) of the Tendered Notes, the signature must correspond with
the name(s) as written on the face of the Tendered Notes without alteration,
enlargement or any change whatsoever.
If any of the Tendered Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal. If any Tendered
Notes are held in different names, it will be necessary to complete, sign and
submit as many separate copies of the Letter of Transmittal as there are
different names in which Tendered Notes are held.
If this Letter of Transmittal is signed by the registered holder(s) of
Tendered Notes, and Exchange Notes issued in exchange therefor are to be
issued (and any untendered principal amount of Notes is to be reissued) in the
name of the registered holder(s), then such registered holder(s) need not and
should not endorse any Tendered Notes, nor provide a separate bond power. In
any other case, such registered holder(s) must either properly endorse the
Tendered Notes or transmit a properly completed separate bond power with this
Letter of Transmittal, with the signature(s) on the endorsement or bond power
guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of any Tendered Notes, such Tendered Notes must be
endorsed or accompanied by appropriate bond powers, in each case, signed as
the name(s) of the registered holder(s) appear(s) on the Tendered Notes, with
the signature(s) on the endorsement or bond power guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any Tendered 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 this Letter of Transmittal.
Endorsements on Tendered Notes or signatures on bond powers required by
this Instruction 5 must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution unless the Tendered Notes are tendered (i) by a registered holder
who has not completed the box set forth herein entitled "Special Delivery
Instructions" (Box 3) or (ii) by an Eligible Institution.
6. Special Delivery Instructions. Tendering holders should indicate, in the
applicable box (Box 3), the name and address to which the Exchange Notes
and/or substitute Notes for principal amounts not tendered or not accepted for
exchange are to be sent, if different from the name and address of the person
signing this Letter of Transmittal. In the case of issuance in a different
name, the taxpayer identification or social security number of the person
named must also be indicated.
<PAGE>
7. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the exchange of Tendered Notes pursuant to the Exchange Offer.
If, however, a transfer tax is imposed for any reason other than the transfer
and exchange of Tendered Notes pursuant to the Exchange Offer, then the amount
of any such transfer taxes (whether imposed on the registered holder or on any
other person) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
this Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Tendered Notes listed in this Letter
of Transmittal.
8. Tax Identification Number. Federal income tax law requires that the
holder(s) of any Tendered Notes which are accepted for exchange must provide
the Company (as payor) with its correct taxpayer identification number
("TIN"), which, in the case of a holder who is an individual, is his or her
social security number. If the Company is not provided with the correct TIN,
the Holder may be subject to backup withholding and a $50 penalty imposed by
the Internal Revenue Service. (If withholding results in an over-payment of
taxes, a refund may be obtained.) Certain holders (including, among others,
all corporations and certain foreign individuals) are not subject to these
backup withholding and reporting requirements. See the enclosed "Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9"
for additional instructions.
To prevent backup withholding, each holder of Tendered Notes must provide
such holder's correct TIN by completing the Substitute Form W-9 set forth
herein, certifying that the TIN provided is correct (or that such holder is
awaiting a TIN), and that (i) the holder has not been notified by the Internal
Revenue Service that such holder is subject to backup withholding as a result
of failure to report all interest or dividends or (ii) the Internal Revenue
Service has notified the holder that such holder is no longer subject to
backup withholding. If the Tendered Notes are registered in more than one name
or are not in the name of the actual owner, consult the "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
information on which TIN to report.
The Company reserves the right in its sole discretion to take whatever
steps are necessary to comply with the Company's obligation regarding backup
withholding.
9. Validity of Tenders. All questions as to the validity, form, eligibility
(including time of receipt), acceptance and withdrawal of Tendered Notes will
be determined by the Company in its sole discretion, which determination will
be final and binding. The Company reserves the right to reject any and all
Notes not validly tendered or any Notes the Company's acceptance of which
would, in the opinion of the Company or its counsel, be unlawful. The Company
also reserves the right to waive any conditions of the Exchange Offer or
defects or irregularities in tenders of Notes as to any ineligibility of any
holder who seeks to tender Notes in the Exchange Offer. The interpretation of
the terms and conditions of the Exchange Offer (including this Letter of
Transmittal and the instructions hereto) by the Company shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Notes must be cured within such time as the Company
shall determine. Neither the Company, the Exchange Agent nor any other person
shall be under any duty to give notification of defects or irregularities with
respect to tenders of Notes, nor shall any of them incur any liability for
failure to give such notification. Tenders of Notes will not be deemed to have
been made until such defects or irregularities have been cured or waived. Any
Notes received by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in this Letter of Transmittal, as soon as practicable following the
Expiration Date.
10. Waiver of Conditions. The Company reserves the absolute right to amend,
waive or modify any of the conditions in the Exchange Offer in the case of any
Tendered Notes.
11. No Conditional Tender. No alternative, conditional, irregular, or
contingent tender of Notes or transmittal of this Letter of Transmittal will
be accepted.
<PAGE>
12. Mutilated, Lost, Stolen or Destroyed Notes. Any tendering Holder whose
Notes have been mutilated, lost, stolen or destroyed should contact the
Exchange Agent at the address indicated herein for further instructions.
13. Requests for Assistance or Additional Copies. Questions and requests
for assistance and requests for additional copies of the Prospectus or this
Letter of Transmittal may be directed to the Exchange Agent at the address
indicated herein. Holders may also contact their broker, dealer, commercial
bank, trust company or other nominee for assistance concerning the Exchange
Offer.
14. Acceptance of Tendered Notes and Issuance of Notes; Return of
Notes. Subject to the terms and conditions of the Exchange Offer, the Company
will accept for exchange all validly tendered Notes as soon as practicable
after the Expiration Date and will issue Exchange Notes therefor as soon as
practicable thereafter. For purposes of the Exchange Offer, the Company shall
be deemed to have accepted tendered Notes when, as and if the Company has
given written or oral notice (immediately followed in writing) thereof to the
Exchange Agent. If any Tendered Notes are not exchanged pursuant to the
Exchange Offer for any reason, such unexchanged Notes will be returned,
without expense, to the undersigned at the address shown in Box 1 or at a
different address as may be indicated herein under "Special Delivery
Instructions" (Box 3).
15. Withdrawal. Tenders may be withdrawn only pursuant to the procedures
set forth in the Prospectus under the caption "The Exchange Offers."
<PAGE>
EXHIBIT 99.3
NOTICE OF GUARANTEED DELIVERY
With Respect to
15% Senior Discount Debentures due 2011
of
WOODS EQUIPMENT COMPANY
Pursuant to the Prospectus Dated October 26, 1999
This form must be used by a holder of 15% Senior Discount Debentures due
2011 (the "Debentures") of Woods Equipment Company, a Delaware corporation
(the "Company"), who wishes to tender Debentures to the Exchange Agent
pursuant to the guaranteed delivery procedures described in "The Exchange
Offers--Guaranteed Delivery Procedures" of the Company's Prospectus, dated
October 26, 1999 (the "Prospectus"), and in Instruction 2 to the related
Letter of Transmittal. Any holder who wishes to tender Debentures pursuant to
such guaranteed delivery procedures must ensure that the Exchange Agent
receives this Notice of Guaranteed Delivery prior to the Expiration Date of
the Exchange Offer. Capitalized terms used but not defined herein have the
meanings ascribed to them in the Prospectus or the Letter of Transmittal.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON NOVEMBER 29, 1999 UNLESS EXTENDED (THE "EXPIRATION
DATE").
United States Trust Company of New York
(the "Exchange Agent")
By Registered or Certified Mail: Overnight Courier & By Hand After 4:30
United States Trust Company of New P.M.:
York United States Trust Company of New
P.O. Box 844, Cooper Station York
New York, New York 10276-0844 770 Broadway, 13th Floor
Attention: Corporate Trust Operations New York, New York 10003
Attention: Corporate Trust Operations
By Hand Before 4:30 P.M.:
United States Trust Company of New Facsimile Transmission:
York (212) 420-6211
111 Broadway Confirm by Telephone:
New York, New York 10006 (800) 548-6565
Attention: Lower Level Corporate Trust
Window
Delivery of this instrument to an address other than as set forth above
will not constitute a valid delivery.
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an "Eligible
Institution" under the instructions thereto, such signature guarantee must
appear in the applicable space provided in the signature box on the Letter of
Transmittal.
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and subject
to the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount at
maturity of Debentures set forth below pursuant to the guaranteed delivery
procedures set forth in the Prospectus and in Instruction 2 of the related
Letter of Transmittal.
<PAGE>
The undersigned hereby tenders the Debentures listed below:
Certificate
Number(s)
(if known)
of
Debentures
or
Account
Number at
the Book- Aggregate Principal Aggregate Principal
Entry Amount at Maturity Amount at Maturity
Facility Represented Tendered
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
PLEASE SIGN AND COMPLETE
- --------------------------------------------------------------------------------
Signatures of Registered Holder(s)
or
Authorized Signatory: _______________ Date: _______________ , 2000
------------------------------------- Address: ___________________________
------------------------------------
Name(s) of Registered Holder(s): ------------------------------------
-------------------------------------
------------------------------------- Area Code and Telephone No. ________
This Notice of Guaranteed Delivery must be signed by the Holder(s)
exactly as their name(s) appear on certificates for Debentures or on a
security position listing as the owner of Debentures, or by person(s)
authorized to become Holder(s) by endorsements and documents transmitted
with this Notice of Guaranteed Delivery. If signature is by a trustee,
executor, administrator, guardian, attorney-in-fact, officer or other person
acting in a fiduciary or representative capacity, such person must provide
the following information.
Please print name(s) and address(es)
Name(s): ____________________________________________________________________
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Capacity: ___________________________________________________________________
Address(es): ________________________________________________________________
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., or is a commercial bank or trust company having an office or
correspondent in the United States, or is otherwise an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended, guarantees deposit with the Exchange Agent
of the Letter of Transmittal (or facsimile thereof), together with the
Debentures tendered hereby in proper form for transfer (or confirmation of
the book-entry transfer of such Debentures into the Exchange Agent's account
at the Book-Entry Transfer Facility described in the Prospectus under the
caption "The Exchange Offers--Guaranteed Delivery Procedures" and in the
Letter of Transmittal) and any other required documents, all by 5:00 p.m.,
New York City time, on the fifth New York Stock Exchange trading day
following the Expiration Date.
Name of firm: ______________________
------------------------------------
Address: ___________________________ (Authorized Signature)
------------------------------------- Name: ______________________________
(Please Print)
-------------------------------------
(Include Zip Code)
Title: _____________________________
Area Code and Tel. No. _____________ Dated: ________________ , 2000
DO NOT SEND SECURITIES WITH THIS FORM. ACTUAL SURRENDER OF SECURITIES MUST
BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL.
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by
the Exchange Agent at its address set forth herein prior to the Expiration
Date. The method of delivery of this Notice of Guaranteed Delivery and any
other required documents to the Exchange Agent is at the election and sole
risk of the holder, and the delivery will be deemed made only when actually
received by the Exchange Agent. If delivery is by mail, registered mail with
return receipt requested, properly insured, is recommended. As an alternative
to delivery by mail, the holders may wish to consider using an overnight or
hand delivery service. In all cases, sufficient time should be allowed to
assure timely delivery. For a description of the guaranteed delivery
procedures, see Instruction 2 of the related Letter of Transmittal.
2. Signatures on this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Debentures
referred to herein, the signature must correspond with the name(s) written on
the face of the Debentures without alteration, enlargement, or any change
whatsoever. If this Notice of Guaranteed Delivery is signed by a participant
of the Book-Entry Transfer Facility whose name appears on a security position
listing as the owner of the Debentures, the signature must correspond with the
name shown on the security position listing as the owner of the Debentures.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any Debentures listed or a participant of the Book-
Entry Transfer Facility, this Notice of Guaranteed Delivery must be
accompanied by appropriate bond powers, signed as the name of the registered
holder(s) appears on the Debentures or signed as the name of the participant
shown on the Book-Entry Transfer Facility's security position listing.
<PAGE>
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and submit with the Letter of Transmittal evidence
satisfactory to the Company of such person's authority to so act.
3. Requests for Assistance or Additional Copies. Questions and requests for
assistance and requests for additional copies of the Prospectus may be
directed to the Exchange Agent at the address specified in the Prospectus.
Holders may also contact their broker, dealer, commercial bank, trust company,
or other nominee for assistance concerning the Exchange Offer.
<PAGE>
EXHIBIT 99.4
NOTICE OF GUARANTEED DELIVERY
With Respect to
12% Senior Notes due 2009
of
WEC COMPANY
Pursuant to the Prospectus Dated October 26, 1999
This form must be used by a holder of 12% Senior Notes due 2009 (the
"Notes") of WEC Company, a Delaware corporation (the "Company"), who wishes to
tender Notes to the Exchange Agent pursuant to the guaranteed delivery
procedures described in "The Exchange Offers--Guaranteed Delivery Procedures"
of the Company's Prospectus, dated October 26, 1999 (the "Prospectus") and in
Instruction 2 to the related Letter of Transmittal. Any holder who wishes to
tender Notes pursuant to such guaranteed delivery procedures must ensure that
the Exchange Agent receives this Notice of Guaranteed Delivery prior to the
Expiration Date of the Exchange Offer. Capitalized terms used but not defined
herein have the meanings ascribed to them in the Prospectus or the Letter of
Transmittal.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON NOVEMBER 29, 1999 UNLESS EXTENDED (THE "EXPIRATION DATE").
United States Trust Company of New York
(the "Exchange Agent")
By Registered or Certified Mail: Overnight Courier & By Hand After 4:30
United States Trust Company of New P.M.:
York United States Trust Company of New
P.O. Box 844, Cooper Station York
New York, New York 10276-0844 770 Broadway, 13th Floor
Attention: Corporate Trust Operations New York, New York 10003
Attention: Corporate Trust Operations
By Hand Before 4:30 P.M.:
United States Trust Company of New Facsimile Transmission:
York (212) 420-6211
111 Broadway
New York, New York 10006 Confirm by Telephone:
Attention: Lower Level Corporate Trust (800) 548-6565
Window
Delivery of this instrument to an address other than as set forth above
will not constitute a valid delivery.
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an "Eligible
Institution" under the instructions thereto, such signature guarantee must
appear in the applicable space provided in the signature box on the Letter of
Transmittal.
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and subject
to the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Notes set forth below pursuant to the guaranteed delivery procedures set forth
in the Prospectus and in Instruction 2 of the related Letter of Transmittal.
<PAGE>
The undersigned hereby tenders the Notes listed below:
<TABLE>
<CAPTION>
<S> <C> <C>
Certificate Number(s) (if known) of Notes or Aggregate Principal Aggregate Principal
Account Number at the Book-Entry Facility Amount Represented Amount Tendered
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE SIGN AND COMPLETE
- --------------------------------------------------------------------------------
Signatures of Registered Holder(s) Date: __________________ , 2000
or Authorized Signatory: ____________ Address: ____________________________
------------------------------------- -------------------------------------
Area Code and Telephone No. _________
Name(s) of Registered Holder(s): ____
-------------------------------------
-------------------------------------
-------------------------------------
This Notice of Guaranteed Delivery must be signed by the Holder(s)
exactly as their name(s) appear on certificates for Notes or on a security
position listing as the owner of Notes, or by person(s) authorized to become
Holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information.
Please print name(s) and address(es)
Name(s): ____________________________________________________________________
Capacity: ___________________________________________________________________
Address(es): ________________________________________________________________
--------------------------------------------------------------------
--------------------------------------------------------------------
2
<PAGE>
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., or is a commercial bank or trust company having an office or
correspondent in the United States, or is otherwise an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended, guarantees deposit with the Exchange Agent
of the Letter of Transmittal (or facsimile thereof), together with the Notes
tendered hereby in proper form for transfer (or confirmation of the book-
entry transfer of such Notes into the Exchange Agent's account at the Book-
Entry Transfer Facility described in the Prospectus under the caption "The
Exchange Offers--Guaranteed Delivery Procedures" and in the Letter of
Transmittal) and any other required documents, all by 5:00 p.m., New York
City time, on the fifth New York Stock Exchange trading day following the
Expiration Date.
Name of firm: _______________________ -------------------------------------
(Authorized Signature)
Address: ____________________________
------------------------------------- Name: _______________________________
------------------------------------- (Please Print)
(Include Zip Code)
Title: ______________________________
Area Code and Tel. No. ______________
Dated: _________________ , 2000
DO NOT SEND SECURITIES WITH THIS FORM. ACTUAL SURRENDER OF SECURITIES MUST
BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL.
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by
the Exchange Agent at its address set forth herein prior to the Expiration
Date. The method of delivery of this Notice of Guaranteed Delivery and any
other required documents to the Exchange Agent is at the election and sole
risk of the holder, and the delivery will be deemed made only when actually
received by the Exchange Agent. If delivery is by mail, registered mail with
return receipt requested, properly insured, is recommended. As an alternative
to delivery by mail, the holders may wish to consider using an overnight or
hand delivery service. In all cases, sufficient time should be allowed to
assure timely delivery. For a description of the guaranteed delivery
procedures, see Instruction 2 of the related Letter of Transmittal.
2. Signatures on this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Notes
referred to herein, the signature must correspond with the name(s) written on
the face of the Notes without alteration, enlargement, or any change
whatsoever. If this Notice of Guaranteed Delivery is signed by a participant
of the Book-Entry Transfer Facility whose name appears on a security position
listing as the owner of the Notes, the signature must correspond with the name
shown on the security position listing as the owner of the Notes.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any Notes listed or a participant of the Book-Entry
Transfer Facility, this Notice of Guaranteed Delivery must be accompanied by
appropriate bond powers, signed as the name of the registered holder(s)
appears on the Notes or signed as the name of the participant shown on the
Book-Entry Transfer Facility's security position listing.
3
<PAGE>
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and submit with the Letter of Transmittal evidence
satisfactory to the Company of such person's authority to so act.
3. Requests for Assistance or Additional Copies. Questions and requests for
assistance and requests for additional copies of the Prospectus may be
directed to the Exchange Agent at the address specified in the Prospectus.
Holders may also contact their broker, dealer, commercial bank, trust company,
or other nominee for assistance concerning the Exchange Offer.
4
<PAGE>
INSTRUCTIONS TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM BENEFICIAL OWNER
OF
WOODS EQUIPMENT COMPANY
15% Senior Discount Debentures due 2011
To Registered Holder and/or Participant of the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus, dated
October 26, 1999 (the "Prospectus"), of Woods Equipment Company, a Delaware
corporation (the "Company"), and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), that together constitute the Company's offer (the
"Exchange Offer"). Capitalized terms used but not defined herein have the
meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to action to be taken by you relating to the Exchange
Offer with respect to the 15% Senior Discount Debentures due 2011 (the
"Debentures") held by you for the account of the undersigned.
The aggregate face amount at maturity of the Debentures held by you for the
account of the undersigned is (fill in amount):
$ of the 15% Senior Discount Debentures due 2011
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
[_]TO TENDER the following Debentures held by you for the account of the
undersigned (insert principal amount at maturity of Debentures to be
tendered, if any): $
[_]NOT TO TENDER any Debentures held by you for the account of the
undersigned.
If the undersigned instruct you to tender the Debentures held by you for
the account of the undersigned, it is understood that you are authorized (a)
to make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representation and warranties contained in
the Letter of Transmittal that are to be made with respect to the undersigned
as a beneficial owner, including but not limited to the representations that
the undersigned's principal residence is in the state of (fill in state) , (i)
the undersigned is acquiring the Exchange Debentures in the ordinary course of
business of the undersigned, (ii) the undersigned is not participating, does
not participate, and has no arrangement or understanding with any person to
participate in the distribution of the Exchange Debentures, (iii) the
undersigned acknowledges that any person participating in the Exchange Offer
for the purpose of distributing the Exchange Debentures must comply with the
registration and prospectus delivery requirements of the Securities Act of
1933, as amended (the "Securities Act"), in connection with a secondary resale
transaction of the New Debentures acquired by such person and cannot rely on
the position of the Staff of the Securities and Exchange Commission set forth
in no-action letters that are discussed in the section of the Prospectus
entitled "The Exchange Offers--Resale of the Exchange Securities," and the
undersigned is not an "affiliate," as defined in Rule 405 under the Act, of
the Company or any Subsidiary; to agree, on behalf of the undersigned, as set
forth in the Letter of Transmittal; and to take such other action as necessary
under the Prospectus or the Letter of Transmittal to effect the valid tender
of such Debentures.
[_]Check this box if the Beneficial Owner of the Debentures is a
Participating Broker-Dealer and such Participating Broker-Dealer acquired
the Debentures for its own account as a result of market-making
activities or other trading activities. If this box is checked, please
send via facsimile a copy of these Instructions to Woods Equipment
Company, attention Chief Financial Officer, facsimile (815) 381-6047.
<PAGE>
SIGN HERE
Name of beneficial owner(s): ________________________________________________
Signature(s): _______________________________________________________________
Name (please print): ________________________________________________________
Address:_____________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
Telephone number: ___________________________________________________________
Taxpayer Identification or Social Security Number: __________________________
Date: _______________________________________________________________________
<PAGE>
INSTRUCTIONS TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM BENEFICIAL OWNER
OF
WEC COMPANY
12% Senior Notes due 2009
To Registered Holder and/or Participant of the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus, dated
October 26, 1999 (the "Prospectus"), of WEC Company, a Delaware corporation
(the "Company"), and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), that together constitute the Company's offer (the "Exchange
Offer"). Capitalized terms used but not defined herein have the meanings
ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to action to be taken by you relating to the Exchange
Offer with respect to the 12% Senior Notes due 2009 (the "Notes") held by you
for the account of the undersigned.
The aggregate face amount of the Notes held by you for the account of the
undersigned is (fill in amount):
$ of the 12% Senior Notes due 2009
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
[_]TO TENDER the following Notes held by you for the account of the
undersigned (insert principal amount of Notes to be tendered, if any): $
[_]NOT TO TENDER any Notes held by you for the account of the undersigned.
If the undersigned instruct you to tender the Notes held by you for the
account of the undersigned, it is understood that you are authorized (a) to
make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representation and warranties contained in
the Letter of Transmittal that are to be made with respect to the undersigned
as a beneficial owner, including but not limited to the representations that
the undersigned's principal residence is in the state of (fill in state) , (i)
the undersigned is acquiring the Exchange Notes in the ordinary course of
business of the undersigned, (ii) the undersigned is not participating, does
not participate, and has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes, (iii) the undersigned
acknowledges that any person participating in the Exchange Offer for the
purpose of distributing the New Notes must comply with the registration and
prospectus delivery requirements of the Securities Act of 1933, as amended
(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 Securities and Exchange Commission set forth in no-action
letters that are discussed in the section of the Prospectus entitled "The
Exchange Offers--Resale of the Exchange Securities," and the undersigned is
not an "affiliate," as defined in Rule 405 under the Act, of the Company or
Parent; to agree, on behalf of the undersigned, as set forth in the Letter of
Transmittal; and to take such other action as necessary under the Prospectus
or the Letter of Transmittal to effect the valid tender of such Notes.
[_]Check this box if the Beneficial Owner of the Notes is a Participating
Broker-Dealer and such Participating Broker-Dealer acquired the Notes
for its own account as a result of market-making activities or other
trading activities. If this box is checked, please send via facsimile
a copy of these Instructions to WEC Company, attention Chief Financial
Officer, facsimile (815) 381-6047.
<PAGE>
SIGN HERE
Name of beneficial owner(s): ________________________________________________
Signature(s): _______________________________________________________________
Name (please print): ________________________________________________________
Address:_____________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
Telephone number: ___________________________________________________________
Taxpayer Identification or Social Security Number: __________________________
Date: _______________________________________________________________________
