1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 30, 1996
REGISTRATION NO.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CLARK MATERIAL HANDLING COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3537 61-1312827
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
172 TRADE STREET
LEXINGTON, KENTUCKY 40508
(606) 288-1200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JOSEPH F. LINGG
VICE PRESIDENT, FINANCE AND TREASURER
CLARK MATERIAL HANDLING COMPANY
172 TRADE STREET
LEXINGTON, KENTUCKY 40508
(606) 288-1200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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WITH COPIES TO:
BRUCE B. WOOD, ESQ.
DECHERT PRICE & RHOADS
477 MADISON AVENUE
NEW YORK, NEW YORK 10022
(212) 326-3500
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE
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10 3/4% Senior Notes due
2006....................... $130,000,000 100% $130,000,000 $39,394
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(1) Estimated pursuant to Rule 457(f) solely for purposes of calculating the
registration fee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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CLARK MATERIAL HANDLING COMPANY
CROSS REFERENCE SHEET
PURSUANT TO RULE 404(A) AND ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF THE INFORMATION REQUIRED BY PART I OF FORM S-4
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus..... Forepart of the Registration Statement; Outside
Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus........................ Inside Front Cover Page; Outside Back Cover
Page
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information.............. Summary; Risk Factors; Selected Historical
Financial Data
4. Terms of the Transaction..................... The Exchange Offer; Description of the Notes;
Certain Federal Income Tax Consequences; Plan
of Distribution
5. Pro Forma Financial Information.............. Summary; Selected Historical Financial Data;
Unaudited Pro Forma Combined Financial
Information
6. Material Contracts With the Company Being
Acquired................................... Not Applicable
7. Additional Information Required for
Reoffering by Persons and Parties Deemed to
be Underwriters............................ Not Applicable
8. Interests of Named Experts and Counsel....... Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not Applicable
10. Information With Respect to S-3
Registrants................................ Not Applicable
11. Incorporation of Certain Information by
Reference.................................. Not Applicable
12. Information With Respect to S-2 or S-3
Registrants................................ Not Applicable
13. Incorporation of Certain Information by
Reference.................................. Not Applicable
14. Information With Respect to Registrants Other
Than S-2 or S-3 Registrants................ Available Information; Summary; Risk Factors;
The Transactions; Use of Proceeds; Pro Forma
Capitalization; Selected Historical Financial
Data; Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management; Ownership
of the Company; Certain Relationships and
Related Transactions; Description of Certain
Indebtedness; Description of the Notes; Book
Entry; Delivery and Form; Plan of
Distribution; Legal Matters; Experts;
Combined Financial Statements; Unaudited Pro
Forma Combined Financial Information
15. Information With Respect to S-3 Companies.... Not Applicable
16. Information With Respect to S-2 or S-3
Companies.................................. Not Applicable
17. Information With Respect to Companies Other
Than S-2 or S-3 Companies.................. Not Applicable
18. Information if Proxies, Consents or
Authorizations Are to be Solicited......... Not Applicable
19. Information if Proxies, Consents or
Authorizations Are Not to be Solicited, or
in an Exchange Offer....................... The Exchange Offer; Management; Ownership of
the Company; Certain Relationships and Related
Transactions; Description of Certain
Indebtedness; Description of the Notes
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 30, 1996
PROSPECTUS
OFFER TO EXCHANGE
10 3/4% SENIOR NOTES DUE 2006
FOR ALL OUTSTANDING
10 3/4% SENIOR NOTES DUE 2006
OF
CLARK MATERIAL HANDLING COMPANY
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON, 1997, UNLESS EXTENDED
CLARK Material Handling Company, a Delaware corporation ("CLARK" or the
"Company"), hereby offers to exchange an aggregate principal amount of up to
$130,000,000 of its 10 3/4% Senior Notes due 2006 (the "New Notes") for a like
principal amount of its 10 3/4% Senior Notes due 2006 (the "Existing Notes")
outstanding on the date hereof upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying letter of transmittal (the
"Letter of Transmittal" and, together with this Prospectus, the "Exchange
Offer"). The New Notes and the Existing Notes are hereinafter collectively
referred to as the "Notes." The terms of the New Notes are identical in all
material respects to those of the Existing Notes, except for certain transfer
restrictions and registration rights relating to the Existing Notes. The New
Notes will be issued pursuant to, and be entitled to the benefits of, the
Indenture (as defined) governing the Existing Notes.
The New Notes will bear interest from and including the date of consummation
of the Exchange Offer. Interest on the New Notes will be payable semi-annually
on November 15 and May 15 of each year, commencing May 15, 1997. Additionally,
interest on the New Notes will accrue from the last interest payment date on
which interest was paid on the Existing Notes surrendered in exchange therefor
or, if no interest has been paid on the Existing Notes, from the date of
original issue of the Existing Notes.
The New Notes will be senior unsecured obligations of the Company, pari
passu in right of payment with all existing and future senior indebtedness of
the Company and senior to all subordinated indebtedness of the Company. The New
Notes will be effectively subordinated to all senior secured indebtedness of the
Company, to the extent of the assets securing such indebtedness, and to all
existing and future indebtedness and other obligations of the Company's Foreign
Subsidiaries (as defined).
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement dated
November 27, 1996 (the "Registration Rights Agreement") by and between the
Company and Jefferies & Company, Inc. and Bear, Stearns & Co. Inc. (the "Initial
Purchasers") with respect to the initial sale of the Existing Notes.
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer. Tenders of
Existing Notes pursuant to the Exchange Offer may be withdrawn at any time prior
to the Expiration Date (as defined) for the Exchange Offer. In the event the
Company terminates the Exchange Offer and does not accept for exchange any
Existing Notes with respect to the Exchange Offer, the Company will promptly
return such Existing Notes to the holders thereof. See "The Exchange Offer."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivery of a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act of 1933, as amended (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 New Notes received in exchange for
Existing Notes where such Existing Notes were acquired by such broker-dealer as
a result of market-making activities or other trading activities. The Company
has agreed that, for a period of 180 days after the Expiration Date, it will
make this Prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution."
Prior to the Exchange Offer, there has been no public market for the
Existing Notes. If a market for the New Notes should develop, such New Notes
could trade at a discount from their principal amount. The Company currently
does not intend to list the New Notes on any securities exchange or to seek
approval for quotation through any automated quotation system, and no active
public market for the New Notes is currently anticipated. There can be no
assurance that an active public market for the New Notes will develop.
The Exchange Offer is not conditioned upon any minimum principal amount of
Existing Notes being tendered for exchange pursuant to the Exchange Offer.
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SEE "RISK FACTORS" COMMENCING ON PAGE 11 FOR A DISCUSSION OF CERTAIN
FACTORS THAT HOLDERS OF EXISTING NOTES SHOULD CONSIDER IN CONNECTION WITH THE
EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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The date of this Prospectus is , 1997.
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (the "Exchange Offer
Registration Statement," which term shall encompass all amendments, exhibits,
annexes and schedules thereto) pursuant to the Securities Act, and the rules and
regulations promulgated thereunder, covering the New Notes being offered hereby.
This Prospectus does not contain all the information set forth in the Exchange
Offer Registration Statement. For further information with respect to the
Company and the Exchange Offer, reference is made to the Exchange Offer
Registration Statement. Statements made in this Prospectus as to the contents of
any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Exchange Offer Registration Statement, reference is made to
the exhibit for a more complete description of the document or matter involved,
and each such statement shall be deemed qualified in its entirety by such
reference. The Exchange Offer Registration Statement, including the exhibits
thereto, can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Regional Offices of the Commission at Seven World Trade
Center, Suite 1300, New York, New York 10048 and at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, the Commission maintains a Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of such Web site is:
http://www.sec.gov.
As a result of the Exchange Offer, the Company will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith will be required to file
periodic reports and other information with the Commission. In the event the
Company ceases to be subject to the informational requirements of the Exchange
Act, the Company will be required under the Indenture, for so long as any of the
Notes remain outstanding, to furnish to the Trustee (as defined), deliver or
cause to be delivered to the holders of the Notes and file with the Commission
(provided that the Commission will accept such filing) (i) all quarterly and
annual financial information that would be required to be contained in a filing
with the Commission on Forms 10-Q and 10-K if the Company were required to file
such forms, including for each a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports.
This Prospectus includes forward-looking statements which involve risks and
uncertainties as to future events. Actual events or results may differ
materially from those discussed in the forward-looking statements as a result of
various factors, including, without limitation, those set forth under "Risk
Factors".
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SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
(including notes thereto) included elsewhere in this Prospectus. Unless
otherwise indicated or the context otherwise requires references to the
"Company" or "CLARK" are to Clark Material Handling Company (including its
predecessors) and the other material handling operations acquired from certain
subsidiaries of Terex Corporation ("Terex") pursuant to the Acquisition (as
defined) for periods prior to the Transactions (as defined), and to CLARK
Material Handling Company and its subsidiaries for periods from and after the
Transactions, after giving effect thereto.
THE COMPANY
CLARK is a leading international designer, manufacturer and marketer of a
complete line of forklift trucks including internal combustion trucks, electric
riders, narrow aisle stackers and powered hand trucks. CLARK invented the
platform forklift truck in 1917 and has since established CLARK(R) as one of the
most recognized brand names of forklift trucks in North America. Management
believes that CLARK has the largest installed fleet in North America with over
250,000 units and has a total of approximately 350,000 units in operation
worldwide. This large installed fleet has allowed CLARK to generate significant
ongoing replacement parts sales, which typically generate substantially higher
gross margins and provide a more stable revenue base than new truck sales.
Historically, approximately 80% of CLARK's net sales have been derived from
truck sales and approximately 20% of net sales have been derived from the sale
of replacement parts. CLARK distributes its products to a diverse customer base
through a global network of 285 dealers from more than 560 locations. For the
twelve months ended September 30, 1996 ("LTM"), CLARK generated net sales of
$459.2 million.
Since 1993, CLARK has undertaken a series of initiatives aimed at reducing
fixed costs, developing a largely variable cost structure and maximizing the
Company's ability to respond to market changes. These initiatives involved (i)
elimination of 11 redundant manufacturing and distribution facilities, (ii)
head-count reductions involving termination of over 600 employees, representing
approximately 40% of the Company's workforce, (iii) elimination of three
non-core, unprofitable product lines and (iv) greater reliance on outsourcing.
The reduction in fixed costs achieved through these initiatives resulted in an
increase in pro forma EBITDA (as defined) of $21.0 million to $31.3 million in
the LTM period from $10.3 million in fiscal 1994, while net sales were
approximately the same in both periods. The flexibility of the Company's cost
structure is also evidenced by the financial results for the LTM period where,
despite a 13% decline in net sales due to lower industry activity, the Company's
pro forma EBITDA increased $7.2 million or 30% compared to pro forma EBITDA for
fiscal 1995. Management believes that the foregoing demonstrates the Company's
improved ability to sustain profitability in changing market conditions.
In addition to cost rationalization, the Company has increased its focus on
engineering and new product development since 1993. Management believes that
this emphasis has enabled CLARK to offer one of the most modern product
portfolios in the industry. CLARK's product development strategy emphasizes (i)
product innovation and improvements that meet the evolving needs of CLARK's
customer base and (ii) lowering production costs through better design, thereby
enhancing margins. In December 1994, CLARK introduced the 2-3 ton Genesis(TM)
internal combustion ("IC") forklift truck. The Genesis(TM) truck quickly gained
customer acceptance and provided an estimated seven percentage point higher
gross margin than its predecessor primarily due to its lower production cost.
Similarly, in April 1995, CLARK's European subsidiaries ("CLARK Europe")
introduced the Genesis(TM) 2-3 ton MegaStat(TM) IC, which received the "General
Lift Truck Innovation" award in 1996 from the Fork Truck Association in the
United Kingdom.
As a result of CLARK's cost reduction initiatives and higher margin new
product introductions, CLARK's pro forma EBITDA improved by $47.1 million to
$31.3 million in the LTM period from ($15.8) million in fiscal 1993.
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6
STRATEGY
Management believes that CLARK's strong brand name, extensive distribution
network, modern product portfolio and streamlined cost structure provide a
strong foundation for increased growth and profitability. The Company's
operating strategy focuses on the following key components:
Introduce New Products. Successful introduction of new products is a key
component to increasing the Company's market share. Management believes that
CLARK has introduced more new and redesigned models in the last two years than
any other major forklift truck manufacturer and plans to continue a rapid pace
of new product introduction. CLARK's new product development pipeline includes a
completely redesigned electric four wheel rider and two new IC forklift models,
each of which is expected to be introduced by early 1997. Management anticipates
that these new products will generate higher gross margins than their
predecessors due to lower production costs.
Augment the Distribution Network. Management is focusing on enhancing the
performance of its distribution network by offering various incentive packages
and support programs, replacing underperforming dealers and adding new dealers
in selected geographic areas in North America and Europe. Outside of North
America and Europe, CLARK markets and distributes its products through its
"Clarklift World Trade" division (the "World Trade Division"). The number of
units sold by the World Trade Division has more than doubled from 689 in 1993 to
1,492 in 1995. The Company intends to continue expanding the dealer base of the
World Trade Division, and management believes that the World Trade Division is
well positioned for continued growth in the Asian, African, Middle Eastern,
Caribbean and Latin American markets.
Improve Aftermarket Parts Sales. CLARK's worldwide installed fleet of
approximately 350,000 forklift trucks generates an estimated $240.0 million in
annual global aftermarket parts sales, of which CLARK has historically captured
an estimated 40% share. Management plans to increase its share of these high
margin sales by improving off-the-shelf availability at the primary parts
distribution facility in Southaven, Mississippi (the "Southaven Facility") and
through focused marketing and promotion efforts. The Southaven Facility
currently provides approximately 90% availability for aftermarket parts, and
management believes that this low availability level has resulted in lost parts
sales. The Company plans to raise such availability to over 95% primarily
through selective additions to inventory levels. In addition, the Company plans
to implement specific marketing initiatives, including increased merchandising
of fast moving parts, incentive programs for dealer personnel and coordinated
truck and parts promotions, to increase aftermarket parts sales.
Further Reduce Product Cost. Although CLARK has made significant progress
in reducing its operating costs, management believes that ongoing opportunities
exist to improve profitability by reducing material costs. In 1995, material
purchases amounted to over $350.0 million or over 70% of cost of goods sold.
Management plans to reduce the Company's material costs and increase purchasing
efficiencies, thereby enhancing its gross margins, through (i) the introduction
of new product designs that increase commonality among parts between different
lift truck models and reduce the overall number of parts and components, thereby
improving manufacturing and (ii) the reduction of the number of vendors by
approximately 50% to realize volume discounts. Management believes that these
initiatives should also result in more timely delivery from suppliers, reducing
costly manufacturing disruptions and working capital investment.
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THE TRANSACTIONS
The Company and CMH Holdings Corporation, a Delaware corporation
("Holdings"), were formed by Citicorp Venture Capital Ltd. ("CVC") and certain
members of management of CLARK (the "Management Investors") to effect the
acquisition (the "Acquisition") of substantially all the assets and certain
liabilities of Clark Material Handling Company, a Kentucky corporation, and all
of the outstanding capital stock of certain of its affiliates, including its
German, Korean, Brazilian and Canadian affiliates. The Acquisition was
consummated on November 27, 1996 pursuant to a Stock and Asset Purchase and Sale
Agreement dated as of November 9, 1996 among Terex and certain of its
subsidiaries, as sellers, and the Company, as buyer (the "Acquisition
Agreement"). The aggregate consideration for the Acquisition was $139.5 million,
which is subject to certain post-closing adjustments. To finance the Acquisition
(including the payment of related fees and expenses): (i) CVC, Dr. Martin M.
Dorio, President and Chief Executive Officer of the Company, and Thomas J.
Snyder, who was elected to the Board of Directors of the Company in connection
with the Acquisition, purchased, in the aggregate, $25.0 million of equity and
debt securities of Holdings for cash; (ii) Holdings contributed such $25.0
million to the Company (the "Equity Contribution") in exchange for all of the
capital stock of the Company; and (iii) the Company issued and sold the Existing
Notes to the Initial Purchasers. The foregoing transactions, together with the
application of the proceeds from the sale of the Existing Notes and the payment
of related transaction fees and expenses, are collectively referred to herein as
the "Transactions." See "The Transactions."
In connection with the Acquisition, the Company entered into a new $30.0
million revolving credit facility (the "Revolving Credit Facility"), which is
secured by the accounts receivable and inventory of the Company's domestic
operations. The Company did not draw upon the Revolving Credit Facility in
connection with the Transactions. In addition, CLARK Europe may enter into a
revolving credit facility to provide working capital for its European
operations. It is expected that any such facility will provide for up to $10.0
million of revolving credit loans and will be secured by certain assets of CLARK
Europe. See "Description of Certain Indebtedness."
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8
THE EXCHANGE OFFER
Securities Offered............... Up to $130,000,000 aggregate principal
amount of 10 3/4% Senior Notes due 2006.
The terms of the New Notes and Existing
Notes are identical in all material
respects, except for certain transfer
restrictions and registration rights
relating to the Existing Notes.
The Exchange Offer............... The New Notes are being offered in exchange
for a like principal amount of Existing
Notes. Existing Notes may be exchanged only
in integral multiples of $1,000. The
issuance of the New Notes is intended to
satisfy obligations of the Company
contained in the Registration Rights
Agreement.
Expiration Date; Withdrawal of
Tender........................... The Exchange Offer will expire at 5:00 p.m.
New York City time, on , 1997, or
such later date and time to which it may be
extended by the Company. The tender of
Existing Notes pursuant to the Exchange
Offer may be withdrawn at any time prior to
the Expiration Date. Any Existing Notes not
accepted for exchange for any reason will
be returned without expense to the
tendering holder thereof as promptly as
practicable after the expiration or
termination of the Exchange Offer.
Certain Conditions to the
Exchange Offer................... The Company's obligation to accept for
exchange, or to issue New Notes in exchange
for, any Existing Notes is subject to
certain customary conditions relating to
compliance with any applicable law or any
applicable interpretation by the staff of
the Commission, the receipt of any
applicable governmental approvals and the
absence of any actions or proceedings of
any governmental agency or court which
could materially impair the Company's
ability to consummate the Exchange Offer.
The Company currently expects that each of
the conditions will be satisfied and that
no waivers will be necessary. See "The
Exchange Offer -- Certain Conditions to the
Exchange Offer."
Procedures for Tendering Existing
Notes............................ Each holder of Existing Notes wishing to
accept the Exchange Offer must complete,
sign and date the Letter of Transmittal, or
a facsimile thereof, in accordance with the
instructions contained herein and therein,
and mail or otherwise deliver such Letter
of Transmittal, or such facsimile, together
with such Existing Notes and any other
required documentation, to the Exchange
Agent (as defined) at the address set forth
herein. See "The Exchange
Offer -- Procedures for Tendering Existing
Notes."
Use of Proceeds.................. The Company will not receive any proceeds
from the
Exchange Offer.
Exchange Agent................... United States Trust Company of New York
(the "Exchange Agent") is serving as the
Exchange Agent in connection with the
Exchange Offer.
Federal Income Tax
Consequences..................... The exchange of Notes pursuant to the
Exchange Offer should not be a taxable
event for federal income tax purposes. See
"Certain Federal Income Tax
Considerations."
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9
CONSEQUENCES OF EXCHANGING EXISTING NOTES PURSUANT TO THE EXCHANGE OFFER
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, the Company is of the view that
holders of Existing Notes (other than any holder who is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) who exchange
their Existing Notes for New Notes pursuant to the Exchange Offer generally may
offer such New Notes for resale, resell such New Notes and otherwise transfer
such New Notes without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided such New Notes are acquired in the
ordinary course of the holders' business and such holders have no arrangement
with any person to participate in a distribution of such New Notes. Each
broker-dealer that receives New Notes for its own account in exchange for
Existing Notes must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution." In addition, to
comply with the securities laws of certain jurisdictions, if applicable, the New
Notes may not be offered or sold unless they have been registered or qualified
for sale in such jurisdictions or in compliance with an available exemption from
registration or qualification. The Company has agreed, pursuant to the
Registration Rights Agreement and subject to certain specified limitations
therein, to register or qualify the New Notes for offer or sale under the
securities or blue sky laws of such jurisdictions as any holder of the Notes
reasonably requests in writing. If a holder of Existing Notes does not exchange
such Existing Notes for New Notes pursuant to the Exchange Offer, such Existing
Notes will continue to be subject to the restrictions on transfer contained in
the legend thereon. In general, the Existing Notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. Holders of Existing Notes do not have any appraisal or
dissenters' rights under the Delaware General Corporation Law in connection with
the Exchange Offer. See "The Exchange Offer -- Consequences of Failure to
Exchange; Resales of New Notes."
The Existing Notes are currently eligible for trading in the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") market.
Following commencement of the Exchange Offer but prior to its consummation, the
Existing Notes may continue to be traded in the PORTAL market. Following
consummation of the Exchange Offer, the New Notes will not be eligible for
PORTAL trading.
THE NEW NOTES
The terms of the New Notes are identical in all material respects to the
Existing Notes, except for certain transfer restrictions and registration rights
relating to the Existing Notes.
Securities Offered............... $130,000,000 aggregate principal amount of
10 3/4% Senior Notes due 2006.
Maturity Date.................... November 15, 2006.
Interest Rate and Payment
Dates............................ The New Notes will bear interest at a rate
of 10 3/4% per annum. Interest on the New
Notes will be payable semi-annually in cash
in arrears on November 15 and May 15 of
each year, commencing May 15, 1997.
Ranking.......................... The New Notes will be senior unsecured
obligations of the Company, pari passu in
right of payment with all existing and
future senior indebtedness of the Company
and senior to all subordinated indebtedness
of the Company. The New Notes will be
effectively subordinated to all senior
secured indebtedness of the Company,
including indebtedness under the Revolving
Credit Facility, to the extent of the
assets securing such indebtedness, and to
all existing and future indebtedness and
other obligations of the Company's Foreign
Subsidiaries. See "Description of
Notes -- Ranking." As of September 30,
1996, on a pro forma basis after giving
effect to the Transactions, the Company
would have had no senior
7
10
secured indebtedness outstanding (exclusive
of unused commitments of $30.0 million
under the Revolving Credit Facility).
Optional Redemption.............. The New Notes (and any outstanding Existing
Notes) will be redeemable at the option of
the Company, in whole or in part, on or
after November 15, 2001, at the redemption
prices set forth herein, plus accrued and
unpaid interest, if any, to the date of
redemption. Notwithstanding the foregoing,
at any time or from time to time prior to
November 15, 1999, the Company may redeem
up to one-third of the original principal
amount of the Notes at the redemption price
of 110.75% of the principal amount thereof,
plus accrued and unpaid interest, if any,
through the date of redemption, with the
net cash proceeds of one or more Public
Equity Offerings, provided that at least
$86.7 million aggregate principal amount of
the Notes remain outstanding immediately
thereafter. See "Description of
Notes -- Redemption."
Mandatory Redemption............. None.
Guarantors....................... Repayment of the New Notes will be
unconditionally and irrevocably guaranteed
on a senior basis by all Restricted
Subsidiaries (as defined) of the Company
that are not Foreign Subsidiaries. On the
date of initial issuance of the Existing
Notes (the "Issue Date") the Company did
not, and on the date hereof the Company
does not, have any subsidiaries other than
Foreign Subsidiaries. Accordingly, there
are no Guarantors (as defined).
Change of Control................ Upon the occurrence of a Change of Control,
the Company will be required to offer to
repurchase all of the outstanding Notes at
101% of the principal amount thereof,
together with accrued and unpaid interest,
if any, to the date of repurchase. See
"Description of Notes -- Repurchase Upon
Change of Control."
Certain Covenants................ The Indenture relating to the Notes
contains certain covenants, including
covenants which limit the ability of the
Company and its Restricted Subsidiaries to:
(i) incur additional indebtedness; (ii)
make restricted payments; (iii) issue and
sell capital stock of subsidiaries; (iv)
enter into certain transactions with
affiliates; (v) create certain liens; (vi)
sell certain assets; and (vii) merge,
consolidate or sell substantially all of
the Company's assets. All of these
limitations are subject to various
qualifications. See "Description of
Notes -- Certain Covenants."
For a more detailed discussion of the terms of the New Notes, see
"Description of Notes."
RISK FACTORS
Holders of Existing Notes should carefully consider all of the information
set forth in this Prospectus and, in particular, should evaluate the specific
factors under "Risk Factors" beginning on page 11 in connection with the
Exchange Offer.
8
11
SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL INFORMATION
The summary historical financial data for each of the years in the three
year period ended December 31, 1995 were derived from the audited combined
financial statements of the Company included elsewhere in this Prospectus. The
summary historical financial data for the nine month periods ended September 30,
1995 and 1996 were derived from the unaudited combined financial statements of
the Company included elsewhere in this Prospectus. The summary pro forma
financial data for the year ended December 31, 1995, and as of and for the nine
month period ended September 30, 1996 and the LTM period, were derived from the
"Unaudited Pro Forma Combined Financial Information" included elsewhere in this
Prospectus. The summary pro forma financial data for each of the years in the
two year period ended December 31, 1994 and the nine month period ended
September 30, 1995 were derived from historical data and adjusted as described
in Note (2) below. The pro forma financial data are presented for informational
purposes only and do not purport to represent what the Company's financial
position or results of operations would actually have been if the Transactions
had occurred on the assumed dates or to project the Company's financial position
or results of operations at any future date or for any future periods. The
information contained in this table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Unaudited Pro Forma Combined Financial Information" and the
historical combined financial statements of the Company, including the notes
thereto, included elsewhere in this Prospectus.
NINE MONTHS
ENDED LAST TWELVE
YEAR ENDED DECEMBER 31, SEPTEMBER 30, MONTHS ENDED
---------------------------- ----------------- SEPTEMBER 30,
1993 1994 1995 1995 1996 1996
------ ------ ------ ------ ------ -------------
($ IN MILLIONS)
OPERATING DATA:
Net Sales....................... $395.6 $472.7 $528.8 $404.4 $334.9 $ 459.2
Gross Profit.................... 22.3 42.9 44.7 31.9 37.6 50.4
Engineering, Selling and
Administrative Expenses....... 46.5 41.7 31.2 24.5 22.0 28.7
Adjusted Income (Loss) from
Operations(1)................. (24.2) 1.2 13.5 7.4 15.6 21.7
Income (Loss) from Operations... (28.6) (14.0) 3.1 (1.5) 10.9 15.4
OTHER DATA:
Pro Forma EBITDA(2)............. $(15.8) $ 10.3 $ 24.1 $ 15.6 $ 22.7 $ 31.3
Depreciation and
Amortization(3)............... 9.9 10.6 12.3 9.4 8.5 11.4
Capital Expenditures............ 8.1 6.6 5.3 4.0 2.5 3.8
Ratio of Pro Forma EBITDA to Net
Interest Expense(4)........... 1.7x 2.1x 2.3x
AT SEPTEMBER 30, 1996
------------------------
ACTUAL PRO FORMA(5)
------ -------------
($ IN MILLIONS)
BALANCE SHEET DATA:
Cash and Cash Equivalents(6)............................................. $ 2.4 $ 12.3
Working Capital(7)....................................................... 50.0 49.6
Net Property, Plant and Equipment........................................ 51.4 51.9
Total Assets............................................................. 180.7 291.8
Debt(8).................................................................. 145.2(9) 130.0
Stockholder's Equity (Deficit)........................................... (101.9) 25.0
(footnotes on following page)
9
12
- ---------------
(1) Excludes corporate charges allocated to the Company by Terex of (a) $4.4
million, $8.5 million, $7.0 million and $6.3 million in the years ended
December 31, 1993, 1994 and 1995, and the LTM period, respectively, and (b)
$5.4 million and $4.7 million in the nine months ended September 30, 1995
and 1996, respectively. Also excludes severance and exit charges of (a) $6.7
million and $3.5 million in the years ended December 31, 1994 and 1995,
respectively, and (b) $3.5 million in the nine month period ended September
30, 1995. See the Company's historical combined financial statements
included elsewhere herein.
(2) Pro forma EBITDA represents Income (Loss) from Operations plus Depreciation
and Amortization, severance and exit charges, and corporate charges
allocated to the Company by Terex, less the addition of certain legal,
accounting and administrative expenses to replace such services previously
provided by Terex (estimated to be $1.5 million for each of 1993, 1994 and
1995 and the LTM period and $1.1 million for each of the nine month periods
ended September 30, 1995 and 1996). See "Risk Factors -- Lack of Independent
Operating History." In addition, for the year ended December 31, 1995, the
nine month periods ended September 30, 1995 and 1996, and the LTM period,
pro forma EBITDA has been adjusted to eliminate amortization of deferred
gain relating to the predecessor's sale leaseback of certain facilities and
eliminate rental and related costs of an abandoned facility, net of the
incremental costs at other facilities for relocated employees. See
"Unaudited Pro Forma Combined Financial Information" included elsewhere
herein. The Company has included information concerning pro forma EBITDA
herein because it understands that such information is used by certain
investors as one measure of an issuer's historical ability to service debt.
Pro forma EBITDA should not be considered as an alternative to, or more
meaningful than, earnings from operations or other traditional indications
of the Company's operating performance.
(3) Excludes amortization of historical debt issuance costs of $1.0 million,
$0.8 million, $0.5 million, $0.4 million, $0.3 million and $0.5 million for
the years ended December 31, 1993, 1994 and 1995, for the nine months ended
September 30, 1995 and 1996 and for the LTM period, respectively, which have
not been deducted from Income (Loss) from Operations.
(4) Net interest expense is defined as interest expense less interest income.
Includes interest on the Notes but excludes interest on capital lease
obligations. These capital leases represent forklift trucks sold to
financial institutions in Europe and leased back by the Company and then
leased to customers. The related income and interest expense are reflected
in Income (Loss) from Operations and pro forma EBITDA.
(5) The Acquisition has been accounted for under the purchase method of
accounting. The purchase price for the Acquisition, including the related
fees and expenses, has been allocated to the tangible and identifiable
intangible assets or liabilities of the acquired business based upon the
Company's preliminary estimates of their fair value with the remainder
allocated to goodwill. The allocation of purchase price for the Acquisition
is subject to revision when additional information concerning asset and
liability valuation becomes available.
(6) Includes cash, cash equivalents and cash securing letters of credit.
(7) Calculated as net trade receivables plus net inventories less trade
payables.
(8) Excludes capital lease obligations of $6.2 million discussed in Note 4
above.
(9) Includes Due to Parent of $93.6 million which was eliminated in connection
with the Acquisition.
10
13
RISK FACTORS
Holders of Existing Notes should carefully consider the specific factors
set forth below as well as the other information included in this Prospectus in
connection with the Exchange Offer. The risk factors set forth below are
generally applicable to the Existing Notes as well as the New Notes.
SIGNIFICANT LEVERAGE
The Company is highly leveraged. At September 30, 1996, on a pro forma
basis after giving effect to the Transactions, the Company's debt and
stockholder's equity would have been $130.0 million and $25.0 million,
respectively. The Company would also have had borrowing availability under the
Revolving Credit Facility of $30.0 million, subject to the borrowing conditions
contained therein. For the year ended December 31, 1995 and the nine month
period ended September 30, 1996, the ratio of pro forma EBITDA to net interest
expense would have been 1.7 to 1 and 2.1 to 1, respectively, after giving pro
forma effect to the Transactions as if they had occurred on January 1, 1995.
The Company's high level of debt and debt service requirements will have
several important consequences, including the following: (i) a substantial
portion of the Company's cash flow from operations will be dedicated to
servicing its indebtedness; (ii) the covenants contained in the Company's
indebtedness will impose certain restrictions on the Company which, among other
things, will limit its ability to borrow additional funds; (iii) the Company's
ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions, general corporate purposes or other purposes
may be impaired; and (iv) the Company's ability to withstand competitive
pressures, adverse economic conditions and adverse changes in governmental
regulations may be negatively affected.
The Company's ability to meet its debt service obligations and to reduce
its total indebtedness will depend upon its future performance, which will be
subject to general economic conditions, its ability to achieve cost savings and
other financial, business and other factors affecting the operations of the
Company, many of which are beyond its control. If the Company cannot generate
sufficient cash flow from operations in the future to service its debt, it may
be required to refinance all or a portion of such debt (including the Notes),
sell assets or obtain additional financing. There can be no assurance that any
such refinancing or asset sales would be possible or that any additional
financing could be obtained.
SECURED INDEBTEDNESS; SUBSIDIARY OPERATIONS
The New Notes, like the Existing Notes, will be effectively subordinated to
all senior secured indebtedness of the Company, including indebtedness under the
Revolving Credit Facility, to the extent of the assets securing such
indebtedness. As of September 30, 1996, on a pro forma basis after giving effect
to the Transactions, the Company would not have had any secured indebtedness
outstanding, exclusive of unused commitments of $30.0 million which may be
borrowed by the Company under the Revolving Credit Facility.
Although the Company's North American operations are owned directly, its
foreign operations are conducted through the Foreign Subsidiaries. The Foreign
Subsidiaries have not guaranteed or otherwise become obligated with respect to
the Notes. The Notes will therefore be effectively subordinated to all existing
and future liabilities, including indebtedness, of the Foreign Subsidiaries. As
of September 30, 1996, on a pro forma basis after giving effect to the
Transactions, the Foreign Subsidiaries would have had liabilities of
approximately $40.4 million reflected on the Company's combined balance sheet.
Claims of creditors of the Foreign Subsidiaries, including trade creditors, will
generally have priority as to the assets of such subsidiaries over the claims of
the Company and the holders of the Company's indebtedness, including the Notes.
GUARANTEES
The repayment of the New Notes, like the Existing Notes, will be
unconditionally and irrevocably guaranteed on a senior basis by all Restricted
Subsidiaries of the Company that are not Foreign Subsidiaries. On the Issue
Date, the Company did not have any subsidiaries other than the Foreign
Subsidiaries and, accordingly, there were no Guarantors on the Issue Date. The
guarantees of any future Guarantors may be
11
14
subject to legal challenge under applicable provisions of the United States
Bankruptcy Code or comparable provisions of state fraudulent transfer or
conveyance laws. If such a challenge were upheld, the guarantees of such
Guarantors would be invalidated and unenforceable, and it is possible that the
holders of the Notes would be ordered by a court to turn over to other creditors
of such Guarantors or to their trustees in bankruptcy all or a portion of the
payments made to them pursuant to the guarantees.
HISTORICAL OPERATING LOSSES
The Company experienced operating losses of $28.6 million and $14.0 million
for the years ended December 31, 1993 and 1994, respectively. These losses were
largely due to high operating expenses and cash constraints which resulted in a
shortage of materials and curtailed production. The Company has a Revolving
Credit Facility of $30.0 million. However, such facility will be subject to the
borrowing conditions contained therein, and there can be no assurance that such
cash constraints or operating losses will not recur.
PRODUCT LIABILITY AND OTHER CLAIMS
From time to time product liability claims are asserted against the Company
for various injuries alleged to have resulted from defects in the manufacture
and/or design of its products. As of September 30, 1996, the Company had
approximately 120 pending lawsuits relating to claims arising from accidents
involving its products. Most of these lawsuits are in various stages of pretrial
completion, and certain plaintiffs are seeking punitive as well as compensatory
damages. The Company is self-insured, up to certain limits, for these product
liability claims, as well as certain exposures related to general workers'
compensation and automobile liability. The Company has recorded and maintains on
its balance sheet reserves relating to the estimated liability, based in part
upon actuarial determinations, of the Company's aggregate exposure for such
self-insured risks. There can be no assurance that these reserves are adequate.
The Company also has certain other contingent liabilities or uncertainties
for other obligations, including contingent liabilities relating to the
Company's guarantees of certain floor plan obligations and its obligation to
repurchase equipment from certain dealers and customers upon the occurrence of
certain events. The unfavorable resolution of product liability claims or any
other contingencies or uncertainties in the future could have a material adverse
effect on the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Contingencies and Uncertainties" and
"Business -- Legal Proceedings."
INDUSTRY CYCLICALITY AND SUBSTANTIAL COMPETITION
Sales of products manufactured and sold by the Company have historically
been subject to substantial cyclical variation based, among other things, on
general economic conditions. The Company has been experiencing a softening in
the demand for forklift trucks in North America and Europe. It is expected that
there will be a further decline in such demand in 1997 with a modest improvement
thereafter. There can be no assurance as to the magnitude or timing of such
decline or recovery, or that such decline will not have a material adverse
effect on the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The truck market in which the Company competes is highly competitive. The
Company encounters significant competition particularly from lower cost foreign
competitors, including manufacturers located in Japan and Korea. The Company
competes on the basis of quality, price, on-time delivery, product line, ease of
use, safety, comfort and customer service. Many of the Company's competitors
have greater financial resources than the Company. Additionally, certain of the
Company's products are subject to changing technology which could place the
Company at a competitive disadvantage relative to product innovations by
competitors. There can be no assurance that the Company will be able to achieve
the technological advances that may be necessary to remain competitive.
12
15
DEPENDENCE ON SOLE SOURCE SUPPLIERS
The Company does not currently have multiple vendors for all parts and
supplies critical to the Company's manufacturing processes. The Company depends
exclusively upon certain suppliers of key parts used in its lift trucks and has
experienced supply disruptions in the past causing it temporarily to curtail
production in certain product lines. For example, an exclusive supplier to the
Company of certain uprights, which is a key component in the Company's
production of forklifts, has recently been unable to meet the Company's
requirements. The Company's future success will depend, in part, on its ability
to maintain continuity of supply of critical parts and to develop alternative
supply arrangements as needed. The failure of a key supplier to meet the
Company's requirements on a timely basis or the loss of a key supplier could
lead to delays in the Company's manufacturing operations and have a material
adverse effect on the Company.
FOREIGN OPERATIONS
The Company's products are sold in more than 50 countries worldwide.
Accordingly, a substantial portion of the sales of the Company are generated in
foreign currencies, while the costs associated with these sales are only
partially incurred in the same currencies. Consequently, the Company's financial
performance and results of operations are affected by fluctuations between the
U.S. dollar and such foreign currencies. In addition, currency fluctuations
could improve the competitive position of the Company's foreign competitors if
the value of the U.S. dollar rises in relation to the local currencies of such
competitors. The Company is also subject to other risks associated with
operating in foreign countries, including imposition of limitations on
conversion of foreign currencies into dollars or remittance of dividends and
other payments by foreign subsidiaries, imposition or increase of withholding
and other taxes on remittances and other payments by foreign subsidiaries,
hyperinflation in certain foreign countries and imposition or increase of
investment and other restrictions by foreign governments. No assurance can be
given that the risks associated with operating in foreign countries will not
have a material adverse effect on the Company in the future.
GOVERNMENT REGULATION
The Company's facilities and operations are required to comply with and are
subject to federal, state, local and foreign environmental and worker health and
safety laws, regulations and ordinances, including those relating to air
emissions, wastewater discharges and the management and disposal of certain
materials, substances and wastes ("Environmental Laws"). The nature of the
Company's operations and the history of industrial uses at some of its
facilities expose the Company to the risk of liabilities or claims with respect
to environmental and worker health and safety matters. The Company may also have
contingent responsibility for liabilities with respect to environmental matters
arising in connection with the prior operations of the material handling
business of Clark Equipment Company, a predecessor of the Company ("CEC"). There
can be no assurance that material costs will not be incurred in connection with
such liabilities or claims.
Future events, such as changes in existing laws and regulations or their
interpretations, may give rise to additional compliance costs or liabilities
that could have a material adverse effect on the Company's 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 the Company which may be material. See "Business --
Environmental Matters."
DEPENDENCE ON MANAGEMENT AND KEY PERSONNEL
Certain of the executive officers of the Company, including among others
Dr. Martin M. Dorio, President and Chief Executive Officer of the Company, are
key to the management and direction of the Company. The loss of the services of
such persons could have a material adverse effect on the Company, and there can
be no assurance that the Company would be able to find replacements for such
persons with equivalent business experience and skills.
13
16
LABOR DISPUTES
The Southaven Facility, which the Company shares with Terex, experienced a
labor dispute beginning in 1995, which had a short term effect on the Company's
distribution operations at the facility but had no appreciable effect on the
conduct of business or results of operations. There can be no assurance that
similar labor disputes will not occur in the future which, depending upon the
timing and duration of such disputes, could have a material adverse effect on
the Company. See "Business -- Employees."
LACK OF INDEPENDENT OPERATING HISTORY
Prior to the consummation of the Transactions, the business of the Company
had been conducted through subsidiaries of Terex. During the year ended December
31, 1995, Terex allocated a $7.0 million corporate charge to the Company for
certain legal, accounting and administrative services provided to the Company.
Terex no longer allocates these charges to the Company, and the Company no
longer relies on Terex to provide these services. The pro forma financial
information contained herein assumes that the Company would have incurred
expenses of $1.5 million to obtain comparable services on an annual basis.
However, there can be no assurance that the Company will be able to obtain such
services for such amounts and on other acceptable terms in the future. In
addition, Terex had allocated certain expenses (for example, workers'
compensation) to the Company, which the Company now obtains separately. There
can be no assurance that such expenses will not exceed the historical charges
allocated to the Company.
In connection with the Acquisition, the Company entered into a Service
Agreement with Terex pursuant to which the Company shares space in the Southaven
Facility, and obtains certain services, for three years. See "Certain
Relationships and Related Transactions -- Service Agreement." There can be no
assurance that charges under the Service Agreement will not exceed historical
charges or that upon termination of such agreement the Company will be able to
obtain similar facilities and services on acceptable terms.
OWNERSHIP OF HOLDINGS AND THE COMPANY
CVC, Dr. Martin M. Dorio, President and Chief Executive Officer of the
Company, and Thomas J. Snyder, who was elected to the Board of Directors of the
Company in connection with the Acquisition, own all of the outstanding voting
stock of Holdings, which owns all of the outstanding capital stock of the
Company. By virtue of such stock ownership, such persons have the power to
direct the affairs of the Company and are able to determine the outcome of all
matters required to be submitted to stockholders for approval, including the
election of a majority of the Company's directors and amendment of the Company's
certificate of incorporation. See "The Transactions" and "Ownership of the
Company."
LACK OF PUBLIC MARKET
The Existing Notes are currently eligible for trading in the PORTAL Market.
The New Notes are new securities for which there is no established market. The
Company does not intend to list the New Notes on any national securities
exchange or to seek the admission thereof to trading in the National Association
of Securities Dealers Automated Quotation System. The Initial Purchasers have
advised the Company that they currently intend to make a market in the New
Notes. However, the Initial Purchasers are not obligated to do so and any market
making may be discontinued at any time without notice. There can be no assurance
as to the development of any market or the liquidity of any market that may
develop for the New Notes. See "Description of Notes."
14
17
THE TRANSACTIONS
The Company and Holdings were formed by CVC and the Management Investors to
effect the Acquisition of substantially all of the assets and certain
liabilities of Clark Material Handling Company and all of the outstanding
capital stock of certain of its affiliates. The Acquisition was consummated on
November 27, 1996 pursuant to the Acquisition Agreement. The aggregate
consideration for the Acquisition was $139.5 million, which is subject to
certain post-closing adjustments to reflect changes in the Adjusted Working
Capital (as defined in the Acquisition Agreement) of the Company between
September 30, 1996 and November 27, 1996. To finance the Acquisition (including
the payment of related fees and expenses): (i) CVC, Dr. Martin M. Dorio,
President and Chief Executive Officer of the Company, and Thomas J. Snyder, who
was elected to the Board of Directors of the Company in connection with the
Acquisition, purchased $17.0 million of preferred stock (the "Holdings Preferred
Stock"), $1.0 million of voting common stock (the "Holdings Class A Stock") and
non-voting common stock (the "Holdings Class B Stock" and, together with the
Holdings Class A Stock, the "Holdings Common Stock"), and $7.0 million of junior
subordinated debentures (the "Holdings Debentures") from Holdings for $25.0
million in cash; (ii) Holdings contributed the $25.0 million Equity Contribution
to the Company in exchange for all of the capital stock of the Company; and
(iii) the Company issued and sold the Existing Notes to the Initial Purchasers.
CVC invested $24.9 million and received $16.9 million of Holdings Preferred
Stock, $991,000 of Holdings Common Stock and $7.0 million of Holdings
Debentures. Dr. Martin M. Dorio invested $100,000 and received $96,000 of
Holdings Preferred Stock and $4,000 of Holdings Class A Stock. Thomas J. Snyder
invested $5,000 for Holdings Common Stock of equivalent value.
The Holdings Preferred Stock, Holdings Common Stock and Holdings Debentures
are held as follows: (i) CVC holds approximately 99.4% of the Holdings Preferred
Stock, 48.8% of the Holdings Class A Stock, 99.5% of the Holdings Class B Stock
and $7.0 million of the Holdings Debentures; (ii) Dr. Martin M. Dorio holds
approximately 0.6% of the Holdings Preferred Stock and 48.8% of the Holdings
Class A Stock; and (iii) Thomas J. Snyder holds approximately 2.4% of the
Holdings Class A Stock and 0.5% of Holdings Class B Stock. It is currently
contemplated that certain Management Investors will purchase approximately
$900,000 of Holdings Preferred Stock, Holdings Common Stock and Holdings
Debentures. In addition, certain members of the Company's management are
expected to participate in an Employee Stock Purchase Plan pursuant to which
management will be offered the opportunity to acquire Holdings Class A Stock
which would equal in the aggregate up to an additional 10.0% of the Holdings
Class A Stock outstanding. See "Ownership of the Company" and "Description of
Certain Indebtedness -- Holdings Debentures."
In connection with the Acquisition, the Company entered into the $30.0
million Revolving Credit Facility, which is secured by the accounts receivable
and inventory of the Company's domestic operations. The Company did not draw
upon the Revolving Credit Facility in connection with the Transactions. In
addition, CLARK Europe may enter into a revolving credit facility to provide
working capital for its European operations. It is expected that any such
facility will provide for up to $10.0 million of revolving credit loans and will
be secured by certain assets of CLARK Europe. See "Description of Certain
Indebtedness."
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18
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. The
gross proceeds to the Company from the sale of the Existing Notes of $130.0
million, together with the $25.0 million Equity Contribution, were used (i) to
finance the Acquisition, (ii) to pay fees and expenses relating to the
Transactions and (iii) for general corporate purposes.
PRO FORMA CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 on a pro forma basis after giving effect to the Transactions.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Conditions and Results of Operation -- Contingencies and
Uncertainties," the Company's historical combined financial statements and
"Unaudited Pro Forma Combined Financial Information," and the respective notes
thereto, included elsewhere in this Prospectus.
AT SEPTEMBER 30,
1996
----------------
($ IN MILLIONS)
Debt:
Revolving Credit Facility(1)................................ $ --
The Notes................................................... 130.0
------
Debt(2)............................................. 130.0
Stockholder's Equity(3)....................................... 25.0
------
Total Capitalization................................ $155.0
======
- ---------------
(1) Borrowings of up to $30.0 million under the Revolving Credit Facility are
available to the Company for working capital and general corporate purposes,
subject to the borrowing conditions contained therein. The Company did not
draw upon the Revolving Credit Facility in connection with the Transactions.
In addition, CLARK Europe may enter into a revolving credit facility to
provide working capital for its European operations. It is expected that any
such facility will provide up to $10.0 million of revolving credit loans.
See "The Transactions" and "Description of Certain Indebtedness."
(2) Excludes capital lease obligations of $6.2 million, including a current
portion of $2.4 million. These capital leases represent forklift trucks sold
to financial institutions in Europe and leased back by the Company and then
leased to customers. The related income and interest expense are reflected
in the Company's Income (Loss) from Operations and pro forma EBITDA.
(3) The Acquisition will be accounted for under the purchase method of
accounting. The purchase price for the Acquisition, including the related
fees and expenses, has been allocated to the tangible and identifiable
intangible assets or liabilities of the acquired business based upon the
Company's preliminary estimates of their fair value with the remainder
allocated to goodwill. The allocation of purchase price for the Acquisition
is subject to revision when additional information concerning asset and
liability valuation becomes available.
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19
SELECTED HISTORICAL FINANCIAL DATA
On July 31, 1992, Terex acquired the Company from CEC. The selected
historical financial data as of and for the year ended December 31, 1991 were
derived from the audited combined financial statements of the predecessor
company. The selected historical financial data as of and for the five months
ended December 31, 1992 were derived from the unaudited combined financial
statements of the Company. The selected historical financial data as of and for
each of the years in the three-year period ended December 31, 1995 were derived
from the audited combined financial statements of the Company, which (except for
the Balance Sheet of the Company as of December 31, 1993) are included elsewhere
in this Prospectus. The selected historical financial data as of and for the
nine-month periods ended September 30, 1995 and 1996 were derived from the
unaudited combined financial statements of the Company, which (except for the
Balance Sheet of the Company as of September 30, 1995) are included elsewhere in
this Prospectus. The information contained in this table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's historical combined financial
statements, including the notes thereto, included elsewhere in this Prospectus.
THE COMPANY
PREDECESSOR ---------------------------------------------------------
--------------------------- NINE MONTHS
SEVEN MONTHS FIVE YEAR ENDED DECEMBER 31, ENDED SEPTEMBER
YEAR ENDED ENDED MONTHS ENDED 30,
DECEMBER 31, JULY 31, DECEMBER 31, ------------------------ ---------------
1991 1992 1992 1993 1994 1995 1995 1996
------------ ------------ ------------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS)
OPERATING DATA:
Net Sales.......................... $502.7 N/A(1) $240.9 $395.6 $472.7 $528.8 $404.4 $334.9
Gross Profit....................... 30.6 N/A(1) 22.5 22.3 42.9 44.7 31.9 37.6
Engineering, Selling and
Administrative Expenses.......... 60.6 N/A(1) 19.3 46.5 41.7 31.2 24.5 22.0
Adjusted Income (Loss) from
Operations(2).................... (30.0) N/A(1) 3.3 (24.2) 1.2 13.5 7.4 15.6
Income (Loss) from Operations...... (37.2) N/A(1) 2.2 (28.6) (14.0) 3.1 (1.5) 10.9
Loss Before Extraordinary Items and
Cumulative Effect of Change in
Accounting(3)(4)................. (37.6) N/A(1) (5.1) (44.9) (25.3) (17.4) (17.4) (2.9)
BALANCE SHEET DATA (AT END OF PERIOD):
Working Capital(5)................. 74.7 N/A(1) 59.1 50.8 41.4 46.4 50.6 50.0
Net Property, Plant & Equipment.... 50.0 N/A(1) 92.9 75.3 60.7 58.2 63.4 51.4
Total Assets....................... 208.2 N/A(1) 270.2 208.0 194.7 192.7 198.6 180.7
Long-Term Obligations(6)........... --(1) N/A(1) 93.4 120.0 125.9 143.0 146.0 148.6
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(1) The Company was included as part of CEC's consolidated financial statements
prior to August 1, 1992. The selected historical financial data as of and
for the seven months ended July 31, 1992, and the amount of long-term
obligations as of December 31, 1991, are not presently available to the
Company. The Company has requested such data and amount from CEC, but has
not been provided with the requested information.
(2) Excludes corporate charges allocated to the Company by Terex of (a) $1.1
million for the five months ended December 31, 1992; (b) $4.4 million, $8.5
million and $7.0 million in the years ended December 31, 1993, 1994 and
1995, respectively; and (c) $5.4 million and $4.7 million in the nine months
ended September 30, 1995 and 1996, respectively. Also excludes severance and
exit charges of (a) $7.2 million, $6.7 million and $3.5 million in the years
ended December 31, 1991, 1994 and 1995, respectively, and (b) $3.5 million
in the nine months ended September 30, 1995.
(3) Earnings were insufficient to cover fixed charges by $37.7 million, $4.9
million, $44.8 million, $24.5 million, $17.3 million, $17.3 million and $2.9
million for the year ended December 31, 1991, the five months ended December
31, 1992, the years ended December 31, 1993, 1994 and 1995 and the nine
months ended September 30, 1995 and 1996, respectively. The ratio and such
amounts have been calculated including interest expense allocated to the
Company by Terex.
(4) In 1991, the Company adopted Statement of Financial Accounting Standards No.
106 "Employers' Accounting for Post-Retirement Benefits other than Pension."
(5) Calculated as net trade receivables plus net inventories less trade
payables.
(6) Includes Due to Parent of $40.2 million, $68.5 million, $87.6 million, $90.2
million and $93.6 million as of December 31, 1993, 1994 and 1995, and
September 30, 1995 and 1996, respectively. Also includes long-term portion
of capital lease obligations.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
CLARK is a leading international designer, manufacturer and marketer of a
complete line of forklift trucks, which it markets through a global network of
285 dealers. CLARK's large installed base, which management estimates to be
approximately 350,000 units in operation worldwide, provides for substantial
ongoing replacement parts sales, which typically generate significantly higher
gross margins than new product sales. In 1995, CLARK derived approximately 82%
and 18% of its net sales from new products and replacement parts, respectively.
In 1995, CLARK's North American operations accounted for approximately 72% of
its net sales and CLARK Europe accounted for the remaining 28%. For the LTM
period, CLARK generated net sales of $459.2 million.
CLARK experienced operating losses for the years ended December 31, 1993
and 1994 which were largely due to high operating expenses and cash constraints.
Since 1993, CLARK has undertaken a series of initiatives aimed at reducing fixed
costs, developing a largely variable cost structure and maximizing the Company's
ability to respond to market changes. These initiatives involved (i) elimination
of 11 redundant manufacturing and distribution facilities, (ii) head-count
reductions involving termination of over 600 employees, representing
approximately 40% of the Company's workforce, (iii) elimination of three
non-core, unprofitable product lines and (iv) greater reliance on outsourcing.
In addition to cost rationalization, the Company has redesigned a significant
portion of its product portfolio. The Company's new and redesigned products have
earned higher gross margins due to their lower production costs. As a result of
CLARK's cost reduction initiatives and its higher margin new product
introductions, CLARK's pro forma EBITDA improved by $47.1 million to $31.3
million in the LTM period from ($15.8) million in fiscal 1993.
The Company has been experiencing a softening in the demand for forklift
trucks in North America and Europe. It is expected that there will be a further
decline in such demand in 1997 with a modest improvement thereafter. Despite a
13% decline in net sales due to lower industry activity for the LTM period, pro
forma EBITDA increased by $7.2 million or 30% compared to pro forma EBITDA for
fiscal 1995. Management believes the foregoing demonstrates the Company's
improved ability to sustain profitability in changing market conditions. There
can be no assurance, however, as to the magnitude or timing of any decline or
recovery, or that any future decline will not have a material adverse effect on
the Company's business.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------ -------------------------------
1993 1994 1995 1995 1996
-------------- -------------- -------------- -------------- --------------
($) (%) ($) (%) ($) (%) ($) (%) ($) (%)
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(DOLLARS IN MILLIONS)
Net Truck and Related Sales................. $301.6 76.2% $382.6 80.9% $433.1 81.9% $333.0 82.3% $265.3 79.2%
Net Aftermarket Part Sales.................. 94.0 23.8% 90.1 19.1% 95.7 18.1% 71.4 17.7% 69.5 20.8%
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total Net Sales..................... $395.6 100.0% $472.7 100.0% $528.8 100.0% $404.4 100.0% $334.9 100.0%
Gross Profit................................ 22.3 5.6% 42.9 9.1% 44.7 8.5% 31.9 7.9% 37.6 11.2%
Engineering, Selling and Administrative
Expenses.................................. 46.5 11.8% 41.7 8.8% 31.2 5.9% 24.5 6.1% 22.0 6.6%
Adjusted Income (Loss) from Operations(1)... (24.2) (6.1%) 1.2 0.3% 13.5 2.6% 7.4 1.8% 15.6 4.7%
Income (Loss) from Operations............... (28.6) (7.2%) (14.0) (3.0%) 3.1 0.6% (1.5) (0.4%) 10.9 3.3%
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(1) Excludes corporate charges allocated to the Company by Terex of (a) $4.4
million, $8.5 million and $7.0 million in the years ended December 31, 1993,
1994 and 1995, respectively, and (b) $5.4 million and $4.7 million in the
nine months ended September 30, 1995 and 1996, respectively. Also excludes
severance and exit charges of (a) $6.7 million and $3.5 million in the years
ended December 31, 1994 and 1995, respectively, and (b) $3.5 million in the
nine month period ended September 30, 1995.
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21
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September 30,
1995
Net Sales
Net sales were $334.9 million for the nine months ended September 30, 1996
compared to $404.4 million for the same period in 1995, a decrease of $69.5
million or 17.2%. This decrease was primarily due to reduced demand by CLARK's
customers, which management believes was related to lower industry activity
beginning in the last quarter of 1995. Net truck sales decreased $67.7 million,
or 20.3%, primarily due to a softening in the demand for lift trucks in North
America, while parts sales declined 2.7%. As a result, approximately 20.8% of
net sales were derived from aftermarket parts in the nine months ended September
30, 1996, up from approximately 17.7% for the same period in 1995. CLARK derived
70.1% and 29.9% of its net sales from its North American operations and CLARK
Europe, respectively, in the nine months ended September 30, 1996, and 72.9% and
27.1%, respectively, in the nine months ended September 30, 1995.
Gross Profit
Gross profit increased $5.6 million, or 17.9%, to $37.6 million for the
nine months ended September 30, 1996, compared to $31.9 million for the same
period in 1995, despite the 17.2% decline in net sales. As a percentage of net
sales, gross profit was 11.2% and 7.9% for the nine months ended September 30,
1996 and 1995, respectively. Cost reduction efforts and production improvements
accounted for most of this increase. Factory overhead expenses were reduced by
$7.6 million. Other significant areas of cost decreases included lower product
liability costs, lower freight costs and lower material costs from improved
outsourcing. These improvements were partially offset by lower absorption of
fixed costs due to lower production levels and by lower margins for aftermarket
parts due to a change in product mix.
Engineering, Selling and Administrative Expenses
For the nine months ended September 30, 1996, engineering, selling and
administrative expenses decreased $2.5 million to $22.0 million from $24.5
million for the same period in 1995, primarily due to the rationalization of
staff levels, facilities and support costs in response to lower industry
activity. Engineering, selling and administrative expenses as a percentage of
net sales were 6.6% and 6.1% in the nine months ended September 30, 1996 and
1995, respectively.
Income (Loss) from Operations
Income from operations increased $12.4 million to $10.9 million for the
nine months ended September 30, 1996, compared to a loss of $1.5 million during
the same period in 1995. This increase was primarily due to the cost reduction
efforts described above and occurred despite the decline in net sales. In
addition, CLARK had $3.5 million of severance and exit charges related to
workforce rationalization in Europe and termination of certain leases in 1995
which did not recur in 1996. Terex allocated corporate charges to CLARK of $4.7
million and $5.4 million in 1996 and 1995, respectively. Income (loss) from
operations expressed as a percentage of net sales was 3.3% and (0.4%) in 1996
and 1995, respectively.
Fiscal Year Ended December 31, 1995 Compared to Fiscal Year Ended December 31,
1994
Net Sales
Net sales were $528.8 million in 1995, an increase of $56.1 million or
11.9% from $472.7 million in 1994. Truck sales increased $50.5 million and parts
sales increased $5.6 million. As a result, aftermarket parts sales were
approximately 18.1% of net sales in 1995 compared to 19.1% in 1994. The increase
in truck sales was primarily due to improved market conditions, more efficient
manufacturing operations during 1995 and shipments of the new Genesis(TM) line
of IC trucks, introduced in December 1994. The light IC forklift market, in
which this product competes, represents approximately 60% of the rider forklift
truck industry. Parts sales increased 6.2% because of improved parts inventory
availability, the impact of which was partially offset by the adverse effects of
a labor dispute at the Southaven Facility, the primary effect of which occurred
in March and April 1995. CLARK derived 71.6% and 28.4% of its net sales in 1995
from its North American operations
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22
(which include sales of trucks manufactured in Korea primarily for sale in North
America) and CLARK Europe, respectively, compared to 74.8% and 25.2%,
respectively, in 1994.
Gross Profit
Gross profit increased $1.8 million to $44.7 million in 1995 from $42.9
million in 1994. As a percentage of net sales, gross profit was 8.5% and 9.1%
for 1995 and 1994, respectively. Favorable efficiencies due to higher production
and sales volumes, combined with the effects of 1994 severance actions, resulted
in this gross profit increase. This increase was partially offset by additional
costs associated with the commencement of production of the new Genesis(TM)
product line and manufacturing inefficiencies arising from the difficulties in
key suppliers meeting CLARK's demand requirements.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses decreased by $10.5 million
to $31.2 million for 1995 from $41.7 million for 1994, primarily as a result of
severance actions taken by management during the second half of 1994. As a
consequence of such action, staff levels primarily for CLARK's North American
operations were reduced from approximately 330 employees as of December 31, 1994
to approximately 230 employees as of December 31, 1995, resulting in savings of
approximately $3.0 million for the year ended December 31, 1995. Promotional
expenses and facility costs were also reduced during this period. Engineering,
selling and administrative expenses expressed as a percentage of sales were 5.9%
and 8.8%, respectively, in 1995 and 1994, respectively.
Income (Loss) from Operations
Income from operations increased $17.1 million from a $14.0 million loss
from operations for the year ended December 31, 1994 to $3.1 million for the
year ended December 31, 1995. In addition to the increased sales and
manufacturing efficiencies noted above, the increase in income from operations
was due in part to a $3.3 million reduction in severance, legal and exit charges
and a $1.5 million reduction in corporate charges allocated in 1995 from 1994.
CLARK incurred $3.5 million of severance charges in 1995 as compared to $6.7
million of such charges in 1994. In 1994, CLARK implemented personnel reductions
in plant supervision, engineering, marketing and administration in its North
American and European operations. In addition, in 1994, CLARK implemented
additional personnel reductions in conjunction with the closing of the Korean
plant and a certain branch sales office in France. Terex also allocated
corporate charges to CLARK of $7.0 million and $8.5 million for the years ended
December 31, 1995 and 1994, respectively. Income (loss) from operations as a
percentage of net sales was 0.6% and (3.0)% for the years ended December 31,
1995 and 1994, respectively.
Fiscal Year Ended December 31, 1994 Compared to Fiscal Year Ended December 31,
1993
Net Sales
Net sales were $472.7 million for 1994, an increase of $77.0 million, or
19.5%, from $395.6 million for the prior year. Truck sales increased $81.0
million and parts sales decreased $3.9 million. As a result, parts sales were
approximately 19.1% of net sales in 1994, compared to 23.8% of net sales in
1993. Truck sales improved due to increased industry demand and increased output
resulting from production improvements and the easing of capital constraints.
Cash constraints in the second half of 1993 resulted in production problems
caused by a shortage of supplies and materials during the last half of 1993 and
the first quarter of 1994. Production improved in 1994 because of reorganization
of work flows and other actions taken by management and because a working
capital contribution in December 1993 allowed management to improve relations
and schedule payment terms with its key suppliers. Parts sales were affected by
cash constraints and by difficulties in assimilating CLARK's parts business into
the Southaven Facility during the first half of 1994, leading to decreased parts
availability. Parts sales improved during the last half of 1994 as these
difficulties eased. CLARK derived 74.8% and 25.2% of its net sales in 1994 from
its North American operations (which include
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23
sales of trucks manufactured in Korea primarily for sale in North America) and
CLARK Europe, respectively, compared to 72.6% and 27.4%, respectively, in 1993.
Gross Profit
Gross profit increased $20.6 million to $42.9 million in 1994 compared to
$22.3 million in 1993. As a percentage of net sales, gross profit was 9.1% and
5.6% for 1994 and 1993, respectively, reflecting cost reduction initiatives and
production improvements in the second through fourth quarters of 1994, partially
offset by comparatively lower equipment and replacement part sales and decreased
manufacturing efficiency due to shortages in manufacturing supplies and
materials during the first quarter of 1994.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses decreased to $41.7 million
in 1994 from $46.5 million in 1993 as a result of various cost reduction
initiatives. Engineering, selling and administrative expenses expressed as a
percentage of net sales was 8.8% and 11.8% for the years ended December 31, 1994
and 1993, respectively.
Income (Loss) from Operations
CLARK incurred a loss from operations of $14.0 million for 1994 compared to
a loss from operations of $28.6 million for 1993. Loss from operations as a
percentage of net sales was (3.0%) and (7.2%) for 1994 and 1993, respectively.
The reduction in loss from operations resulted from the improved gross profit
and engineering, selling and administrative expenses noted above. This
improvement was partially offset by a $4.1 million increase in corporate charges
allocated by the parent and a $6.7 million severance charge in 1994 as discussed
above. There were no severance charges ($0) in 1993.
BACKLOG
The Company's backlog orders for the nine months ended September 30, 1996,
and years ended December 31, 1995, 1994 and 1993 were $77.0 million, $78.9
million, $135.9 million and $130.3 million, respectively. Substantially all of
the Company's backlog orders are expected to be filled within one year, although
there can be no assurance that all such orders will be filled within that time
period. The cancellation or delay of certain orders could have a material
adverse effect on the Company.
CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL CONDITION
The Company's business is capital intensive and requires funding for
purchases of production and replacement parts inventories, capital expenditures
for repair, replacement and upgrading of existing facilities as well as
financing of accounts receivables from customers and dealers. The Company will
continue to have significant debt service requirements. On a pro forma basis, on
September 30, 1996 the Company had $12.3 million of cash, cash equivalents and
cash securing letters of credit, $130.0 million of debt and $6.2 million of
capital lease obligations. The Company's ability to incur additional
indebtedness is restricted by the covenants set forth in the Indenture and the
Revolving Credit Facility.
In connection with the Acquisition, the Company entered into the Revolving
Credit Facility. The Revolving Credit Facility has an aggregate undrawn
availability of $30.0 million, subject to the borrowing conditions contained
therein. Management believes that it has adequate available borrowing capacity
under the Revolving Credit Facility to cover its foreseeable working capital
requirements. In addition, CLARK Europe may enter into a revolving credit
facility to provide working capital for its European operations. It is expected
that any such facility will provide up to $10.0 million of revolving credit
loans. See "Description of Certain Indebtedness."
The Company estimates that it will have $2.5 million and $7.5 million of
capital expenditures, including tooling and new product development
expenditures, for the three months ending December 31, 1996 and for the year
ending December 31, 1997, respectively. The Company has no major capital
expenditure plans in the
21
24
near term and believes that its operating cash flow and the Revolving Credit
Facility will be sufficient to cover its near term capital requirements.
For the period from January 1993 through September 30, 1996, the aggregate
Due to Parent increased by a total of $112.3 million, primarily due to (i) $60.4
million of interest on allocated debt; (ii) allocated corporate charges of $24.5
million; and (iii) $26.2 million of charges related to the use of the Southaven
Facility.
Net Cash Provided by (Used in) Operating Activities
Net cash provided by operating activities for the nine months ended
September 30, 1996 was $5.3 million, compared to $5.7 million for the nine
months ended September 30, 1995. The Company experienced a $15.9 million
improvement in net income and a $3.0 million reduction in CLARK's funds used for
operating assets and liabilities for the nine months ended September 30, 1996,
which were offset primarily by a lower increase in Due to Parent ($21.1 million
for the nine months ended September 30, 1995 compared to $6.0 million for the
comparable period in 1996). Net cash provided by operating activities for the
year ended December 31, 1995 was $7.2 million, representing a $1.8 million, or
20.2%, decrease from $9.0 million for the year ended December 31, 1994. This
decrease was due primarily to $4.5 million of funds used for operating assets
and liabilities in 1995, compared to $11.6 million source of funds from
operating assets and liabilities in 1994. In addition, there was a $19.2 million
increase in Due to Parent in 1995 compared to a $28.3 million increase in 1994.
These decreases were offset in part by improved operating results from a $25.8
million net loss in 1994 compared to an $18.8 million net loss in 1995. In 1993,
CLARK had $3.5 million of net cash provided by operating activities. During this
period, CLARK had a net loss of $45.2 million, $0.7 million of funds used for
operating assets and liabilities and a $58.9 million increase in Due to Parent.
Net Cash Provided by (Used in) Investing Activities
Net cash used in investing activities for the nine months ended September
30, 1996 was $2.4 million compared to $3.6 million for the nine months ended
September 30, 1995. In 1996, CLARK made $2.5 million of capital expenditures
compared to $4.0 million in 1995. Net cash used in investing activities in 1995
was $4.8 million compared to $16.7 million and $1.8 million of cash provided by
investing activities in 1994 and 1993, respectively. CLARK made $5.3 million,
$6.6 million and $8.1 million of capital expenditures, respectively, for the
years ended 1995, 1994 and 1993. These capital expenditures were made primarily
for tooling and new product development. In 1994, CLARK's capital expenditures
were offset by the proceeds from (i) the sale of assets of $3.0 million, (ii)
the sale of its Drexel business for $10.3 million, and (iii) the sale and
leaseback of its Saarn property for $10.0 million. In 1993, CLARK's capital
expenditures were offset by the proceeds from the sale of assets of $10.0
million relating to the sale of certain properties and assets in Germany.
Net Cash Provided by (Used in) Financing Activities
Net cash used in financing activities were $0.9 million and $1.7 million
for the nine months ended September 30, 1996 and 1995, respectively. CLARK's
financial statements include allocations of Terex's senior secured notes and
related interest expense; such expenses have been eliminated following the
consummation of the Transactions. Net cash used in financing activities in 1995
was $2.1 million compared to $29.2 million and $7.2 million in 1994 and 1993,
respectively. In May 1995, CLARK's allocated portion of Terex's outstanding
senior secured notes, $51.8 million, was refinanced with the proceeds of the
allocated portion of new senior secured notes issued by Terex. In 1994 and 1993,
$23.3 million and $10.0 million, respectively, of allocated Terex debt was
repaid.
CONTINGENCIES AND UNCERTAINTIES
CLARK is contingently liable as a guarantor for certain customer floor plan
obligations with financial institutions pursuant to which it is obligated to
purchase repossessed new and unused equipment based upon the unamortized
principal balance outstanding. Management estimates that the guarantee under the
floor plan
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25
obligations aggregated approximately $25.0 million at September 30, 1996.
Historically, the Company has incurred only minimal losses relating to these
arrangements.
CLARK is contingently liable for a portion of the related value of machines
sold to and leased by a third party to users for terms generally ranging from
three to five years. CLARK repurchases certain machines leased under this
program and then sells or leases such machines to other users. At September 30,
1996, the maximum contingent liability under this program was $9.9 million.
CLARK has historically recorded profits on the sale of repurchased machines.
Pursuant to certain dealer sales agreements, CLARK has agreed to repurchase
certain new and unused equipment in the event of the termination of the dealer.
Similar repurchase obligations exist under certain dealer operating agreements
in the event of the dealer's default under the dealer's financing agreements
with financial institutions. CLARK has historically incurred minimal losses from
the foregoing arrangements.
For additional information on contingencies and uncertainties, see Note J
to the audited combined financial statements of the Company and Note E to the
unaudited combined financial statements of the Company included elsewhere in
this Prospectus, and "Business -- Environmental and Certain Other Regulatory
Matters" and " -- Legal Proceedings."
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26
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING EXISTING NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Existing Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New
York City time, on , 1997; provided, however, that if the Company
has extended the period of time for which the Exchange Offer is open, the term
"Expiration Date" means the latest time and date to which the Exchange Offer is
extended.
As of the date of this Prospectus, $130.0 million aggregate principal
amount of the Existing Notes are outstanding. This Prospectus, together with the
Letter of Transmittal, is first being sent on or about , 1997 to all
holders of Existing Notes known to the Company. The Company's obligation to
accept Existing Notes for exchange pursuant to the Exchange Offer is subject to
certain conditions as set forth under "-- Certain Conditions to the Exchange
Offer" below.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for any exchange of any Existing Notes, by giving
notice of such extension to the holders thereof. During any such extension, all
Existing Notes previously tendered will remain subject to the Exchange Offer and
may be accepted for exchange by the Company. Any Existing Notes not accepted for
exchange for any reason will be returned without expense to the tendering holder
thereof as promptly as practicable after the expiration or termination of the
Exchange Offer.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Existing Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified below under "-- Certain Conditions to the Exchange
Offer." The Company will give notice of any extension, amendment, non-acceptance
or termination to the holders of the Existing Notes as promptly as practicable,
such notice in the case of any extension to be issued no later than 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date.
Holders of Existing Notes do not have any appraisal or dissenters' rights
under the Delaware General Corporation Law in connection with the Exchange
Offer.
PROCEDURES FOR TENDERING EXISTING NOTES
The tender to the Company of Existing Notes by a holder thereof as set
forth below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to tender
Existing Notes for exchange pursuant to the Exchange Offer must transmit a
properly completed and duly executed Letter of Transmittal, including all other
documents required by such Letter of Transmittal, to United States Trust Company
of New York at one of the addresses set forth below under "Exchange Agent" on or
prior to the Expiration Date. In addition, either (i) certificates for such
Existing Notes must be received by the Exchange Agent along with the Letter of
Transmittal, or (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Existing Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date, or the holder must comply with the guaranteed delivery
procedure described below. THE METHOD OF DELIVERY OF EXISTING NOTES, LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF
TRANSMITTAL OR EXISTING NOTES SHOULD BE SENT TO THE COMPANY.
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27
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Existing Notes surrendered for
exchange pursuant thereto are tendered (i) by a registered holder of the
Existing Notes who has not completed the box entitled "Special Issuance
Instruction" or "Special Delivery Instruction" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution (as defined below). 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 guarantees must be by a firm
which is a member of a registered national securities exchange or a member of
the National Association of Securities Dealers, Inc. or by a commercial bank or
trust company having an office or correspondent in the United States
(collectively, "Eligible Institutions"). If Existing Notes are registered in the
name of a person other than a signer of the Letter of Transmittal, the Existing
Notes surrendered for exchange must be endorsed by, or be accompanied by a
written instrument or instruments of transfer or exchange, in satisfactory form
as determined by the Company in its sole discretion, duly executed by, the
registered holder with the signature thereon guaranteed by an Eligible
Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Existing Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
tenders of any particular Existing Notes not properly tendered or to not accept
any particular Existing Notes which acceptance might, in the judgment of the
Company or its counsel, be unlawful. The Company also reserves the absolute
right to waive any defects or irregularities or conditions of the Exchange Offer
as to any particular Existing Notes either before or after the Expiration Date
(including the right to waive the ineligibility of any holder who seeks to
tender Existing Notes in the Exchange Offer). The interpretation of the terms
and conditions of the Exchange Offer as to any particular Existing Notes either
before or after the Expiration Date (including the Letter of Transmittal and the
instructions thereto) by the Company shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of
Existing Notes for exchange must be cured within such reasonable period of 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 any defect or
irregularity with respect to any tender of Existing Notes for exchange, nor
shall any of them incur any liability for failure to give such notification.
If the Letter of Transmittal or any Existing Notes or powers of attorney
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, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering, each broker-dealer holder will represent to the Company that,
among other things, the New Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business of the holder and any
beneficial holder, that neither the holder nor any such beneficial holder has an
arrangement or understanding with any person to participate in the distribution
of such New Notes and that neither the holder nor any such other person is an
"affiliate," as defined under Rule 405 of the Securities Act, of the Company. If
the holder is not a broker-dealer, the holder must represent that it is not
engaged in nor does it intend to engage in a distribution of the New Notes.
ACCEPTANCE OF EXISTING NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
For each Existing Note accepted for exchange, the holder of such Existing
Note will receive a New Note having a principal amount equal to that of the
surrendered Existing Note. For purposes of the Exchange Offer, the Company shall
be deemed to have accepted properly tendered Existing Notes for exchange when,
as and if the Company has given oral and written notice thereof to the Exchange
Agent.
In all cases, issuance of New Notes for Existing Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of certificates for such Existing Notes or a
timely Book-Entry Confirmation of such Existing Notes into the Exchange Agent's
account at the
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Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Existing Notes are
not accepted for any reason set forth in the terms and conditions of the
Exchange Offer or if Existing Notes are submitted for a greater principal amount
than the holder desires to exchange, such unaccepted or non-exchanged Existing
Notes will be returned without expense to the tendering holder thereof (or, in
the case of Existing Notes tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described below, such non-exchanged Existing Notes will be
credited to an account maintained with such Book-Entry Transfer Facility) as
promptly as practicable after the expiration of the Exchange Offer.
BOOK-ENTRY TRANSFER
Any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Existing Notes by causing the
Book-Entry Transfer Facility to transfer such Existing Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Existing Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof
with any required signature guarantees and any other required documents must, in
any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "Exchange Agent" on or prior to the Expiration
Date or the guaranteed delivery procedures described below must be complied
with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Existing Notes desires to tender such
Existing Notes and the Existing Notes are not immediately available, or time
will not permit such holder's Existing Notes or other required documents to
reach the Exchange Agent before the Expiration Date, or the procedure for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected if (i) the tender is made through an Eligible Institution, (ii) prior
to the Expiration Date, the Exchange Agent received from such Eligible
Institution a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form
provided by the Company (by telegram, telex, facsimile transmission, mail or
hand delivery), setting forth the name and address of the holder of Existing
Notes and the amount of Existing Notes tendered, stating that the tender is
being made thereby and guaranteeing that within five New York Stock Exchange
("NYSE") trading days after the date of execution of the Notice of Guaranteed
Delivery, the certificates for all physically tendered Existing Notes, in proper
form for transfer, or a Book-Entry Confirmation, as the case may be, and any
other documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent and (iii) the certificates for all
physically tendered Existing Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by the Letter
of Transmittal are received by the Exchange Agent within five NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Existing Notes may be withdrawn at any time prior to the
Expiration Date. For a withdrawal to be effective, a written notice of
withdrawal must be received by the Exchange Agent at one of the addresses set
forth below under "Exchange Agent." Any such notice of withdrawal must specify
the name of the person having tendered the Existing Notes to be withdrawn,
identify the Existing Notes to be withdrawn (including the principal amount of
such Existing Notes), and (where certificates for Existing Notes have been
transmitted) specify the name in which such Existing Notes are registered, if
different from that of the withdrawing holder. If certificates for Existing
Notes have been delivered or otherwise identified to the Exchange Agent then,
prior to the release of such certificates, the withdrawing holder must also
submit the serial numbers of the particular certificates to be withdrawn and a
signed notice of withdrawal with signatures guaranteed by an Eligible
Institution unless such holder is an Eligible Institution. If Existing Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the
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withdrawn Existing Notes and otherwise comply with the procedures of such
facility. All questions as to the validity, form and eligibility (including time
of receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Existing Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Existing Notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder (or, in the case of Existing Notes
tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, such Existing Notes will be credited to an account maintained
with such Book-Entry Transfer Facility for the Existing Notes) as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Existing Notes may be retendered by following one of
the procedures described under "-- Procedures for Tendering Existing Notes"
above at any time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue New Notes in exchange
for, any Existing Notes and may terminate or amend the Exchange Offer if at any
time before the acceptance of such Existing Notes for exchange or the exchange
of New Notes for such Existing Notes, the Company determines that (i) the
Exchange Offer does not comply with any applicable law or any applicable
interpretation of the staff of the Commission, (ii) the Company has not received
all applicable governmental approvals or (iii) any actions or proceedings of any
governmental agency or court exist which could materially impair the Company's
ability to consummate the Exchange Offer.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its reasonable discretion. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Existing Notes
tendered, and no New Notes will be issued in exchange for any such Existing
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or the qualification of the Indenture under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). In any such event the Company is
required to use every reasonable effort to obtain the withdrawal of any stop
order at the earliest possible time.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as the Exchange
Agent for the Exchange Offer. All executed Letters of Transmittal should be
directed to the Exchange Agent at one of the addresses set forth below.
Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
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By Hand: By Registered or Certified By Overnight Courier:
United States Trust Company Mail: United States Trust Company
of New York United States Trust Company of New York
111 Broadway of New York 770 Broadway
Lower Level P.O. Box 844 New York, New York 10003
Corporate Trust Window Cooper Station Attn: Corporate Trust
New York, New York 10006 New York, New York
10276-0844
By Facsimile:
United States Trust Company of New York
(212) 420-6152
Attn: Corporate Trust
Confirm by Telephone:
(800) 548-6565
Delivery other than as set forth above will not constitute a valid delivery.
FEES AND EXPENSES
The Company will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Company.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Existing
Notes, which is the principal amount as reflected in the Company's accounting
records on the date of the exchange. Accordingly, no gain or loss for accounting
purposes will be recognized. The debt issuance costs will be capitalized for
accounting purposes.
TRANSFER TAXES
Holders who tender their Existing Notes for exchange will not be obligated
to pay any transfer taxes in connection therewith, except that holders who
instruct the Company to register New Notes in the name of, or request that
Existing Notes not tendered or not accepted in the Exchange Offer be returned
to, a person other than the registered tendering holder will be responsible for
the payment of any applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE; RESALES OF NEW NOTES
Holders of Existing Notes who do not exchange their Existing Notes for New
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Existing Notes as set forth in the legend
thereon as a consequence of the issuance of the Existing Notes pursuant to the
exemptions from, or in transactions not subject to, the registration
requirements of, the Securities Act and applicable state securities laws.
Existing Notes not exchanged pursuant to the Exchange Offer will continue to
accrue interest at 10 3/4% per annum and will otherwise remain outstanding in
accordance with their terms. Holders of Existing Notes do not have any appraisal
or dissenters' rights under the Delaware General Corporation Law in connection
with the Exchange Offer. In general, the Existing Notes may not be offered or
sold unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. The Company does not currently anticipate that it will
register the Existing Notes under the Securities Act. However, (i) if the
Initial Purchasers so request with respect to Existing Notes not eligible to be
exchanged for New Notes in the Exchange Offer and held by them
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31
following consummation of the Exchange Offer but prior to November 27, 1997 or
(ii) if any holder of Existing Notes is not permitted to participate in the
Exchange Offer or, in the case of any holder of Existing Notes that participates
in the Exchange Offer, does not receive New Notes in exchange for Existing Notes
that may be sold without restriction under state and federal securities laws
(other than due solely to the status of such holder as an affiliate of the
Company within the meaning of the Securities Act), the Company is obligated to
file a shelf registration statement on the appropriate form under the Securities
Act relating to the Existing Notes held by such persons.
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, the Company is of the view that New
Notes issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any such holder which
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or (ii) any broker-dealer that purchases Notes from the Company
to resell pursuant to Rule 144A or any other available exemption) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holders' business and such holders have no arrangement or understanding
with any person to participate in the distribution of such New Notes. If any
holder has any arrangement or understanding with respect to the distribution of
the New Notes to be acquired pursuant to the Exchange Offer, such holder (i)
could not rely on the applicable interpretations of the staff of the Commission
and (ii) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale transaction. A
broker-dealer who holds Existing Notes that were acquired for its own account as
a result of market-making or other trading activities may be deemed to be an
"underwriter" within the meaning of the Securities Act and must, therefore,
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of New Notes. Each such broker-dealer that receives
New Notes for its own account in exchange for Existing Notes, where such
Existing Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge in the Letter of
Transmittal that it will deliver a prospectus in connection with any resale of
such New Notes. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and is complied with. The Company has
agreed, pursuant to the Registration Rights Agreement and subject to certain
specified limitations therein, to use its best efforts to register or qualify
the New Notes for offer or sale under the securities or blue sky laws of such
jurisdictions in the United States as any selling holder of the Notes reasonably
requests in writing.
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BUSINESS
GENERAL
CLARK is a leading international designer, manufacturer and marketer of a
complete line of forklift trucks including internal combustion trucks, electric
riders, narrow aisle stackers and powered hand trucks. The Company invented the
platform truck in 1917, the tow tractor in 1924 and the forklift in 1928, and
produced the first electric forklift in 1942. As a result of this history of
innovation, management believes CLARK(R) is one of the most recognized brand
names of forklift trucks in North America.
Management believes that CLARK has the largest installed fleet in North
America with over 250,000 units, and has a total of approximately 350,000 units
in operation worldwide. This large installed fleet has allowed CLARK to generate
significant ongoing replacement parts sales, which typically generate
substantially higher gross margins and provide a more stable revenue base than
new truck sales. Historically, approximately 80% of CLARK's net sales have been
derived from truck sales and approximately 20% of net sales have been derived
from the sale of replacement parts. In 1995, CLARK's North American operations
accounted for approximately 72% of its net sales and its European operations
accounted for the remaining 28%. CLARK distributes its products to a diverse
customer base through a global network of 285 dealers, which sold over 21,000
units in 1995, from more than 560 locations. CLARK generated net sales in the
LTM period of $459.2 million.
Since 1993, CLARK has undertaken a series of initiatives aimed at reducing
fixed costs, developing a largely variable cost structure and maximizing the
Company's ability to respond to market changes. These initiatives involved (i)
elimination of 11 redundant manufacturing and distribution facilities, (ii)
head-count reductions involving termination of over 600 employees, representing
approximately 40% of the Company's workforce, (iii) elimination of three
non-core, unprofitable product lines and (iv) greater reliance on outsourcing.
The reduction in fixed costs achieved through these initiatives resulted in an
increase in pro forma EBITDA of $21.0 million to $31.3 million in the LTM period
from $10.3 million in fiscal 1994, while net sales in both periods were
approximately the same. The flexibility of the Company's cost structure is also
evidenced by the financial results for the LTM period where, despite a 13%
decline in net sales due to lower industry activity, the Company's pro forma
EBITDA increased by $7.2 million or 30% compared to pro forma EBITDA for fiscal
1995. Management believes that the foregoing demonstrates the Company's improved
ability to sustain profitability in changing market conditions.
The Company's principal business office and headquarters in North America
is located at 172 Trade Street, Lexington, Kentucky 40508 and its telephone
number is (606) 288-1200. The Company's principal business office and
headquarters in Europe is located at 45478 Rheinstrass, Mulheim, Germany, and
its telephone number is 011-49-208-588-1320.
PRODUCTS
CLARK currently offers over 100 truck designs within five major product
lines: light IC trucks (with a capacity of 1.0 to 5.0 tons), heavy IC trucks
(with a capacity of 5.5 to 17.5 tons), narrow-aisle stackers (with a capacity of
1.5 to 2.5 tons), electric riders (with a capacity of 1.3 to 6.0 tons) and
powered hand trucks (with a capacity of 2.0 to 4.0 tons).
Light IC trucks are used for general warehousing needs and are generally
powered by liquid propane. Such trucks are well suited for manufacturing and
distribution applications which require a high degree of maneuverability. Heavy
IC trucks are specialty products designed for use in more demanding situations
such as heavy manufacturing or container handling applications. Narrow-aisle
stackers provide solutions for high density storage needs and operate in six to
eight foot aisles and reach heights of more than 30 feet. Electric riders are
designed for indoor use in warehousing, manufacturing, distribution and other
applications and are powered by a rechargeable electric battery. As a result of
the increasing focus on the environment, electric riders have become
increasingly popular. Management estimates that light IC trucks, heavy IC
trucks, narrow-aisle stackers and electric riders represent approximately 58%,
3%, 15% and 24% of the unit volume of
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the forklift truck industry, respectively. Powered hand trucks are generally
used in the transportation and order-selecting businesses.
CLARK tailors its products to meet customers' particular material handling
needs. To further meet these needs, CLARK adds attachments such as container
handlers, side shifters, roll clamps, block handlers, carton clamps, push-pulls
(slip-sheet) and fork positioners.
New and Redesigned Products. Rapid development and introduction of new and
redesigned products incorporating the latest materials handling technology is a
key component of CLARK's strategy. Management believes that CLARK has introduced
more new and redesigned models in the last two years than any other major
forklift truck manufacturer and plans to continue a rapid pace of new product
introduction. CLARK maintains an engineering staff which is responsible for
designing new products and improving existing product lines. The primary
objectives of the engineering effort are (i) developing new products with
leading edge functionality that meet the evolving needs of CLARK's customer base
and (ii) reducing manufacturing and product costs through creating better
product designs that enhance manufacturing and purchasing efficiencies,
maximizing parts commonality across product lines and reducing the number of
components. To continue its tradition of product innovation and modern
engineering, CLARK recently entered into an agreement to purchase and/or lease
software and hardware for an estimated $1.0 million for the Master Series
CAD/CAM/CAE software from Structural Dynamics Research Corporation. The
software, which is utilized in the design of forklift trucks, provides CLARK
with state-of-the-art technology similar to that used by major automobile and
aircraft manufacturers for modeling, drafting, assembling and simulating
production process and equipment.
Since 1993, CLARK has redesigned a substantial portion of its product line.
In December 1994, CLARK introduced the 2-3 ton Genesis(TM) IC truck targeting
the light IC market. CLARK invested approximately $15.0 million to develop the
Genesis(TM) truck. The Genesis(TM) truck provides improved ergonomics,
performance, reliability and serviceability, and provided an estimated seven
percentage point higher gross margin than its predecessor primarily due to its
lower production cost.
CLARK Europe introduced the Genesis(TM) 2-3 ton gas and diesel MegaStat(TM)
model in April 1995. The Genesis(TM) 2-3 ton MegaStat(TM) IC received the
"General Lift Truck Innovation" award in 1996 from the Fork Truck Association in
the United Kingdom. In August 1996, CLARK continued to expand its Genesis(TM)
family with the addition of a 4-5.5 ton CGP ("CGP") lift truck. Also, in 1995,
CLARK made significant additions to its narrow aisle stackers product line which
was expanded to include double reach and straddle models.
CLARK's new product development pipeline includes a completely redesigned
electric four wheel rider and two new IC forklift models, all of which are
expected to be introduced by early 1997. Management anticipates that these new
products will generate higher gross margins than their predecessor models due to
lower unit production costs. In November 1996, CLARK expects to commence
production in North America of the new electric truck which will be the first to
carry the Genesis(TM) designation. This 1.75-3 ton electric four wheel rider
incorporates Genesis(TM) type controls along with the ergonomic benefits of
Genesis(TM). In addition, CLARK plans to introduce the hydrostatic version of
the CGP in North America. Building on its introduction of MegaStat(TM) in
Europe, CLARK Europe currently plans to introduce the 1-2 ton and the CGP
hydrostatic MegaStat(TM) models in late 1996. CLARK Europe also plans to
introduce in 1996 its MegaValve(TM) forklift trucks that are electronically
controlled and allow for "joystick" operation.
AFTERMARKET PARTS
Management estimates that since the Company's inception nearly one million
forklift trucks have been manufactured by CLARK and its predecessors and that it
currently has in service approximately 350,000 trucks worldwide, with
approximately 250,000 in North America, 70,000 in Europe and 30,000 in other
international markets, generating a substantial aftermarket parts business for
CLARK. CLARK's worldwide installed fleet of approximately 350,000 forklift
trucks generates an estimated $240.0 million in annual global aftermarket parts
sales, of which CLARK has historically captured an estimated 40% share.
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CLARK's parts distribution operation undertakes purchasing and customer
services for aftermarket parts. CLARK distributes its aftermarket parts in North
America through the Southaven Facility, in Europe through a warehouse located in
Saarn, Germany and for the World Trade Division through two sales and
distribution facilities located in Seoul, Korea and the State of San Paulo,
Brazil, respectively. CLARK shares the Southaven Facility with Terex and,
pursuant to the Acquisition, CLARK and Terex will enter into a Service Agreement
(as defined) providing for the continued use by CLARK of such facility. For
information regarding the Service Agreement, see "Certain Relationships and
Related Transactions."
Management plans to increase its share of the sales of these high margin
parts by improving off-the-shelf availability at its Southaven Facility and
through focused marketing and promotion efforts. The Southaven Facility
currently provides approximately 90% availability for aftermarket parts, and
management believes that this low availability level has resulted in lost parts
sales. The Company plans to raise such availability to over 95% primarily
through selective additions to inventory levels. In addition, the Company plans
to implement specific marketing initiatives, including increased merchandising
of fast moving parts, incentive programs for dealer personnel and coordinated
truck and parts promotions to increase aftermarket parts sales.
MANUFACTURING OPERATIONS
CLARK's Lexington plant produces both IC and electric forklifts with lift
capacities ranging from 1-17.5 tons and is equipped with five assembly lines and
two heavy IC assembly bays. The Lexington plant is primarily an assembly
operation with welding and painting capabilities, operates one shift per day and
produces an average of 50 lift trucks per day.
CLARK Europe's Mulheim manufacturing facility produces both IC forklifts
(Diesel, LP gas and natural gas) with hydrodynamic as well as electronically
controlled hydrostatic drive (MegaStat(TM)) and electric powered forklifts
equipped with D/C as well as frequency-controlled A/C motors (MegaAC(TM)) in the
capacity range of 1-5 tons. The Mulheim facility is equipped with four assembly
lines, one for electric trucks, two for IC trucks and one for uprights. The
manufacturing process includes pre-production and welding production of frames
and uprights and a powder dry paint system was recently installed to ensure
high-quality painting of frames and uprights. CLARK Europe's plant currently
operates one shift per day and produces an average of 20 lift trucks per day.
The Mulheim plant has been awarded ISO 9001 certification, indicating that the
Company has achieved and sustained a high degree of quality and consistency with
respect to its products.
DEALER NETWORK
CLARK markets both original equipment and parts through a worldwide dealer
network. CLARK currently has approximately 100 independent dealers in each of
North America and Europe and owns three dealers in Europe. In addition, outside
of North America and Europe, CLARK markets and distributes its products through
the World Trade Division. The World Trade Division markets its products through
95 distributors operating in the Asian, African, Middle Eastern, Caribbean and
Latin American markets. CLARK's dealers and distributors generally market the
full CLARK product line and maintain comprehensive service capabilities. CLARK's
sales organization coordinates sales and promotional activities, provides
ongoing dealer training and facilitates dealer communications. CLARK sells to a
diversified customer base, with no single customer accounting for more than 5%
of total sales.
Management is focusing on enhancing the performance of its dealer network
by offering various incentive packages and support programs, replacing
underperforming dealers and adding new dealers in selected geographic areas in
North America and Europe. The number of units sold by the World Trade Division
has more than doubled from 689 in 1993 to 1,492 in 1995. The Company intends to
continue expanding the dealer base of the World Trade Division and management
believes the World Trade Division is well positioned for continued growth in the
Asian, African, Middle Eastern, Caribbean and Latin American markets.
SUPPLIERS
The Company strategically relies upon outside suppliers for a vast majority
of the individual components of a lift truck. Management believes that such
outsourcing allows CLARK greater flexibility in varying its cost
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structure in response to changing market conditions. Consequently, in 1995
material purchases amounted to over $350.0 million or over 70% of cost of goods
sold.
Management believes that significant opportunities exist to improve
profitability through reducing its material costs. CLARK is consolidating its
vendor base to realize volume discounts and purchasing efficiencies. The Company
regularly evaluates its relationship with current and potential suppliers on the
basis of their ability to meet CLARK's requirements and standards. Since January
1995, CLARK has reduced the number of its regular suppliers from approximately
800 to 435 and intends to further reduce this number by approximately 50% by
1998.
Principal materials used by CLARK in its various manufacturing processes
include steel, castings, engines, tires, electric controls, uprights, transaxles
and motors, and a variety of other fabricated or manufactured items. While
substantially all such materials are typically available from multiple
suppliers, CLARK depends exclusively upon certain suppliers of key parts used in
its lift trucks. From time to time, certain of CLARK's suppliers have
experienced difficulties in meeting CLARK's production schedules. See "Risk
Factors -- Dependence on Sole Source Suppliers."
COMPETITION
The material handling business is highly competitive. CLARK produces one of
the leading forklift truck brands in North America, although NACCO Industries,
Inc., ("NACCO"), through its Hyster and Yale divisions, produces more forklift
trucks annually. In addition to NACCO, other major North American competitors
include Toyota Lift, Inc., Mitsubishi Caterpillar Forklift America Inc., Nissan
Forklift Corp. North America, Komatsu Forklift USA Inc. and Daewoo in both IC
trucks and electric riders, and Crown Equipment Corp. and Raymond Corporation in
electric riders alone. In Europe, CLARK competes with Linde AG, the European
market leader, as well as Jungheinreich AG, Toyota Lift, Inc. and NACCO. CLARK
also competes with a number of specialty manufacturers. See "Risk
Factors -- Industry Cyclicality and Substantial Competition."
INTELLECTUAL PROPERTY
The Company relies on a combination of trademarks, service marks, trade
names, patents, licensing arrangements, trade secrets, know-how and proprietary
technology to secure and protect its intellectual property rights. In
particular, the Company's CLARK(R), Clarklift(R), Powrworker(R) and Genesis(TM)
trademarks are of particular importance to the Company's business. The Company
is currently undertaking to obtain trademark registrations for its Genesis(TM),
MegaValve(TM), MegaStat(TM), MegaPro(TM) and MegaAC(TM) marks. The loss of the
Company's rights under one or more of the Company's trademarks could have a
material adverse effect on the Company's business.
There can be no assurance that the Company will be successful in obtaining
approval of any present or future patent or trademark applications; that any
patents, patent applications and patent licenses will adequately cover the
Company's technologies or protect the Company from potential infringements by
third parties; that any nondisclosure and confidentiality agreements will
provide meaningful protection for the Company's trade secrets, know-how or
proprietary technology in the event of any unauthorized use or disclosure of
such information; or that others will not obtain access to, or independently
develop technologies or know-how similar to, that of the Company. There also can
be no assurance that future litigation by the Company will not be necessary to
enforce its trademark, patent and other proprietary rights, or to defend the
Company against claimed infringement of the rights of others, adverse
determinations in which could have a material adverse effect on the Company.
EMPLOYEES
As of September 30, 1996, CLARK's total North American work force consisted
of approximately 550 salaried, hourly and temporary employees, all of whom were
non-union. In addition, approximately 30 employees of Terex at the Southaven
Facility who are responsible for aftermarket customer service and administration
became employees of CLARK following the consummation of the Acquisition pursuant
to the
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provisions of the Service Agreement. There has not been a union at CLARK's North
American manufacturing operations for the past nine years since moving to
Kentucky. The union employees of Terex at the Southaven Facility filed a
petition with the National Labor Relations Board in May 1996 for decertification
of the union. See "Risk Factors -- Labor Disputes."
As of September 30, 1996, CLARK's total work force outside of North America
consisted of approximately 450 employees. The Mulheim facility at Saarn is
represented by the German Metal Workers (Industrie Gewerkschaft Metal) and the
aftermarket parts facility at Saarn is represented by the German Union for
Trading, Banking and Insurance (Gewerkschaft Handel, Banken und Versicherungen).
The Mulheim facility has a total work force of approximately 350, of which
approximately 200 are members of the German Metal Workers, and the aftermarket
parts facility at Saarn has a total workforce of approximately 65, of which
approximately 20 are members of the German Union for Trading, Banking and
Insurance. There are no contracts between CLARK and the unions, but CLARK
follows standard practices by complying with contracts between the unions and
the employers' association.
Management believes that its relationships with its employees and unions
are good.
PROPERTIES
The Company is headquartered in Lexington, Kentucky. The Company currently
owns or leases 10 facilities in North America, Europe, Brazil and Korea which
are used for manufacturing, distribution, sales, warehousing and service center
activities.
The following table outlines the principal facilities owned or leased by
CLARK or its subsidiaries:
FACILITY LOCATION TYPE OF FACILITY
------------------------------------------ ----------------------------------------------
Lexington, Kentucky....................... Manufacturing, warehouse and office
Lexington, Kentucky*...................... Sales, training and engineering
Lexington, Kentucky....................... Warehouse
Mulheim-Ruhr, Germany..................... Manufacturing, engineering, power generation,
maintenance and office
Saarn, Germany............................ Warehouse
Barcelona, Spain.......................... Sales branch
Paris, France............................. Sales branch
Lyon, France.............................. Sales branch
State of San Paolo, Brazil................ Parts distribution
Seoul, Korea.............................. Parts distribution and office
- ---------------
* Owned.
CLARK also owns a manufacturing facility in Banwael, Korea which was closed
in the fourth quarter of 1994 and is presently held for sale. CLARK Europe also
presently leases unoccupied office space in Mulheim-Ruhr, Germany.
Management believes that the Company's facilities are suitable for its
operations and provide sufficient capacity to meet the Company's requirements
for the foreseeable future.
ENVIRONMENTAL MATTERS
As with most industrial companies, the Company's facilities and operations
are required to comply with and are subject to a wide variety of Environmental
Laws. Certain of these Environmental Laws hold owners or operators of land or
businesses liable for their own and for previous owners' or operators' releases
of hazardous or toxic substances, materials or wastes, pollutants or
contaminants, including, in some instances, petroleum and petroleum products.
Compliance with Environmental Laws also may require the acquisition of permits
or other authorizations for certain activities and compliance with various
standards or procedural requirements. The nature of the Company's operations and
the history of industrial uses at some of its facilities expose the Company to
the risk of liabilities or claims with respect to environmental and worker
health and safety matters. The Company may also have contingent responsibility
for liabilities with respect to environmental
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matters arising in connection with the prior operations of CEC's material
handling business. There can be no assurance that material costs or liabilities
will not be incurred in connection with such liabilities or claims.
In connection with the Acquisition, the Company agreed to indemnify Terex
for certain environmental losses with respect to or arising out of the Company's
business and assets. Terex retained responsibility for and agreed to indemnify
the Company with respect to all environmental losses arising from or in
connection with any real property, business entities or assets, whether domestic
or foreign, not acquired as part of the Acquisition. The environmental
indemnities are subject to certain deductibles, caps and time limitations
depending on the nature of the environmental claim.
Based upon the Company's experience to date and the indemnities obtained in
connection with the Acquisition, the Company believes that the future cost of
compliance with existing Environmental Laws (or liability for known
environmental liabilities or claims) should not have a material adverse effect
on the Company's business, financial condition or results of operations.
Compliance with such laws has, and will, require expenditures by the Company on
a continuing basis. 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 material adverse effect on the Company's
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 the Company that may be material. See
"Risk Factors -- Government Regulation."
LEGAL PROCEEDINGS
From time to time product liability claims are asserted against the Company
for various injuries alleged to have resulted from defects in the manufacture
and/or design of its products. As of September 30, 1996, the Company had
approximately 120 pending lawsuits relating to claims arising from accidents
involving its products. Most of these lawsuits are in various stages of pretrial
completion, and certain plaintiffs are seeking punitive as well as compensatory
damages. The Company is self-insured, up to certain limits, for these product
liability claims, as well as certain exposures related to general workers'
compensation and automobile liability. The Company has recorded and maintains on
its balance sheet reserves relating to the estimated liability, based in part
upon actuarial determinations, of the Company's aggregate exposure for such
self-insured risks. The Company is involved in various other legal proceedings
which have arisen in the normal course of its operations. The Company has
recorded provisions for estimated losses in circumstances where a loss is
probable and the amount or range of possible amounts of the loss is estimable.
There can be no assurance that any of the foregoing reserves are adequate. See
"Risk Factors -- Product Liability and Other Claims" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Contingencies and Uncertainties."
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
persons who are members of the Board of Directors or executive officers of the
Company. Directors serve for a term of one year or until their successors are
elected and qualified; officers serve at the discretion of the Board of
Directors. The directors of the Company also serve as the directors of Holdings.
NAME AGE POSITION
- --------------------------------- --- --------------------------------------------------------
Dr. Martin M. Dorio.............. 50 President, Chief Executive Officer and Director
Dr. J. Frithjof Timm............. 54 Managing Director and President, CLARK Europe
Joseph F. Lingg.................. 51 Vice President, Finance and Treasurer
Kevin M. Reardon................. 52 Vice President, Sales and Marketing, North America
Michael J. Grossman.............. 46 Vice President, General Counsel and Secretary
Jeffrey J. Kirk.................. 49 Vice President, Human Resources and Purchasing
Thomas J. Snyder................. 51 Director
Michael A. Delaney............... 42 Director
James A. Urry.................... 42 Director
Dr. Martin M. Dorio, President, Chief Executive Officer and Director. Dr.
Dorio joined the Company in June 1995 as President and Chief Executive Officer.
From 1990 until he joined the Company, Dr. Dorio served in various positions
with Case Corporation, a manufacturer of tractors and construction equipment,
including Vice President, Corporate Planning and Development. Dr. Dorio has over
20 years' experience in manufacturing and has served in key management positions
of FMC Corp. and General Electric Co.
Dr. J. Frithjof Timm, Managing Director and President, CLARK Europe. Dr.
Timm joined the Company in May 1995 as Managing Director and President of CLARK
Europe. From 1992 to 1995, he was President of Komatsu Europe and, prior to
that, he was Managing Director of Sales of the Hydraulic Mobile Crane Division
of Krupp A.G.
Joseph F. Lingg, Vice President, Finance and Treasurer. Mr. Lingg joined
the Company in January 1996 as Vice President, Finance and Treasurer. In 1995,
Mr. Lingg served as Vice President and Chief Financial Officer of RBC Company of
America, a manufacturer of bearings, and for more than five years prior thereto
he served as Vice President and Chief Financial Officer of Mosler Inc., a
manufacturer and servicer of security products.
Kevin M. Reardon, Vice President, Sales and Marketing, North America. Mr.
Reardon joined the Company in 1984 and has been Vice President of Sales and
Marketing, North America since 1995. Previously, Mr. Reardon served as Director
of Marketing and National Sales Manager for the Company.
Michael J. Grossman, Vice President, General Counsel and Secretary. Mr.
Grossman joined the Company in 1985 as Assistant General Counsel. Since 1991 he
has served as Vice President, General Counsel and Assistant Secretary of the
Company.
Jeffrey J. Kirk, Vice President, Human Resources and Purchasing. Mr. Kirk
joined the Company in 1995 as Vice President of Human Resources and Purchasing
of the Company. From 1993 to 1994, Mr. Kirk was a consultant in Human Resources
Management, and from 1988 to 1993, he was Vice President of Human Resources and
an officer of OHM Corporation, an environmental remediation firm.
Thomas J. Snyder, Director. Mr. Snyder has been President, Chief Operating
Officer and a director of Delco Remy International, Inc. since 1994. From 1962
to 1994, Mr. Snyder held several executive positions with the Delco Remy
Division of General Motors, most recently as Product Manager, Heavy Duty
Systems. He is also a director of St. John's Health Systems.
Michael A. Delaney, Director. Mr. Delaney has been a Vice President of CVC
since 1989. From 1986 through 1989, he was Vice President of Citicorp Mergers
and Acquisitions. Mr. Delaney is a director of Aetna Industries, Inc.,
AmeriSource Health Corporation, CORT Business Services Corporation, Delco Remy
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International, Inc., Enterprise Media Inc., GVC Holdings, IKS Corporation, JAC
Holdings, Palomar Technologies, Inc., SC Processing, Inc., Sybron Chemicals,
Inc. and Triumph Holdings, Inc.
James A. Urry, Director. Mr. Urry has been with Citibank, N.A. since 1981,
serving as a Vice President since 1986. He has been a Vice President of CVC
since 1989. He is a director of AmeriSource Health Corporation, CORT Business
Services Corporation, Hancor Holding Corporation, IKS Corporation and York
International Corporation.
Pursuant to the Stockholders' Agreement (as defined), CVC has the
contractual right to designate an additional director who shall not be an
employee of CVC to the Company's Board of Directors, subject to the right of the
holders of a majority of the outstanding shares of Holdings Class A Stock to
veto the election of such director. See "Ownership of the
Company -- Stockholders' Agreement."
DIRECTOR COMPENSATION AND ARRANGEMENTS
It is not currently contemplated that directors of the Company will receive
compensation for their services as directors. Members of the Board of Directors
are elected pursuant to certain voting agreements among Holdings and its
stockholders. See "Ownership of the Company -- Stockholders' Agreement."
EXECUTIVE COMPENSATION
The compensation of executive officers of the Company will be determined by
the Board of Directors of the Company. None of the historical benefit or
compensation plans of Terex are described herein because they were not assumed
by the Company in connection with the Acquisition. The Company intends to adopt
a 401(k) retirement plan and an employee stock purchase plan. See "-- 401(k)
Plan" and "Ownership of the Company -- Employee Stock Purchase Plan".
The following table sets forth certain information concerning the
compensation received by the Chief Executive Officer and the four most highly
compensated officers of the Company for services rendered in 1995. Information
concerning restricted stock awards and stock options relates to the capital
stock of Terex and not to the Company's capital stock.
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
----------------------
ANNUAL COMPENSATION AWARDS
------------------------------------ ----------------------
OTHER RESTRICTED STOCK
ANNUAL STOCK OPTIONS(3) ALL OTHER
SALARY BONUS COMPENSATION(1) AWARDS(2) (# SHARES) COMPENSATION(4)
-------- ------- --------------- --------- ---------- ---------------
Dr. Martin M. Dorio............. $116,667 $60,000 $27,419 $75,000 25,000 $ 1,929
President and Chief Executive
Officer(5)
Dr. J. Frithjof Timm............ 133,333 66,667 -- 15,938 5,000 --
President, CLARK Europe(6)
Kevin M. Reardon................ 100,750 7,900 -- -- 2,000 2,221
Vice President of Sales and
Marketing
Michael J. Grossman............. 110,004 11,000 -- -- 4,000 3,525
Vice President and General
Counsel
Jeffrey J. Kirk................. 91,538 10,500 35,772 6,500 6,000 1,732
Vice President, Human Resources
and Purchasing
(footnotes on following page)
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(1) Relocation expense reimbursement, including related gross-up payments, and
for Dr. Dorio $480 representing the discount received on purchases of stock
through the Terex Employee Stock Purchase Plan.
(2) Awards of Restricted Stock made in 1995, valued on date of grant. Awards
vest 25% on the anniversary of the date of grant. On December 31, 1995,
Messrs. Reardon and Grossman each held 1,000 shares of restricted stock (of
which 250 shares for each had vested) representing a value of $4,750, based
on the closing price for unrestricted shares on December 29, 1995. On
December 31, 1995 the aggregate holdings and valuation of restricted stock
held by the other three officers (none of which shares had vested) were as
follows: for Dr. Dorio, 12,500 shares valued at $59,375; for Dr. Timm 2,500
shares valued at $11,875; for Mr. Kirk 1,000 shares valued at $4,750.
Dividends are payable only with respect to shares which have vested.
(3) Options have an exercise price per share equal to the closing price on the
date of the grant and vest 25% each year on the anniversary of such date.
Exercise prices for options granted in 1995 are: $6/share for Dr. Dorio;
$6.375/share for Dr. Timm; $4.25/share for Messrs. Reardon and Grossman, and
for 4,000 of Mr. Kirk's option shares; and $6.50/share for the remaining
2,000 of Mr. Kirks's option shares.
(4) Company 401(k) contributions and payment of life insurance premiums.
(5) Dr. Dorio became the President and Chief Executive Officer of the Company in
June 1995 and therefore his salary reflects 7/12ths of his annual
compensation, which is the amount of compensation actually received by Dr.
Dorio during 1995.
(6) Dr. Timm's salary and bonus are calculated from Deutsche Marks using a
conversion rate of 1.5 DM/$. Dr. Timm joined the Company in May 1995. Dr.
Timm's salary reflects two-thirds of his annual compensation, which is the
amount of compensation actually received by Dr. Timm during 1995.
EMPLOYMENT AGREEMENT
Concurrent with the consummation of the Transactions, Holdings entered into
a three-year employment contract with Dr. Martin M. Dorio pursuant to which Dr.
Dorio is employed as the President and Chief Executive Officer of Holdings and
the Company. The agreement provides for an annual base salary of $225,000, which
is subject to annual merit increases, and an annual performance bonus. The
Company has agreed that, in the event that Holdings is unable to pay Dr. Dorio
any amounts due to him with respect to annual bonuses, the Company will pay such
amounts. In addition, the agreement provides for the receipt by Dr. Dorio of
standard company benefits. The agreement is terminable by Holdings with or
without cause. In the event the agreement is terminated without cause or as a
result of the total disability of Dr. Dorio, Dr. Dorio will be entitled to
continue to receive his base salary and certain other benefits for specified
periods. Following any termination of Dr. Dorio's employment, he will be subject
to a non-competition covenant for up to two years.
401(K) PLAN
The Company intends to adopt a qualified 401(k) retirement plan for certain
of its employees who were entitled to participate in a 401(k) retirement plan
maintained by Terex prior to the Acquisition. Subject to certain statutory
limitations, eligible employees will be able to contribute a percentage of their
compensation to the plan on a pre-tax basis ("elective deferrals"). For 1996,
the maximum amount of elective deferrals that may be made by any employee is
$9,500. Employees are fully vested in their elective deferrals at all times.
Generally, employees may not receive a distribution of their account balances
prior to their death, disability, termination of employment or retirement, and
their account balances cannot be assigned or alienated.
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OWNERSHIP OF THE COMPANY
All of the outstanding capital stock of the Company is currently owned by
Holdings. The following table sets forth certain information with respect to the
beneficial ownership of the Holdings Preferred Stock and Holdings Common Stock
by (i) each person or entity who owns five percent or more thereof, (ii) each
director of the Company who is a stockholder, (iii) the Chief Executive Officer
of the Company and the other executive officers named in the "Summary
Compensation Table" above who are stockholders, and (iv) the directors and
officers of the Company as a group. Unless otherwise specified, all shares are
directly held.
NUMBER AND PERCENT OF SHARES
----------------------------------------------------------------
HOLDINGS
PREFERRED HOLDINGS CLASS A HOLDINGS CLASS B
STOCK STOCK(1) STOCK(2)
---------------- ------------------- -------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
- ---------------------------------- ------ ----- ---------- ----- -------- -------
16,904 99.4% 4,000 48.8% 987,000 99.5%
Citicorp Venture Capital Ltd......
399 Park Avenue
New York, New York 10043
96 0.6% 4,000 48.8% -- --
Dr. Martin M. Dorio(3)............
172 Trade Street
Lexington, Kentucky 40508
-- -- 196.7 2.4% 4,803.3 0.5%
Thomas J. Snyder..................
All directors and officers as a
group
96 0.6% 10,196.7 51.2% 4,803.3 0.5%
(9 persons)(3)..................
- ---------------
(1) Does not include shares of Holdings Class A Stock issuable upon conversion
of Holdings Class B Stock. See "-- Holdings Common Stock."
(2) Does not include shares of Holdings Class B Stock issuable upon conversion
of Holdings Class A Stock. See "-- Holdings Common Stock."
(3) It is currently contemplated that certain Management Investors will purchase
additional Holdings Preferred Stock and Holdings Common Stock. See "The
Transactions." In addition, certain members of the Company's management are
also expected to participate in an Employee Stock Purchase Plan pursuant to
which management will be offered the opportunity to acquire Holdings Class A
Stock which would equal in the aggregate up to an additional 10.0% of the
Holdings Class A Stock outstanding. See "-- Employee Stock Purchase Plan."
The table does not include any such securities that may be acquired.
HOLDINGS PREFERRED STOCK
The Holdings Certificate of Incorporation provides that Holdings may issue
20,000 shares of Holdings Preferred Stock, all of which are designated as Series
A Cumulative Compounding Preferred Stock. Holdings Preferred Stock has a stated
value of $1,000 per share and is entitled to annual dividends when, as and if
declared, which dividends will be cumulative, whether or not earned or declared,
and will accrue at a rate of 12%, compounding. The vote of a majority of the
outstanding shares of the Holdings Preferred Stock, voting as a separate class,
is required to (i) create, authorize or issue any other class or series of stock
entitled to a preference prior to the Holdings Preferred Stock upon any dividend
or distribution or any liquidation, distribution of assets, dissolution or
winding up of Holdings, or increase the authorized amount of any such other
class or series, or (ii) amend Holdings' Certificate of Incorporation if such
amendment would adversely affect the relative rights and preferences of the
holders of the Holdings Preferred Stock. Except as described in the immediately
preceding sentence or as otherwise required by law, the Holdings Preferred Stock
is not entitled to vote. Holdings may not pay any dividend upon (except for a
dividend payable in Junior Stock, as defined below), or redeem or otherwise
acquire shares of, capital stock junior to the Holdings Preferred Stock
(including the Holdings Common Stock) ("Junior Stock") unless all cumulative
dividends on the Holdings Preferred Stock have been paid in full. Upon
liquidation, dissolution or winding up of Holdings, holders of Holdings
Preferred Stock are entitled to receive out of the legally available assets of
Holdings, before any amount shall be paid to holders of Junior Stock, an amount
equal to $1,000 per share of Holdings Preferred Stock, plus all accrued and
unpaid dividends to the date of final distribution. If such available assets are
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insufficient to pay the holders of the outstanding shares of Holdings Preferred
Stock in full, such assets, or the proceeds thereof, will be distributed ratably
among such holders. The Holdings Preferred Stock is not mandatorily redeemable
prior to the maturity of the Notes. Holdings may optionally redeem, in whole or
in part, the Holdings Preferred Stock at any time at a price per share of
$1,000, plus accrued and unpaid dividends to the date of redemption.
HOLDINGS COMMON STOCK
The Certificate of Incorporation of Holdings provides that Holdings may
issue 2,500,000 shares of Holdings Common Stock, divided into two classes
consisting of 1,250,000 shares of Holdings Class A Stock and 1,250,000 shares of
Holdings Class B Stock. The holders of Holdings Class A Stock are entitled to
one vote for each share held of record on all matters submitted to a vote of the
stockholders. Except as required by law, the holders of Holdings Class B Stock
have no voting rights. Under the Certificate of Incorporation of Holdings, a
holder of either class of Holdings Common Stock may convert any or all of his
shares into an equal number of shares of the other class of Holdings Common
Stock; provided that in the case of a conversion from Holdings Class B Stock,
which is nonvoting, into Holdings Class A Stock, which is voting, the holder of
shares to be converted would be permitted under applicable law to hold the total
number of shares of Holdings Class A Stock which would be held after giving
effect to the conversion.
STOCKHOLDERS' AGREEMENT
In connection with the Transactions, the stockholders of Holdings entered
into a Securities Purchase and Holders Agreement (the "Stockholders' Agreement")
containing certain agreements among such stockholders with respect to the
capital stock and corporate governance of Holdings and the Company. The
following is a summary description of the principal terms of the Stockholders'
Agreement, a copy of which is available upon request to the Company.
Pursuant to the Stockholders' Agreement, the Board of Directors of Holdings
and the Company shall be composed at all times of five directors as follows: the
President of the Company, Dr. Martin M. Dorio (so long as he continues to serve
as President); two individuals designated by CVC; and two additional directors
who shall not be employees of CVC but who shall be designated by CVC, subject to
the right of holders of the majority of the outstanding shares of Holdings Class
A Stock to veto the election of either of such additional directors.
The Stockholders' Agreement contains certain provisions which, with certain
exceptions, restrict the ability of the stockholders from transferring any
Holdings Common Stock, Holdings Preferred Stock or Holdings Debentures except
pursuant to the terms of the Stockholders' Agreement. So long as Holdings has
not consummated a public offering of Holdings Common Stock resulting in
aggregate net proceeds of $30.0 million or more, if holders of at least 50% of
the Holdings Common Stock then outstanding approve the sale of the Company (an
"Approved Sale"), each stockholder has agreed to consent to such sale and, if
such sale includes the sale of stock, each stockholder has agreed to sell all of
such stockholder's Holdings Common Stock on the terms and conditions approved by
holders of a majority of the Holdings Common Stock then outstanding. In the
event Holdings proposes to issue and sell (other than in a public offering
pursuant to a registration statement) any shares of Holdings Common Stock and/or
Holdings Preferred Stock or any securities containing options or rights to
acquire any shares of Holdings Common Stock and/or Holdings Preferred Stock or
any securities convertible into Holdings Common Stock and/or Holdings Preferred
Stock to CVC or its corporate affiliates, Holdings must first offer to each of
the other shareholders a pro rata portion of such shares. Such preemptive rights
are not applicable in certain circumstances including the issuance of shares of
Holdings Common Stock and/or Holdings Preferred Stock upon the conversion of
shares of one class of Holdings Common Stock and/or Holdings Preferred Stock
into shares of the other class or upon an initial public offering.
The Stockholders' Agreement also provides for certain additional
restrictions on transfer of shares by Management Investors, including the right
of Holdings to repurchase shares upon termination of such
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stockholder's employment prior to 2001, at a formula price, and the grant of a
right of first refusal in favor of Holdings in the event a Management Investor
elects to transfer shares of Holdings Common Stock.
REGISTRATION RIGHTS AGREEMENT
In connection with their entry into the Stockholders' Agreement, Holdings,
CVC, Dr. Martin M. Doro and Thomas J. Snyder entered into a Registration Rights
Agreement (the "Holdings Registration Rights Agreement"). Pursuant to the
Holdings Registration Rights Agreement, upon the written request of CVC,
Holdings has agreed to (subject to certain exceptions) prepare and file a
registration statement with the Commission concerning the distribution of all or
part of the shares held by CVC and use its best efforts to cause such
registration statement to become effective. If at any time Holdings files a
registration statement for the Holdings Common Stock pursuant to a request by
CVC or otherwise (other than a registration statement of Form S-8, Form S-4 or
any similar form, a registration statement filed in connection with a share
exchange or an offering solely to Holdings' employees or existing stockholders,
or a registration statement registering a unit offering), Holdings will use its
best efforts to allow the other parties to the Holdings Registration Rights
Agreement to have their shares of Holdings Common Stock (or a portion of their
shares under certain circumstances) included in such offering of Holdings Common
Stock if the registration form proposed to be used may be used to register such
shares. Registration expenses of the selling stockholders (other than
underwriting fees, brokerage fees and transfer taxes applicable to the shares
sold by such stockholders or the fees and expenses of any accountants or other
representatives retained by a selling stockholder) are to be paid by Holdings.
EMPLOYEE STOCK PURCHASE PLAN
It is currently contemplated that Holdings will adopt an Employee Stock
Purchase Plan (the "Plan") pursuant to which members of the Company's management
("Participants") will be offered the opportunity to purchase Holdings Class A
Stock. The Participants will be given the opportunity to acquire or be granted
options to acquire an aggregate of up to 10.0% of Holdings Class A Common Stock
outstanding on a fully-diluted basis.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SERVICE AGREEMENT
In connection with the Acquisition, the Company entered into a Service
Agreement with Terex pursuant to which the Company shares space in the Southaven
Facility with the Terex Distribution Center, a division of Terex ("TDC"). In
addition, pursuant to such agreement the Company hired approximately 30
employees of TDC who are responsible for aftermarket customer support and
administration. The Company pays an aggregate annual fee to TDC under such
agreement of approximately $6.0 million (the "Base Fee"), payable in monthly
installments. The term of the agreement is for three years. See "Risk
Factors -- Lack of Independent Operating History" and Note K to the Company's
audited combined financial statements. In addition to the Base Fee, certain
provisions of the Service Agreement may require each of TDC and CLARK to share
the responsibility for additional costs and savings resulting from, among other
things, changes or increases in the provision of services or the implementation
of certain cost savings.
TAX SHARING AGREEMENT
Holdings and the Company will be included in the consolidated United States
federal income tax return of Holdings. Holdings and the Company entered into a
tax sharing agreement (the "Tax Sharing Agreement") whereby the Company will pay
Holdings (or Holdings will pay the Company) its pro rata share of the total tax
liability, as set out in the tax sharing agreement. In the event the Company is
included in a joint, combined, consolidated or unitary state or local income or
franchise tax return with Holdings, the Company shall make payments to Holdings,
and Holdings shall make payments to the Company, in a manner consistent with
that described above for federal tax purposes.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of certain indebtedness of the Company and
Holdings. To the extent such summary contains descriptions of the Revolving
Credit Facility and other loan documents, such descriptions do not purport to be
complete and are qualified in their entirety by reference to such documents.
REVOLVING CREDIT FACILITY
In connection with the Acquisition, the Company entered into the $30.0
million Revolving Credit Facility with Congress Financial Corporation (the
"Bank"). Borrowings under the Revolving Credit Facility are available for
working capital and general corporate purposes, including letters of credit. The
Revolving Credit Facility is secured by first priority liens on all accounts
receivable and inventory of the Company's domestic operations. The Company did
not draw upon the Revolving Credit Facility in connection with the consummation
of the Transactions.
The Revolving Credit Facility expires three years from the date of closing,
unless extended. The interest rate per annum applicable to the Revolving Credit
Facility is the prime rate, as announced by CoreStates Bank N.A., plus 0.50% or,
at the Company's option, the adjusted Eurodollar rate plus 2.50%. The Revolving
Credit Facility permits the Company to prepay loans and to permanently reduce
revolving credit commitments or letters of credit, in whole or in part, at any
time in certain minimum amounts. The Company is required to pay certain fees in
connection with the Revolving Credit Facility, including a closing fee of 0.75%
of the total commitment and a commitment fee of 0.25% on the undrawn portion of
the revolving credit commitment.
The Revolving Credit Facility contains customary representations,
warranties and events of default as well as certain covenants.
SUBSIDIARY CREDIT FACILITIES
CLARK Europe may enter into a revolving credit facility to provide working
capital for its European operations. It is expected that any such facility will
provide up to $10.0 million of revolving credit loans and will be secured by
certain assets of CLARK Europe.
The Company's Korean subsidiary maintains a $420,000 working capital credit
line bearing interest at a rate of 13.75%. This credit line is currently fully
drawn upon. It is expected that such borrowings will be repaid in connection
with certain anticipated post-closing adjustments to the consideration for the
Acquisition. The Company's Brazilian subsidiary is in the process of obtaining a
working capital credit facility, which is currently expected to be in the amount
of approximately $300,000.
HOLDINGS DEBENTURES
In connection with the Transactions, Holdings issued an aggregate of $7.0
million original principal amount of Holdings Debentures, designated as Junior
Subordinated Notes. The Holdings Debentures mature on 2007 and bear interest at
a rate of 12% per annum. All interest due on the Holdings Debentures prior to
their maturity shall be paid by adding such interest to the then outstanding
principal amount of the Holdings Debentures. Such amount shall accrue interest
as a portion of the principal amount of the Holdings Debentures from the
applicable interest payment date. The Holdings Debentures contain certain
covenants in favor of the holders of the Holdings Debentures (the "Holdings
Debenture Holders") including, but not limited to: (i) restrictions on the
payment by Holdings of dividends and the purchase, redemption or prepayment by
Holdings and its subsidiaries of its capital stock or indebtedness which is, by
its terms or by operation of law, junior in right of payment to the Holdings
Debentures, and (ii) restrictions on subsidiaries entering into agreements
(other than with respect to the Notes) restricting their ability to pay
dividends or make certain other distributions to Holdings or any subsidiary of
Holdings.
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DESCRIPTION OF NOTES
GENERAL
The Existing Notes were issued under the Indenture dated as of November 27,
1996 between the Company and United States Trust Company of New York, as trustee
(the "Trustee"). The terms of the Indenture apply to the Existing Notes and to
the New Notes to be issued in exchange therefor pursuant to the Exchange Offer
(all such Notes being referred to herein collectively as the "Notes"). The terms
of the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act. The following summary of
certain provisions of the Indenture does not purport to be complete and is
qualified in its entirety by reference to the Indenture, including the
definitions therein of certain terms used below. The definitions of certain
terms used in the following summary are set forth below under "-- Certain
Definitions."
The Notes are senior unsecured obligations of the Company and rank senior
in right of payment to all subordinated Indebtedness of the Company and pari
passu in right of payment with all senior Indebtedness.
The Notes are effectively subordinated to all senior secured indebtedness
of the Company, including indebtedness under the Revolving Credit Facility, to
the extent of the assets securing such debt. As of September 30, 1996, on a pro
forma basis after giving effect to the Transactions, the Company would not have
had any secured indebtedness outstanding, exclusive of unused commitments of
$30.0 million which may be borrowed by the Company under the Revolving Credit
Facility.
Although the Company's U.S. operations are owned directly, its foreign
operations are conducted through the Foreign Subsidiaries. The Foreign
Subsidiaries have not guaranteed or otherwise become obligated with respect to
the Notes. The Notes are therefore effectively subordinated to all existing and
future liabilities, including indebtedness, of the Foreign Subsidiaries. As of
September 30, 1996, on a pro forma basis after giving effect to the
Transactions, the Foreign Subsidiaries would have had liabilities of
approximately $40.4 million reflected on the Company's combined balance sheet.
Claims of creditors of the Foreign Subsidiaries, including trade creditors, will
generally have priority as to the assets of such subsidiaries over the claims of
the Company and the holders of the Company's indebtedness, including the Notes.
The Notes may be issued only in registered form, without coupons, and in
denominations of $1,000 and integral multiples thereof.
PRINCIPAL MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $130,000,000 and
will mature on November 15, 2006. Interest on the Notes is payable semi-annually
on November 15 and May 15 of each year, commencing on May 15, 1997, to holders
of record on the immediately preceding November 1 and May 1, respectively. The
Notes bear interest at 10 3/4% per annum. Interest on the Notes accrues from the
most recent date to which interest has been paid or, if no interest has been
paid, from November 27, 1996. Interest is computed on the basis of a 360-day
year comprised of twelve 30-day months. The Notes are payable both as to
principal and interest at the office or agency of the Company maintained for
such purpose within the City of New York or, at the option of the Company,
payment of interest may be made by check mailed to the holders of the Notes at
their respective addresses set forth in the register of holders of Notes. Until
otherwise designated by the Company, the Company's office or agency will be the
office of the Trustee maintained for such purpose. If a payment date is a Legal
Holiday, payment may be made at that place on the next succeeding day that is
not a Legal Holiday, and no interest shall accrue for the intervening period.
REDEMPTION
The Notes are not redeemable at the Company's option prior to November 15,
2001. Thereafter, the Notes are subject to redemption at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth
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below plus accrued and unpaid interest thereon, if any, to the applicable date
of redemption, if redeemed during the 12-month period beginning on November 15
of the years indicated below:
YEAR PERCENTAGE
-------------------------------------------------- ----------
2001.............................................. 105.375%
2002.............................................. 102.688
2003 and thereafter............................... 100.000
Notwithstanding the foregoing, at any time or from time to time prior to
November 15, 1999, the Company may, at its option, redeem up to one-third of the
original principal amount of the Notes, at a redemption price of 110.75% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the
applicable redemption date, with the net cash proceeds of one or more Public
Equity Offerings; provided, that (a) such redemption shall occur within 90 days
of the date of closing of such public offering and (b) at least $86.7 million
aggregate principal amount of Notes remains outstanding immediately after giving
effect to each such redemption.
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such other method as the Trustee deems to be fair and appropriate,
provided, that Notes of $1,000 or less may not be redeemed in part. Notice of
redemption will be mailed by first-class mail at least 30 but not more than 60
days before the redemption date to each holder of Notes to be redeemed at such
holder's registered address. If any Note is to be redeemed in part only, the
notice of redemption that relates to such Note will state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal to
the unredeemed portion thereof will be issued in the name of the holder thereof
upon cancellation of the original Note. On and after the date of redemption,
interest will cease to accrue on Notes or portions thereof called for
redemption.
The Notes are not entitled to any mandatory redemption or sinking fund.
REPURCHASE UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
offer to repurchase all the Notes then outstanding (the "Change of Control
Offer") at a purchase price equal to 101% of the aggregate principal amount
thereof plus accrued and unpaid interest, if any, to the date of repurchase (the
"Change of Control Payment"). Within 30 days following any Change of Control,
the Company must mail or cause to be mailed a notice to each holder stating,
among other things: (i) that the Change of Control Offer is being made pursuant
to this provision and that all Notes tendered will be accepted for payment, (ii)
the purchase price and the purchase date, which will be no earlier than 30 days
nor later than 60 days from the date such notice is mailed (the "Change of
Control Payment Date"), (iii) that any Note not tendered will continue to accrue
interest, (iv) that, unless the Company defaults in the payment of the Change of
Control Payment, all Notes accepted for payment pursuant to the Change of
Control Offer will cease to accrue interest on the Change of Control Payment
Date, (v) that any holder electing to have Notes purchased pursuant to a Change
of Control Offer will be required to surrender the Notes, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Notes completed, to
the paying agent with respect to the Notes (the "Paying Agent") at the address
specified in the notice prior to the close of business on the third business day
preceding the Change of Control Payment Date, (vi) that any holder will be
entitled to withdraw such election if the Paying Agent receives, not later than
the close of business on the second business day preceding the Change of Control
Payment Date, a telegram, telex, facsimile transmission or letter setting forth
the name of the holder, the principal amount of Notes delivered for purchase,
and a statement that such holder is withdrawing his election to have such Notes
purchased, and (vii) that a holder whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered, which unpurchased portion must be equal to $1,000 in
principal amount or an integral multiple thereof.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection
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with the repurchase of the Notes in connection with a Change of Control. To the
extent that the provisions of any securities laws or regulations conflict with
the "Change of Control" provisions of the Indenture, the Company will comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment the Notes or portions thereof tendered pursuant
to the Change of Control Offer, (ii) deposit with the Paying Agent an amount
equal to the Change of Control Payment in respect of all Notes or portions
thereof so tendered and not withdrawn, and (iii) deliver or cause to be
delivered to the Trustee the Notes so accepted together with an Officer's
Certificate stating that the Notes or portions thereof tendered to the Company
are accepted for payment. The Paying Agent will promptly mail to each holder of
Notes so accepted payment in an amount equal to the purchase price for such
Notes, and the Trustee will authenticate and mail to each holder a new Note
equal in principal amount to any unpurchased portion of the Notes surrendered,
if any, provided, that each such new Note will be in principal amount of $1,000
or an integral multiple thereof. The Company will announce the result of the
Change of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the holders of the Notes to
require that the Company repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar restructuring.
There can be no assurance that sufficient funds will be available at the
time of any Change of Control Offer to make required repurchases.
"Change of Control" means (i) the transfer (in one transaction or a series
of transactions) of all or substantially all of the Company's assets to any
Person or group (as such term is used in Section 13(d)(3) of the Exchange Act)
other than to one or more Existing Holders, (ii) the liquidation or dissolution
of the Company or the adoption of a plan by the stockholders of the Company
relating to the dissolution or liquidation of the Company, (iii) the acquisition
by any Person or group (as such term is used in Section 13(d)(3) of the Exchange
Act), except for one or more Existing Holders, of beneficial ownership, directly
or indirectly, of more than 50% of the voting power of the total outstanding
Voting Stock of Holdings, (iv) after the consummation of an initial public
offering of any class of common stock of the Company or Holdings, during any
period of two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Company or Holdings (together with any
new directors who have been appointed by CVC, Citicorp N.A., or any Affiliate of
CVC or whose nomination for election by the stockholders of the Company was
approved by a vote of at least 66 2/3% of the directors 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 the Board of Directors of the Company or Holdings, as
the case may be, then still in office or (v) the failure by Holdings to own more
than 50% of the voting power of the total outstanding Voting Stock of the
Company.
"Existing Holders" shall mean (i) CVC, (ii) Citicorp N.A. or any other
Affiliate of CVC, (iii) any officer, employee or director of CVC, (iv) the
Management Investors and (v) in the case of any natural Person specified in the
foregoing clauses, any spouse or lineal descendant (including by adoption) of
such Person; provided, that in no event shall the Persons specified in clauses
(iii) through (v) be deemed "Existing Holders" with respect to more than 30% of
the voting power of the total outstanding Voting Stock of the Company or
Holdings.
CERTAIN COVENANTS
LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly (i) declare
or pay any dividend or make any distribution on account of any Equity Interests
of the Company or any of its Subsidiaries (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the Company or
dividends or distributions payable to the Company or any Wholly Owned
Subsidiary), (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interest of the Company, any Subsidiary or any other Affiliate of the
Company (other than any
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such Equity Interest owned by the Company or any Wholly Owned Subsidiary), (iii)
make any principal payment on, or purchase, redeem, defease or otherwise acquire
or retire for value any Indebtedness of the Company or any Guarantor that is
subordinated in right of payment to the Notes or such Guarantor's Guarantee
thereof, as the case may be, prior to any scheduled principal payment, sinking
fund payment or other payment at the stated maturity thereof, or (iv) make any
Restricted Investment (all such payments and other actions set forth in clauses
(i) through (iv) above being collectively referred to as "Restricted Payments")
unless, at the time of such Restricted Payment:
(a) no Default or Event of Default has occurred and is continuing or would
occur as a consequence thereof,
(b) immediately after giving effect thereto on a pro forma basis, the
Company could incur at least $1.00 of additional Indebtedness under the
Interest Coverage Ratio test set forth in the covenant described under
"-- Limitation on Incurrence of Indebtedness," and
(c) such Restricted Payment (the value of any such payment, if other than
cash, being determined in good faith by the Board of Directors and
evidenced by a resolution set forth in an Officers' Certificate
delivered to the Trustee), together with the aggregate of all other
Restricted Payments made after the date of the Indenture (including
Restricted Payments permitted by clauses (i) and (ii) of the next
following paragraph and excluding Restricted Payments permitted by the
other clauses therein), is less than the sum of (1) 50% of the
Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first quarter commencing
immediately after the date of the Indenture to the end of the Company's
most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, 100% of such
deficit), plus (2) 100% of the aggregate net cash proceeds (or of the
net cash proceeds received upon the conversion of non-cash proceeds
into cash) received by the Company from the issuance or sale, other
than to a Subsidiary, of Equity Interests of the Company (other than
Disqualified Stock) after the date of the Indenture and on or prior to
the time of such Restricted Payment, plus (3) 100% of the aggregate net
cash proceeds (or of the net cash proceeds received upon the conversion
of non-cash proceeds into cash) received by the Company from the
issuance or sale, other than to a Subsidiary, of any convertible or
exchangeable debt security of the Company that has been converted or
exchanged into Equity Interests of the Company (other than Disqualified
Stock) pursuant to the terms thereof after the date of the Indenture
and on or prior to the time of such Restricted Payment (including any
additional net cash proceeds received by the Company upon such
conversion or exchange) plus (4) 100% of the aggregate after-tax net
cash proceeds (or of the after-tax net cash proceeds received upon the
conversion of non-cash proceeds into cash) received by the Company or a
Restricted Subsidiary from the sale or other disposition of any
Investment constituting a Restricted Payment that was made after the
date of the Indenture; provided, that the gain on such sale or
disposition, if any, shall be excluded in determining Consolidated Net
Income for purpose of clause (1) above.
The foregoing provisions do not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would not have been prohibited by the provisions of the
Indenture, (ii) the redemption, purchase, retirement or other acquisition of any
Equity Interests of the Company in exchange for, or out of the proceeds of the
substantially concurrent sale (other than to a Subsidiary) of, other Equity
Interests of the Company (other than Disqualified Stock), (iii) the redemption,
repurchase or payoff of any Indebtedness (1) with proceeds of any Refinancing
Indebtedness permitted to be incurred pursuant to the provision described under
"-- Limitation on Incurrence of Indebtedness" or (2) solely in exchange for, or
out of the proceeds of the substantially concurrent sale (other than to a
Subsidiary) of, any Equity Interests of the Company (other than Disqualified
Stock), (iv) Investments by the Company or any Restricted Subsidiary, in an
aggregate amount not to exceed $5.0 million, in an Unrestricted Subsidiary
formed primarily for the purpose of financing purchases and leases of inventory
manufactured by the Company or any of its Restricted Subsidiaries, (v) payments
by the Company to Holdings pursuant to the Tax Sharing Agreement, (vi)
distributions, loans or advances to Holdings in an
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aggregate amount not to exceed $500,000 per fiscal year; provided, that such
amounts are used by Holdings to pay ordinary operating expenses (including,
without limitation, reasonable directors' fees and expenses, indemnification
obligations and professional fees and expenses) and certain CLARK management
compensation expenses, (vii) (A) payments to, and promptly used by, Holdings to
repurchase Capital Stock or Indebtedness of Holdings from directors, officers
and employees of the Company and its Subsidiaries, including Management
Investors, who have died or whose employment has been terminated, and (B) loans
or advances to employees of the Company or any of its Subsidiaries; provided
that the aggregate amount of such payments, loans and advances in any fiscal
year shall not exceed the lesser of (x) $500,000 plus any amount available for
such payments pursuant to this clause (x) since the date of the Indenture that
have not been used for such purpose and (y) $2.0 million, (viii) Permitted
Transactions or (ix) other Restricted Payments in an aggregate amount not to
exceed $3.0 million; provided, that with respect to clauses (iv), (vii) and (ix)
above, no Default or Event of Default shall have occurred and be continuing at
the time, or shall occur as a consequence thereof.
Not later than the date of making each Restricted Payment, the Company will
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by this covenant were computed, which calculations may be based upon
the Company's latest available financial statements.
LIMITATION ON INCURRENCE OF INDEBTEDNESS. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, (1)
create, incur, issue, assume, guaranty or otherwise become directly or
indirectly liable, contingently or otherwise, (collectively, "incur"), with
respect to any Indebtedness (including Acquired Debt) or (2) issue any
Disqualified Stock; provided, that the Company may incur Indebtedness (including
Acquired Debt) or issue shares of Disqualified Stock and any Restricted
Subsidiary may incur Acquired Debt, in each case if (x) no Default or Event of
Default shall have occurred and be continuing at the time of, or would occur
after giving effect on a pro forma basis to such incurrence or issuance, and (y)
the Interest Coverage Ratio for the Company's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least equal to the ratio
set forth below opposite the period in which such incurrence or issuance occurs,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period:
PERIOD ENDING RATIO
------------------------------------------------------ -----
November 15, 1998..................................... 2.00
Thereafter............................................ 2.50
The foregoing limitations do not prohibit the incurrence of:
(a) Indebtedness of the Company under the Revolving Credit Facility
and Indebtedness of CLARK Europe and its subsidiaries under the German
Subsidiary Facilities, provided, that the aggregate principal amount of
Indebtedness so incurred on any date, together with all other Indebtedness
incurred pursuant to this clause (a) and outstanding on such date, shall
not exceed the greater of (x) $40.0 million, less any required permanent
repayments (which are accompanied by a corresponding permanent commitment
reduction) thereunder, and (y) the sum, on such date, of (i) 90% of
Eligible Receivables (as defined) of the Company and the Restricted
Subsidiaries, plus (ii) 65% of Eligible Inventory (as defined) of the
Company and the Restricted Subsidiaries,
(b) performance bonds, appeal bonds, surety bonds, insurance
obligations or bonds and other similar bonds or obligations incurred in the
ordinary course of business,
(c) obligations incurred (i) to fix the interest rate on any variable
rate Indebtedness otherwise permitted by the Indenture, (ii) to hedge
currency risk with respect to any receivable or liability, the payment of
which is determined by reference to a foreign currency, or (iii) to protect
against fluctuations in the price of raw materials used in the ordinary
course of business of the Company and its Restricted Subsidiaries
(collectively, "Hedging Obligations"),
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(d) Indebtedness arising out of Capital Lease Obligations or Purchase
Money Obligations (collectively, "Purchase Money Indebtedness") in an
aggregate amount not to exceed $10.0 million outstanding at any time,
(e) Indebtedness owed by (i) a Restricted Subsidiary to the Company or
to a Wholly Owned Subsidiary or (ii) the Company to a Wholly Owned
Subsidiary,
(f) Floor Plan Guarantees incurred in the ordinary course of business,
(g) Indebtedness outstanding on the date of the Indenture, including
the Notes,
(h) Guarantees by the Company or any Guarantor of Indebtedness
otherwise permitted to be incurred by the Indenture,
(i) Indebtedness 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 extinguished within three business days of incurrence,
(j) Indebtedness of the Company or any Restricted Subsidiary in
addition to that described in clauses (a) through (i) above, so long as the
aggregate principal amount of all such Indebtedness incurred pursuant to
this clause (j) does not exceed $10.0 million at any one time outstanding
(which may be, but shall not be required to be, incurred, in whole or in
part, under the Revolving Credit Facility or the Germany Subsidiary
Facilities), and
(k) Indebtedness issued in exchange for, or the proceeds of which are
contemporaneously used to extend, refinance, renew, replace, or refund
(collectively, "Refinance") Indebtedness referred to in clause (g) above or
this clause (k) or Indebtedness incurred pursuant to the Interest Coverage
Ratio test set forth in the immediately preceding paragraph ("Refinancing
Indebtedness"); provided, that (1) the principal amount of such Refinancing
Indebtedness does not exceed the principal amount of Indebtedness so
Refinanced (plus the premiums required to be paid, and the out-of-pocket
expenses (other than those payable to an Affiliate of the Company)
reasonably incurred, in connection therewith), (2) the Refinancing
Indebtedness has a final scheduled maturity that exceeds the final stated
maturity, and a Weighted Average Life to Maturity that is equal to or
greater than the Weighted Average Life to Maturity, of the Indebtedness
being Refinanced and (3) the Refinancing Indebtedness ranks, in right of
payment, no less favorable to the Notes as the Indebtedness being
Refinanced.
LIMITATION ON ASSET SALES. The Company will not, and will not permit any
Restricted Subsidiary to, make any Asset Sale unless (i) the Company or such
Restricted Subsidiary receives consideration at the time of such Asset Sale at
least equal to the fair market value (as determined in good faith by the Board
of Directors as evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee) of the assets subject to such
Asset Sale, (ii) at least 75% of the consideration for such Asset Sale is in the
form of cash, Cash Equivalents or liabilities of the Company or any Restricted
Subsidiary (other than liabilities that are by their terms subordinated to the
Notes or any Guarantee) that are assumed by the transferee of such assets
(provided, that there is no further recourse to the Company and its Restricted
Subsidiaries with respect to such liabilities), and (iii) within 12 months of
such Asset Sale, the Net Proceeds thereof are (a) invested in assets related to
the business of the Company or its Restricted Subsidiaries or (b) to the extent
not used as provided in clause (a), applied to make an offer to purchase Notes
as described below (an "Excess Proceeds Offer"); provided, that if the amount of
Net Proceeds from any Asset Sale not invested pursuant to clause (a) above is
less than $5.0 million, the Company will not be required to make an offer
pursuant to clause (b). Pending the final application of any such Net Proceeds,
the Company or any Restricted Subsidiary may temporarily reduce Indebtedness
under the Revolving Credit Facility or the German Subsidiary Facilities, or
temporarily invest such Net Proceeds in Cash Equivalents.
The amount of Net Proceeds not invested as set forth in the preceding
clause (a) constitutes "Excess Proceeds." If the Company elects, or becomes
obligated to make an Excess Proceeds Offer, the Company will offer to purchase
Notes having an aggregate principal amount equal to the Excess Proceeds (the
"Purchase
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Amount"), at a purchase price equal to 100% of the aggregate principal amount
thereof, plus accrued and unpaid interest, if any, to the purchase date. The
Company must commence such Excess Proceeds Offer not later than 30 days after
the expiration of the 12-month period following the Asset Sale that produced
Excess Proceeds. If the aggregate purchase price for the Notes tendered pursuant
to the Excess Proceeds Offer is less than the Excess Proceeds, the Company and
its Restricted Subsidiaries may use the portion of the Excess Proceeds remaining
after payment of such purchase price for general corporate purposes.
Each Excess Proceeds Offer will remain open for a period of 20 business
days and no longer, unless a longer period is required by law (the "Excess
Proceeds Offer Period"). Promptly after the termination of the Excess Proceeds
Offer Period (the "Excess Proceeds Payment Date"), the Company will purchase and
mail or deliver payment for the Purchase Amount for the Notes or portions
thereof tendered, pro rata or by such other method as may be required by law,
or, if less than the Purchase Amount has been tendered, all Notes tendered
pursuant to the Excess Proceeds Offer. The principal amount of Notes to be
purchased pursuant to an Excess Proceeds Offer may be reduced by the principal
amount of Notes acquired by the Company through purchase or redemption (other
than pursuant to a Change of Control Offer) subsequent to the date of the Asset
Sale and surrendered to the Trustee for cancellation.
Any Excess Proceeds Offer will be conducted in compliance with applicable
regulations under the Federal securities laws, including Exchange Act Rule
14e-1. To the extent that the provisions of any securities laws or regulations
conflict with the "Asset Sale" provisions of the Indenture, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under the "Asset Sale" provisions of the
Indenture by virtue thereof.
There can be no assurance that sufficient funds will be available at the
time of any Excess Proceeds Offer to make required repurchases. The Company's
failure to comply with the covenant described above will be an Event of Default
under the Indenture if such failure continues for a specified period and the
required notice is given by the Trustee or the holders of not less than 25% in
principal amount of the then outstanding Notes.
LIMITATION ON LIENS. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume or
suffer to exist any Lien on any asset (including, without limitation, all real,
tangible or intangible property) of the Company or any Restricted Subsidiary,
whether now owned or hereafter acquired, or on any income or profits therefrom,
or assign or convey any right to receive income therefrom, except (i) Liens on
accounts receivable and inventory and proceeds thereof (and certain rights
relating thereto) securing Indebtedness permitted to be incurred under the
Revolving Credit Facility, (ii) Liens on property, plant, equipment, accounts
receivable and inventory of CLARK Europe and its subsidiaries, and proceeds
thereof (and certain rights relating thereto) securing Indebtedness permitted to
be incurred under the German Subsidiary Facilities, (iii) Purchase Money Liens,
and (iv) Permitted Liens.
LIMITATION ON RESTRICTIONS ON SUBSIDIARY DIVIDENDS. The Company will not,
and will not permit any Restricted Subsidiary to, directly or indirectly, create
or otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary (a) to (1) pay dividends
or make any other distributions to the Company or any of its Restricted
Subsidiaries (A) on such Restricted Subsidiary's Capital Stock or (B) with
respect to any other interest or participation in, or measured by, such
Restricted Subsidiary's profits or (2) pay any indebtedness owed to the Company
or any of its Restricted Subsidiaries, or (b) make loans or advances to the
Company or any of its Restricted Subsidiaries, or (c) transfer any of its assets
to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (i) the Revolving
Credit Facility, as in effect on the Closing Date, or any refinancing thereof
containing restrictions that are not materially more restrictive than those
contained in the Revolving Credit Facility on the Closing Date, (ii) customary
net worth restrictions on the actions specified in clause (a)(1) above contained
in the German Subsidiary Facilities, (iii) the Indenture and the Notes, (iv)
applicable law, (v) restrictions with respect to a Subsidiary that was not a
Subsidiary on the Closing Date in existence at the time such Person becomes a
Subsidiary (but not created as a result of or in anticipation of such Person
becoming a Subsidiary); provided, that such restrictions are not applicable to
any other Person or the properties or assets of any other Person, (vi) customary
non-assignment and net worth provisions of any contract or lease entered into in
the ordinary course of
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business, (vii) customary restrictions on the transfer of assets subject to a
Lien permitted under the Indenture imposed by the holder of such Lien, (viii)
restrictions imposed by any agreement to sell assets or Capital Stock to any
Person pending the closing of such sale, and (ix) permitted Refinancing
Indebtedness (including Indebtedness Refinancing Acquired Debt), provided, that
such restrictions contained in any agreement governing such Refinancing
Indebtedness are not materially more restrictive than those contained in any
agreements governing the Indebtedness being Refinanced.
MERGER, CONSOLIDATION OR SALE OF ASSETS. The Company may not consolidate
or merge with or into (whether or not the Company is the surviving corporation),
or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets (determined on a consolidated
basis for the Company and its Restricted Subsidiaries) in one or more related
transactions to, any other Person unless (i) the Company is the surviving Person
or the Person formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, lease, conveyance
or other disposition has been made is a corporation organized and existing under
the laws of the United States, any state thereof or the District of Columbia,
(ii) the Person formed by or surviving any such consolidation or merger (if
other than the Company) or the Person to which such sale, assignment, transfer,
lease, conveyance or other disposition has been made assumes all the Obligations
of the Company, pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee, under the Notes, the Indenture and the Registration
Rights Agreement, (iii) immediately after such transaction, no Default or Event
of Default exists, and (iv) the Company, or any Person formed by or surviving
any such consolidation or merger, or to which such sale, assignment, transfer,
lease, conveyance or other disposition has been made, (A) has a Consolidated Net
Worth (immediately after the transaction but prior to any purchase accounting
adjustments resulting from the transaction) equal to or greater than the
Consolidated Net Worth of the Company immediately preceding the transaction and
(B) will be permitted, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, to incur at least $1.00 of additional
Indebtedness pursuant to the Interest Coverage Ratio test set forth in the
covenant described under "Incurrence of Indebtedness."
In the event of any transaction (other than a lease) complying with the
conditions listed in the immediately preceding paragraph in which the Company is
not the surviving Person, such surviving Person or transferee shall succeed to,
and be substituted for, and may exercise every right and power of, the Company,
and the Company shall be discharged from its Obligations under, the Indenture,
the Notes and the Registration Rights Agreement.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), except for (i)
Affiliate Transactions, which together with all Affiliate Transactions that are
part of a common plan, have an aggregate value of not more than $1.0 million;
provided, that such transactions are conducted in good faith and on terms that
are no less favorable to the Company or the relevant Restricted Subsidiary than
those that would have been obtained in a comparable transaction at such time on
an arm's-length basis from a Person that is not an Affiliate of the Company or
such Restricted Subsidiary, (ii) Affiliate Transactions, which together with all
Affiliate Transactions that are part of a common plan, have an aggregate value
of not more than $5.0 million; provided, that a majority of the disinterested
members of the Board of Directors of the Company determine that such
transactions are conducted in good faith and on terms that are no less favorable
to the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction at such time on an arm's-length basis
from a Person that is not an Affiliate of the Company or such Restricted
Subsidiary, and (iii) Affiliate Transactions for which the Company delivers to
the Trustee an opinion as to the fairness to the Company or such Restricted
Subsidiary from a financial point of view, issued by an investment banking firm
of national standing; provided, that the following will not be deemed to be
Affiliate Transactions: (i) employment agreements entered into by the Company or
any Restricted Subsidiary in the ordinary course of business with the approval
of a majority of the disinterested members of the Company's Board of Directors,
(ii) transactions between or among the
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Company and/or its Wholly Owned Subsidiaries, (iii) Restricted Payments
permitted by the provisions of the Indenture described above under "Limitations
on Restricted Payments," and (iv) reasonable fees and compensation paid to and
indemnity provided on behalf of, officers, directors, employees or consultants
of the Company or any Restricted Subsidiary as determined in good faith by a
majority of the disinterested directors of the Company's Board of Directors or,
if none, unanimously by the Board of Directors.
RESTRICTIONS ON SALE AND ISSUANCE OF SUBSIDIARY STOCK. The Company shall
not sell, and shall not permit any of its Restricted Subsidiaries to issue or
sell, any shares of Capital Stock (other than directors' qualifying shares) of
any Restricted Subsidiary to any Person other than the Company or a Wholly Owned
Subsidiary; provided, that the Company and its Restricted Subsidiaries may sell
all of the Capital Stock of a Restricted Subsidiary owned by the Company and its
Restricted Subsidiaries if the Net Proceeds from such Asset Sale are used in
accordance with the terms of the covenant described under "-- Limitation on
Asset Sales."
LINE OF BUSINESS. The Company will not, and will not permit any Restricted
Subsidiary to, engage in any business other than (a) the business conducted or
proposed to be conducted by the Company and the Restricted Subsidiaries on the
Closing Date and (b) any business that in the reasonable, good faith judgment of
the Board of Directors of the Company is ancillary, complementary,
supplementary, or related to, or an extension of, any business described in
clause (a) above.
GUARANTORS. The Indenture provides that as long as any Notes remain
outstanding, any Restricted Subsidiary that is not a Foreign Subsidiary shall
(a) execute and deliver to the Trustee a supplemental indenture in form
reasonably satisfactory to the Trustee pursuant to which such Restricted
Subsidiary shall unconditionally guarantee all of the Company's obligations
under the Notes and the Indenture on the terms set forth in the Indenture and
(b) deliver to the Trustee an opinion of counsel that such supplemental
indenture has been duly authorized, executed and delivered by such Restricted
Subsidiary and constitutes a legal, valid, binding and enforceable obligation of
such Restricted Subsidiary. Thereafter, such Restricted Subsidiary shall be a
Guarantor for all purposes of the Indenture. On the Issue Date the Company did
not, and on the date hereof the Company does not, have any Subsidiaries other
than Foreign Subsidiaries. Accordingly, there are no Guarantors.
If all of the Capital Stock of any Guarantor is sold to a Person (other
than the Company or any of its Restricted Subsidiaries) and the Net Proceeds
from such Asset Sale are used in accordance with the terms of the covenant
described under "-- Limitation on Asset Sales," then such Guarantor will be
released and discharged from all of its obligations under its Guarantee of the
Notes and the Indenture.
The obligations of each Guarantor are limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Guarantee of the Notes, result in the obligations of such
Guarantor under its Guarantee of the Notes not constituting a fraudulent
conveyance or fraudulent transfer under Federal or state law. See "Risk
Factors -- Guarantees."
RULE 144A INFORMATION REQUIREMENT. The Company will furnish to the holders
of the Notes and prospective purchasers of Notes designated by the holders of
Notes, upon their request, the information required to be delivered pursuant to
Rule 144A(d)(4) under the Securities Act for so long as is required for an offer
or sale of the Notes to qualify for an exemption under Rule 144A. The Company
will provide a copy of the Registration Rights Agreement to prospective
investors upon request.
REPORTS. Whether or not required by the rules and regulations of the
Commission, so long as any Notes are outstanding, the Company will furnish to
the Trustee, and deliver or cause to be delivered to the holders of Notes, (i)
all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such Forms, including for each a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with respect
to the annual information only, a report thereon by the Company's independent
certified public accountants and (ii) all reports that would be required to be
filed with the Commission on Form 8-K if the Company were required to file such
reports. From and after the time a registration statement with respect to
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the Notes is declared effective by the Commission, the Company will file such
information with the Commission, provided that the Commission will accept such
filing.
EVENTS OF DEFAULT AND REMEDIES
Each of the following constitutes an Event of Default under the Indenture:
(i) default for 30 days in the payment when due of interest on the Notes, (ii)
default in payment of principal (or premium, if any) on the Notes when due at
maturity, redemption, by acceleration or otherwise, (iii) default in the
performance or breach of the provisions of "-- Merger, Consolidation or Sale of
Assets," (iv) failure by the Company or any Guarantor for 60 days after notice
to comply with certain other agreements in the Indenture or the Notes, (v)
default under (after giving effect to any applicable grace periods or any
extension of any maturity date) any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any Restricted Subsidiary (or
the payment of which is guaranteed by the Company or any Restricted Subsidiary),
whether such Indebtedness or guarantee now exists or is created after the date
of the Indenture, if (a) either (1) such default results from the failure to pay
principal on such Indebtedness or (2) as a result of such default the maturity
of such Indebtedness has been accelerated, and (b) the principal amount of such
Indebtedness, together with the principal amount of any other such Indebtedness
with respect to which such a payment default (after the expiration of any
applicable grace period or any extension of the maturity date) has occurred, or
the maturity of which has been so accelerated, exceeds $5.0 million in the
aggregate, (vi) failure by the Company or any Restricted Subsidiary to pay final
non-appealable judgments (other than any judgment as to which a reputable
insurance company has accepted full liability) aggregating in excess of $2.5
million which judgments are not discharged, bonded or stayed within 60 days
after their entry, (vii) written assertion by the Company or any of the
Guarantors, of the unenforceability of their obligations under the Indenture,
the Notes or the Guarantees, and (viii) certain events of bankruptcy or
insolvency with respect to the Company or any Material Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Notes may
declare by written notice to the Company and the Trustee all the Notes to be due
and payable immediately. Notwithstanding the foregoing, in the case of an Event
of Default arising from certain events of bankruptcy or insolvency, all
outstanding Notes will become due and payable without further action or notice.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power.
The holders of a majority in aggregate principal amount of the Notes then
outstanding, by written notice to the Company and the Trustee, may on behalf of
the holders of all of the Notes (i) waive any existing Default or Event of
Default and its consequences under the Indenture except a continuing Default or
Event of Default in the payment of interest on, or the principal of, the Notes
or a Default or an Event of Default with respect to any covenant or provision
which cannot be modified or amended without the consent of the holder of each
outstanding Note affected, and/or (ii) rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default (except nonpayment of principal or
interest that has become due solely because of the acceleration) have been cured
or waived.
The Company is required upon becoming aware of any Default or Event of
Default, to deliver to the Trustee a statement specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator, stockholder or controlling
person of the Company or any Guarantor, as such, has any liability for any
obligations of the Company under the Notes, the Indenture or the Registration
Rights Agreement or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder of the Notes by accepting a Note
waives and releases all such liability. The waiver and release will be part of
the consideration for issuance of the Notes and the Guarantees. Such waiver may
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not be effective to waive liabilities under the Federal securities laws and it
is the view of the Commission that such a waiver is against public policy.
DEFEASANCE AND DISCHARGE OF THE INDENTURE AND THE NOTES
The Indenture provides that the Company will be discharged from any and all
obligations in respect of the Notes, other than the obligation to duly and
punctually pay the principal of, and premium, if any, and interest on, the Notes
in accordance with the terms of the Notes and the Indenture upon irrevocable
deposit with the Trustee, in trust, of money and/or U.S. government obligations
that will provide money in an amount sufficient in the opinion of a nationally
recognized accounting firm to pay the principal of and premium, if any, and each
installment of interest, if any, on the due dates thereof on the Notes. Such
trust may only be established if, among other things, (i) the Company has
delivered to the Trustee an opinion of independent counsel to the effect that
the 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 amount, in the same manner and at the
same times as would have been the case if such deposit and defeasance had not
occurred, (ii) no Default or Event of Default shall have occurred or be
continuing, and (iii) certain customary conditions precedent are satisfied.
The Company may satisfy and discharge its Obligations under the Indenture
to holders of the Notes by delivering to the Trustee for cancellation all
outstanding Notes or by depositing with the Trustee or the Paying Agent, if
applicable, after the Notes have become due and payable, cash sufficient to pay
at the stated maturity of all of the outstanding Notes and paying all other sums
payable under the Indenture by the Company. If the Company has so deposited such
cash, the Guarantors will be discharged from their Obligations under their
Guarantees of the Notes and the Indenture.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the two succeeding paragraphs, the Indenture and the
Notes may be amended or supplemented with the consent of the holders of at least
a majority in principal amount of the Notes then outstanding (including consents
obtained in connection with a tender offer or exchange offer for Notes) and any
existing Default or Event of Default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting holder of Notes): (i) reduce
the principal amount of Notes whose holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of, or the premium on, or change
the fixed maturity of any Note, alter the provisions with respect to the
redemption of the Notes in a manner adverse to the holders of the Notes, or
alter the price at which repurchases of the Notes may be made pursuant to an
Excess Proceeds Offer or Change of Control Offer, (iii) reduce the rate of or
change the time for payment of interest on any Note, (iv) waive a Default or
Event of Default in the payment of principal of or premium, if any, or interest
on the Notes, (v) make any Note payable in money other than that stated in the
Notes, (vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of holders of Notes to receive payments
of principal of or interest on the Notes, (vii) waive a
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redemption payment with respect to any Note, (viii) adversely affect the
contractual ranking of the Notes or Guarantees of the Notes, or (ix) make any
change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of the holders of Notes,
the Company, the Guarantors and the Trustee may amend or supplement the
Indenture or the Notes to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's obligations to holders of
the Notes or any Guarantor's obligation under its Guarantee of the Notes in the
case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the holders of the Notes or that does not
adversely affect the legal rights under the Indenture of any such holder, to
release any Guarantee of the Notes permitted to be released under the terms of
the Indenture, or to comply with requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust Indenture
Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee is permitted to engage in other
transactions; provided, that if the Trustee acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The holders of a majority in principal amount of the then outstanding Notes
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that in case an Event of Default 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 Indenture at the request of any holder of
Notes, unless such holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to the Company at 172 Trade Street, Lexington,
Kentucky 40508; Attention: Joseph F. Lingg.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full definition of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means Indebtedness of a Person existing at the time such
Person is merged with or into the Company or a Restricted Subsidiary or becomes
a Restricted Subsidiary, other than Indebtedness incurred in connection with, or
in contemplation of, such Person merging with or into the Company or a
Restricted Subsidiary or becoming a Restricted Subsidiary; provided, that
Indebtedness of such Person that is redeemed, defeased, retired or otherwise
repaid at the time, or immediately upon consummation, of the transaction by
which such Person is merged with or into the Company or a Restricted Subsidiary
or becomes a Restricted Subsidiary shall not be Acquired Debt.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, will mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise. Notwithstanding the
foregoing, neither Initial Purchaser nor any of their respective Affiliates will
be deemed to be Affiliates of the Company.
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"Asset Sale" means any direct or indirect (i) sale, assignment, transfer,
lease, conveyance, or other disposition (including, without limitation, by way
of merger or consolidation) (collectively, a "transfer"), other than in the
ordinary course of business, of any assets of the Company or any Restricted
Subsidiary or (ii) issuance of any Capital Stock of any Restricted Subsidiary,
in each case to any Person (other than the Company or a Restricted Subsidiary
and other than directors' qualifying shares). For purposes of this definition,
(a) any series of transfers that are part of a common plan shall be deemed a
single Asset Sale and (b) the term "Asset Sale" shall not include any
disposition of all or substantially all of the assets of the Company that is
governed under and complies with the terms of the covenant described under
"-- Merger, Consolidation or Sale of Assets."
"Capital Lease Obligation" means, as to any Person, the obligations of such
Person under a lease that are required to be classified and accounted for as
capital lease obligations under GAAP, and the amount of such obligations at any
date shall be the capitalized amount of such obligations at such date,
determined in accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations, rights or other equivalents
(however designated) of corporate stock, and (ii) with respect to any other
Person, any and all partnership or other equity interests of such Person.
"Cash Equivalent" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), (ii) time deposits and
certificates of deposit and commercial paper issued by the parent corporation of
any domestic commercial bank of recognized standing having capital and surplus
in excess of $250,000,000 and commercial paper issued by others rated at least
A-2 or the equivalent thereof by Standard & Poor's Corporation or at least P-2
or the equivalent thereof by Moody's Investors Service, Inc. and in each case
maturing within one year after the date of acquisition and (iii) investments in
money market funds substantially all of whose assets comprise securities of the
types described in clauses (i) and (ii) above.
"CLARK Europe" means Clark Material Handling GmbH, a Wholly Owned
Subsidiary.
"Closing Date" means the date upon which the Notes are first issued.
"Consolidated EBITDA" means, with respect to any Person (the referent
Person) for any period, consolidated income (loss) from operations of such
Person and its subsidiaries for such period, determined in accordance with GAAP,
plus (to the extent such amounts are deducted in calculating such income (loss)
from operations of such Person for such period, and without duplication)
amortization, depreciation and other non-cash charges (including, without
limitation, amortization of goodwill, deferred financing fees and other
intangibles but excluding non-cash charges incurred after the date of the
Indenture that require an accrual of or a reserve for cash charges for any
future period); provided, that (i) the income from operations of any Person
(including, without limitation, any Unrestricted Subsidiary) that is not a
Wholly Owned Subsidiary or that is accounted for by the equity method of
accounting will be included only to the extent of the amount of dividends or
distributions paid during such period to the referent Person or a Wholly Owned
Subsidiary of the referent Person, and (ii) the income from operations of any
Restricted Subsidiary will not be included to the extent that declarations of
dividends or similar distributions by that Restricted Subsidiary are not at the
time permitted, directly or indirectly, by operation of the terms of its
organization documents or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its owners.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the consolidated interest expense of such Person and its subsidiaries
for such period, whether paid or accrued (including amortization of original
issue discount, noncash interest payment, and the interest component of Capital
Lease Obligations), to the extent such expense was deducted in computing
Consolidated Net Income of such Person for such period.
"Consolidated Net Income" means, with respect to any Person (the referent
Person) for any period, the aggregate of the Net Income of such Person and its
subsidiaries for such period, determined on a consolidated
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basis in accordance with GAAP; provided, that (i) the Net Income of any Person
(including, without limitation, any Unrestricted Subsidiary) that is not a
Wholly Owned Subsidiary or that is accounted for by the equity method of
accounting will be included in calculating the referent Person's Consolidated
Net Income only to the extent of the amount of dividends or distributions paid
during such period to the referent Person or a Wholly Owned Subsidiary of the
referent Person, (ii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition will
be excluded, and (iii) the Net Income of any Subsidiary will be excluded to the
extent that declarations of dividends or similar distributions by that
Subsidiary of such Net Income are not at the time permitted, directly or
indirectly, by operation of the terms of its organization documents or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its owners.
"Consolidated Net Worth" means, with respect to any Person, the total
stockholders' equity of such Person determined on a consolidated basis in
accordance with GAAP, adjusted to exclude (to the extent included in calculating
such equity), (i) the amount of any such stockholders' equity attributable to
Disqualified Capital Stock of such Person and its consolidated subsidiaries, and
(ii) all upward revaluations and other write-ups in the book value of any asset
of such person or a consolidated subsidiary of such person subsequent to the
Closing Date, and (iii) all Investments in persons that are not consolidated
Restricted Subsidiaries.
"Default" means any event that is, or after notice or the passage of time
or both would be, an Event of Default.
"Disqualified Stock" means that portion of any Equity Interests that (i)
either by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) is or upon the happening of an
event would be required to be redeemed or repurchased prior to the final stated
maturity of the Notes or is redeemable at the option of the holder thereof at
any time prior to such final stated maturity or (ii) is convertible into or
exchangeable at the option of the issuer thereof or any other Person for debt
securities.
"Equity Interests" means Capital Stock or warrants, options or other rights
to acquire Capital Stock (but excluding any debt security that is convertible
into, or exchangeable for, Capital Stock).
"Floor Plan Guaranty" means (a) the Guarantee by the Company or a
Restricted Subsidiary of Indebtedness incurred by a franchise dealer or other
purchaser of Inventory manufactured or sold by the Company or a Restricted
Subsidiary, the proceeds of which Indebtedness is used solely to pay the
purchase price of such Inventory and any related fees and expenses (including
finance fees); provided, that (i) to the extent commercially practicable, the
Indebtedness so guaranteed is secured by a perfected first priority lien on such
inventory in favor of the holder of such Indebtedness and (ii) if the Company or
such Restricted Subsidiary is required to make payment with respect to such
Guarantee, the Company or such Restricted Subsidiary will have the right to
receive either (A) title to such Inventory, (B) a valid assignment of a first
priority perfected lien in such Inventory or (C) the net proceeds of any resale
of such Inventory and (b) obligations to repurchase equipment sold by the
Company or its Restricted Subsidiaries from a dealer upon termination of such
dealer or from customers who lease such equipment to third parties when the
equipment comes off lease.
"Foreign Subsidiary" means a Restricted Subsidiary not organized under the
laws of the United States or any political subdivision thereof and the
operations of which are located entirely outside the United States.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
and in the rules and regulations of the Commission, that are in effect on the
date of the Indenture.
"German Subsidiary Facilities" means one or more revolving credit
facilities of CLARK Europe, as the same may be amended, modified, renewed,
refunded, replaced or refinanced from time to time including (i) any related
notes, letters of credit, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case amended, modified,
renewed, refunded, replaced or refinanced from
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time to time, and (ii) any notes, guarantees, collateral documents, instruments
and agreements executed in connection with any such amendment, modification,
renewal, refunding, replacement or refinancing.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Indebtedness" of any Person means (without duplication) (1) all
liabilities and obligations, contingent or otherwise, of such Person (a) in
respect of borrowed money (whether or not the recourse of the lender is to the
whole of the assets of such Person or only to a portion thereof), (b) evidenced
by bonds, debentures, notes or other similar instruments, (c) representing the
deferred purchase price of property or services (other than (i) non interest
bearing obligations and (ii) liabilities incurred in the ordinary course of
business which are not more than 90 days past due), (d) created or arising under
any conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (e) as lessee under capitalized leases, (f) under
bankers' acceptance and letter of credit facilities, (g) to purchase, redeem,
retire, defease or otherwise acquire for value any Disqualified Stock, or (h) in
respect of Hedging Obligations, (2) all liabilities and obligations of others of
the type described in clause (1), above, that are Guaranteed by such Person, and
(3) all liabilities and obligations of others of the type described in clause
(1), above, that are secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
property (including, without limitation, accounts and contract rights) owned by
such Person; provided, that the amount of such Indebtedness shall (to the extent
such Person has not assumed or become liable for the payment of such
Indebtedness in full) be the lesser of (x) the fair market value of such
property at the time of determination and (y) the amount of such Indebtedness.
The amount of Indebtedness of any Person at any date shall 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 Coverage Ratio" means, for any period, the ratio of (i)
Consolidated EBITDA of the Company for such period, to (ii) Consolidated
Interest Expense of the Company for such period. In calculating the Interest
Coverage Ratio for any period, pro forma effect shall be given to: (a) the
incurrence, assumption, guarantee, repayment, repurchase, redemption or
retirement by the Company or any of its Subsidiaries of any Indebtedness (other
than under the Revolving Credit Facility) subsequent to the commencement of the
period for which the Interest Coverage Ratio is being calculated but on or prior
to the date on which the event for which the calculation is being made, as if
the same had occurred at the beginning of the applicable period; and (b) the
occurrence of any Asset Sale during such period by reducing Consolidated EBITDA
for such period by an amount equal to the Consolidated EBITDA (if positive)
directly attributable to the assets sold and by reducing Consolidated Interest
Expense by an amount equal to the Consolidated Interest Expense directly
attributable to any Indebtedness assumed by third parties or repaid with the
proceeds of such Asset Sale, in each case as if the same had occurred at the
beginning of the applicable period. For purposes of making the computation
referred to above, acquisitions that have been made by the Company or any of its
Restricted Subsidiaries, including mergers and consolidations, subsequent to the
commencement of such period but on or prior to the date on which the event for
which the calculation is being made shall be given effect on a pro forma basis,
assuming that all such acquisitions, mergers and consolidations had occurred on
the first day of such period. Without limiting the foregoing, the financial
information of the Company with respect to any portion of such four fiscal
quarters that falls before the Closing Date shall be adjusted to give pro forma
effect to the issuance of the Notes and the application of the proceeds
therefrom as if they had occurred at the beginning of such four fiscal quarters.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans,
Guarantees, advances or capital contributions (excluding (i) commission, travel
and similar advances to officers and employees of such Person made in the
ordinary course of business and (ii) bona fide accounts receivable arising from
the sale of goods or services in the ordinary course of business consistent with
past practice), purchases or other acquisitions for consideration of
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Indebtedness, Equity Interests or other securities, and any other items that are
or would be classified as investments on a balance sheet prepared in accordance
with GAAP.
"Lien" means any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, whether or not filed, recorded or otherwise perfected
under applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give a security interest in and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction).
"Material Subsidiary" means any Subsidiary (a) that is a "Significant
Subsidiary" of the Company as defined in Rule 1-02 of Regulation S-X promulgated
by the Commission or (b) is otherwise material to the business of the Company.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person for such period, determined in accordance with
GAAP, excluding any gain or loss, together with any related provision for taxes
on such gain or loss, realized in connection with any Asset Sales and
dispositions pursuant to sale and leaseback transactions, and excluding any
extraordinary gain or loss, together with any related provision for taxes on
such gain or loss.
"Net Proceeds" means the aggregate proceeds received in the form of cash or
Cash Equivalents in respect of any Asset Sale (including payments in respect of
deferred payment obligations when received), net of (a) the reasonable and
customary direct out-of-pocket costs relating to such Asset Sale (including,
without limitation, legal, accounting and investment banking fees and sales
commissions), other than any such costs payable to an Affiliate of the Company,
(b) taxes actually payable directly as a result of such Asset Sale (after taking
into account any available tax credits or deductions and any tax sharing
arrangements), (c) amounts required to be applied to the permanent repayment of
Indebtedness in connection with such Asset Sale, and (d) appropriate amounts
provided as a reserve by the Company or any Restricted Subsidiary, in accordance
with GAAP, against any liabilities associated with such Asset Sale and retained
by the Company or such Restricted Subsidiary, as the case may be, after such
Asset Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations arising from such Asset Sale.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other obligations and liabilities
of the Company or any of the Guarantors under the Indenture, the Notes or the
Guarantees of the Notes.
"Permitted Investments" means (a) Investments in the Company, any Guarantor
or any Wholly Owned Subsidiary (including without limitation, Guarantees of
Indebtedness of any such Person), (b) Investments in Cash Equivalents, (c)
Investments in a Person, if as a result of such Investment (i) such Person
becomes a Wholly Owned Subsidiary or (ii) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Wholly Owned Subsidiary, (d)
Floor Plan Guarantees permitted to be incurred in compliance with the covenant
described under the caption "Limitation on Incurrence of Indebtedness," (e)
Hedging Obligations, (f) Investments in securities of trade creditors or
customers received pursuant to any plan of reorganization or similar arrangement
upon the bankruptcy or insolvency of such trade creditors or customers and (g)
Investments as a result of consideration received in connection with an Asset
Sale made in compliance with the covenant described under the caption
"Limitation on Asset Sales."
"Permitted Liens" means (i) Liens in favor of the Company and/or its
Restricted Subsidiaries other than with respect to intercompany Indebtedness,
(ii) Liens on property of a Person existing at the time such Person is acquired
by, merged into or consolidated with the Company or any Restricted Subsidiary,
provided, that such Liens were not created in contemplation of such acquisition
and do not extend to assets other than those subject to such Liens immediately
prior to such acquisition, (iii) Liens on property existing at the time of
acquisition thereof by the Company or any Restricted Subsidiary, provided, that
such Liens were not created in contemplation of such acquisition and do not
extend to assets other than those subject to such Liens immediately prior to
such acquisition, (iv) Liens incurred in the ordinary course of business in
respect of
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Hedging Obligations and Floor Plan Guarantees, (v) Liens to secure Indebtedness
for borrowed money of a Subsidiary in favor of the Company or a Wholly Owned
Subsidiary, (vi) Liens incurred in the ordinary course of business to secure the
performance of statutory obligations, surety or appeal bonds, performance bonds
or other obligations (exclusive of obligations constituting Indebtedness) of a
like nature, (vii) Liens existing or created on the date of the Indenture,
(viii) Liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested or remedied in good faith by
appropriate proceedings promptly instituted and diligently concluded, provided,
that any reserve or other appropriate provision as may be required in conformity
with GAAP has been made therefor, (ix) Liens arising by reason of any judgment,
decree or order of any court with respect to which the Company or any of its
Restricted Subsidiaries is then in good faith prosecuting an appeal or other
proceedings for review, the existence of which judgment, order or decree is not
an Event of Default under the Indenture, (x) encumbrances consisting of zoning
restrictions, survey exceptions, utility easements, licenses, rights of way,
easements of ingress or egress over property of the Company or any of its
Restricted Subsidiaries, rights or restrictions of record on the use of real
property, minor defects in title, landlord's and lessor's liens under leases on
property located on the premises rented, mechanics' liens, vendors' liens, and
similar encumbrances, rights or restrictions on personal or real property, in
each case not interfering in any material respect with the ordinary conduct of
the business of the Company or any of its Restricted Subsidiaries, (xi) Liens
incidental to the conduct of business or the ownership of properties incurred in
the ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security, or to secure the
performance of tenders, bids, and government contracts and leases and subleases,
(xii) Liens for any interest or title of a lessor under any Capitalized Lease
Obligation permitted to be incurred under the Indenture; provided, that such
Liens do not extend to any property or asset that is not leased property subject
to such Capitalized Lease Obligation, (xiii) any extension, renewal, or
replacement (or successive extensions, renewals or replacements), in whole or in
part, of Liens described in clauses (i) through (xii) above and (xiv) Liens in
addition to the foregoing, which in the aggregate, are secured by assets with a
fair market value not in excess of $100,000 at any time.
"Permitted Transactions" means bona fide purchases and sales of Inventory
or of machining, assembly, testing and fabrication services, in any such case
made in the ordinary course of business; provided, that such transactions are
conducted in good faith and on terms that are no less favorable to the Company
or the relevant Restricted Subsidiary than those that would have been obtained
in a comparable transaction with an unrelated Person.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof, or any other entity.
"Public Equity Offering" means a bona fide underwritten public offering of
Qualified Capital Stock of Holdings or the Company, pursuant to a registration
statement filed with and declared effective by the Commission in accordance with
the Securities Act; provided, that in the event of a Public Equity Offering by
Holdings, Holdings contributes to the capital of the Company the portion of the
net cash proceeds of such Public Equity Offering necessary to pay the aggregate
redemption price, plus accrued and unpaid interest, if any, to the redemption
date of the Notes to be redeemed pursuant to the second paragraph under the
caption "Redemption."
"Purchase Money Liens" means Liens to secure or securing Purchase Money
Obligations permitted to be incurred under the Indenture.
"Purchase Money Obligations" means Indebtedness representing, or incurred
to finance, the cost (i) of acquiring or improving any assets and (ii) of
construction or build-out of manufacturing, distribution or administrative
facilities (including Purchase Money Obligations of any other Person at the time
such other Person is merged with or into or is otherwise acquired by the
Company), provided, that (a) the principal amount of such Indebtedness does not
exceed 100% of such cost, including construction charges, (b) any Lien securing
such Indebtedness does not extend to or cover any other asset or property other
than the asset or property being so acquired or improved and (c) such
Indebtedness is incurred, and any Liens with respect thereto are granted, within
180 days of the acquisition or improvement of such property or asset.
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"Qualified Capital Stock" means, with respect to any Person, Capital Stock
of such Person other than Disqualified Capital Stock.
"Restricted Investment" means any Investment other than a Permitted
Investment. The aggregate amount of each Investment constituting a Restricted
Payment since the date of the Indenture shall be reduced by the aggregate
after-tax amount of all payments made to the Company and its Restricted
Subsidiaries with respect to such Investments; provided, that (a) the maximum
amount of such payments so applied shall not exceed the original amount of such
Investment and (b) such payments shall be excluded from the calculations
contemplated by clauses (c)(1) through (4) under the caption "Limitation on
Restricted Payments."
"Restricted Subsidiary" means a Subsidiary other than an Unrestricted
Subsidiary.
"Revolving Credit Facility" means the Revolving Credit Facility, entered
into on the Closing Date between the Company and the lenders named therein as
the same may be amended, modified, renewed, refunded, replaced or refinanced
from time to time, including (i) any related notes, letters of credit,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, renewed, refunded,
replaced or refinanced from time to time, and (ii) any notes, guarantees,
collateral documents, instruments and agreements executed in connection with
such amendment, modification, renewal, refunding, replacement or refinancing.
"subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Voting Stock thereof is at the time owned or controlled,
directly or indirectly, by such Person or one or more of the other subsidiaries
of that Person or a combination thereof and (ii) any partnership in which such
Person or any of its subsidiaries is a general partner.
"Subsidiary" means any subsidiary of the Company.
"Unrestricted Subsidiary" means any Subsidiary that has been designated by
the Company (by written notice to the Trustee as provided below) as an
Unrestricted Subsidiary; provided, that a Subsidiary may not be designated as an
"Unrestricted Subsidiary" unless (a) such Subsidiary does not own any Capital
Stock of, or own or hold any Lien on any property of, the Company or any
Restricted Subsidiary (other than such Subsidiary), (b) neither immediately
prior thereto nor after giving pro forma effect to such designation, would there
exist a Default or Event of Default, (c) immediately after giving effect to such
designation on a pro forma basis, the Company could incur at least $1.00 of
Indebtedness pursuant to the Interest Coverage Ratio test set forth in the
covenant described under "-- Limitation on Incurrence of Indebtedness" and (d)
the creditors of such Subsidiary have no direct or indirect recourse (including,
without limitation, recourse with respect to the payment of principal or
interest on Indebtedness of such Subsidiary) to the assets of the Company or of
a Restricted Subsidiary (other than such Subsidiary). The Board of Directors of
the Company may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary only if (i) no Default or Event of Default is existing or will occur
as a consequence thereof and (ii) immediately after giving effect to such
designation, on a pro forma basis, the Company could incur at least $1.00 of
Indebtedness pursuant to the Interest Coverage Ratio test set forth in the
covenant described under "-- Limitation on Incurrence of Indebtedness." Each
such designation shall be evidenced by filing with the Trustee a certified copy
of the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions. The Company shall be deemed to make an Investment in each Subsidiary
designated as an "Unrestricted Subsidiary" immediately following such
designation in an amount equal to the Investment in such Subsidiary and its
subsidiaries immediately prior to such designation; provided, that if such
Subsidiary is subsequently redesignated as a Restricted Subsidiary, the amount
of such Investment shall be deemed to be reduced (but not below zero) by the
fair market value of the net consolidated assets of such Subsidiary on the date
of such redesignation.
"Voting Stock" means, with respect to any Person, (i) one or more classes
of the Capital Stock of such Person having general voting power to elect at
least a majority of the board of directors, managers or trustees of such Person
(irrespective of whether or not at the time Capital Stock of any other class or
classes have or might have voting power by reason of the happening of any
contingency) and (ii) any Capital Stock of such
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Person convertible or exchangeable without restriction at the option of the
holder thereof into Capital Stock of such Person described in clause (i) above.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years (rounded to the nearest one-twelfth) obtained
by dividing (i) the then outstanding principal amount of such Indebtedness into
(ii) the total of the products obtained by multiplying (x) the amount of each
then remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect thereof,
by (y) the number of years (calculated to the nearest one-twelfth) that will
elapse between such date and the making of such payment.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the Company
or one or more Wholly Owned Subsidiaries.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the New Notes will initially be issued in the
form of one or more registered notes in global form without coupons (each, a
"Global Note"). Upon issuance, each Global Note will be deposited with, or on
behalf of, the Depository Trust Company (the "Depository") and registered in the
name of Cede & Co., as nominee of the Depository.
If a holder tendering Existing Notes so requests, such holder's New Notes
will be issued as described below under "Certificated Securities" in registered
form without coupons (the "Certificated Securities").
The Depository has advised the Company that it is (i) a limited purpose
trust company organized under the laws of the State of New York, (ii) a member
of the Federal Reserve System, (iii) a "clearing corporation" within the meaning
of the Uniform Commercial Code, as amended, and (iv) a "Clearing Agency"
registered pursuant to Section 17A of the Exchange Act. The Depository was
created to hold securities for its participants (collectively, the
"Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book-entry changes to the
accounts of its Participants, thereby eliminating the need for physical transfer
and delivery of certificates. The Depository's Participants include securities
brokers and dealers (including the Initial Purchaser), banks and trust
companies, clearing corporations and certain other organizations. Access to the
Depository's system is also available to other entities such as banks, brokers,
dealers and trust companies (collectively, the "Indirect Participants") that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly.
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global Notes, the Depository will credit the
accounts of Participants who elect to exchange Existing Notes with an interest
in the Global Note and (ii) ownership of the New Notes will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by the Depository (with respect to the interest of Participants), the
Participants and the Indirect Participants. The laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own and that security interests in negotiable instruments can only be
perfected by delivery of certificates representing the instruments.
So long as the Depository or its nominee is the registered owner of a
Global Note, the Depository or such nominee, as the case may be, will be
considered the sole owner or holder of the New Notes represented by the Global
Note for all purposes under the Indenture. Except as provided below, owners of
beneficial interests in a Global Note will not be entitled to have New Notes
represented by such Global Note registered in their names, will not receive or
be entitled to receive physical delivery of Certificated Securities, and will
not be considered the owners or holders thereof under the Indenture for any
purpose, including with respect to the giving of any directions, instruction or
approval to the Trustee thereunder. As a result, the ability of a person having
a beneficial interest in New Notes represented by a Global Note to pledge such
interest to persons or entities that do not participate in the Depository's
system, or to otherwise take action with respect to such interest, may be
affected by the lack of a physical certificate evidencing such interest.
The Company understands that under existing industry practice, in the event
the Company requests any action of holders or an owner of a beneficial interest
in a Global Note desires to take any action that the
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Depository, as the holder of such Global Note, is entitled to take, the
Depository would authorize the Participants to take such action and the
Participant would authorize persons owning through such Participants to take
such action or would otherwise act upon the instruction of such persons. Neither
the Company nor the Trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of New Notes by
the Depository, or for maintaining, supervising or reviewing any records of the
Depository relating to such New Notes.
Payments with respect to the principal of, premium, if any, and interest on
any New Notes represented by a Global Note registered in the name of the
Depository or its nominee on the applicable record date will be payable by the
Trustee to or at the direction of the Depository or its nominee in its capacity
as the registered holder of the Global Note representing such New Notes under
the Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names the New Notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving such payment and
for any and all other purposes whatsoever. Consequently, neither the Company nor
the Trustee has or will have any responsibility or liability for the payment of
such amounts to beneficial owners of New Notes (including principal, premium, if
any, and interest), or to immediately credit the accounts of the relevant
Participants with such payment, in amounts proportionate to their respective
holdings in principal amount of beneficial interest in the Global Note as shown
on the records of the Depository. Payments by the Participants and the Indirect
Participants to the beneficial owners of New Notes will be governed by standing
instructions and customary practice and will be the responsibility of the
Participants or the Indirect Participants.
CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that the Depository is
no longer willing or able to act as a depository and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes in
definitive form under the Indenture, then, upon surrender by the Depository of
its Global Notes, Certificated Securities will be issued to each person that the
Depository identifies as the beneficial owner of the New Notes represented by
the Global Note. In addition, any person having a beneficial interest in a
Global Note or any holder of Existing Notes whose Existing Notes have been
accepted for exchange may, upon request to the Trustee or the Exchange Agent, as
the case may be, exchange such beneficial interest or Existing Notes for
Certificated Securities. Upon any such issuance, the Trustee is required to
register such Certificated Securities in the name of such person or persons (or
the nominee of any thereof), and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by the
Depository or any Participant or Indirect Participant in identifying the
beneficial owners of the related New Notes and each such person may conclusively
rely on, and shall be protected in relying on, instructions from the Depository
for all purposes (including with respect to the registration and delivery, and
the respective principal amounts, of the New Notes to be issued).
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material United States federal
income tax consequences of the Exchange Offer to a holder of Existing Notes that
is an individual citizen or resident of the United States or a United States
corporation that purchased the Existing Notes pursuant to their original issue
(a "U.S. Holder"). It is based on the Internal Revenue Code of 1986, as amended
to the date hereof (the "Code"), existing and proposed Treasury regulations, and
judicial and administrative determinations, all of which are subject to change
at any time, possibly on a retroactive basis. The following relates only to the
Existing Notes, and the New Notes received therefor, that are held as "capital
assets" within the meaning of Section 1221 of the Code by U.S. Holders. It does
not discuss state, local, or foreign tax consequences, nor does it discuss tax
consequences to subsequent purchasers (persons who did not purchase the Existing
Notes pursuant to their original issue), or to categories of holders that are
subject to special rules, such as foreign persons, tax-exempt organizations,
insurance companies, banks, and dealers in stocks and securities. Tax
consequences may vary
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depending on the particular status of an investor. No rulings will be sought
from the Internal Revenue Service with respect to the federal income tax
consequences of the Exchange Offer.
THIS SECTION DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO AN INVESTOR'S DECISION TO EXCHANGE EXISTING
NOTES FOR NEW NOTES. EACH INVESTOR SHOULD CONSULT WITH ITS OWN TAX ADVISOR
CONCERNING THE APPLICATION OF THE FEDERAL INCOME TAX LAWS AND OTHER TAX LAWS TO
ITS PARTICULAR SITUATION BEFORE DETERMINING WHETHER TO EXCHANGE EXISTING NOTES
FOR NEW NOTES.
THE EXCHANGE OFFER
The exchange of Existing Notes pursuant to the Exchange Offer should be
treated as a continuation of the corresponding Existing Notes because the terms
of the New Notes are not materially different from the terms of the Existing
Notes. Accordingly, such exchange should not constitute a taxable event to U.S.
Holders and, therefore, (i) no gain or loss should be realized by U.S. Holders
upon receipt of a New Note, (ii) the holding period of the New Note should
include the holding period of the Old Note exchanged therefor and (iii) the
adjusted tax basis of the New Note should be the same as the adjusted tax basis
of the Old Note exchanged therefor immediately before the exchange.
STATED INTEREST
Stated interest on a Note will be taxable to a U.S. Holder as ordinary
interest income at the time that such interest accrues or is received, in
accordance with the U.S. Holder's regular method of accounting for federal
income tax purposes. The Notes are not considered to have been issued with
original issue discount for federal income tax purposes.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES
A U.S. Holder's tax basis in a Note generally will be its cost. A U.S.
Holder generally will recognize gain or loss on the sale, exchange or retirement
of a Note in an amount equal to the difference between the amount realized on
the sale, exchange or retirement and the tax basis of the Note. Gain or loss
recognized on the sale, exchange or retirement of a Note (excluding amounts
received in respect of accrued interest, which will be taxable as ordinary
interest income) generally will be capital gain or loss and will be long-term
capital gain or loss if the Note was held for more than one year.
BACKUP WITHHOLDING
Under certain circumstances, a U.S. Holder of a Note may be subject to
"backup withholding" at a 31% rate with respect to payments of interest thereon
or the gross proceeds from the disposition thereof. This withholding generally
applies if the U.S. Holder fails to furnish his or her social security number or
other taxpayer identification number in the specified manner and in certain
other circumstances. Any amount withheld from a payment to a U.S. Holder under
the backup withholding rules is allowable as a credit against such U.S. Holder's
federal income tax liability, provided that the required information is
furnished to the IRS. Corporations and certain other entities described in the
Code and Treasury regulations are exempt from backup withholding if their exempt
status is properly established.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. 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 New Notes received in exchange for Existing Notes
where such Existing Notes were acquired as a result of market-making activities
or other trading activities. The Company has agreed that, for a period of 180
days after the Effective Date, it will make this Prospectus, as amended or
supplemented,
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available to any broker-dealer for use in connection with any such resale. In
addition, until , 1997 (90 days after the date of this Prospectus), all
dealers effecting transactions in the New Notes may be required to deliver a
prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer 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 New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market price 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
broker-dealer or the purchasers of any such New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Existing Notes) other than commissions or concessions of any
brokers or dealers and will indemnify the holders of the Existing Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the New Notes offered hereby will be
passed upon for the Company by Dechert Price & Rhoads, New York, New York.
EXPERTS
The combined financial statements of the Company as of December 31, 1995
and 1994 and for each of the three years in the period ended December 31, 1995
included in this Prospectus and Registration Statement have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in accounting and auditing.
64
67
CLARK MATERIAL HANDLING
INDEX TO COMBINED FINANCIAL STATEMENTS AND INFORMATION
PAGE
----
Report of Independent Accountants.................................................... F-2
Audited Combined Balance Sheet as of December 31, 1994 and 1995...................... F-3
Audited Combined Statement of Operations for the years ended December 31, 1993, 1994
and 1995........................................................................... F-4
Audited Combined Statement of Stockholder's Deficit as of December 31, 1992, 1993,
1994 and 1995...................................................................... F-5
Audited Combined Statement of Cash Flows for the years ended December 31, 1993, 1994
and 1995........................................................................... F-6
Notes to Audited Combined Financial Statements....................................... F-7
Unaudited Combined Balance Sheet as of September 30, 1996............................ F-19
Unaudited Combined Statement of Operations for the nine months ended September 30,
1995 and 1996...................................................................... F-20
Unaudited Combined Statement of Cash Flows for the nine months ended September 30,
1995 and 1996...................................................................... F-21
Notes to Unaudited Combined Financial Statements..................................... F-22
Unaudited Pro Forma Combined Financial Information................................... P-1
Unaudited Pro Forma Combined Balance Sheet as of September 30, 1996.................. P-2
Unaudited Pro Forma Combined Statement of Operations for the year ended December 31,
1995............................................................................... P-4
Unaudited Pro Forma Combined Statement of Operations for the nine months ended
September 30, 1996................................................................. P-5
Unaudited Pro Forma Combined Statement of Operations for the twelve months ended
September 30, 1996................................................................. P-6
F-1
68
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of Terex Corporation
In our opinion, the accompanying combined balance sheet and the related
combined statements of operations, of stockholder's deficit and of cash flows
present fairly, in all material respects, the combined financial position of
Terex Corporation's material handling business ("Clark Material Handling") at
December 31, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Stamford, Connecticut
March 22, 1996
F-2
69
CLARK MATERIAL HANDLING
COMBINED BALANCE SHEET
(IN THOUSANDS)
DECEMBER 31,
---------------------
1994 1995
-------- --------
CURRENT ASSETS
Cash and cash equivalents............................................ $ 1,514 $ 819
Cash securing letters of credit...................................... 220 736
Trade receivables (less allowance of $3,600 in 1994 and $2,867 in
1995)............................................................. 39,193 39,433
Net inventories...................................................... 65,779 68,464
Other current assets................................................. 2,888 4,660
-------- --------
Total Current Assets......................................... 109,594 114,112
LONG-TERM ASSETS
Property, plant and equipment -- net................................. 60,697 58,194
Goodwill -- net...................................................... 3,408 3,138
Other assets......................................................... 20,963 17,265
-------- --------
TOTAL ASSETS........................................................... $194,662 $192,709
======== ========
CURRENT LIABILITIES
Notes payable........................................................ $ 2,078 $ 879
Current portion of capital lease obligations......................... 1,256 2,414
Trade accounts payable............................................... 63,619 61,535
Accrued compensation and benefits.................................... 4,658 4,585
Accrued warranties and product liability............................. 17,886 19,012
Other current liabilities............................................ 12,729 9,834
-------- --------
Total Current Liabilities.................................... 102,226 98,259
NON CURRENT LIABILITIES
Capital lease obligations, less current portion...................... 5,706 4,140
Allocated long-term debt............................................. 51,754 51,220
Accrued warranties and product liability............................. 29,624 31,661
Accrued pension...................................................... 12,805 13,070
Other non current liabilities........................................ 4,110 3,435
COMMITMENTS AND CONTINGENCIES
DUE TO PARENT COMPANY.................................................. 68,459 87,646
STOCKHOLDER'S DEFICIT
Accumulated deficit.................................................. (76,107) (94,873)
Cumulative translation adjustment.................................... (3,915) (1,849)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT............................ $194,662 $192,709
======== ========
The accompanying notes are an integral part of these financial statements.
F-3
70
CLARK MATERIAL HANDLING
COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
-------- -------- --------
NET SALES.................................................. $395,625 $472,652 $528,759
COST OF GOODS SOLD......................................... 373,313 429,744 484,035
Gross Profit............................................. 22,312 42,908 44,724
ENGINEERING, SELLING AND ADMINISTRATIVE EXPENSES........... 46,505 41,702 31,183
PARENT COMPANY MANAGEMENT FEES............................. 4,380 8,453 6,996
SEVERANCE AND EXIT CHARGES................................. -- 6,736 3,478
-------- -------- --------
Income (Loss) from operations............................ (28,573) (13,983) 3,067
OTHER INCOME (EXPENSE):
Interest income.......................................... 298 653 602
Allocated interest expense from Parent Company........... (16,756) (14,361) (16,145)
Interest expense -- others............................... (1,169) (2,221) (790)
Amortization of allocated debt issuance costs............ (1,004) (822) (530)
Gain on sale of Drexel business.......................... -- 4,742 --
Property impairment charge............................... -- -- (2,500)
Gain (Loss) on sale of property, plant and equipment..... 1,992 (16) (183)
Other income (expense) -- net............................ 451 1,539 (792)
-------- -------- --------
LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS......... (44,761) (24,469) (17,271)
PROVISION FOR INCOME TAXES................................. (158) (786) (148)
-------- -------- --------
LOSS BEFORE EXTRAORDINARY ITEMS.......................... (44,919) (25,255) (17,419)
EXTRAORDINARY LOSS ON RETIREMENT OF ALLOCATED DEBT......... (297) (565) (1,347)
-------- -------- --------
NET LOSS................................................. $(45,216) $(25,820) $(18,766)
======== ======== ========
The accompanying notes are an integral part of these financial statements.
F-4
71
CLARK MATERIAL HANDLING
COMBINED STATEMENT OF STOCKHOLDER'S DEFICIT
(IN THOUSANDS)
FOREIGN
CURRENCY
ACCUMULATED TRANSLATION
DEFICIT ADJUSTMENTS
----------- -----------
Balance at December 31, 1992........................................ $ (5,071) $(3,496)
Net loss.......................................................... (45,216) --
Translation adjustment............................................ -- (5,150)
-------- -------
Balance at December 31, 1993........................................ (50,287) (8,646)
Net loss.......................................................... (25,820) --
Translation adjustment............................................ -- 4,731
-------- -------
Balance at December 31, 1994........................................ (76,107) (3,915)
Net loss.......................................................... (18,766) --
Translation adjustment............................................ -- 2,066
-------- -------
Balance at December 31, 1995........................................ $ (94,873) $(1,849)
======== =======
The accompanying notes are an integral part of these financial statements.
F-5
72
CLARK MATERIAL HANDLING
COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
-------- -------- --------
OPERATING ACTIVITIES
Net Loss................................................. $(45,216) $(25,820) $(18,766)
Adjustments to reconcile net loss to cash provided by
(used in) operating activities:
Depreciation.......................................... 8,786 10,066 11,534
Amortization.......................................... 2,097 1,382 1,310
Extraordinary loss on retirement of allocated debt.... 297 565 1,347
Gain on sale of Drexel business....................... -- (4,742) --
(Gain) loss on sale of property, plant and
equipment........................................... (1,992) 16 183
Property impairment charge............................ -- -- 2,500
Other, net............................................ 1,071 -- 328
Changes in operating assets and liabilities:
Restricted cash..................................... 85 251 (516)
Trade receivables................................... 5,310 (6,210) (240)
Net inventories..................................... 16,497 2,672 (2,685)
Trade accounts payable.............................. (13,526) 13,027 (2,084)
Accrued compensation and benefits................... (2,873) 559 (73)
Accrued warranties and product liability............ (6,212) 1,344 1,126
Due to Parent Company................................. 58,915 28,262 19,187
Other, net............................................ (19,729) (12,377) (5,973)
-------- -------- --------
Net cash provided by (used in) operating
activities..................................... 3,510 8,995 7,178
-------- -------- --------
INVESTING ACTIVITIES
Capital expenditures..................................... (8,143) (6,570) (5,290)
Proceeds from sale of assets............................. 9,992 2,984 534
Proceeds from sale of Drexel business.................... -- 10,289 --
Proceeds from sale-leaseback of Saarn property........... -- 9,981 --
-------- -------- --------
Net cash provided by (used in) investing activities... 1,849 16,684 (4,756)
-------- -------- --------
FINANCING ACTIVITIES
Principal repayments of long-term debt................... -- (6,090) --
Repayment of allocated debt.............................. (9,992) (23,254) (51,754)
Proceeds from refinancing of allocated debt.............. -- -- 51,220
Other, net............................................... 2,778 135 (1,607)
-------- -------- --------
Net cash provided by (used in) financing activities... (7,214) (29,209) (2,141)
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS.............................................. 254 748 (976)
NET DECREASE IN CASH AND CASH EQUIVALENTS.................. (1,601) (2,782) (695)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........... 5,897 4,296 1,514
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................. $ 4,296 $ 1,514 $ 819
======== ======== ========
The accompanying notes are an integral part of these financial statements.
F-6
73
CLARK MATERIAL HANDLING
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE A -- REPORTING ENTITY AND BASIS OF PRESENTATION
CMH Acquisition Corp. and CMH Acquisition International Corp. (collectively
"Clark Material Handling," "CMH" or the "Company"), incorporated in the state of
Delaware, are wholly-owned subsidiaries of Terex Corporation ("Terex" or the
"Parent Company"). Terex, through CMH, acquired the Material Handling
Operations, comprised of Clark Material Handling Company ("CMHC") and certain
affiliated companies, from Clark Equipment Company on July 31, 1992 (the
"Acquisition"). The purchase price for all the businesses acquired was $91,090.
The assets acquired and the liabilities assumed were valued at their estimated
fair market values at the time of the Acquisition. (See Note
C -- "Acquisition.") As a result, the acquisition debt and goodwill associated
with the Acquisition have been "pushed down" to the Company's financial
statements.
Parent Company Allocations. The combined financial statements include
allocations of Parent Company Acquisition debt and related interest expense.
Management Parent Company Corporate Charges, which include corporate overhead
costs (including legal, treasury and other shared services), have been allocated
to the Company based generally on the percentage of Company revenues to Terex
consolidated revenues. Interest has been charged on the corporate charges
allocated and the Due to Parent Company balance at a rate of 13% compounded
monthly.
The accompanying combined financial statements reflect the financial
position, results of operations and cash flows of CMH.
CMH is engaged in the design, manufacture, marketing and worldwide
distribution and support of internal combustion and electric lift trucks,
electric walkies and related components and replacement parts.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination. The combined financial statements include the
accounts of CMH and their subsidiaries, including CMHC, Clark Material Handling
GmbH and Clark Forklift Korea. All material intercompany balances, transactions
and profits have been eliminated.
Cash and Cash Equivalents. Cash equivalents consist of highly liquid
investments with original maturities of three months or less. The carrying
amount of cash and cash equivalents approximates their fair value.
Cash Securing Letters of Credit. The Company has certain cash and cash
equivalents that are not fully available for use in its operations. Certain
international operations collateralize letters of credit and performance bonds
with cash deposits.
Inventories. Inventories are stated at the lower of cost or market value.
Cost is determined using the last-in, first-out ("LIFO") method for U.S.
inventories and by the first-in, first-out ("FIFO") method for inventories of
international subsidiaries. Approximately 74% and 68% of combined inventories at
December 31, 1994 and 1995, respectively, are accounted for under the LIFO
method.
Goodwill. Goodwill, representing the difference between the total purchase
price and the fair value of assets (tangible and intangible) and liabilities at
the date of acquisition, is being amortized on a straight-line basis over
fifteen years. Accumulated amortization is $601 and $871 at December 31, 1994
and 1995, respectively. It is the Company's policy to periodically evaluate the
carrying value of goodwill, and to recognize impairments when the estimated
related future net operating cash flows is less than its carrying value. The
amount of any impairment then recognized would be calculated as the difference
between estimated future discounted cash flows and the carrying value of the
goodwill.
F-7
74
CLARK MATERIAL HANDLING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Allocated Debt Issuance Costs. Debt issuance costs incurred in securing
the Parent Company's financing arrangements are capitalized and amortized over
the term of the associated debt. Allocated debt issuance costs related to
Acquisition debt are allocated to the Company. Allocated capitalized debt
issuance costs related to allocated debt that is retired early are charged to
expense at the time of retirement. Unamortized allocated debt issuance costs are
included in Other Assets and totaled $1,013 and $2,898 at December 31, 1994 and
1995, respectively. During 1993, 1994 and 1995, the Company amortized $1,004,
$822 and $530, respectively, of allocated capitalized debt issuance costs; in
addition, $297, $565 and $1,347 of such costs were charged to extraordinary loss
on early retirement of allocated debt in 1993, 1994 and 1995, respectively.
Property, Plant and Equipment. Property, plant and equipment are stated at
cost. Expenditures for major renewals and improvements are capitalized while
expenditures for maintenance and repairs not expected to extend the life of an
asset beyond its normal useful life are charged to expense when incurred. Plant
and equipment are depreciated over the estimated useful lives, not exceeding
forty years, of the assets under the straight-line method of depreciation for
financial reporting purposes and both straight-line and other methods for tax
purposes.
Revenue Recognition. Revenue and costs are generally recorded when
products are shipped and invoiced to customers. Certain new units may be
invoiced prior to the time customers take physical possession. Revenue is
recognized in such cases only when the customer has a fixed commitment to
purchase the units, the units have been completed, tested and made available to
the customer for pickup or delivery, and the customer has requested that the
Company hold the units for pickup or delivery at a time specified by the
customer in the sales documents. In such cases, the units are invoiced under the
Company's customary billing terms, title to the units and risks of ownership
pass to the customer upon invoicing, the units are segregated from the Company's
inventory and identified as belonging to the customer and the Company has no
further obligations under the order.
Accrued Warranties and Product Liability. The Company records accruals for
potential warranty and product liability claims based on the Company's claim
experience. Warranty costs are accrued at the time revenue is recognized. The
Company provides self-insurance accruals for estimated product liability
experience on known claims and for claims anticipated to have been incurred
which have not yet been reported. The Company's product liability accruals are
presented on a gross settlement basis. Product liability payments, including
expenses, are estimated to average $7.5 million dollars per year.
Foreign Currency Translation. Assets and liabilities of the Company's
international operations are translated at year-end exchange rates. Income and
expenses are translated at average exchange rates prevailing during the year.
For operations whose functional currency is the local currency, translation
adjustments are accumulated in the Cumulative Translation Adjustment component
of Stockholder's Deficit. Gains or losses resulting from foreign currency
transactions are included in Other income (expense) -- net.
Environmental Policies. Environmental expenditures that relate to current
operations are either expensed or capitalized depending on the nature of the
expenditure. Expenditures relating to conditions caused by past operations that
do not contribute to current or future revenue generation are expensed.
Liabilities are recorded when environmental assessments and/or remedial actions
are probable, and the costs can be reasonably estimated. Such amounts were not
material at December 31, 1994 and 1995.
Income Taxes. Income taxes are provided using the asset and liability
method. The Company's U.S. operations are a part of a group that files a
consolidated income tax return. The method used to allocate income taxes to
members of the group is one in which current and deferred income taxes are
calculated on a separate return basis as if the Company had not been included in
a consolidated income tax return with its parent. Income taxes for international
operations are based upon the individual subsidiary's tax return.
F-8
75
CLARK MATERIAL HANDLING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NOTE C -- ACQUISITION
On July 31, 1992, Terex acquired the Company from Clark Equipment Company.
The purchase price of the Acquisition was $91,090, which was funded by $85,000
of cash and a $6,090 note to the seller.
The Acquisition was accounted for as a purchase with the purchase price of
the acquisition allocated to assets acquired and liabilities assumed based upon
their respective estimated fair value at the date of the acquisition. Estimated
fair values were based on evaluations, estimations, appraisals, actuarial
studies and other studies performed by the Parent Company. The excess of
purchase price over the net assets acquired ($4,009) is included in Goodwill and
is being amortized on a straight-line basis over 15 years.
NOTE D -- INVENTORIES
Inventories consist of the following:
DECEMBER 31,
-------------------
1994 1995
------- -------
Finished equipment............................................... $ 7,210 $ 9,410
Replacement parts................................................ 18,467 22,966
Work-in-process.................................................. 4,348 3,405
Raw materials and supplies....................................... 36,300 33,229
------- -------
66,325 69,010
Less: Excess of FIFO inventory value over LIFO cost.............. (546) (546)
------- -------
Net inventories............................................. $65,779 $68,464
======= =======
In 1994, certain inventory quantities were reduced, resulting in the
liquidation of LIFO inventory quantities carried at lower costs prevailing in
prior years. The effect of such liquidation was to decrease cost of goods sold
by $1,581 in 1994.
NOTE E -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
DECEMBER 31,
---------------------
1994 1995
-------- --------
Property....................................................... $ 7,742 $ 8,348
Plant.......................................................... 18,604 20,262
Equipment...................................................... 50,703 55,433
-------- --------
77,049 84,043
Less: Accumulated depreciation................................. (16,352) (25,849)
-------- --------
Net property, plant and equipment......................... $ 60,697 $ 58,194
======== ========
F-9
76
CLARK MATERIAL HANDLING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- LONG-TERM OBLIGATIONS
Long-term debt is summarized as follows:
DECEMBER 31,
-------------------
1994 1995
------- -------
Allocated acquisition debt:
13.25% Senior Secured Notes due May 15, 2002
("Senior Secured Notes").................................... $ -- $51,220
13.0% Senior Secured Notes due August 1, 1996
("Old Senior Secured Notes")................................ 51,754 --
Capital lease obligations........................................ 6,962 6,554
------- -------
Total long-term debt........................................... 58,716 57,774
Current portion of long-term debt.............................. 1,256 2,414
------- -------
Long-term debt, less current portion........................... $57,460 $55,360
======= =======
Senior Secured Notes
On May 9, 1995, Terex issued $250,000 of Senior Secured Notes due May 15,
2002. The Senior Secured Notes were issued in conjunction with Terex's
acquisition of substantially all of the capital stock of PPM Cranes, Inc. and
P.P.M. S.A. (the "PPM Acquisition") and the refinancing of Terex's debt. Of the
total amount $51,220 relates to the refinancing of the debt remaining from the
July 1992 acquisition of the Company and has been included in the Company's
balance sheet. Except in the event of certain asset sales, there are no
principal repayment or sinking fund requirements prior to maturity. The notes
bear interest at 13 3/4% per annum. Upon the earlier of (i) the consummation of
an exchange offer or (ii) the effectiveness of a Shelf Registration Statement,
the interest rate on the notes will decrease to 13 1/4% per annum. Interest is
computed on the basis of a 360-day year comprised of twelve 30-day months.
Repayments of the Senior Secured Notes are guaranteed by certain domestic
subsidiaries of Terex (the "Guarantors"), including CMHC and CMH. The Senior
Secured Notes are secured by a first priority security interest on substantially
all of the assets of Terex and the Guarantors, other than cash and cash
equivalents, except that as to accounts receivable and inventory and proceeds
thereof, and certain related rights, such security shall be subordinated to
liens securing obligations outstanding under any working capital or revolving
credit facility secured by such accounts receivable and inventory. The indenture
for the Senior Secured Notes places certain limits on Terex's ability to incur
additional indebtedness; permit the existence of liens; issue, pay dividends on
or redeem equity securities; sell assets; consolidate, merge or transfer assets
to another entity; and enter into transactions with affiliates.
Old Senior Secured Notes
The Old Senior Secured Notes were retired on May 9, 1995 in conjunction
with the PPM Acquisition and the issuance of the Senior Secured Notes. The
Company realized an extraordinary loss of $1,347 on the early extinguishment of
its allocated share of the Old Senior Secured Notes. The Old Senior Secured
Notes were issued in July 1992 for a total of $160,000 ($85,000 allocated to
CMH) in conjunction with the Acquisition and a refinancing of the Parent
Company's bank debt. Proceeds from the issuance of the Old Senior Secured Notes
were used for the cash portion of the Acquisition purchase price, for the
settlement of all amounts outstanding under the Parent Company's previous credit
facility, for working capital and for transaction costs. During 1993 and 1994
the Company recorded extraordinary losses of $297 and $565, respectively, on the
early retirement of its allocated debt based on the proceeds from sales of
certain property, plant and equipment.
F-10
77
CLARK MATERIAL HANDLING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company paid $1,169, $2,218 and $793 of interest in 1993, 1994 and
1995, respectively.
NOTE G -- LEASE COMMITMENTS
The Company leases certain facilities, machinery and equipment, and
vehicles with varying terms. Under most leasing arrangements, the Company pays
the property taxes, insurance, maintenance and expenses related to the leased
property. Certain of the equipment leases are classified as capital leases and
the related assets have been included in Property, Plant and Equipment. Net
assets under capital leases were $8,014 and $8,042 at December 31, 1994 and
1995, respectively.
Future minimum capital and noncancelable operating lease payments and the
related present value of capital lease payments at December 31, 1995 are as
follows:
CAPITAL OPERATING
LEASES LEASES
------- ---------
1996............................................................. $ 3,118 $ 2,574
1997............................................................. 2,074 2,063
1998............................................................. 1,352 382
1999............................................................. 697 136
2000............................................................. 270 85
Thereafter....................................................... 22 --
------ ------
Total minimum obligations.............................. 7,533 $ 5,240
======
Less amount representing interest................................ 979
------
Present value of net minimum obligations............... 6,554
Less current portion............................................. 2,414
------
Long-term obligations.................................. $ 4,140
======
Most of the Company's operating leases provide the Company with the option
to renew the leases for varying periods after the initial lease terms. These
renewal options enable the Company to renew the leases based upon the fair
rental values at the date of expiration of the initial lease. Total rental
expense under operating leases was $3,430, $4,414 and $2,557 in 1993, 1994, and
1995, respectively.
In 1994, the Company entered into a sale-leaseback transaction for its
parts distribution center in Germany. The Company received net proceeds of
DM16,500 ($11,000) and will lease the facility under the terms of a five year
lease. The Company realized a gain of $3,866 which was deferred and will be
amortized as a reduction of rental expense over the lease term ($774 per year).
The unamortized gain included in Other Non Current Liabilities is $3,126 and
$2,576 at December 31, 1994 and 1995, respectively.
The Company also routinely enters into sale-leaseback arrangements for
certain equipment, which is similarly sold to third-party customers under
sales-type lease agreements. The Company maintains a net investment in these
leases, represented by the present value of payments due under the leases of
$6,554 of which $2,414 is current at December 31, 1995.
In connection with the original sale-leaseback arrangements underlying the
customer leasing program, the Company has an outstanding rental installment
obligation which is recorded based on the present value of minimum payments due
under the leases.
F-11
78
CLARK MATERIAL HANDLING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE H -- INCOME TAXES
The components of Loss Before Income Taxes and Extraordinary Items are as
follows:
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
-------- -------- --------
United States...................................... $(43,230) $ (6,817) $(16,405)
Foreign............................................ (1,531) (17,652) (866)
-------- -------- --------
Loss before income taxes and extraordinary items... (44,761) $(24,469) $(17,271)
======== ======== ========
The major components of the Company's provision for income taxes are
summarized below:
YEAR ENDED DECEMBER
31,
----------------------
1993 1994 1995
---- ---- ----
Current:
Federal..................................................... $ -- $ -- $ --
State....................................................... -- 498 --
Foreign..................................................... $158 288 148
--- ---- ----
Current income tax provision........................ 158 786 148
--- ---- ----
Deferred:
Deferred federal income tax benefit......................... -- -- --
--- ---- ----
Total provision for income taxes............................ 158 $786 $148
=== ==== ====
The tax effects of the basis differences and net operating loss
carryforward as of December 31, 1995 and 1994 are summarized below for major
balance sheet captions:
1994 1995
-------- --------
Net inventories................................................ $(10,209) $ (8,982)
Property, plant and equipment.................................. (2,910) (2,085)
Other.......................................................... (35) --
-------- --------
Total deferred tax liabilities....................... (13,154) (11,067)
-------- --------
Receivables.................................................... 867 759
Warranties and product liability............................... 17,866 18,773
All other items................................................ 1,623 1,538
Benefit of net operating loss carryforward..................... 42,716 52,838
-------- --------
Total deferred tax assets............................ 63,072 73,908
-------- --------
Deferred tax assets valuation allowance........................ (49,918) (62,841)
-------- --------
Net deferred tax liabilities................................. $ -- $ --
======== ========
Deferred tax assets and liabilities result from differences in the basis of
assets and liabilities for tax and financial statement purposes. A valuation
allowance for deferred tax assets as of January 1, 1994 was $47,111. The net
change in the total valuation allowance for the years ended December 31, 1994
and 1995 were increases of $2,807 and $12,923, respectively. Based on the
historical operating results, it is more likely than not that the benefit will
not be realized, therefore a valuation allowance has been provided.
F-12
79
CLARK MATERIAL HANDLING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's Provision for Income Taxes is different from the amount which
would be provided by applying the statutory federal income tax rate to the
Company's Loss Before Income Taxes and Extraordinary Items. The reasons for the
difference are summarized below:
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1994 1995
-------- ------- -------
Statutory federal income tax rate.................... $(15,666) $(8,564) $(6,045)
Recognition of previously unrecognized tax assets.... -- -- --
NOL with no current benefit.......................... 15,143 2,449 5,651
Foreign tax differential on income/losses of
foreign............................................ 536 6,178 303
Goodwill............................................. -- -- --
State tax............................................ -- 498 --
Other................................................ 145 225 239
-------- ------- -------
Total provision for income taxes........... $ 158 $ 786 $ 148
======== ======= =======
At December 31, 1995, the Company had U.S. federal net operating loss
carryforwards of $99,084. The Company's future utilization of U.S. net operating
loss carryforwards may be limited should there be a change of ownership under
the U.S. income tax laws. The tax basis net operating loss carryforwards expire
as follows:
2007............................................... $ 6,577
2008............................................... 57,575
2009............................................... 21,121
2010............................................... 13,811
-------
Total.................................... $99,084
=======
The Company also has various state net operating loss and tax credit
carryforwards expiring at various dates through 2010 available to reduce future
state taxable income and income taxes. In addition, the Company's foreign
subsidiaries have approximately $39,964 of loss carryforwards, $34,585 in
Germany, $1,564 in France and $3,815 in other countries, which are available to
offset future foreign taxable income. The loss carryforwards in Germany and
France are available without expiration. The loss carryforwards in other
countries of $3,815 expire in the years 1996 through 2001.
The Company made income tax payments of $158, $790 and $148 in 1993, 1994
and 1995, respectively.
The Korean tax authorities have assessed Clark Forklift Korea approximately
$1 million related to transfer pricing matters. The Company has retained legal
counsel who have filed a protest.
NOTE I -- RETIREMENT PLANS
Pension Plans
The Company does not provide any pension plans for its U.S. employees.
Certain of the Company's German employees are covered by noncontributory defined
benefit pension plans. The Company also maintains separate pension benefit plans
for certain German executive employees and for other staff. The executive
pension plans are based on final pay and service, and, in some cases, are
dependent on social security pensions while the other staff plans are based on
fixed amounts applied to the number of years service rendered. The plans are
unfunded.
F-13
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CLARK MATERIAL HANDLING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The components of pension expense for each of the reporting periods covered
by these financial statements is as follows:
YEAR ENDED DECEMBER 31,
--------------------------
1993 1994 1995
------ ----- -----
Current service cost...................................... $ 201 $ 174 $ 57
Interest cost............................................. 862 877 886
Net amortization and deferrals............................ 84 (820) (927)
------ ---- ---
Defined benefit pension expense........................... $1,147 $ 231 $ 16
====== ==== ===
The following table reconciles the funded status of the Company's defined
benefit pension plans to the amounts recognized in the Company's combined
balance sheet:
DECEMBER 31,
-------------------
1994 1995
------- -------
Accumulated benefit obligation, including nonvested benefits of
$207 and $221 at December 31, 1994 and 1995.................... $11,095 $12,792
Projected benefit obligations.................................... $11,152 $12,843
Unrecognized net gain/(loss)..................................... 1,902 (930)
Unrecognized prior service cost.................................. -- 368
Unrecognized transition asset (liability)........................ (665) 620
Adjustment required to recognize minimum liability............... -- 5
------- -------
Accrued pension cost............................................. $12,389 $12,906
======= =======
The discount rate of 7.5% was used in 1994 and 1995 to determine the
projected benefit obligation. During 1994, the Company significantly reduced its
German work force in connection with restructuring of its operations. As a
result, the Company realized a curtailment gain with respect to these plans,
which was recognized as a reduction of the unrecognized transition liability. In
1994 the Company changed certain assumptions used in the actuarial valuation of
the plans. These changes in assumptions reflected the reductions in personnel
and other changes in the Company's operations, including changes in compensation
arrangements, implemented during 1994. These changes resulted in an actuarial
gain of $2,724. The gain in excess of 10% of the projected benefit obligation is
being amortized over 2 years.
Savings Plans
The Company sponsors various tax deferred savings plans into which eligible
employees may elect to contribute a portion of their compensation. The Company
can, but is not obligated to, contribute to certain of these plans.
Other Postemployment Benefits
The Company does not have any benefit program which provides retiree health
or life insurance benefits.
NOTE J -- LITIGATION AND CONTINGENCIES
In the Company's line of business suits have been filed alleging damages
for accidents that have arisen in the normal course of operations involving the
Company's products. As part of the Acquisition, Terex and the Company assumed
both the outstanding and future product liability exposures related to such
operations. As of December 31, 1995, CMH had approximately 120 lawsuits
outstanding alleging damages for injuries or deaths arising from accidents
involving CMH products. Most of the foregoing suits are in various stages of
pretrial completion, and certain plaintiffs are seeking punitive as well as
compensatory damages. The
F-14
81
CLARK MATERIAL HANDLING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Company is self-insured, up to certain limits, for these product liability
exposures, as well as for certain exposures related to general, workers'
compensation and automobile liability. Insurance coverage is obtained for
catastrophic losses as well as those risks required to be insured by law or
contract. The Company has recorded and maintains an estimated liability, based
in part upon actuarial determinations, in the amount of management's estimate of
the Company's aggregate exposure for such self-insured risks.
The Company is involved in various other legal proceedings which have
arisen in the normal course of its operations. The Company has recorded
provisions for estimated losses in circumstances where a loss is probable and
the amount or range of possible amounts of the loss is estimable.
The Company is contingently liable as a guarantor for certain customers'
floor plan obligations with financial institutions. As a guarantor, the Company
is obligated to purchase equipment which has been repossessed by the financial
institution based upon the unamortized principal balance outstanding. The
Company records the repossessed inventory at its estimated net realizable value.
Any resultant losses are charged against related reserves. The guarantee under
such floor plans aggregated approximately $30,000 at December 31, 1995. The
Company has recorded reserves based on management's estimates of potential
losses arising from these guarantees. Historically, the Company has incurred
only minimal losses relating to these arrangements.
The Company is contingently liable for a portion of the residual value of
machines sold by the Company to an independent company which subsequently leases
those machines to third parties for terms generally ranging from three to five
years. Sales for which there is a contingent liability were $16,700 in 1993,
$15,600 in 1994, and $21,000 in 1995. The Company sells or leases to third
parties the repurchased machines. At December 31, 1994 and 1995 there was $240
and $1,065, respectively, of repurchased machines included in inventory.
Historically, the Company has made a profit on the subsequent resale of
repurchased machines. At December 31, 1995, the maximum contingent liability was
approximately $7,100.
The Company has also given guarantees to financial institutions relating to
capital loans and other dealer and customer obligations arising in the ordinary
conduct of its business. Such guarantees approximated $3,800 at December 31,
1995. Estimated losses, if any, on such guarantees are accrued as a component of
the Allowance for Doubtful Accounts. Historically, the Company has not incurred
material losses on these guarantees.
To enhance its marketing effort and ensure continuity of its dealer
network, the Company has also agreed as part of its dealer sales agreements to
repurchase certain new and unused equipment in the event of a dealer
termination. Repurchase agreements included in operating agreements with an
independent financial institution have been patterned after those included in
the dealer sales agreements, and provide for repurchase of inventory in certain
circumstances of dealer default on financing provided by the financial
institution to the dealer. Dealer inventory of approximately $200,000 at
December 31, 1995 was covered by those operating agreements. Under these
agreements, when dealer terminations do occur, a newly selected dealer generally
assumes the assets of the prior dealer and any related financial obligations.
Historically, the Company has incurred only minimal losses relating to these
arrangements.
The Parent Company's Credit Facility provides the Parent Company with the
ability to borrow (in the form of revolving loans and up to $15,000 in
outstanding letters of credit) up to $100,000. The Credit Facility is secured by
substantially all of the Parent Company's domestic receivables and inventory
(including CMHC). The amount of borrowings is limited to the sum of the
following: (i) 75% of the net amount of eligible receivables, as defined, of the
Parent Company's U.S. businesses other than CMHC, plus (ii) 70% of the net
amount of CMHC eligible receivables, plus (iii) the lesser of 45% of the value
of eligible inventory, as defined, or 80% of the appraised orderly liquidation
value of eligible inventory less (iv) any availability reserves established by
the lenders. The Credit Facility expires May 9, 1998 unless extended by the
lenders for one additional year. At the option of the Parent Company, revolving
loans may be in the form of prime rate
F-15
82
CLARK MATERIAL HANDLING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
loans initially bearing interest at the rate of 1.75% per annum in excess of the
prime rate and Eurodollar rate loans initially bearing interest at the rate of
3.75% per annum in excess of the adjusted Eurodollar rate.
The Company's outstanding letters of credit totaled $736 at December 31,
1995. The letters of credit generally serve as collateral for certain
liabilities included in the combined balance sheet. Certain of the letters of
credit serve as collateral guaranteeing the Company's performance under
contracts.
NOTE K -- RELATED PARTY TRANSACTIONS
The Company had transactions with various unconsolidated affiliates as
follows:
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
------- ------- -------
Distribution expenses............................... $ 7,619 $ 6,584 $ 7,088
Terex management fee allocation..................... 4,380 8,453 6,996
Interest expense.................................... $16,756 $14,361 $16,145
Interest income..................................... -- 560 480
Debt has been allocated by Terex to the Company based on the initial
purchase price of $91 million, subsequently reduced by proceeds from the sale of
Drexel, the Saarn property sale-leaseback, and the sale of other property, plant
and equipment. Interest on the debt has been allocated at 13%, compounded
monthly. Interest accrued on the allocated debt is included in the Company's
combined balance sheet as a component of Due to Parent Company.
The Company utilizes the services of the Terex worldwide distribution
center for services related to its replacement parts business. Distribution
expenses, which are included in Cost of Goods Sold, reflect the charges for
those services.
Sales to affiliated companies were not material in any of the years
presented.
NOTE L -- BUSINESS SEGMENT INFORMATION
The Company operates in one industry segment, that being the design,
manufacture and sale of a complete line of internal combustion and electric lift
trucks, electric walkies, and related components and replacement parts. These
products are used in material handling applications in a broad array of
manufacturing, distribution and transportation industries.
F-16
83
CLARK MATERIAL HANDLING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Geographic segment information is presented below:
1993 1994 1995
-------- -------- --------
Sales
North America.................................... $287,216 $350,604 $385,611
Europe........................................... 110,765 137,478 162,396
All other........................................ 22,570 26,800 116
Eliminations..................................... (24,926) (42,230) (19,364)
-------- -------- --------
Total.................................... $395,625 $472,652 $528,759
======== ======== ========
Income (Loss) from Operations
North America.................................... $(24,499) $ (8,403) $ (523)
Europe........................................... (6,128) (5,405) 3,973
All other........................................ 1,914 (541) (379)
Eliminations..................................... 140 366 (4)
-------- -------- --------
Total.................................... $(28,573) $(13,983) $ 3,067
======== ======== ========
Identifiable Assets
North America.................................... $120,605 $107,930 $ 95,107
Europe........................................... 84,248 91,931 101,054
All other........................................ 18,148 14,899 9,650
Eliminations..................................... (14,217) (20,098) (13,102)
-------- -------- --------
Total.................................... $208,784 $194,662 $192,709
======== ======== ========
Sales between geographic areas are generally priced to recover costs plus a
reasonable markup for profit. Operating income equals net sales less direct and
allocated operating expenses, excluding interest and other nonoperating items.
The Company is not dependent upon any single customer.
Export sales from U.S. operations were as follows:
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
------- ------- -------
North and South America............................... $14,672 $17,542 $37,306
Europe, Africa and Middle East........................ 2,110 2,053 4,728
Asia and Australia.................................... 2,982 6,002 5,016
------- ------- -------
$19,764 $25,597 $47,050
======= ======= =======
NOTE M -- SEVERANCE ACTIONS
In 1994, the Company announced personnel reductions in plant supervision,
engineering, marketing and administration totaling approximately 160 employees
in its North American and European operations. Also in 1994, the Company
announced additional personnel reductions totaling approximately 90 employees in
conjunction with the closing of the Korean plant and certain branch sales
offices in France. The Company recorded a combined charge of $6,736 for costs,
principally severance costs, associated with these actions.
The Company announced personnel reductions totaling approximately 134
employees in the North American operations during 1995 as a continuation of the
Company's programs to increase manufacturing efficiency, reduce costs and
improve liquidity. The Company recorded a combined charge of $3,478 in 1995
F-17
84
CLARK MATERIAL HANDLING
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
for severance costs associated with these actions and additional costs
associated with the closing of certain administrative and warehouse facilities.
Also during 1995, the Company recorded a charge of $2,500 to recognize the
impairment in value of certain properties held for sale in Korea.
NOTE N -- LIQUIDITY AND FINANCING
The Company's business is working capital intensive and requires funding
for purchases of production and replacement parts inventories, capital
expenditures for repair, replacement and upgrading of existing facilities as
well as financing of receivables from customers and dealers. The Parent Company
has significant debt service requirements including semi-annual interest
payments on senior debt and monthly interest payments on its credit facility.
CMH's sources of financing are integrated with those of Terex Corporation.
Cash flows between CMH and Terex are funded through an intercompany account.
Terex and CMH believe that Terex as a whole has sufficient resources to meet
operating requirements for the foreseeable future.
F-18
85
CLARK MATERIAL HANDLING
UNAUDITED COMBINED BALANCE SHEET
(IN THOUSANDS)
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
CURRENT ASSETS
Cash and cash equivalents........................................ $ 819 $ 1,424
Cash securing letters of credit.................................. 736 957
Trade receivables (less allowance of $2,867 in 1995 and $2,752 in
1996)......................................................... 39,433 38,845
Net inventories.................................................. 68,464 62,997
Other current assets............................................. 4,660 4,593
-------- --------
Total Current Assets..................................... 114,112 108,816
LONG-TERM ASSETS
Property, plant and equipment -- net............................. 58,194 51,434
Goodwill -- net.................................................. 3,138 2,814
Other assets..................................................... 17,265 17,593
-------- --------
TOTAL ASSETS....................................................... $192,709 $ 180,657
======== ========
CURRENT LIABILITIES
Notes payable.................................................... $ 879 $ 424
Current portion of capital lease obligations..................... 2,414 2,408
Trade accounts payable........................................... 61,535 51,802
Accrued compensation and benefits................................ 4,585 4,911
Accrued warranties and product liability......................... 19,012 17,773
Other current liabilities........................................ 9,834 7,976
-------- --------
Total Current Liabilities................................ 98,259 85,294
NON CURRENT LIABILITIES
Capital lease obligations, less current portion.................. 4,140 3,791
Allocated long-term debt......................................... 51,220 51,138
Accrued warranties and product liability......................... 31,661 31,090
Accrued pension.................................................. 13,070 12,720
Other non-current liabilities.................................... 3,435 4,934
COMMITMENTS AND CONTINGENCIES
DUE TO PARENT COMPANY.............................................. 87,646 93,631
STOCKHOLDER'S DEFICIT
Accumulated deficit.............................................. (94,873) (97,753)
Cumulative translation adjustment................................ (1,849) (4,188)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT........................ $192,709 $ 180,657
======== ========
The accompanying notes are an integral part of these financial statements.
F-19
86
CLARK MATERIAL HANDLING
UNAUDITED COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1995 1996
-------- --------
NET SALES.............................................................. $404,418 $334,889
COST OF GOODS SOLD..................................................... 372,470 297,297
-------- --------
Gross Profit......................................................... 31,948 37,592
ENGINEERING, SELLING AND ADMINISTRATIVE EXPENSES....................... 24,523 22,009
PARENT COMPANY MANAGEMENT FEES......................................... 5,428 4,701
SEVERANCE AND EXIT CHARGES............................................. 3,478 --
-------- --------
Income (Loss) from operations........................................ (1,481) 10,882
OTHER INCOME (EXPENSE):
Interest income...................................................... 64 126
Allocated interest expense from Parent Company....................... (11,365) (13,175)
Interest expense -- others........................................... (680) (278)
Amortization of allocated debt issuance costs........................ (417) (338)
Property impairment charge........................................... (2,500) --
Loss on sale of property, plant and equipment........................ (104) (277)
Other income (expense) -- net........................................ (798) 180
-------- --------
LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS..................... (17,281) (2,880)
PROVISION FOR INCOME TAXES............................................. (135) --
-------- --------
LOSS BEFORE EXTRAORDINARY ITEMS...................................... (17,416) (2,880)
EXTRAORDINARY LOSS ON RETIREMENT OF ALLOCATED DEBT..................... (1,347) --
-------- --------
NET LOSS............................................................. $(18,763) $ (2,880)
======== ========
The accompanying notes are an integral part of these financial statements.
F-20
87
CLARK MATERIAL HANDLING
UNAUDITED COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1995 1996
-------- --------
OPERATING ACTIVITIES
Net Loss............................................................... $(18,763) $ (2,880)
Adjustments to reconcile net loss to cash provided by (used in)
operating activities:
Depreciation......................................................... 8,733 7,894
Amortization......................................................... 1,085 945
Extraordinary loss on retirement of allocated debt................... 1,347 --
(Gain) loss on sale of property, plant and equipment................. 104 227
Property impairment charge........................................... 2,500 --
Other................................................................ 263 223
Changes in operating assets and liabilities:
Restricted cash................................................... (395) (221)
Trade receivables................................................. (1,986) 588
Net inventories................................................... (4,074) 5,467
Trade accounts payable............................................ (3,147) (9,733)
Accrued compensation and benefits................................. 606 326
Accrued warranties and product liability.......................... 1,167 (1,239)
Due to Parent Company................................................ 21,056 5,985
Other, net........................................................... (2,760) (2,256)
-------- --------
Net cash provided by (used in) operating activities............. 5,736 5,326
-------- --------
INVESTING ACTIVITIES
Capital expenditures................................................. (3,996) (2,478)
Proceeds from sale of assets......................................... 433 82
-------- --------
Net cash provided by (used in) investing activities............. (3,563) (2,396)
-------- --------
FINANCING ACTIVITIES
Repayment of allocated debt.......................................... (51,754) (82)
Proceeds from refinancing of allocated debt.......................... 51,220 --
Other, net........................................................... (1,152) (810)
-------- --------
Net cash provided by (used in) financing activities............. (1,686) (892)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS........... (1,409) (1,433)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................. (922) 605
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD....................... 1,514 819
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................. $ 592 $ 1,424
======== ========
The accompanying notes are an integral part of these financial statements.
F-21
88
CLARK MATERIAL HANDLING
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE A -- REPORTING ENTITY AND BASIS OF PRESENTATION
CMH Acquisition Corp. and CMH Acquisition International Corp. (collectively
"Clark Material Handling," "CMH" or the "Company"), incorporated in the state of
Delaware, are wholly-owned subsidiaries of Terex Corporation ("Terex" or the
"Parent Company"). Terex, through CMH, acquired the Material Handling
Operations, comprised of Clark Material Handling Company ("CMHC") and certain
affiliated companies, from Clark Equipment Company on July 31, 1992 (the
"Acquisition"). The purchase price for all the businesses acquired was $91,090.
The assets acquired and the liabilities assumed were valued at their estimated
fair market values at the time of the Acquisition. As a result, the acquisition
debt and goodwill associated with the Acquisition have been "pushed down" to the
Company's financial statements.
Parent Company Allocations. The combined financial statements include
allocations of Parent Company Acquisition debt and related interest expense.
Corporate charges, which include corporate overhead costs (including legal,
treasury and other shared services), have been allocated to the Company based
generally on the percentage of Company revenues to Terex consolidated revenues.
Interest has been charged on the corporate charges allocated and the Due to
Parent Company balance at a rate of 13% compounded monthly.
The accompanying combined financial statements reflect the financial
position, results of operations and cash flows of CMH.
CMH is engaged in the design, manufacture, marketing and worldwide
distribution and support of internal combustion and electric lift trucks,
electric walkies and related components and replacement parts.
In the opinion of management, all adjustments considered necessary for a
fair presentation have been made. Such adjustments consist only of those of a
recurring nature. Operating results for the nine months ended September 30, 1996
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1996.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination. The combined financial statements include the
accounts of CMH and their subsidiaries, including CMHC, Clark Material Handling
GmbH and Clark Forklift Korea. All material intercompany balances, transactions
and profits have been eliminated.
Cash and Cash Equivalents. Cash equivalents consist of highly liquid
investments with original maturities of three months or less. The carrying
amount of cash and cash equivalents approximates their fair value.
Cash Securing Letters of Credit. The Company has certain cash and cash
equivalents that are not fully available for use in its operations. Certain
international operations collateralize letters of credit and performance bonds
with cash deposits.
Inventories. Inventories are stated at the lower of cost or market value.
Cost is determined using the last-in, first-out ("LIFO") method for U.S.
inventories and by the first-in, first-out ("FIFO") method for inventories of
international subsidiaries. Approximately 68% and 70% of combined inventories at
December 31, 1995 and September 30, 1996, respectively, are accounted for under
the LIFO method.
Goodwill. Goodwill, representing the difference between the total purchase
price and the fair value of assets (tangible and intangible) and liabilities at
the date of acquisition, is being amortized on a straight-line basis over
fifteen years. It is the Company's policy to periodically evaluate the carrying
value of goodwill, and to recognize impairments when the estimated related
future net operating cash flows is less than its carrying value. The amount of
any impairment then recognized would be calculated as the difference between
estimated future discounted cash flows and the carrying value of the goodwill.
F-22
89
CLARK MATERIAL HANDLING
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
Allocated Debt Issuance Costs. Debt issuance costs incurred in securing
the Parent Company's financing arrangements are capitalized and amortized over
the term of the associated debt. Allocated debt issuance costs related to
Acquisition debt are allocated to the Company. Allocated capitalized debt
issuance costs related to allocated debt that is retired early are charged to
expense at the time of retirement. Unamortized allocated debt issuance costs are
included in Other Assets and totaled $2,898 and $2,560 at December 31, 1995 and
September 30, 1996, respectively.
Property, Plant and Equipment. Property, plant and equipment are stated at
cost. Expenditures for major renewals and improvements are capitalized while
expenditures for maintenance and repairs not expected to extend the life of an
asset beyond its normal useful life are charged to expense when incurred. Plant
and equipment are depreciated over the estimated useful lives, not exceeding
forty years, of the assets under the straight-line method of depreciation for
financial reporting purposes and both straight-line and other methods for tax
purposes.
Revenue Recognition. Revenue and costs are generally recorded when
products are shipped and invoiced to customers. Certain new units may be
invoiced prior to the time customers take physical possession. Revenue is
recognized in such cases only when the customer has a fixed commitment to
purchase the units, the units have been completed, tested and made available to
the customer for pickup or delivery, and the customer has requested that the
Company hold the units for pickup or delivery at a time specified by the
customer in the sales documents. In such cases, the units are invoiced under the
Company's customary billing terms, title to the units and risks of ownership
pass to the customer upon invoicing, the units are segregated from the Company's
inventory and identified as belonging to the customer and the Company has no
further obligations under the order.
Accrued Warranties and Product Liability. The Company records accruals for
potential warranty and product liability claims based on the Company's claim
experience. Warranty costs are accrued at the time revenue is recognized. The
Company provides self-insurance accruals for estimated product liability
experience on known claims and for claims anticipated to have been incurred
which have not yet been reported. The Company's product liability accruals are
presented on a gross settlement basis.
Foreign Currency Translation. Assets and liabilities of the Company's
international operations are translated at year-end exchange rates. Income and
expenses are translated at average exchange rates prevailing during the year.
For operations whose functional currency is the local currency, translation
adjustments are accumulated in the Cumulative Translation Adjustment component
of Stockholder's Deficit. Gains or losses resulting from foreign currency
transactions are included in Other income (expense) -- net.
Environmental Policies. Environmental expenditures that relate to current
operations are either expensed or capitalized depending on the nature of the
expenditure. Expenditures relating to conditions caused by past operations that
do not contribute to current or future revenue generation are expensed.
Liabilities are recorded when environmental assessments and/or remedial actions
are probable, and the costs can be reasonably estimated.
Income Taxes. Income taxes are provided using the asset and liability
method. The Company's U.S. operations are a part of a group that files a
consolidated income tax return. The method used to allocate income taxes to
members of the group is one in which current and deferred income taxes are
calculated on a separate return basis as if the Company had not been included in
a consolidated income tax return with its parent. Income taxes for international
operations are based upon the individual subsidiary's tax return.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial
F-23
90
CLARK MATERIAL HANDLING
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE C -- INVENTORIES
Inventories consist of the following:
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
Finished equipment......................................... $ 9,410 $15,151
Replacement parts.......................................... 22,966 23,362
Work-in-process............................................ 3,405 1,548
Raw materials and supplies................................. 33,229 23,482
------- -------
69,010 63,543
Less: Excess of FIFO inventory value over LIFO cost........ (546) (546)
------- -------
Net inventories.......................................... $ 68,464 $62,997
======= =======
NOTE D -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
Property................................................... $ 8,348 $ 7,846
Plant...................................................... 20,262 19,465
Equipment.................................................. 55,433 55,831
-------- --------
84,043 83,142
Less: Accumulated depreciation............................. (25,849) (31,708)
-------- --------
Net property, plant and equipment........................ $ 58,194 $ 51,434
======== ========
NOTE E -- LITIGATION AND CONTINGENCIES
In the Company's line of business suits have been filed alleging damages
for accidents that have arisen in the normal course of operations involving the
Company's products. As part of the Acquisition, Terex and the Company assumed
both the outstanding and future product liability exposures related to such
operations. As of September 30, 1996, CMH had approximately 120 lawsuits
outstanding alleging damages for injuries or deaths arising from accidents
involving CMH products. Most of the foregoing suits are in various stages of
pretrial completion, and certain plaintiffs are seeking punitive as well as
compensatory damages. The Company is self-insured, up to certain limits, for
these product liability exposures, as well as for certain exposures related to
general, workers' compensation and automobile liability. Insurance coverage is
obtained for catastrophic losses as well as those risks required to be insured
by law or contract. The Company has recorded and maintains an estimated
liability, based in part upon actuarial determinations, in the amount of
management's estimate of the Company's aggregate exposure for such self-insured
risks.
The Company is involved in various other legal proceedings which have
arisen in the normal course of its operations. The Company has recorded
provisions for estimated losses in circumstances where a loss is probable and
the amount or range of possible amounts of the loss is estimable.
The Company is contingently liable as a guarantor for certain customers'
floor plan obligations with financial institutions. As a guarantor, the Company
is obligated to purchase equipment which has been repossessed by the financial
institution based upon the unamortized principal balance outstanding. The
F-24
91
CLARK MATERIAL HANDLING
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
Company records the repossessed inventory at its estimated net realizable value.
Any resultant losses are charged against related reserves. The guarantee under
such floor plans aggregated approximately $25,000 at September 30, 1996. The
Company has recorded reserves based on management's estimates of potential
losses arising from these guarantees. Historically, the Company has incurred
only minimal losses relating to these arrangements.
The Company is contingently liable for a portion of the residual value of
machines sold by the Company to an independent company which subsequently leases
those machines to third parties for terms generally ranging from three to five
years. The Company sells or leases to third parties the repurchased machines;
the repurchased machines are included in inventory. At September 30, 1996, the
maximum contingent liability under these programs was $9,900. The Company has
also given guarantees to financial institutions relating to capital loans and
other dealer and customer obligations arising in the ordinary conduct of its
business. Estimated losses, if any, on such guarantees are accrued as a
component of the Allowance for Doubtful Accounts. Historically, the Company has
not incurred material losses on these guarantees.
To enhance its marketing effort and ensure continuity of its dealer
network, the Company has also agreed as part of its dealer sales agreements to
repurchase certain new and unused equipment in the event of a dealer
termination. Repurchase agreements included in operating agreements with an
independent financial institution have been patterned after those included in
the dealer sales agreements, and provide for repurchase of inventory in certain
circumstances of dealer default on financing provided by the financial
institution to the dealer. Under these agreements, when dealer terminations do
occur, a newly selected dealer generally assumes the assets of the prior dealer
and any related financial obligations. Historically, the Company has incurred
only minimal losses relating to these arrangements.
The Parent Company's Credit Facility provides the Parent Company with the
ability to borrow (in the form of revolving loans and up to $15,000 in
outstanding letters of credit) up to $100,000. The Credit Facility is secured by
substantially all of the Parent Company's domestic receivables and inventory
(including CMHC). The amount of borrowings is limited to the sum of the
following: (i) 75% of the net amount of eligible receivables, as defined, of the
Parent Company's U.S. businesses other than CMHC, plus (ii) 70% of the net
amount of CMHC eligible receivables, plus (iii) the lesser of 45% of the value
of eligible inventory, as defined, or 80% of the appraised orderly liquidation
value of eligible inventory less (iv) any availability reserves established by
the lenders. The Credit Facility expires May 9, 1998 unless extended by the
lenders for one additional year. At the option of the Parent Company, revolving
loans may be in the form of prime rate loans initially bearing interest at the
rate of 1.75% per annum in excess of the prime rate and Eurodollar rate loans
initially bearing interest at the rate of 3.75% per annum in excess of the
adjusted Eurodollar rate.
The Company's outstanding letters of credit totaled $3,474 at September 30,
1996. The letters of credit generally serve as collateral for certain
liabilities included in the combined balance sheet. Certain of the letters of
credit serve as collateral guaranteeing the Company's performance under
contracts.
NOTE F -- ACQUISITION OF THE COMPANY
CLARK and CMH Holdings Corporation, a Delaware corporation, were formed by
Citicorp Venture Capital Ltd. and certain members of management of CLARK to
effect the acquisition of substantially all the assets and certain liabilities
of Clark Material Handling Company, a Kentucky corporation, and all of the
outstanding capital stock of certain of its affiliates, including its German,
Korean, Brazilian and Canadian affiliates. The acquisition was consummated on
November 27, 1996 pursuant to a Stock and Asset Purchase and Sale Agreement
dated as of November 9, 1996 among Terex and certain of its subsidiaries, as
sellers, and CLARK, as buyer. The aggregate consideration for the acquisition
was $139.5 million, which is subject to certain post-closing adjustments.
F-25
92
CLARK MATERIAL HANDLING
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information (the
"Unaudited Pro Forma Combined Financial Information") has been derived from the
application of pro forma adjustments to the Company's combined historical
financial statements included elsewhere herein. The Unaudited Pro Forma Combined
Financial Information gives effect to the Transactions as if such events had
occurred on September 30, 1996 for purposes of the unaudited pro forma combined
balance sheet and on January 1, 1995 for purposes of the unaudited pro forma
combined statements of operations for the year ended December 31, 1995, the nine
months ended September 30, 1996, and the twelve months ended September 30, 1996,
respectively. The pro forma adjustments are described in the accompanying notes.
The Unaudited Pro Forma Combined Financial Information is presented for
informational purposes only and does not purport to represent what the Company's
financial position or results of operations would actually have been if the
aforementioned events had occurred on the dates specified or to project the
Company's financial position or results of operations at any future date or for
any future periods. The Unaudited Pro Forma Combined Financial Information
should be read in conjunction with the Company's combined historical financial
statements, and the notes thereto, included elsewhere herein.
The Unaudited Pro Forma Combined Financial Information with respect to the
Acquisition is based on the historical financial statements of the business
acquired. The Acquisition will be accounted for under the purchase method of
accounting. The purchase price for the Acquisition, including the related fees
and expenses, has been allocated to the tangible and identifiable intangible
assets or liabilities of the acquired business based upon the Company's
preliminary estimates of their fair value with the remainder allocated to
goodwill. The allocation of purchase price for the Acquisition is subject to
revision when additional information concerning asset and liability valuation
becomes available. The pro forma adjustments directly attributable to the
Transactions include adjustments to interest expense related to the financing
and changes in amortization of intangible assets relating to the allocation of
the purchase price and the related tax effects. The purchase price of $139.5
million is subject to adjustment under the provisions of the Acquisition
Agreement. See "The Transactions" and "Risk Factors -- Lack of Independent
Operating History."
P-1
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CLARK MATERIAL HANDLING
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(IN THOUSANDS)
AS OF SEPTEMBER 30, 1996
------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
CURRENT ASSETS
Cash and cash equivalents.............................. $ 1,424 $ 9,963(1) $ 11,387
Cash securing letters of credit........................ 957 957
Net trade receivables.................................. 38,845 38,845
Net inventories........................................ 62,997 62,997
Other current assets................................... 4,593 4,593
--------- --------
Total Current Assets......................... 108,816 9,963 118,779
LONG-TERM ASSETS
Property, Plant and Equipment, Net..................... 51,434 440(2) 51,874
Goodwill -- net........................................ 2,814 97,760(3) 100,574
Other assets........................................... 17,593 2,940(4) 20,533
--------- --------
TOTAL ASSETS........................................... $ 180,657 $ 111,103 $ 291,760
========= ========
CURRENT LIABILITIES
Notes payable.......................................... $ 424 (424)(5) $ --
Current portion of capital lease obligations........... 2,408 2,408
Accounts payable....................................... 51,802 440(2) 52,242
Accrued compensation and benefits...................... 4,911 4,911
Other current liabilities.............................. 7,976 (194)(6) 7,782
Accrued product liability and warranty expense......... 17,773 17,773
--------- --------
Total Current Liabilities.................... 85,294 (178) 85,116
NON CURRENT LIABILITIES
Capital lease obligations, less current portion........ 3,791 3,791
Allocated long-term debt............................... 51,138 (51,138)(5) --
Long-term debt......................................... -- 130,000(7) 130,000
Accrued warranties and product liability............... 31,090 31,090
Accrued pension........................................ 12,720 12,720
Other non-current liabilities.......................... 4,934 (891)(6) 4,043
DUE TO PARENT.......................................... 93,631 (93,631)(5) --
STOCKHOLDER'S EQUITY (DEFICIT)......................... (101,941) 126,941(8) 25,000
--------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)... $ 180,657 $ 111,103 $ 291,760
========= ========
- ---------------
(1) To eliminate cash retained by former parent company ($37) and reflect net
cash resulting from issuance of Notes ($130,000), Equity Contribution by
Holdings ($25,000), payment of estimated debt issuance costs ($5,500) and
payment of purchase price ($139,500).
(2) To reflect fixed asset addition and related liability.
(3) To reflect goodwill ($100,574) resulting from the Transactions and eliminate
pre-acquisition goodwill ($2,814). The Company intends to amortize goodwill
over a forty year period. The purchase price used to determine the goodwill
amount does not reflect any adjustment that might occur on the closing date
for changes in working capital after September 30, 1996.
P-2
94
(4) To reflect capitalized debt issuance costs ($5,500) related to issuance of
the Notes and eliminate debt issuance costs allocated by former parent
company ($2,560).
(5) To eliminate liabilities not assumed by the Company.
(6) To accrue rent ($1,074) and related costs ($427) of unused facility and
eliminate unamortized gain recorded by predecessor on sale-leaseback
transaction ($2,586) as follows.
CURRENT LONG-TERM
------- ---------
Eliminate deferred gain.................................. $(787) $(1,799)
Accrue rent and related costs of unused facility......... 593 908
----- -------
$(194) $ (891)
===== =======
(7) To reflect issuance of the Notes.
(8) To eliminate stockholder's deficit and reflect the Equity Contribution.
P-3
95
CLARK MATERIAL HANDLING
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(in thousands)
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
NET SALES............................................... $ 528,759 -- $ 528,759
COST OF GOODS SOLD...................................... 484,035 $ 2,445(1) 486,480
-------- -------- --------
Gross Profit.......................................... 44,724 (2,445) 42,279
ENGINEERING, SELLING AND ADMINISTRATIVE EXPENSES........ 31,183 1,500(2) 32,683
PARENT COMPANY MANAGEMENT FEES.......................... 6,996 (6,996)(3) --
SEVERANCE AND EXIT CHARGES.............................. 3,478 -- 3,478
-------- -------- --------
Income (Loss) from Operations......................... 3,067 3,051 6,118
OTHER INCOME (EXPENSE):
Interest income....................................... 602 -- 602
Allocated interest expense from Parent Company........ (16,145) 16,145(4) --
Interest expense -- others............................ (790) (13,975)(5) (14,765)
Amortization of allocated debt issuance costs......... (530) (20)(6) (550)
Property impairment charge............................ (2,500) -- (2,500)
Loss on sale of property, plant and equipment......... (183) -- (183)
Other income (expense) -- net......................... (792) -- (792)
-------- -------- --------
LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS........ (17,271) 5,201 (12,070)
PROVISION FOR INCOME TAXES.............................. (148) -- (148)
-------- -------- --------
LOSS BEFORE EXTRAORDINARY ITEMS......................... $ (17,419) $ 5,201 $ (12,218)
======== ======== ========
- ---------------
(1) To eliminate pre-acquisition goodwill ($307) and reflect amortization of
goodwill resulting from the Transactions ($2,514); eliminate amortization of
deferred gain relating to predecessor's sale-leaseback of facilities ($787);
and eliminate rental and related costs of abandoned facility ($593) net of
incremental costs in other facilities for relocated employees ($44).
Included in historical cost of goods sold is $7,088 charged by former parent
company for certain services rendered and expenses incurred in connection
with the distribution of parts at the Southaven Facility. No pro forma
effect has been given to the elimination of these charges or the inclusion
of other expenses expected to be incurred to replace these amounts
(including charges under the Service Agreement) following consummation of
the Transactions because the amount of such other expenses is not readily
discernable. Management believes, however, that such other expenses will not
be materially different than the historical charges. See "Certain
Relationships and Related Transactions -- Service Agreement" and "Risk
Factors -- Lack of Independent Operating History."
(2) To reflect estimated costs ($1,500) to be incurred to replace certain legal,
accounting and administrative services previously provided by former parent
company.
(3) To eliminate former parent company management fees.
(4) To eliminate interest expense allocated by former parent company.
(5) To reflect interest expense on the Notes calculated at 10 3/4% per annum.
(6) To eliminate amortization of allocated debt issuance costs and reflect
amortization of debt issuance costs related to the Notes ($5,500) over a ten
year period.
P-4
96
CLARK MATERIAL HANDLING
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(in thousands)
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
NET SALES............................................... $ 334,889 $ -- $ 334,889
COST OF GOODS SOLD...................................... 297,297 1,834(1) 299,131
-------- ------- --------
Gross Profit.......................................... 37,592 (1,834) 35,758
ENGINEERING, SELLING AND ADMINISTRATIVE EXPENSES........ 22,009 1,125(2) 23,134
PARENT COMPANY MANAGEMENT FEES.......................... 4,701 (4,701)(3) --
-------- ------- --------
Income (Loss) from operations......................... 10,882 1,742 12,624
OTHER INCOME (EXPENSE):
Interest income....................................... 126 -- 126
Allocated interest expense from Parent Company........ (13,175) 13,175(4) --
Interest expense -- others............................ (278) (10,481)(5) (10,759)
Amortization of allocated debt issuance costs......... (338) (74)(6) (412)
Loss on sale of property, plant and equipment......... (277) -- (277)
Other income (expense) -- net......................... 180 -- 180
-------- ------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY
ITEMS................................................. (2,880) 4,362 1,482
PROVISION FOR INCOME TAXES.............................. -- 593(7) 593
-------- ------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS................ $ (2,880) $ 3,769 $ 889
======== ======= ========
- ---------------
(1) To eliminate pre-acquisition goodwill ($230) and reflect amortization of
goodwill resulting from the Transactions ($1,886); eliminate amortization of
deferred gain relating to predecessor's sale-leaseback of facilities ($590);
and eliminate rental and related costs of abandoned facility ($445) net of
incremental costs in other facilities for relocated employees ($33).
Included in historical cost of goods sold is $5,431 charged by former parent
company for certain services rendered and expenses incurred in connection
with the distribution of parts at the Southaven Facility. No pro forma
effect has been given to the elimination of these charges or the inclusion
of other expenses expected to be incurred to replace these amounts
(including charges under the Service Agreement) following consummation of
the Transactions because the amount of such other expenses is not readily
discernible. Management believes, however, that such other expenses will not
be materially different than the historical charges. See "Certain
Relationships and Related Transactions -- Service Agreement" and "Risk
Factors -- Lack of Independent Operating History."
(2) To reflect estimated costs ($1,125) to be incurred to replace certain legal,
accounting and administrative services previously provided by former parent
company.
(3) To eliminate former parent company management fees.
(4) To eliminate interest expense allocated by former parent company.
(5) To reflect interest expense on the Notes calculated at an assumed 10 3/4%
per annum.
(6) To eliminate amortization of allocated debt issuance costs and reflect
amortization of debt issuance costs related to the Notes ($5,500) over a ten
year period.
(7) To adjust tax provision to a 40% effective tax rate.
P-5
97
CLARK MATERIAL HANDLING
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED SEPTEMBER 30, 1996
(in thousands)
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
NET SALES............................................... $ 459,230 $ -- $ 459,230
COST OF GOODS SOLD...................................... 408,862 2,445(1) 411,307
-------- -------- --------
Gross Profit.......................................... 50,368 (2,445) 47,923
ENGINEERING, SELLING AND
ADMINISTRATIVE EXPENSES............................... 28,669 1,500(2) 30,169
PARENT COMPANY MANAGEMENT FEES.......................... 6,269 (6,269)(3) --
-------- -------- --------
Income (loss) from operations......................... 15,430 2,324 17,754
OTHER INCOME (EXPENSE)
Interest income....................................... 664 -- 664
Allocated interest expense from Parent Company........ (17,955) 17,955(4) --
Interest expense -- others............................ (388) (13,975)(5) (14,363)
Amortization of allocated debt issuance costs......... (451) (99)(6) (550)
Loss on sale of property, plant and equipment......... (356) -- (356)
Other income (expense) -- net......................... 186 -- 186
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY
ITEMS................................................. (2,870) 6,205 3,335
PROVISION FOR INCOME TAXES.............................. (13) 1,347(7) 1,334
-------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS................ $ (2,883) $ 4,858 $ 2,001
======== ======== ========
- ---------------
(1) To eliminate pre-acquisition goodwill ($307) and reflect amortization of
goodwill resulting from the Transactions ($2,514); eliminate amortization of
deferred gain relating to predecessor's sale-leaseback of facilities ($787);
and eliminate rental and related costs of abandoned facility ($593) net of
incremental costs in other facilities for relocated employees ($44).
Included in historical cost of goods sold is $6,654 charged by former parent
company for certain services rendered and expenses incurred in connection
with the distribution of parts at the Southaven Facility. No pro forma
effect has been given to the elimination of these charges or the inclusion
of other expenses expected to be incurred to replace these amounts
(including charges under the Service Agreement) following consummation of
the Transactions because the amount of such other expenses is not readily
discernable. Management believes, however, that such other expenses will not
be materially different than the historical charges. See "Certain
Relationships and Related Transactions -- Service Agreement" and "Risk
Factors -- Lack of Independent Operating History."
(2) To reflect estimated costs ($1,500) to be incurred to replace certain legal,
accounting and administrative services previously provided by former parent
company.
(3) To eliminate former parent company management fees.
(4) To eliminate interest expense allocated by former parent company.
(5) To reflect interest expense on the Notes calculated at an assumed 10 3/4%
per annum.
(6) To eliminate amortization of allocated debt issuance costs and reflect
amortization of debt issuance costs related to the Notes ($5,500) over a ten
year period.
(7) To adjust tax provision to a 40% effective tax rate.
P-6
98
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
PAGE
----
Available Information................. 2
Summary............................... 3
Risk Factors.......................... 11
The Transactions...................... 15
Use of Proceeds....................... 16
Pro Forma Capitalization.............. 16
Selected Historical Financial Data.... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
The Exchange Offer.................... 19
Business.............................. 30
Management............................ 36
Ownership of the Company.............. 39
Certain Relationships and Related
Transactions........................ 41
Description of Certain Indebtedness... 42
Description of the Notes.............. 43
Book-Entry; Delivery and Form......... 61
Certain Federal Income Tax
Consequences........................ 62
Plan of Distribution.................. 63
Legal Matters......................... 64
Experts............................... 64
Index to Combined Financial Statements
and Information..................... F-1
------------------------
UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT PARTICIPATING IN THE
ORIGINAL DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
PROSPECTUS
$130,000,000
LOGO
CLARK MATERIAL
HANDLING COMPANY
OFFER TO EXCHANGE
10 3/4% SENIOR NOTES DUE 2006
FOR ALL OUTSTANDING
10 3/4% SENIOR NOTES DUE 2006
, 1997
- ------------------------------------------------------
- ------------------------------------------------------
99
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides in relevant
part that a corporation may indemnify 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 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), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
such person's conduct was unlawful.
In addition, Section 145 provides that a corporation may indemnify any
person who was or is 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 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 if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper.
Section 145 further provides that nothing in the above-described provisions
shall be deemed exclusive of any other rights to indemnification or advancement
of expenses to which any person may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise.
The By-laws of the Company provide for the indemnification of any person
who was or is 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, by reason of the fact that such person is or
was a director or officer of the Company or a constituent corporation absorbed
in a consolidation or merger, or is or was serving at the request of the Company
or a constituent corporation absorbed in a consolidation or merger, as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, or is or was a director or officer of the Company serving at
its request as an administrator, trustee or other fiduciary of one or more of
the employee benefit plans of the Company or other enterprise, against expenses
(including attorneys' fees), liability and loss actually and reasonably incurred
or suffered by such person in connection with such proceedings, whether or not
the indemnified liability arises or arose from any threatened, pending or
completed proceeding by or in the right of the Company, except to the extent
that such indemnification is prohibited by applicable law. The By-laws of the
Company also provide that such indemnification shall not be deemed exclusive of
any other rights to which those indemnified may be entitled as a matter of law
or under any by-law, agreement, vote of stockholders or otherwise.
Section 102(b)(7) of the Delaware General Corporation Law provides that a
corporation may in its certificate of incorporation eliminate or limit the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director except for
liability: for any breach
II-1
100
of the director's duty of loyalty to the corporation or its stockholders; for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; under Section 174 of the Delaware General Corporation
Law (pertaining to certain prohibited acts including unlawful payment of
dividends or unlawful purchase or redemption of the corporation's capital
stock); or for any transaction from which the director derived an improper
personal benefit. The Certificate of Incorporation of the Company contains a
provision so limiting the personal liability of directors of the Company.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
3.1 Certificate of Incorporation, as amended, of the Company
3.2 By-laws of the Company
4.1 Indenture dated as of November 27, 1996 between the Company and United States Trust
Company of New York, as Trustee
4.2 Registration Rights Agreement dated as of November 27, 1996 among the Company,
Jefferies & Company, Inc. and Bear, Stearns & Co. Inc.
4.3 Form of 10 3/4% Senior Notes due 2006 (included in Exhibit 4.1)
5.1 Opinion of Dechert Price & Rhoads*
10.1 Purchase Agreement dated November 22, 1996 among the Company, Jefferies & Company,
Inc. and Bear, Stearns & Co. Inc.
10.2 Loan and Security Agreement dated November 27, 1996 by and between Congress
Financial Corporation and the Company
10.3 Stock and Asset Purchase and Sale Agreement, dated as of November 9, 1996 among
Terex Corporation, and certain of its subsidiaries and the Company
10.4 Service Agreement dated as of November 27, 1996 between Terex Corporation and the
Company.
10.5 Indemnity as to Letters of Credit, Performance Bonds, Appeal Bonds, Guaranties, etc.
dated November 27, 1996 by the Company in favor of Terex Corporation, for itself and
as successor to CMH Acquisition Corp., CMH Acquisition International Corp., Clark
Material Handling Company and Clark Material Handling International, Inc.
10.6 Employment Agreement dated as of November 27, 1996 between Holdings and Dr. Martin
M. Dorio
10.7 Tax Sharing Agreement made as of November 27, 1996 between Holdings and the Company
10.8 Stock Purchase Agreement, dated as of May 27, 1992, by and between Clark Equipment
Company and Terex Corporation
10.9 First Amendment to the Stock Purchase Agreement, dated as of July 31, 1992, by and
between Clark Equipment Company and Terex Corporation
10.10 Trademark Assignment Agreement, dated as of July 31, 1992, by and between Clark
Equipment Company and Clark Material Handling Company
10.11 Second Amended and Restated General Operating Agreement, dated November 29, 1990, by
and between Clark Material Handling Company and Chase Manhattan Leasing Company,
Inc.
10.12 Second Amendment to the Second Amended and Restated General Operating Agreement,
dated April 15, 1994, by and among Clark Material Handling Company, Drexel
Industries, Inc. and Clark Credit Corporation
10.13 Third Amendment to the Second Amended and Restated General Operating Agreement,
dated August 1, 1994, by and between Clark Material Handling Company and Clark
Credit Corporation
10.14 Assignment of Second Amended and Restated General Operating Agreement, dated March
22, 1995, by and between Clark Material Handling Company, Clark Credit Corporation,
f/k/a Chase Manhattan Leasing Company, and Associates Commercial Corporation
10.15 Master Software License and Service Agreement, dated May 17, 1996, between Clark
Material Handling Company and SDRC Operations
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101
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
10.16 Letter Agreement, dated October 26, 1995, between Clark Material Handling Company,
Manufacturers Distribution Services, Inc. and Maine Rubber International
10.17 MCI Services Agreement, effective as of July 1, 1995, between MCI Telecommunications
Corporation and Clark Material Handling Company*
10.18 Agreement for Systems Operations Services, dated as of March 2, 1992, between Clark
Material Handling Company and Integrated Systems Solutions Corporation, as amended
by Amendments #1 through #5
10.19 Supply Agreement, dated December 14, 1994, between Clark Material Handling Company
and Funk Manufacturing Company
10.20 Supply Agreement, dated July 1, 1995, between Clark Material Handling Company and
Funk Manufacturing Company
10.21 Supply Agreement, dated January 1, 1988, between Clark Material Systems Technology
Company and HydroElectric Lift Trucks Inc.
10.22 Amendment Agreement, dated March 2, 1992, between Clark Material Handling Company
and HydroElectric Lift Trucks, Inc.
10.23 Second Amendment Agreement, dated September 30, 1992, between Clark Material
Handling Company and HydroElectric Lift Trucks, Inc.
10.24 Agreement, dated June 1, 1983, between Clark Equipment Company and Mitsubishi
Corporation, Mitsubishi Heavy Industries, Ltd. and Mitsubishi Motors Corporation, as
amended
10.25 Master Contract for Purchase and Sale, dated July 17, 1995, between Clark Material
Handling Company and Custom Tool and Manufacturing Company
10.26 Supply Agreement, dated December 20, 1991, between Clark Material Handling Company
and Dixson, Inc.
10.27 Lease Agreement, dated as of April 15, 1987, between Vergil D. Kelly and Kenny
Angelucci and Clark Equipment Company with respect to 172 Trade Street, Lexington,
Kentucky, as amended by Amendment #1 to Lease dated April 15, 1987
10.28 Standard Form Dealer Sales Agreements between Clark Material Handling Company and
domestic dealer entities
10.29 Agreement, dated as of September 12, 1995, by and between Clark Material Handling
Company and Nissan Forklift Corporation, North America
12.1 Statement of Ratio of Earnings to Fixed Charges
21.1 Subsidiaries of the Company
23.1 Consent of Dechert Price & Rhoads (included in Exhibit 5.1)
23.2 Consent of Price Waterhouse LLP
24 Power of Attorney (included on signature page)
25 Statement of Eligibility and Qualification, Form T-1, of United States Trust Company
of New York
27 Financial Data Schedule
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
- ---------------
* To be supplied by amendment.
(b) Financial Statement Schedules:
Schedule II -- Valuation and Qualifying Accounts and Reserves
Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the information required by
such omitted schedules is set forth in the financial statements or the notes
thereto.
II-3
102
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) 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 end 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 a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) 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;
(2) 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; and
(3) 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 offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
103
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Lexington,
State of Kentucky, on the 18th day of December 1996.
CLARK MATERIAL HANDLING COMPANY
By: /s/ DR. MARTIN M. DORIO
------------------------------------
Dr. Martin M. Dorio
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below appoints Dr. Martin M. Dorio and
Michael A. Delaney, any of whom may act without the joinder of the other, as his
true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto
and all other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or their substitute or substitutes may lawfully do or cause to be
done by virtue thereof.
Pursuant to this requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities at the above-named Registrant on December 18, 1996.
SIGNATURE TITLE
- ------------------------------------------ ------------------------------------------
/s/ DR. MARTIN M. DORIO President, Chief Executive Officer and
- ------------------------------------------ Director (Principal Executive Officer)
Dr. Martin M. Dorio
/s/ JOSEPH F. LINGG Vice President, Finance, and Treasurer
- ------------------------------------------ (Principal Financial and Accounting
Joseph F. Lingg Officer)
/s/ THOMAS J. SNYDER Director
- ------------------------------------------
Thomas J. Snyder
/s/ MICHAEL A. DELANEY Director
- ------------------------------------------
Michael A. Delaney
104
CLARK MATERIAL HANDLING COMPANY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
BALANCE
BEGINNING CHARGES TO (1) (2) BALANCE
OF YEAR EARNINGS OTHER DEDUCTIONS END OF YEAR
--------- ---------- ----- ---------- -----------
Year ended December 31, 1995
Deducted from Asset Accounts:
Allowance for Doubtful Accounts...... 3,600 -- 71 (804) 2,867
Reserve for Excess and Obsolete
Inventory......................... 6,350 2,453 71 (4,161) 4,713
Year ended December 31, 1994
Deducted from Asset Accounts:
Allowance for Doubtful Accounts...... 4,643 -- 106 (1,149) 3,600
Reserve for Excess and Obsolete
Inventory......................... 6,397 2,383 59 (2,489) 6,350
Year ended December 31, 1993
Deducted from Asset Accounts:
Allowance for Doubtful Accounts...... 4,307 786 (94) (356) 4,643
Reserve for Excess and Obsolete
Inventory......................... 6,309 2,195 -- (2,107) 6,397
- ---------------
(1) Effect of exchange rate
(2) Utilization of established reserves, net of recoveries
1