ENERPAC TOOL GROUP CORP — M&A Activity 1998

Aug 12, 1998

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): July 31, 1998 APPLIED POWER INC. ----------------- (Exact name of Registrant as specified in its charter) Wisconsin 1-11288 39-0168610 --------- ------- ---------- (State of incorporation) (Commission File No.) (I.R.S. Employer Id. No.) 13000 West Silver Spring Drive Butler, Wisconsin 53007 Mailing address: P. O. Box 325, Milwaukee, Wisconsin 53201 ------------------------------------------------------------ (Address of principal executive offices) (Zip Code) (414) 781-6600 -------------- (Registrant's telephone number, including area code) 1 Item 2. Acquisition or Disposition of Assets Merger with ZERO Corporation On July 31, 1998, ZERO Corporation, a Delaware corporation ("ZERO"), became a wholly owned subsidiary of Applied Power Inc. ("API") through the merger of STB Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of API ("Acquisition"), with and into ZERO (the "Merger") pursuant to an Agreement and Plan of Merger by and among API, ZERO and Acquisition dated as of April 6, 1998 (the "Merger Agreement"). Subject to the terms and conditions of the Merger Agreement, each share of Common Stock, par value $.01 per share, of ZERO ("ZERO Common Stock") outstanding immediately prior to the effective time of the Merger was converted into 0.85 (the "Exchange Ratio") shares of API Class A Common Stock, par value $.20 per share ("API Common Stock"), with resulting fractional share interest to be paid in cash. Each outstanding option to purchase shares of ZERO Common Stock (a "ZERO Option") under ZERO's 1994 Stock Option Plan and 1988 Stock Option Plan, each as amended (collectively, the "Plans"), was assumed by API and converted into an option to purchase shares of API Common Stock on the same terms and conditions as were applicable under such ZERO Option, as adjusted to reflect the Exchange Ratio. Immediately prior to the effective time of the Merger, there were 12,523,060 shares of ZERO Common Stock outstanding and there were ZERO Options outstanding under the Plans to purchase an aggregate of 623,337 shares of ZERO Common Stock. Accordingly, a total of approximately 11,174,000 shares of API Common Stock were issued in the Merger or are issuable upon the exercise of ZERO Options assumed pursuant to the Merger Agreement (less fractional interests paid in cash). The Merger will be treated as a tax-free reorganization for federal income tax purposes and will be accounted for as a pooling of interests. The shareholders of API approved the issuance of shares of API Common Stock pursuant to the Merger Agreement to effect the transactions contemplated by the Merger Agreement by the requisite vote at the special meeting of shareholders of API held on July 31, 1998. The stockholders of ZERO approved and adopted the Merger Agreement by the requisite vote at the special meeting of stockholders of ZERO held on July 31, 1998. The Exchange Ratio and the other terms of the Merger Agreement were determined by arms-length negotiations between the parties. ZERO Common Stock ceased to trade on the New York Stock Exchange and the Pacific Exchange on July 31, 1998 and will be delisted and deregistered. API Common Stock, including the additional shares issued pursuant to the Merger Agreement or issuable upon the exercise of ZERO Options assumed pursuant to the Merger Agreement, is listed on the New York Stock Exchange or authorized for listing upon official notice of issuance. As contemplated by the Merger Agreement, the officers of API who were the directors and officers of Acquisition immediately prior to the Merger became the directors and officers of ZERO, as the surviving corporation, at the effective time of the Merger, replacing the persons who were the directors and officers of ZERO immediately prior to the Merger. ZERO's operations have two business segments: "Enclosures and Accessories" for the electronics industry and "Other." ZERO's primary business is "Enclosures and Accessories" for the system packaging, thermal management and engineered case requirements of the telecommunications, instrumentation and data processing markets of the electronics industry. ZERO's "Other" segment serves the air cargo and consumer/other markets. Air Cargo Equipment Corporation, a subsidiary of ZERO, designs, manufactures and markets a broad range of specialized and general-purpose cargo containers as well as a patented telescoping baggage/cargo system. In addition, ZERO produces and markets the well-known line of ZERO Halliburton(R) luggage, carrying cases and attaches 2 for consumers worldwide, food service containers and other specialized enclosures. API is undertaking a thorough review of ZERO's operations and studying the manner in which its operations can best be optimized within API, and intends to take such actions as a result of this review as may be deemed appropriate under the circumstances. API currently intends to continue the primary business operations of ZERO, and to continue to use the physical assets of ZERO's primary business operations for that purpose, while integrating such operations with its own. Further information concerning the Merger, the Merger Agreement and the transactions contemplated by the Merger Agreement is contained in API's Registration Statement on Form S-4 (No. 333-58267), which was filed with the Securities and Exchange Commission under the Securities Act of 1933 and became effective on July 1, 1998, and the Joint Proxy Statement of API and ZERO, which also constitutes the Prospectus of API, included therein. Item 7. Financial Statements and Exhibits (a) Financial Statements of Business Acquired: The following financial statements of ZERO (Commission File No. 1-5260) are incorporated herein by reference to pages 21 through 37 of ZERO's Annual Report on Form 10-K for the fiscal year ended March 31, 1998 and filed herewith as Exhibit 99.1:

3 (b) Pro Forma Financial Information: The following unaudited pro forma combined consolidated financial statements of API and subsidiaries, reflecting the acquisition of ZERO, are filed herewith: Introduction to Unaudited Pro Forma Combined Financial Statements of Applied Power Inc. and ZERO Corporation. Unaudited Pro Forma Combined Statement of Earnings for the nine months ended May 31, 1998 and 1997. Unaudited Pro Forma Combined Statements of Earnings for the fiscal years ended August 31, 1997, 1996 and 1995. Unaudited Pro Forma Combined Balance Sheet as of May 31, 1998. Notes to Unaudited Pro Forma Combined Financial Statements. (c) Exhibits: See the Exhibit Index following the Signature page of this Report, which is incorporated herein by reference. 4 APPLIED POWER INC. AND ZERO CORPORATION Introduction to Unaudited Pro Forma Combined Financial Statements As described under Item 2 of this report, Applied Power Inc. (the "Company" or "API") and ZERO Corporation ("ZERO") were combined through a merger of a newly created, wholly owned subsidiary of API into ZERO. Under the Merger Agreement, which was approved by the shareholders of both companies on July 31, 1998, each share of ZERO Common Stock, par value $.01 per share ("ZERO Common Stock"), issued and outstanding at July 31, 1998 was converted into 0.85 (the "Exchange Ratio") shares of API Class A Common Stock, par value $.20 per share ("API Common Stock"). The following Unaudited Pro Forma Combined Balance Sheet and Statements of Earnings (the "pro forma statements") give effect to the Merger as a pooling of interests and are based on the estimates and assumptions set forth in the notes to such pro forma statements. The pro forma statements have been prepared by the Company utilizing the historical consolidated financial statements of API and ZERO. The Unaudited Pro Forma Combined Balance Sheet has been prepared as if the Merger occurred on May 31, 1998. The Unaudited Pro Forma Combined Statements of Earnings have been prepared as if the Merger occurred on September 1, 1994. These pro forma statements have been prepared and included herein as required by the rules and regulations of the Securities and Exchange Commission and are provided for comparative purposes only. The unaudited pro forma adjustments described in the accompanying notes are based upon preliminary estimates and certain assumptions that management believes are reasonable. The pro forma statements are not necessarily indicative of the future consolidated financial position and results of operations or those which would have occurred had the Merger been consummated as of the dates reflected in the pro forma statements. The following pro forma financial statements do not reflect any adjustments for the various synergies or cost reductions the Company expects to achieve as a result of the Merger, and should be read in conjunction with the audited historical consolidated financial statements, including the notes thereto, of API and ZERO. 5 APPLIED POWER INC. AND ZERO CORPORATION UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS

See Notes to Unaudited Pro Forma Combined Financial Statements 6 APPLIED POWER INC. AND ZERO CORPORATION UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS

See Notes to Unaudited Pro Forma Combined Financial Statements 7 APPLIED POWER INC. AND ZERO CORPORATION UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS

See Notes to Unaudited Pro Forma Combined Financial Statements 8 APPLIED POWER INC. AND ZERO CORPORATION UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS

See Notes to Unaudited Pro Forma Combined Financial Statements 9 APPLIED POWER INC. AND ZERO CORPORATION UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS

See Notes to Unaudited Pro Forma Combined Financial Statements 10 APPLIED POWER INC. AND ZERO CORPORATION UNAUDITED PRO FORMA COMBINED BALANCE SHEET

See Notes to Unaudited Pro Forma Combined Financial Statements 11 APPLIED POWER INC. AND ZERO CORPORATION NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS NOTE 1--PERIODS COMBINED The API consolidated statements of earnings for the nine months ended May 31, 1998 and 1997 (both unaudited) and for the fiscal years ended August 31, 1997, 1996 and 1995 have been combined with the ZERO consolidated statements of income for the nine months ended March 31, 1998 and 1997, for the twelve months ended June 30, 1997 (all unaudited) and for the fiscal years ended March 31, 1996 and 1995, respectively. This presentation has the effect of excluding ZERO's results of operations for the three-month period ended June 30, 1996 in the unaudited pro forma combined statements of operations. Unaudited net sales and net income for ZERO were $54,664,000 and $3,800,000, respectively, for the three-month period ended June 30, 1996. ZERO's results of operations for this period are reflected in shareholders' equity in the pro forma combined balance sheet at May 31, 1998. API's May 31, 1998 unaudited consolidated balance sheet has been combined with ZERO's March 31, 1998 audited consolidated balance sheet and VERO's March 31, 1998 unaudited consolidated balance sheet. On April 23, 1998, API announced that it had reached an agreement with the Board of Directors of VERO Group plc ("VERO") on the terms of a recommended cash offer (with a guaranteed loan note alternative) to be made by Applied Power Limited, a United Kingdom subsidiary of API, to acquire the entire issued share capital of VERO at a price of 157 pence per VERO share. On May 5, 1998, Pentair, Inc. announced the terms of a competing cash offer (with a guaranteed loan note alternative), to be made through a wholly-owned subsidiary, to acquire the entire issued share capital of VERO at a price of 170 pence per VERO share. On May 12, 1998, in response to the offer by Pentair, Inc., API increased its cash offer to 192 pence per VERO share. Pentair, Inc. subsequently withdrew its offer. On May 15, 1998, the Applied Power Limited offering documents were sent to the VERO shareholders. On June 5, 1998, the initial tender offer period expired, and API announced that Applied Power Limited had accepted for payment the VERO stock tendered, which totaled over 72% of the outstanding VERO shares. Applied Power Limited had previously acquired approximately 10% of VERO's shares, so that after accepting the shares tendered, Applied Power Limited owned or had accepted over 82% of VERO's shares. The shares accepted were paid for on June 19, 1998. The tender offer remained open. On June 19, 1998, Applied Power Limited announced that the additional shares tendered brought the total of the shares it owned or had accepted for payment to over 90% of all VERO's shares, sufficient to invoke procedures under the U.K. Companies Act of 1985 which, when completed, will result in Applied Power Limited owning all of the outstanding shares of VERO. The unaudited pro forma combined financial data for the nine months ended May 31, 1998 includes the operating results of Versa Technologies, Inc. ("Versa/Tek"), which was acquired by API on October 6, 1997, for the period from September 1 to October 6, 1997 and the operating results of VERO for the nine months ended March 31, 1998. The unaudited pro forma combined financial data for the year ended August 31, 1997 includes the operating results of Everest Electronics Equipment, Inc. ("Everest"), which was acquired by API on September 26, 1996, for the period from September 1 to September 26, 1996, and the operating results of Versa/Tek and VERO for their respective twelve months ended June 30, 1997. The operating results of Versa/Tek and Everest subsequent to their acquisition dates, are included in API's historic results (presented in the first column of the accompanying combined financial statements) for the nine months ended May 31, 1998 and the year ended August 31, 1997. VERO's reporting currency is the pound sterling and its financial information in the accompanying pro forma combined financial statements has been translated to the U.S. dollar in accordance with Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation." VERO's historic financial statements are prepared in accordance with generally accepted accounting principles in the United Kingdom ("UK GAAP"), however, VERO's financial information in the accompanying pro forma combined financial statements has been adjusted to conform with generally accepted accounting principles in the United States ("US GAAP"). The only material adjustment required to conform with US GAAP related to goodwill. Under UK GAAP purchased goodwill may be written off on acquisition directly against reserves. Under US GAAP goodwill is capitalized and amortized by charges against income over the period during which it is estimated it will be of 12 benefit subject to a maximum of 40 years. Accordingly, goodwill, net of amortization, was recorded in the pro forma combined balance sheet at May 31, 1998 and the related amortization expense included in the pro forma combined statements of earnings for the nine months ended May 31, 1998 and the twelve months ended August 31, 1997. NOTE 2--PRO FORMA NET EARNINGS PER SHARE The unaudited pro forma combined net earnings per common share and per common and equivalent share is based upon the weighted average number of common and equivalent shares of API and ZERO outstanding for each period at the Exchange Ratio of 0.85 shares of API Common Stock for each share of ZERO Common Stock. NOTE 3--RECLASSIFICATIONS (ZERO) Certain reclassifications, none of which affect income from continuing operations, have been made to the ZERO statements of income in the pro forma combined statements of earnings to conform classifications of "Amortization of intangible assets" and to ZERO's balance sheet in the pro forma combined balance sheet to conform classifications of "Other intangibles." NOTE 4--PRO FORMA ADJUSTMENTS (VERSA/TEK) The following pro forma adjustments are incorporated in the pro forma condensed consolidated statement of earnings for the nine months ended May 31, 1998 as a result of the Versa/Tek acquisition.

NOTE 5--PRO FORMA ADJUSTMENTS (VERO) The following pro forma adjustments are incorporated in the pro forma condensed consolidated statement of earnings for the nine months ended May 31, 1998 as a result of the VERO acquisition.

NOTE 6--PRO FORMA ADJUSTMENTS (EVEREST) The following pro forma adjustments are incorporated in the pro forma condensed consolidated statement of earnings for the year ended August 31, 1997 as a result of the Everest acquisition.

13 NOTE 7--PRO FORMA ADJUSTMENTS (VERSA/TEK) The following pro forma adjustments are incorporated in the pro forma condensed consolidated statement of earnings for the year ended August 31, 1997 to reflect a full year of Eder Industries in Versa/Tek (Eder was acquired by Versa/Tek on October 31, 1996).

The following pro forma adjustments are incorporated in the pro forma condensed consolidated statement of earnings for the year ended August 31, 1997 as a result of the Versa Tek acquisition.

NOTE 8--PRO FORMA ADJUSTMENTS (VERO) The following pro forma adjustments are incorporated in the pro forma condensed consolidated statement of earnings for API's year ended August 31, 1997 as a result of the pending VERO acquisition.

14 NOTE 9--PRO FORMA ADJUSTMENTS (VERO) (a) The following pro forma adjustments are incorporated in the pro forma combined balance sheet at May 31, 1998 as a result of the VERO acquisition.

(b) The following pro forma adjustments are made to reflect estimated fair value adjustments and to eliminate the investment in VERO:

Because of the proximity of the transaction, API has not had adequate time to complete its evaluation of the fair value of the net assets acquired in the VERO transaction. As a result, no fair value adjustments have been reflected in these pro forma statements. NOTE 10--SPECIAL ITEM (ZERO) Other Income--net for the nine months ended March 31, 1998 includes approximately $3,900,000 ($7,024,000 pre-tax) of special items (gain from life insurance and sale of property net of provision for estimated loss on sale of subsidiary) recognized by ZERO during 1998. NOTE 11--INCOME TAX EXPENSE Effective tax rates are higher than the statutory federal income tax rates primarily due to state income taxes, net of federal benefit. 15 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. APPLIED POWER INC. Date: August 12, 1998 By: /s/Robert C. Arzbaecher ----------------------- Robert C. Arzbaecher, Vice President and Chief Financial Officer 16 APPLIED POWER INC. EXHIBIT INDEX to FORM 8-K CURRENT REPORT Date of Report: July 31, 1998

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