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As filed with the Securities and Exchange Commission on July 26, 2004

Registration No. 333-115553



SECURITIES AND EXCHANGE COMMISSION

AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933


ENERSYS
(Exact name of registrant as specified in its charter)

Delaware   23-3058564   3691
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer
Identification No.)
  (Primary Standard Industrial Classification Code Number)

EnerSys
2366 Bernville Road
Reading, PA 19605
(610) 208-1991
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)

Michael T. Philion
Executive Vice President—Finance
Chief Financial Officer
EnerSys
2366 Bernville Road
Reading, PA 19605
(610) 208-1991
(Name, address, including zip code, and telephone number, including area code, of agent for service)


Copies to:

Steven R. Finley
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, NY 10166
(212) 351-4000
Fax: (212) 351-4035
  Joseph M. Harenza
Stevens & Lee
111 North Sixth Street
Reading, PA 19603
(610) 478-2160
Fax: (610) 371-8500
  Richard D. Truesdell, Jr.
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
(212) 450-4000
Fax: (212) 450-3800

        Approximate date of commencement of proposed sale to the public:    As soon as practicable after this registration statement becomes effective.

        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 such section 8(a) may determine.




The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

PROSPECTUS (Subject to Completion)

Issued July 26, 2004

12,500,000 Shares

LOGO

COMMON STOCK


EnerSys is offering 12,500,000 shares of its common stock. This is our initial public offering and no public market exists for our shares. We anticipate that the initial public offering price of our common stock will be between $15 and $17 per share.


We have applied to list our common stock on the New York Stock Exchange under the trading symbol "ENS".


Investing in our common stock involves risks. See "Risk Factors" beginning on page 9.


PRICE $          PER SHARE


 
  Price to
Public

  Underwriting
Discounts and
Commissions

  Proceeds to
EnerSys

Per Share   $   $   $
Total   $                     $                     $                  

We have granted the underwriters the right to purchase up to an additional 1,875,000 shares to cover over-allotments.

As of the completion of the offering, assuming no exercise by the underwriters of their over-allotment option, no exercise of outstanding options since June 30, 2004 and the conversion of all outstanding shares of preferred stock into shares of common stock, investment funds affiliated with Morgan Stanley & Co. Incorporated, one of the representatives of the underwriters of this offering, will own 61.0% of our common stock.

The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of common stock to purchasers on                        , 2004.


MORGAN STANLEY   LEHMAN BROTHERS
BANC OF AMERICA SECURITIES LLC WILLIAM BLAIR & COMPANY

                        , 2004


[IFC]


TABLE OF CONTENTS

 
  Page

Prospectus Summary

 

1

Risk Factors

 

9

Special Note About Forward-Looking Statements

 

17

Use of Proceeds

 

18

Dividend Policy

 

18

Capitalization

 

19

Unaudited Pro Forma Consolidated Financial Information

 

20

Dilution

 

25

Selected Consolidated Financial and Operating Data

 

27

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

30

Business

 

54

Management

 

70

Certain Relationships and Transactions

 

85

Principal Stockholders

 

88

Description of Our Credit Facilities

 

91

Description of Capital Stock, Certificate of Incorporation and Bylaws

 

95

Shares Eligible for Future Sale

 

99

Underwriters

 

101

Material United States Income and Estate Tax Consequences to Non-United States Stockholders

 

104

Validity of Common Stock

 

106

Experts

 

106

Where You Can Find More Information

 

107

Index to Financial Statements

 

F-1

        You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information that is different. This prospectus may only be used where it is legal to sell these securities. The information in this prospectus may be accurate only on the date of this prospectus.


        This offering of common stock is only being made to persons in the United Kingdom whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995 or the UK Financial Services and Markets Act 2000 ("FSMA"), and each underwriter has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the FSMA) received by it in connection with the issue or sale of the common stock in circumstances in which section 21(1) of FSMA does not apply to EnerSys, the issuer of such common stock. Each of the underwriters agrees and acknowledges that it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the common stock in, from or otherwise involving the United Kingdom.

        The EnerSys common stock may not be offered, transferred, sold or delivered to any individual or legal entity other than to persons who trade or invest in securities in the conduct of their profession or trade (which includes banks, securities intermediaries (including dealers and brokers), insurance companies, pension funds, other institutional investors and commercial enterprises which as an ancillary activity regularly invest in securities) in the Netherlands.

i


        Until    , 2004, all dealers that buy, sell or trade shares of our common stock, whether or not participating in the offering, may be required to deliver a prospectus. This delivery requirement 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.


        The trademark and trade names referred to in this prospectus are the property of their respective owners.

        We have provided certain statistics in this prospectus on the worldwide industrial battery business. Those statistics for North America are derived from information supplied by Battery Council International—which we refer to as BCI—and for Europe are derived from information supplied by the Association of European Storage Battery Manufacturers—which we refer to as EuroBat, and from management estimates. BCI and EuroBat are voluntary associations of battery manufacturers. BCI and EuroBat report data on a calendar-year basis. As a result, the 2003 market share data presented in this prospectus is not directly comparable to our 2003 fiscal year financial reports. In addition, BCI and EuroBat information only includes data for battery and charger sales, and does not include other products and service revenues. For geographic areas not covered by BCI or EuroBat, including South America and Asia markets, these statistics are derived from management's estimates. We believe these statistics are reasonable estimates. Market share data, however, are subject to change and cannot be verified with complete certainty due to limits on the nature, availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in any statistical survey of market shares.

        In addition, we have provided data in this prospectus on trends in the telecommunications industry supplied by the Telecommunications Industry Association—which we refer to as TIA—from its 2004 Telecommunications Market Review and Forecast, ISBN 0-940919-48-6.

ii



PROSPECTUS SUMMARY

        This summary highlights information contained elsewhere in this prospectus. This summary may not contain all of the information that you should consider before deciding to invest in the shares of common stock. We urge you to read this entire prospectus carefully, including the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections and our consolidated financial statements and the notes to those statements. The terms "EnerSys," "we," "our," and "us" refer to EnerSys—which is a holding company—and its consolidated subsidiaries. We use the term "the company" when we wish to refer only to the holding company and not to EnerSys and its consolidated subsidiaries. Our fiscal year ends on March 31. References in this prospectus to a fiscal year, such as "fiscal 2004," relate to the fiscal year ended on March 31 of that calendar year. For reading ease, certain financial information is presented on a rounded basis, which may cause minor rounding differences.

EnerSys Overview

        We are one of the world's largest manufacturers, marketers and distributors of industrial batteries. We also manufacture, market and distribute related products such as chargers, power equipment and battery accessories, and we provide related after-market and customer-support services for lead-acid industrial batteries. Industrial batteries generally are characterized as reserve power batteries or motive power batteries.

        For 2003, we believe that we held approximately 24% of the worldwide market share in the lead-acid industrial battery business, with market shares of 30% in North America, 30% in Europe and 5% in Asia. For 2003, we believe that our worldwide market share of reserve power batteries was approximately 20% and in motive power batteries was approximately 28%. Our net sales for fiscal 2004 were $969.1 million, of which approximately 42% was attributable to the Americas, 53% to Europe, the Middle East and Africa, which we refer to as EMEA, and 5% to Asia. We report our financial results on a March 31 fiscal year basis.

        Our reserve power batteries are marketed and sold principally under the PowerSafe, DataSafe and Genesis brands. Our motive power batteries are marketed and sold principally under the Hawker, Exide and General brands. We also manufacture and sell related direct current—DC—power products including chargers, electronic power equipment and a wide variety of battery accessories. Our battery products span a broad range of sizes, configurations and electrical capacities, enabling us to meet a wide variety of customer applications. We manufacture reserve power and motive power batteries at 19 manufacturing facilities located across the Americas, Europe and Asia and market and sell these products globally in more than 100 countries to over 10,000 customers through a network of distributors, independent representatives and an internal sales force.

        We provide responsive and efficient after-market support for our products through strategically located warehouses and a company-owned service network supplemented by independent representatives.

Our Industry

        The size of the worldwide industrial lead-acid battery market in 2003 was $3.5 billion according to BCI, EuroBat and management estimates. The two key components of the industrial lead-acid battery market are reserve power batteries—a $2.0 billion market—and motive power batteries—a $1.5 billion market. The aerospace and defense market is an additional important sector of the battery industry, which is not included as a component of the $3.5 billion worldwide market information above.

1



        Reserve power batteries, also known as network, standby or stationary power batteries, are used primarily for backup power applications to ensure continuous power supply in case of main (primary) power failure or outage.

        For many critical systems, power loss, even for short periods of time, can result in loss of process control, massive data loss and significant financial liability. Reserve power batteries are essential for the continuous operations of communications providers, financial institutions, computer and computer-controlled systems and electric utilities.

        Motive power batteries are used primarily to provide power for electric material handling and ground handling equipment. Motive power batteries are used primarily in electric industrial forklift trucks. Motive power batteries compete primarily with propane- and diesel-powered internal combustion engines.

Our Strengths

        We believe that our competitive strengths should enable us to expand our global market share and position us to achieve profitable growth. These strengths include:


Our Strategy

        Our primary business objective is to capitalize on our competitive strengths to continue to expand our global market share, increase our net sales and improve our profit margins. We intend to achieve these objectives by implementing the following strategies:

Additional Considerations

        We operate in an extremely competitive industry and are subject to continual pricing pressure. We have been and may continue to be adversely affected by cyclical industry conditions and volatile raw materials costs. Because we use significant amounts of lead and acid in our operations, we are exposed to the risk of material environmental, health and safety liabilities. Many new energy storage technologies have been introduced, and we will need to acquire or develop products and technologies that will compete effectively in the future. For a discussion of these and other risks that you should consider before investing in our common stock, see "Risk Factors" beginning on page 9.

Our History and Recent Financing Activity

        EnerSys and its predecessor companies have been manufacturers of industrial batteries for over 90 years. Morgan Stanley Capital Partners teamed with the management of Yuasa Inc. in late 2000 to acquire from Yuasa Corporation (Japan) its reserve power and motive power battery businesses in North and South America. The acquired businesses included the Exide, General and Yuasa brands. On January 1, 2001, we changed our name from Yuasa Inc. to EnerSys to reflect our focus on the energy systems nature of our businesses. In early 2002, we acquired the reserve power and motive power business of the Energy Storage Group, or ESG, of Invensys plc, whose principal brands were Hawker, PowerSafe and DataSafe.

2


        On March 17, 2004, we completed funding for a recapitalization. Prior to the recapitalization, we had $219.0 million of senior debt outstanding, consisting of $177.6 million of term loans, a $17.0 million receivables facility and a $24.4 million revolving credit facility, with a weighted average interest rate of 4.3%. In order to extend the maturities of our outstanding debt, obtain greater financial flexibility, take advantage of favorable debt capital markets and historically low interest rates and provide liquidity to our existing stockholders, we entered into the following new financial arrangements:

        We used the proceeds of the senior secured term loan B and senior second lien term loan to refinance substantially all of our existing debt in the aggregate amount of $219.0 million, to fund a cash payment of $270.0 million to our existing stockholders and management and to pay transaction costs of $11.0 million. We intend to use a portion of the proceeds of this offering to repay the full amount outstanding under the $120.0 million senior second lien term loan and a portion of the amount outstanding under the $380.0 million senior secured term loan B. For additional information on our new financing arrangements, see "Description of Our Credit Facilities."

        Our principal executive offices are located at 2366 Bernville Road, Reading, PA 19605. Our telephone number at that address is (610) 208-1991.

        We have engaged in a number of transactions with, and have other relationships with, affiliates of the representatives of the underwriters of this offering.

3


        As a result of the Morgan Stanley Funds holding 61.0% of our outstanding shares of common stock after giving effect to this offering, and their rights under the securityholder agreement, Morgan Stanley may be deemed to control our management and policies.


THE OFFERING

Shares offered   12,500,000 shares

Shares to be outstanding after the offering

 

45,945,559 shares

Use of proceeds

 

We anticipate that we will receive net proceeds from the offering of $181.5 million, which we will use to prepay the entire principal and accrued interest (expected to be approximately $120 million in total based on current interest rates) and the prepayment penalty ($2.4 million) on our $120.0 million senior second lien term loan and to prepay a portion ($59.1 million) of our $380.0 million senior secured term loan B.

Proposed NYSE symbol

 

ENS

        References in this prospectus to the number of shares offered, and the number to be outstanding after the offering, do not include:

        Except as otherwise indicated, all information in this prospectus gives effect to:

4



SUMMARY CONSOLIDATED FINANCIAL, OPERATING AND PRO FORMA DATA

        The following tables set forth certain summary consolidated financial, operating and pro forma data. You should read the selected financial data presented below in conjunction with our consolidated financial statements and the notes to our consolidated financial statements included elsewhere in this prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The summary consolidated financial data presented for each of the fiscal years in the three-year period ended March 31, 2004, and the balance sheet data at March 31, 2004, have been derived from our consolidated financial statements, which have been audited by Ernst & Young LLP, our independent registered public accounting firm.

        The summary pro forma as adjusted consolidated statement of operations for fiscal 2004 gives effect to the new financing arrangements we entered into in March 2004, and the anticipated use of the estimated proceeds of this offering as if such transactions had taken place on April 1, 2003. The summary as adjusted consolidated balance sheet as at March 31, 2004, gives effect to the anticipated use of the estimated proceeds of this offering as if it had taken place on March 31, 2004. See "Use of Proceeds" for information regarding our computation of the estimated proceeds of this offering.

        We are presenting this summary pro forma consolidated financial information for illustrative purposes only. This information is not necessarily indicative of what our operating results or financial position would have been if these transactions had taken place on the assumed dates or throughout the period presented, nor is it necessarily indicative of our future results of operations.

 
  Fiscal Year Ended March 31,
 
 
  2002
  2003
  2004
  Pro forma as adjusted 2004
 
 
  (in thousands, except per share amounts)

 
Consolidated Statement of Operations Data(1):                          

Net sales

 

$

339,340

 

$

859,643

 

$

969,079

 

$

969,079

 
Cost of goods sold     271,596     653,998     722,825     722,825  
   
 
 
 
 
Gross profit     67,744     205,645     246,254     246,254  

Operating expenses

 

 

53,463

 

 

150,618

 

 

170,412

 

 

170,412

 
Special charges relating to restructuring, bonuses and uncompleted acquisitions     63,345         21,147     9,095  
Amortization     51     51     51     51  
   
 
 
 
 
Operating (loss) earnings     (49,115 )   54,976     54,644     66,696  
Interest expense     13,294     20,511     20,343     21,390  
Special charges relating to a settlement agreement and write-off of deferred finance costs             30,974     24,405  
Other expense (income), net     1,744     (742 )   (4,466 )   (4,466 )
   
 
 
 
 
(Loss) earnings before income taxes     (64,153 )   35,207     7,793     25,367  
Income tax (benefit) expense     (22,171 )   12,355     2,957     9,460  
   
 
 
 
 
Net (loss) earnings   $ (41,982 ) $ 22,852   $ 4,836   $ 15,907  
Series A convertible preferred stock dividends     (13 )   (24,057 )   (24,689 )    
   
 
 
 
 
Net (loss) earnings available to common stockholders   $ (41,995 ) $ (1,205 ) $ (19,853 ) $ 15,907  
   
 
 
 
 

Net earnings (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 
  Basic   $ (3.81 ) $ (0.11 ) $ (1.80 ) $ 0.36  
  Diluted     (3.81 )   (0.11 )   (1.80 )   0.36  

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 
  Basic     11,014,421     11,014,421     11,014,421     43,955,941  
  Diluted     11,014,421     11,156,267     11,014,421     44,550,718  

Pro forma (loss) earnings per share(2)

 

 

 

 

 

 

 

 

 

 

 

 

 
  Basic               $ (0.73 )      
  Diluted                 (0.73 )      

Pro forma weighted average shares(2)

 

 

 

 

 

 

 

 

 

 

 

 

 
  Basic                 27,162,421        
  Diluted                 27,162,421        

5


 
  Fiscal Year Ended March 31,
 
 
  2002
  2003
  2004
 
 
  (in thousands)

 
Consolidated Cash Flow Data:                    

Net cash provided by operating activities

 

$

21,068

 

$

55,438

 

$

39,192

 
Net cash used in investing activities     (335,951 )   (12,923 )   (26,981 )
Net cash provided by (used in) financing activities     314,795     (8,209 )   (39,989 )
Other Operating Data:(1)                    
Capital expenditures   $ 12,944   $ 23,623   $ 28,580  
EBITDA(3)     (39,563 )   91,651     65,175  
Special charges related to restructuring, bonuses, uncompleted acquisitions, a settlement agreement and write-off of deferred finance costs(4)     63,345         52,121  
 
  As of March 31, 2004
 
  Actual
  As adjusted
 
  (in thousands)

Consolidated Balance Sheet Data:            

Cash and cash equivalents

 

$

17,207

 

$

17,207
Working capital     134,727     137,778
Total assets     1,151,068     1,146,820
Total debt     511,303     332,203
Preferred stock     7    
Total stockholders' equity     239,302     416,614

(1)
Includes the results of operations of ESG for the full years for fiscal 2003 and fiscal 2004, but only for nine days in fiscal 2002.

(2)
Reflects pro forma share data giving effect to the increase of 16,148,000 shares, which represents the number of shares that, when multiplied by an assumed offering price of $16, is sufficient to replace the capital in excess of earnings as a result of the distribution to stockholders of $258.4 million in connection with our recapitalization.

(3)
EBITDA is defined as earnings before interest expense, income tax expense, depreciation and amortization. EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States and should not be considered an alternative to net earnings or any other measure of performance under accounting principles generally accepted in the United States as a measure of performance or to cash flows from operating, investing or financing activities as an indicator of cash flows or as a measure of liquidity. EBITDA has its limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under generally accepted accounting principles. Some of these limitations are:

it does not reflect our cash expenditures for capital expenditures or contractual commitments;

it does not reflect the impact of changes in effective tax rates or the use of net operating losses;

although depreciation and amortization are non-cash charges, the assets being depreciated or amortized often will have to be replaced and EBITDA does not reflect the cash requirements for such replacements;

it does not reflect changes in, or cash requirements for, our working capital requirements; and

it does not reflect the cash necessary to make payments of interest or principal on our indebtedness.

6


 
  Fiscal Year Ended March 31,
 
  2002
  2003
  2004
 
  (in thousands)

EBITDA   $ (39,563 ) $ 91,651   $ 65,175
  Depreciation and amortization     11,296     35,933     37,039
  Interest expense     13,294     20,511     20,343
  Income tax (benefit) expense     (22,171 )   12,355     2,957
   
 
 

Net (loss) earnings

 

$

(41,982

)

$

22,852

 

$

4,836
   
 
 
(4)
Special charges are discussed in detail in the notes to our consolidated financial statements and in "Management's Discussion and Analysis of Financial Condition and Results of Operations." The fiscal 2002 charges were primarily for the closures of a plant and certain other locations in the U.S. and our South American operations. The charges in fiscal 2004 related primarily to a settlement with Invensys, the recapitalization in March 2004 and costs of uncompleted acquisition attempts.

7


Recent Developments

        The following table shows selected unaudited operating results for our first quarter of fiscal 2005, compared to our unaudited results for the first quarter of fiscal 2004.

 
  Three months ended
   
 
 
  Percent Change
 
 
  June 29, 2003
  July 4, 2004
 
 
  (in millions except share, per share
and percentage data)

 
Net sales   $ 218.3   $ 263.3   20.6 %
Gross profit     52.6     66.7   26.8  
Operating earnings     12.5     22.5   80.0  
Earnings before income taxes     9.3     14.4   54.2  
Net earnings     5.8     9.0   55.2  
Series A convertible preferred stock dividends     (5.6 )   (8.1 ) 44.6  
Net earnings available to common stockholders     0.2     0.9   350.0  
Net earnings per common share:                  
  Basic   $ 0.02   $ 0.08      
  Diluted     0.02     0.07      
Weighted-average shares of common stock outstanding:                  
  Basic     11,014,421     11,014,421      
  Diluted     11,157,306     11,653,306      
Pro forma net earnings per common share (1):                  
  Basic         $ 0.20      
  Diluted           0.19      
Pro forma weighted-average shares of common stock outstanding (1):                  
  Basic           45,532,715      
  Diluted           46,171,598      
Supplemental net sales data:                  
  By segment                  
    Reserve power   $ 107.4   $ 124.8   16.2 %
    Motive power     110.9     138.5   24.9  
  By region                  
    Americas   $ 96.6   $ 112.7   16.7  
    Europe     111.1     132.9   19.6  
    Asia     10.5     17.6   67.6  

(1)
Pro forma net earnings per common share and weighted-average share amounts have been calculated as if the offering of our common stock occurred on April 1, 2004. Accordingly, pro forma net earnings used to calculate pro forma earnings per share excludes Series A convertible preferred stock dividends of $8.1 million in the three months ended July 4, 2004. Pro forma weighted-average shares of common stock outstanding for purposes of the pro forma basic net earnings per share calculation consists of approximately 11,014,421 shares of common stock, converted preferred stock outstanding of 22,018,294 and 12,500,000 shares of our common stock being offered hereby.

        The increase in net sales in the first quarter of fiscal 2005 over the comparable period of fiscal 2004 was primarily due to improving global economic conditions. Both our business segments (reserve power and motive power) and all our regions (Americas, Europe and Asia) realized strong first quarter fiscal 2005 sales growth.

        The increase in operating earnings as a percent of net sales was a result of the strong growth in sales and tight control of costs, partially offset by increased raw materials costs and, in particular, lead.

8



RISK FACTORS

        You should carefully consider the risks described below before investing in our common stock. Our business is also subject to the risks that affect many other companies, such as technological obsolescence, labor relations and geopolitical events.

Risks Relating to Our Business

        We compete with a number of major domestic and international manufacturers and distributors of reserve and motive power lead-acid batteries, as well as a large number of smaller, regional competitors. Due to excess capacity in some sectors of our industry, consolidation among industrial battery purchasers and the financial difficulties being experienced by several of our competitors, we have been subjected to continual and significant pricing pressures. These pricing pressures have prevented us from being able to raise prices in response to increased costs and have resulted in overall pricing that has been flat to slightly down in the Americas and Europe. Prices in China declined approximately 10% in fiscal 2004. We anticipate heightened competitive pricing pressure as Chinese and other foreign producers, able to employ labor at significantly lower costs than producers in the U.S. and Western Europe, expand their export capacity and increase their marketing presence in our major U.S. and European markets. Several of our competitors have strong technical, marketing, sales, manufacturing, distribution and other resources, as well as significant name recognition, established positions in the market and long-standing relationships with original equipment manufacturers and other customers. In addition, certain of our competitors own lead smelting facilities which, during periods of lead cost increases or price volatility, may provide a competitive pricing advantage and reduce their exposure to volatile raw material costs. Our ability to maintain and improve our operating margins has depended, and continues to depend, on our ability to control and reduce our costs. We cannot assure you that we will be able to continue to reduce our operating expenses, to raise or maintain our prices or increase our unit volume, in order to maintain or improve our operating results.

        Our operating results are affected by the general cyclical pattern of the industries in which our major customer groups operate and the overall economic conditions in which we and our customers operate. For example, the significant capital expenditures made by the telecommunications industry during the period from fiscal 1999 through fiscal 2001, as numerous companies expanded their systems and installed standby backup battery power systems, drove demand for our reserve power products. As the telecommunications industry dramatically reduced building new systems in response to massive overcapacity, the demand for our reserve power products for this important application declined significantly. Both our reserve power and motive power segments are heavily dependent on the end-user markets they serve, such as telecommunications, uninterruptible power systems and electric industrial forklift trucks. A weak capital expenditure environment in these markets has had and can be expected to have a material adverse effect on our results of operations.

        We employ significant amounts of lead, plastics, steel, copper and other materials in our manufacturing processes. We estimate that raw materials costs account for approximately half of our cost of goods sold. Lead is our most significant raw material. The costs of these raw materials, particularly lead, are volatile and beyond our control. For example, average lead prices have increased from $0.2053 per pound during fiscal 2003 to $0.2773 per pound during fiscal 2004. The spot price of lead was $0.4255 at July 23, 2004.

        Volatile raw materials costs can significantly affect our operating results and make period-to-period comparisons extremely difficult. We cannot assure you that we will be able to hedge our raw material requirements at a reasonable cost or to pass on to our customers the increased costs of our raw materials.

9



        In the manufacture of our products throughout the world, we process, store, dispose of and otherwise use large amounts of hazardous materials, especially lead and acid. As a result, we are subject to extensive and changing environmental, health and safety laws and regulations governing, among other things: the generation, handling, storage, use, transportation and disposal of hazardous materials; remediation of polluted ground or water; emissions or discharges of hazardous materials into the ground, air or water; and the health and safety of our employees. Compliance with these laws and regulations results in ongoing costs. Failure to comply with these laws or regulations, or to obtain or comply with required environmental permits, could result in fines, criminal charges or other sanctions by regulators. From time to time we have had instances of alleged or actual noncompliance that have resulted in the imposition of fines, penalties and required corrective actions. Our ongoing compliance with environmental, health and safety laws, regulations and permits could require us to incur significant expenses, limit our ability to modify or expand our facilities or continue production and require us to install additional pollution control equipment and make other capital improvements. In addition, private parties, including current or former employees, could bring personal injury or other claims against us due to the presence of, or exposure to, hazardous substances used, stored or disposed of by us or contained in our products.

        Certain environmental laws assess liability on owners or operators of real property for the cost of investigation, removal or remediation of hazardous substances at their current or former properties or at properties at which they have disposed of hazardous substances. These laws may also assess costs to repair damage to natural resources. We may be responsible for remediating damage to our properties that was caused by former owners. Soil and groundwater contamination has occurred at some of our current and former properties and may occur or be discovered at other properties in the future. We are currently investigating and monitoring soil and groundwater contamination at certain of our properties, and we may be required to conduct these operations at other properties in the future. In addition, we have been and in the future may be liable to contribute to the cleanup of locations owned or operated by other persons to which we or our predecessor companies have sent wastes for disposal, pursuant to federal and other environmental laws. Under these laws, the owner or operator of contaminated properties and companies that generated, disposed of or arranged for the disposal of wastes sent to a contaminated disposal facility can be held jointly and severally liable for the investigation and cleanup of such properties, regardless of fault.

        Capital expenditures associated with environmental compliance were approximately $0.2 million, $1 million and $2.7 million in fiscal 2002, 2003 and 2004, respectively. Our operating expenses associated with environmental, health and safety compliance are incorporated into our general operating expenses and are not separately quantified. However, we believe that we have not incurred material operating expenses associated with environmental, health and safety compliance over the last three fiscal years.

        We cannot assure you that we have been or at all times will be in compliance with environmental laws and regulations or that we will not be required to expend significant funds to comply with, or discharge liabilities arising under, environmental laws, regulations and permits, or that we will not be exposed to material environmental, health or safety litigation.

        In addition, recent legislation proposed by the European Union may affect us and the lead-acid battery industry. In November 2003, the European Commission issued a Directive that recommends the elimination of mercury in batteries and the reclamation of spent lead and cadmium batteries for recycling (a "closed-loop" life cycle). On April 20, 2004, the European Parliament approved legislation that would effectively ban lead and cadmium in batteries as well as mercury, with the exception of batteries for which no suitable alternatives exist. While we do not believe that such alternatives currently exist, a suitable substitute for lead-acid batteries may be identified or developed. In response to the vote of the European Parliament, the European Commission stated it would not endorse a ban on lead or cadmium in batteries and affirmed its original proposal for closed-loop recycling regulations. The European Council, the main decision-making body of the European Union, is expected to comment on the new battery Directive within

10



the coming months. We cannot predict whether the Council will adopt the view of the Parliament or the Commission. Enactment and implementation of the European Parliament's Directive by the Member States could have a material adverse effect on our business, results of operations and financial condition.

        We invoice foreign sales and service transactions in local currencies, using actual exchange rates during the period. We translate our non-U.S. assets and liabilities into U.S. dollars using current rates as of the balance sheet date. Because a significant portion of our revenues and expenses are denominated in foreign currencies, changes in exchange rates between the U.S. dollar and foreign currencies, primarily the euro, British pound and Chinese renminbi, may adversely affect our revenue, cost of revenue and operating margins. For example, foreign currency depreciation against the U.S. dollar will reduce the value of our foreign revenues and operating earnings. Foreign currency depreciation against the U.S. dollar will result in a reduction of our net investment in foreign subsidiaries.

        Most of the risk of fluctuating foreign currencies is in our European operations, which comprised approximately half of our net sales during the last two fiscal years. The euro is the dominant currency in our European operations. The 14% appreciation in the value of the euro compared to the dollar during fiscal 2003 and 18% during fiscal 2004 had a significant impact on our reported results. Our sales in Europe were translated to the dollar at a rate 14.0% higher in fiscal 2003 than they would have been had the sales been translated at average exchange rates in effect in fiscal 2002, representing an increase of approximately $53.5 million; and were translated at a rate 17.0% higher in fiscal 2004 compared to average exchange rates in fiscal 2003, representing an increase of approximately $74 million.

        The impact of currency changes on our operating earnings is substantially similar as the impact on net sales. In fiscal 2003, operating earnings in Europe were approximately 17% higher than they would have been if translated at average exchange rates in fiscal 2002, representing an increase of approximately $4 million. In fiscal 2004, operating earnings in Europe were approximately 16% higher than they would have been if translated at the average exchange rates in fiscal 2003, representing an increase of approximately $5 million.

        The translation impact from currency fluctuations on net sales and operating earnings in the Americas and Asia is minimal, as virtually all net sales and operating earnings are in dollars or are pegged to the dollar.

        Foreign currency depreciation will make it more expensive for our non-U.S. subsidiaries to purchase certain of our raw material commodities that are priced globally in U.S. dollars. Significant movements in foreign exchange rates can have a material impact on our results of operations and financial condition. We do not engage in significant hedging of our foreign currency exposure and cannot assure you that we would be able to hedge our foreign currency exposures at a reasonable cost.

        We currently have significant manufacturing and distribution facilities outside of the U.S., including in the United Kingdom, France, Germany, China, Mexico, Poland, Spain, Italy and Canada. We may face political instability and economic uncertainty, cultural and religious differences and difficult labor relations in our foreign operations. We also may face barriers in the form of long-standing relationships between potential customers and their existing suppliers, national policies favoring domestic manufacturers and protective regulations including exchange controls, restrictions on foreign investment or the repatriation of profits or invested capital, changes in export or import restrictions and changes in the tax system or rate of taxation in countries where we do business. We cannot assure you that we will be able successfully to develop and expand our international operations and sales or that we will be able to overcome the significant obstacles and risks of our international operations.

11


        Many new energy storage technologies, other than lead-acid, have been introduced over the past several years. In addition, recent advances in fuel cell and flywheel technology have been introduced for use in selected applications that compete with the end uses for lead-acid industrial batteries. For many important and growing markets, such as aerospace and defense, lithium-based battery technologies have large and growing market shares and lead-acid technologies have decreasing market shares. Our ability to achieve significant and sustained penetration of key developing markets, including aerospace and defense, will depend upon our success in developing or acquiring these and other technologies, either independently, through joint ventures or through acquisitions. If we fail to develop or acquire, and to manufacture and sell, products that satisfy our customers' demands, or if we fail to respond effectively to new product announcements by our competitors by quickly introducing competitive products, market acceptance of our products could be reduced and our business could be adversely affected. We cannot assure you that our products will remain competitive with products based on technologies other than lead-acid.

        We rely on a combination of copyright, trademark, patent and trade secret laws, non-disclosure agreements and other confidentiality procedures and contractual provisions to establish, protect and maintain our proprietary intellectual property and technology and other confidential information. Certain of these technologies, especially in thin plate pure lead—TPPL—technology, are important to our business and are not protected by patents. For fiscal 2004, our net sales of products using TPPL technology were approximately $125 million. Despite our efforts to protect our proprietary intellectual property and technology and other confidential information, unauthorized parties may attempt to copy or otherwise obtain and use our intellectual property and proprietary technologies.

        Exide Technologies, during the course of its Chapter 11 proceedings, has sought to reject certain agreements related to the 1991 sale of Exide Technologies' industrial battery business to Yuasa, including the exclusive, perpetual, worldwide and transferable license to use the Exide name on industrial batteries that we acquired in the Yuasa purchase. If the court were to find in favor of Exide Technologies, our license to use the Exide name could be terminated.

        The Exide trade name is one of our better-known brands. Our Exide-branded batteries represented approximately 12% of our net sales for fiscal 2004. We introduced testimony in the court proceedings from an expert witness who estimated that we would suffer damages of approximately $60 million over a seven-year period from price erosion, profit on lost sales and incremental rebranding expense in the event that the license were terminated. This expert's assessment of our damages assumed, contrary to our current belief, that the court would not delay the effective date of the termination.

        As with any litigation, the outcome of this proceeding is uncertain. We cannot assure you that we will retain the right to use the Exide brand, even for a brief period of time, upon the resolution of this dispute by the court.

        The trend by a number of our North American and Western European customers to move manufacturing operations and expand their businesses into Asia and other low labor-cost markets may have an adverse impact on our business. As our customers in traditional manufacturing-based industries seek to move their manufacturing operations to lower-cost territories, there is a risk that these customers will source their energy storage products from competitors located in those territories and will cease or reduce the purchase of products from our manufacturing plants. We cannot assure you that we will be able to compete effectively with manufacturing operations of energy storage products in those territories,

12


whether by establishing or expanding our manufacturing operations in those lower-cost territories or acquiring existing manufacturers.

        We must continue to implement cost reduction initiatives to achieve additional cost savings in future periods. We cannot assure you that we will be able to achieve all of the cost savings that we expect to realize from current or future initiatives. In particular, we may be unable to implement one or more of our initiatives successfully or we may experience unexpected cost increases that offset the savings that we achieve. Given the continued competitive pricing pressures experienced in our industry, our failure to realize cost savings would adversely affect our results of operations.

        The success of our business will depend upon the quality of our products and our relationships with customers. In the event that our products fail to meet our customers' standards, our reputation could be harmed, which would adversely affect our marketing and sales efforts. We cannot assure you that our customers will not experience quality problems with our products.

        We rely upon a combination of trademark, licensing and contractual covenants to establish and protect the brand names of our products. We have registered many of our trademarks in the U.S. Patent and Trademark Office and in other countries. In many market segments, our reputation is closely related to our brand names. Monitoring unauthorized use of our brand names is difficult, and we cannot be certain that the steps we have taken will prevent their unauthorized use, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the U.S. We cannot assure you that our brand names will not be misappropriated or utilized without our consent or that such actions will not have a material adverse effect on our reputation and on our results of operations.

        As part of our business strategy, we have grown, and plan to continue growing, by acquiring other product lines, technologies or facilities that complement or expand our existing business. We may be unable to implement this part of our business strategy and may not be able to make acquisitions to continue our growth. There is significant competition for acquisition targets in the industrial battery industry. We may not be able to identify suitable acquisition candidates or negotiate attractive terms. In addition, we may have difficulty obtaining the financing necessary to complete transactions we pursue. In that regard, our credit facilities restrict the amount of additional indebtedness that we may incur to finance acquisitions and place other restrictions on our ability to make acquisitions. Our failure to execute our acquisition strategy could have a material adverse effect on our business. The amounts we may pay for acquisitions are subject to limits on individual transactions and aggregate limits over the term of the credit facilities—until 2011 under the senior secured credit facility and until 2012 if we do not prepay in full the senior second lien credit facility. Our individual transaction limits are $25.0 million cash and $75.0 million total (cash and company stock), and our aggregate limits are $100.0 million cash and $200.0 million total. Our ability to incur additional indebtedness also is restricted such that any significant acquisitions that could not be financed through cash generated from operations would need to be financed through issuance of additional company common stock. Exceeding any of these limitations would require the consent of our lenders. We cannot assure you that our acquisition strategy will be successful.

13


        Future acquisitions may involve the issuance of our equity securities as payment, in part or in full, for the businesses or assets acquired. Any future issuances of equity securities would dilute your ownership interests. In addition, future acquisitions might not increase, and may even decrease, our earnings or earnings per share and the benefits derived by us from an acquisition might not outweigh or might not exceed the dilutive effect of the acquisition. We also may incur additional debt or suffer adverse tax and accounting consequences in connection with any future acquisitions.

        Where we are successful in completing acquisitions, we might experience difficulties in integrating the acquired business or assets. Acquisitions can entail planned write-offs and charges, as we attempt to realize synergies and cost reductions by restructuring our businesses to maximize the benefits of an acquisition, such as a portion of the special charges we recorded in fiscal 2002 in connection with the acquisition of ESG from Invensys. Acquisitions might result in unanticipated liabilities, unforeseen expenses and distraction of management time and attention. We recorded a charge of $24.4 million in fiscal 2004 to reflect a settlement of a number of issues with Invensys relating to the ESG acquisition, $20.0 million of which was attributable to the repayment of the notes we issued to Invensys—which we refer to as seller notes—in payment of a portion of the purchase price of ESG.

        We are considering the implementation of a new enterprise resource planning (ERP) system in certain of our locations over the next five years to integrate the separate systems that we currently employ. An ERP system automates various business tasks including accounting, distribution and sales. Successful implementation of this system will be critical to our cost reduction initiatives and to our ability to comply with the financial reporting and internal audit compliance obligations of a public company. Integration and conversion of information from the systems to be replaced by this new system will significantly affect many aspects of our business, including our accounting, operations, purchasing, sales, marketing, and administrative functions, and could disrupt our business, distract management and increase our costs. If we were to experience difficulties or delays in the implementation of this new system, our ability to provide products to our customers on a timely basis could be adversely affected, which would harm our operating results and relationships with our customers. Additionally, any integration difficulties or delays could adversely affect the processing and reporting of our accounting and financial results. There can be no assurance that we would be able to correct any such difficulties or problems on a timely basis. Furthermore, there can be no assurance that, once successfully implemented, the new system will provide the intended benefits or that it will be adequate to support our operational needs.

Risks Relating to Our Substantial Debt and Our Liquidity

        We have a significant amount of debt. On an as adjusted basis, giving effect to the recapitalization that occurred on March 17, 2004, and our anticipated use of the estimated proceeds of this offering, we would have had $332.2 million of debt outstanding on March 31, 2004, our debt to total capitalization on March 31, 2004, would have been 44% and our interest expense for fiscal 2004 would have been $21.4 million. Our significant amount of debt could have important consequences to our stockholders. For example, it could:

14


        We cannot assure you that we will generate sufficient cash flow to meet our debt service requirements, to fund our operations and meet our business plan, to take advantage of opportunities to acquire other businesses or to develop new products or penetrate new markets.

        Our financing arrangements contain a number of financial covenants, such as interest coverage and leverage ratios, and restrictive covenants that limit the amount of debt we can incur and restrict our ability to pay dividends or make other payments in connection with our capital stock, make acquisitions or investments, make capital expenditures, enter into sale/leaseback transactions, sell, buy or pledge assets and prepay debt. See "Description of Our Credit Facilities—Covenants" for a discussion of these covenants.

        Our ability to comply with these financial covenants can be affected by events beyond our control, and we cannot assure you that we will be able to comply with those covenants. A breach of any of these covenants could result in a default under our financing arrangements. Upon the occurrence of an event of default under any of our financing arrangements, the lenders could elect to declare all amounts outstanding thereunder to be immediately due and payable and terminate all commitments to extend further credit. If the lenders accelerate the repayment of borrowings, we cannot assure you that we would have sufficient assets to repay the amounts due. Certain defaults, or the acceleration of any repayment obligation, under any of our material debt instruments would permit the holders of our other material debt to accelerate our obligations with respect to such other material debt.

Risks Relating to the Offering

        After giving effect to the offering, the Morgan Stanley Funds will own approximately 61.0% of our outstanding common stock. Two of our directors, Messrs. Hoffen and Fry, and two of our director nominees, Messrs. Hoffman and Elliott, currently are employees of Morgan Stanley. As a result of the Morgan Stanley Funds' ownership interest in us, the Morgan Stanley Funds may be deemed to control our management and policies. In addition, the Morgan Stanley Funds may be deemed to control all matters requiring stockholder approval, including the election of our directors, the adoption of amendments to our certificate of incorporation and the approval of mergers and sales of all or substantially all our assets. Circumstances could arise under which the interests of the Morgan Stanley Funds could be in conflict with the interests of our other stockholders.

        Morgan Stanley and a new independent private equity firm, Metalmark Capital LLC, led by Howard Hoffen and senior members of Morgan Stanley Capital Partners, including Eric Fry and Michael Hoffman, have agreed that an affiliate of Metalmark Capital LLC will manage MSCP IV and certain of its related funds on a sub-advisory basis. This sub-advisory relationship is expected to commence in the third quarter of 2004. As a result of such agreement, Metalmark Capital LLC may be deemed to control our management and policies.

15


        One of the representatives of the underwriters—Banc of America Securities LLC—is affiliated with a lender under our credit facilities. We expect to use substantially all of the net proceeds of this offering to repay outstanding indebtedness under our credit facilities, including approximately $2.3 million that will be payable with respect to indebtedness owed to Bank of America, N.A., an affiliate of Banc of America Securities LLC. As a result, this underwriter may have a conflict of interest.

        In addition, another of the representatives of the underwriters—Morgan Stanley & Co. Incorporated—may have a conflict of interest because of the ownership of a majority of our outstanding common shares by the Morgan Stanley Funds.

        Because Morgan Stanley Dean Witter Capital Partners IV, L.P., one of the Morgan Stanley Funds, which we refer to as MSCP IV, and our other existing institutional stockholders, will continue to hold more than 50% of the voting power of EnerSys after giving effect to the offering, we are a "controlled company" for purposes of the New York Stock Exchange listing requirements. As such, we have opted out of several of the NYSE's corporate governance requirements. Among other things, this means that our Board of Directors, our compensation committee and our nominating and corporate governance committee are not required to be independent. Morgan Stanley is acting as one of the representatives of the underwriters of this offering.

        If a trading market develops for our common stock, the Morgan Stanley Funds, investment funds affiliated with J.P. Morgan, which we refer to as the J.P. Morgan Funds, certain entities affiliated with GM, which we refer to as the GM Stockholders, and Messrs. Craig, Philion, McManus, Zuidema and Shea, who will collectively own 72.8% of our shares upon completion of the offering, may elect to sell their shares of our common stock or exercise their stock options in order to sell the stock underlying their options. Sales of a substantial number of shares of our common stock in the public market after this offering could depress the market price of our common stock and impair our ability to raise capital through the sale of additional equity securities. Officers, directors, stockholders and optionholders owning substantially all of our shares, have agreed, subject to exceptions, that, without the prior written consent of the underwriters, they will not, directly or indirectly, sell any of these shares or exercise any of their options for 180 days after the date of this prospectus, subject to certain extensions. These agreements, however, can be waived by Morgan Stanley and Lehman Brothers in their sole discretion.

        There currently is no public market for our common stock. An active trading market for our common stock may not develop. If a trading market does develop, our stock price could be volatile. You may be unable to resell the common stock you buy at or above the initial public offering price. We will establish the initial public offering price through our negotiations with the representatives of the underwriters. You should not view the price they and we establish as any indication of the price that will prevail in the trading market.

        The public offering price of our shares of common stock is significantly higher than the net tangible book value per share of our common stock. Purchasers of our common stock in this offering will experience immediate and substantial dilution in pro forma net tangible book value of $15.25 per share. Additional book value dilution is likely to occur upon the exercise of options. To the extent we raise additional capital by issuing equity securities, our stockholders may experience further substantial book value dilution.

16



SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

        We have made forward-looking statements in this prospectus, primarily in the sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." Forward-looking statements include the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, potential growth opportunities and the effects of future regulation and competition. Generally, you can identify these statements because they use words like "anticipates," "believes," "estimates," "expects," "future," "intends," "plans" or the negative of such terms or similar terms. These statements are only our current expectations. They are based on our management's beliefs and assumptions and on information currently available to our management.

        Forward-looking statements involve risks, uncertainties and assumptions. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. Actual results may differ materially from those expressed in these forward-looking statements due to a number of uncertainties and risks, including the risks described in this prospectus and other unforeseen risks. You should not put undue reliance on any forward-looking statements.

        We undertake no obligation to update forward-looking statements after we distribute this prospectus except as may be required under the federal securities laws.

17



USE OF PROCEEDS

        We estimate that the net proceeds of the sale of the 12,500,000 shares of common stock that we are selling in this offering will be $181.5 million, based on an assumed initial public offering price of $16 per share, the mid-point of the range on the front cover of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters' over-allotment option is exercised in full, we estimate that we will receive net proceeds of $209.5 million.

        We currently anticipate that we will use approximately $122.4 million of the net proceeds to prepay the entire principal, interest and prepayment penalty due on our $120.0 million senior second lien term loan and approximately $59.1 million to prepay a portion of the $379.0 million currently outstanding under our senior secured term loan B. We entered into the $120.0 million senior second lien term loan and the $380.0 million senior secured term loan B on March 17, 2004. The principal of the senior second lien term loan is due in a single installment on March 17, 2012, and bears interest either at a LIBOR rate plus 5% or a floating base rate determined by the lender plus 4%. The principal of the senior secured term loan B is subject to scheduled quarterly amortization of 0.25% of the initial principal amount, payable in arrears, for the first 6.75 years, and 93.25% of the initial principal in the final quarter of the seventh year, and bears interest either at a LIBOR rate plus a variable interest rate margin or a floating base rate determined by the lender plus a variable interest rate margin.

        We used the proceeds of these loans to refinance substantially all of our existing debt and pay accrued interest in the aggregate amount of $219.0 million, to pay fees and expenses of $11.0 million in connection with the new credit facilities and to make a cash payment in the aggregate amount of $270.0 million of which $258.4 million was distributed to our preferred and common stockholders, pro rata in accordance with their stockholdings, and $11.6 million was paid to management in the form of one-time bonuses. The purpose of the bonuses was to treat management equitably with other stockholders, by providing for a cash distribution to each individual based on the aggregate in-the-money value of his or her vested options. For additional information on these credit facilities including their terms and the use of their proceeds, see "Description of our Credit Facilities."


DIVIDEND POLICY

        We do not anticipate declaring or paying any cash dividends in the foreseeable future. The timing and amount of future cash dividends, if any, would be determined by our Board of Directors and would depend upon our earnings, financial condition and cash requirements at the time. See "Description of our Credit Facilities" for a discussion of restrictions in our credit facilities that may limit our ability to pay cash dividends in the future.

        In connection with our recent recapitalization on March 17, 2004, we distributed $258.4 million to our existing stockholders, pro rata on the basis of their relative ownership interests in the company. We do not intend to make similar distributions in the future.

18



CAPITALIZATION

        The following table sets forth our cash and cash equivalents and our consolidated capitalization at March 31, 2004:

        You should read this table in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this prospectus.

 
  March 31, 2004

 
 
  Actual
  As Adjusted
 
 
  (In thousands)

 
Cash and cash equivalents   $ 17,207   $ 17,207  
   
 
 
Debt              
  Revolving credit facility          
  Senior secured term loan B     380,000     320,900  
  Senior second lien term loan     120,000      
  Capital lease and other obligations     11,303     11,303  
   
 
 
    Total debt     511,303     332,203  

Stockholders' equity

 

 

 

 

 

 

 
  Preferred Stock, 665,883 shares outstanding as of March 31, 2004; 0 shares, as adjusted; par value $0.01 per share.     7      
  Common Stock, 11,014,421 shares outstanding as of March 31, 2004, 45,532,715 shares, as adjusted, par value $0.01 per share.     110     455  
  Paid-in-capital     188,766     369,928  
  Retained earnings (deficit)     (8,839 )   (13,027 )
  Accumulated other comprehensive income     59,258     59,258  
   
 
 
    Total stockholders' equity     239,302     416,614  
   
 
 
      Total capitalization   $ 750,605   $ 748,817  
   
 
 

19



UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

        Our audited consolidated financial statements for fiscal 2004 are included elsewhere in this prospectus. The unaudited pro forma consolidated financial information presented herein should be read together with those financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

        The unaudited pro forma consolidated financial information has been provided to enable readers to understand our historical financial results in relation to our recent recapitalization that occurred on March 17, 2004, and the sale of our common stock offered by this prospectus.

        Our historical March 31, 2004, balance sheet already reflects the financial impact of the recapitalization. We prepared the unaudited consolidated pro forma balance sheet to reflect the offering as if it had occurred on March 31, 2004. We prepared the unaudited pro forma consolidated statements of operations to reflect the recapitalization and the offering of our common stock as if such events had occurred on April 1, 2003.

        The pro forma consolidated balance sheet data at March 31, 2004, and statement of operations data for fiscal 2004, give effect to the recapitalization, the sale of 12,500,000 shares of our common stock at an assumed public offering price of $16 per share and the conversion of our preferred stock into 22,018,294 shares of our common stock immediately prior to this offering, along with the anticipated use of the estimated proceeds from this offering to prepay indebtedness and for other general corporate purposes.

        We have excluded $18.6 million of special charges, which includes $6.6 million in deferred finance costs, $11.6 million in one-time bonus payments to management and a related $0.4 million payroll charge in connection with the recapitalization, from our pro forma results of operations for fiscal 2004. For additional information on these one-time bonus payments, see "Use of Proceeds" and "Management—Executive Compensation."

        Certain information normally included in financial statements prepared in accordance with generally accepted accounting principles in the U.S. has been omitted pursuant to the rules and regulations of the SEC. The pro forma consolidated statement of operations data for fiscal 2004 are not necessarily indicative of results that would have occurred had the recapitalization and this offering been completed on April 1, 2003, and should not be construed as being representative of future results of operations. Likewise, the pro forma consolidated balance sheet data at March 31, 2004, is not necessarily indicative of our financial position at March 31, 2004, had the offering been completed on March 31, 2004.

20


 
  Fiscal Year Ended March 31, 2004
 
 
  Historical
  Recapitalization
adjustments

  Pro forma for
recapitalization

  Offering
adjustments

  Pro forma for
recapitalization
and as
adjusted for
offering(8)

 
 
  (unaudited)

 
 
  (in thousands, except per share data)

 
Pro Forma Consolidated Statement of Operations:                                

Net sales

 

$

969,079

 

$


 

$

969,079

 

$


 

$

969,079

 
Cost of goods sold     722,825         722,825         722,825  
   
 
 
 
 
 
Gross profit     246,254         246,254         246,254  

Operating expenses

 

 

170,412

 

 


 

 

170,412

 

 


 

 

170,412

 
Special charges relating to restructuring, bonuses and uncompleted acquisitions     21,147     (12,052 )(1)   9,095         9,095  
Amortization expense     51         51         51  
   
 
 
 
 
 
Operating earnings     54,644     12,052     66,696         66,696  

Interest expense

 

 

20,343

 

 

11,034

  (2)

 

31,377

 

 

(9,987)

  (5)

 

21,390

 
Special charges relating to a settlement agreement and write-off of deferred finance costs     30,974     (6,569 )(3)   24,405         24,405  
Other (income) expense, net     (4,466 )       (4,466 )       (4,466 )
   
 
 
 
 
 
Earnings before income taxes     7,793     7,587     15,380     9,987     25,367  

Income tax expense

 

 

2,957

 

 

2,807

  (4)

 

5,764

 

 

3,696

  (6)

 

9,460

 
   
 
 
 
 
 
Net earnings   $ 4,836   $ 4,780   $ 9,616   $ 6,291   $ 15,907  
Series A convertible preferred stock dividend     (24,689 )       (24,689 )   24,689      
   
 
 
 
 
 
Net (loss) earnings available to common stockholders   $ (19,853 ) $ 4,780   $ (15,073 ) $ 30,980   $ 15,907  
   
 
 
 
 
 

Net earnings (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Basic   $ (1.80 )       $ (1.37 )       $ 0.36  
  Diluted   $ (1.80 )       $ (1.37 )       $ 0.36  

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Basic     11,014,421           11,014,421           43,955,941   (7)
  Diluted     11,014,421           11,014,421           44,550,718  

Pro forma (loss) earnings per share(9)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Basic   $ (0.73 )       $ (0.55 )            
  Diluted   $ (0.73 )       $ (0.55 )            

Pro forma weighted average shares(9)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Basic     27,162,421           27,162,421              
  Diluted     27,162,421           27,162,421              

(1)
Amount represents the elimination of compensation expense of $12.0 million, before taxes, incurred in connection with the March 17, 2004 recapitalization. For additional information on this payment, see "Use of Proceeds" and "Management—Executive Compensation."

(2)
Amount represents a net increase in interest expense of $11.0 million, before taxes, associated with the increased debt from the recapitalization, including $1.6 million of amortization for the increased deferred finance costs and the elimination of $2.0 million in amortization of deferred finance costs from the previous credit facility. For purposes of this calculation, the interest rates used were the actual rates (an average 4.8%) that existed at March 31, 2004.

(3)
Amount represents the elimination of special charges, before taxes, of $6.6 million in deferred finance costs related to the early extinguishment of debt in connection with the March 17, 2004 recapitalization.

(4)
Amount represents the income tax expense from (1), (2) and (3) above at our current 37% effective tax rate.

21


(5)
Amount represents reduced interest expense, before taxes, resulting from the anticipated use of the estimated proceeds from this offering to repay certain debt, of $2.0 million from a reduction of $59.1 million of senior secured term loan B, of $7.3 million from repayment of $120.0 million of senior second lien term loan and of $0.6 million reduction in amortization of deferred finance costs related to the debt that will be prepaid with the use of proceeds. For purposes of this calculation, the interest rates used were the actual rates (an average 4.6%) that existed at March 31, 2004.

(6)
Amount represents the income tax expense from (5) above at our current 37% effective tax rate.

(7)
Unaudited pro forma basic and diluted earnings per share have been calculated in accordance with the SEC rules for initial public offerings. These rules require that the weighted average share calculation give retroactive effect to any changes in our capital structure as well as the number of shares whose sale proceeds will be used to repay any debt as reflected in the pro forma adjustments. Therefore, pro forma weighted average shares for purposes of the unaudited pro forma basic earnings per share calculation consist of approximately 11,014,421 shares of common stock and 20,441,520 shares of converted preferred stock outstanding prior to this offering and 12,500,000 shares of our common stock being offered hereby.

(8)
We expect to incur $2.4 million ($1.5 million net of tax benefit at our current 37% effective tax rate) of prepayment penalty and the write-off of deferred finance costs of $4.2 million ($2.7 million net of tax benefit at our current 37% effective tax rate) as a result of the offering. These expenses have been excluded from the pro forma statements of operations.

(9)
Reflects pro forma share data giving effect to the increase of 16,148,000 shares, which represents the number of shares that, when multiplied by an assumed offering price of $16, is sufficient to replace the capital in excess of earnings as a result of the distribution to stockholders of $258.4 million in connection with our recapitalization.

22


 
  As of March 31, 2004
 
 
  Historical
  Offering
adjustments

  Pro forma as adjusted for offering
 
 
  (unaudited)
(in thousands)

 
Pro Forma Consolidated
Balance Sheet:
                   

Assets

 

 

 

 

 

 

 

 

 

 
Current assets:                    
  Cash and cash equivalents   $ 17,207   $     $ 17,207  
  Accounts receivable, net     227,752           227,752  
  Inventories, net     131,712           131,712  
  Deferred taxes     24,616           24,616  
  Prepaid expenses     17,873           17,873  
  Other current assets     4,543           4,543  
   
 
 
 
    Total current assets     423,703           423,703  

Property, plant, and equipment, net

 

 

284,850

 

 

 

 

 

284,850

 
Goodwill     306,825           306,825  
Other intangible assets, net     75,495           75,495  
Deferred taxes     26,025           26,025  
Other     34,170     (4,248 )(1)   29,922  
   
 
 
 
    Total assets   $ 1,151,068   $ (4,248 ) $ 1,146,820  
   
 
 
 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

 

 
Current liabilities:                    
  Short-term debt   $ 2,712   $     $ 2,712  
  Current portion of long-term debt     7,014     (591 )(2)   6,423  
  Current portion of capital lease obligations     2,150           2,150  
  Accounts payable     113,043           113,043  
  Accrued expenses     163,717     (2,460 )(3)   161,257  
  Deferred taxes     340           340  
   
 
 
 
    Total current liabilities     288,976     (3,051 )   285,925  

Long-term debt

 

 

496,200

 

 

(178,509)

(2)

 

317,691

 
Capital lease obligations     3,227           3,227  
Deferred taxes     60,952           60,952  
Other     62,411           62,411  
   
 
 
 
    Total liabilities     911,766     (181,560 )   730,206  

Stockholders' equity:

 

 

 

 

 

 

 

 

 

 
  Preferred Stock     7     (7 )(4)    
  Common Stock     110     220   (4)      
            125   (5)   455  
  Paid-in capital     188,766     181,162   (4)(5)   369,928  
  Retained earnings (deficit)     (8,839 )   (1,512 )(6)      
            (2,676 )(6)   (13,027 )
  Accumulated other comprehensive income     59,258           59,258  
   
 
 
 
    Total stockholders' equity     239,302     177,312     416,614  
   
 
 
 
      Total liabilities and stockholders' equity   $ 1,151,068   $ (4,248 ) $ 1,146,820  
   
 
 
 

23



(1)
Amount represents the deferred finance costs associated with the prepayment of debt.

(2)
Amounts represent the use of proceeds from this offering to prepay certain indebtedness.

(3)
Amount represents the reduction in accrued taxes attributed to the tax benefit on the prepayment penalty ($0.9 million) and write-off of deferred finance costs ($1.5 million).

(4)
Amount reflects the conversion of 772,572 shares of our preferred stock which represents the issuance amount plus a cumulative amount from the date of issuance to the date of conversion at a rate of 7.5% per year, compounded quarterly, and converted at a 28.5-for-1 ratio into 22,018,294 shares of common stock immediately prior to this offering.

(5)
Amount represents the sale of 12,500,000 shares of common stock in this offering at an assumed initial public offering price of $16 per share, less related estimated expenses of $18.5 million, for net proceeds of $181.5 million.

(6)
Amount represents the $2.4 million ($1.5 million of tax benefit) prepayment penalty and $4.2 million ($2.7 million net of tax benefit) deferred finance costs associated with the prepayment of debt.

24



DILUTION

        At March 31, 2004, our net tangible book value (deficit) was $(143.0) million, or $(12.98) per share of common stock. Net tangible book value (deficit) per share is equal to our stockholders' equity (deficit) less goodwill and other intangible assets, divided by the total number of outstanding shares of our common stock. After giving effect to the sale of the shares of our common stock offered by us at an assumed initial public offering price of $16 per share, the mid-point of the range on the cover of this prospectus, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, and the anticipated application of the proceeds from the offering, our net tangible book value at March 31, 2004, would have been $34.3 million, or $0.75 per share. This represents an immediate increase in net tangible book value of $13.73 per share to existing stockholders and an immediate dilution of $15.25 per share to new investors purchasing shares of our common stock in this offering.

        The following table illustrates the dilution per share:

Assumed initial public offering price per share         $ 16.00
  Net tangible book value (deficit) per share at March 31, 2004 before giving effect to the offering and conversion of all of our outstanding preferred stock   $ (12.98 )    
  Increase in net tangible book value per share attributable to new investors purchasing shares in the offering before giving effect to conversion of all of our outstanding preferred stock     14.44      
  Decrease in net tangible book value per share attributable to conversion of all outstanding shares of preferred stock     (0.71 )    
   
     
Net tangible book value per share after giving effect to the offering           0.75
         
Dilution in net tangible book value per share to new investors         $ 15.25
         

        If the underwriters exercise their over-allotment option in full, the net tangible book value per share after giving effect to the offering would be $1.31 per share. This represents an increase in net tangible book value of $14.29 per share to existing stockholders and dilution in net tangible book value of $14.69 per share to new investors.

        The following table summarizes, as of March 31, 2004, the differences between the number of shares of common stock purchased from us, the total effective cash consideration and the average price per share paid by the existing stockholders and by the new investors purchasing stock in the offering at an assumed initial offering price of $16 per share, before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us:

 
   
   
  Total effective cash consideration
   
 
  Shares purchased
   
 
  Average price
per share

 
  Number
  Percentage
  Amount
  Percentage
Existing stockholders   33,032,715   72.5 % $ 188,766,000 (1) 49.1 % $ 5.71
New investors   12,500,000   27.5     200,000,000   52.0     16.00
   
 
 
 
     
Total   45,532,715   100.0 % $ 388,766,000   100.0 % $ 8.54
   
 
 
 
     

(1)
The total effective cash consideration paid by existing stockholders was $447.1 million. The amount shown gives effect to the distribution of $258.4 million to existing stockholders as a return of capital in our recent recapitalization.

25


        If the underwriters exercise their over-allotment option in full, our existing stockholders would own 69.9% and our new investors would own 30.1% of the total number of shares of our common stock outstanding after this offering.

        The preceding discussion and table assumes no exercise of:

        To the extent that any options are exercised, there will be further dilution to new investors. If all of our outstanding options as of March 31, 2004, had been exercised, the pro forma net tangible book value per share after this offering would have been $2.54 per share, representing an increase in pro forma net tangible book value of $15.52 per share to existing stockholders and a dilution in the pro forma net tangible book value of $13.46 per share to new investors.

26



SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

        The following tables set forth certain selected consolidated financial and operating data. We were incorporated in October 2000 for the purpose of acquiring the Yuasa Inc. industrial battery business from Yuasa Corporation (Japan) and did not have any operations prior to October 1, 2000. Selected consolidated financial data for the periods prior to October 1, 2000, are derived from the consolidated financial statements of Yuasa Inc., which we refer to as the Predecessor Company. The summary consolidated financial data presented below for the three-year period ended March 31, 2004, and the balance sheet data at March 31, 2002, 2003 and 2004, have been derived from our consolidated financial statements which have been audited by Ernst & Young LLP, our independent registered public accounting firm. The summary consolidated financial data presented below as of and for the six months ended March 31, 2001 have been derived from audited financial statements that are not included in this prospectus. The summary consolidated financial data presented below as of and for the fiscal year ended March 31, 2000, and as of and for the six months ended September 30, 2000, have been derived from unaudited financial statements that are not included in this prospectus. You should read the selected financial data presented below in conjunction with our consolidated financial statements and the notes to our consolidated financial statements included elsewhere in this prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

 
  Fiscal Year
Ended
March 31,

  Six Months
Ended
September 30,

  Six Months
Ended
March 31,

  Fiscal Year Ended March 31,
 
 
  2000
  2000
  2001
  2002
  2003
  2004
 
 
  (Predecessor Company)

  (EnerSys)

 
      (in thousands, except per share amounts)  
Consolidated Statement of Operations:(1)                                      
Net sales   $ 385,124   $ 228,295   $ 233,051   $ 339,340   $ 859,643   $ 969,079  
Cost of goods sold     294,899     175,457     173,146     271,596     653,998     722,825  
   
 
 
 
 
 
 
Gross profit     90,225     52,838     59,905     67,744     205,645     246,254  

Operating expenses

 

 

57,923

 

 

32,774

 

 

30,795

 

 

53,463

 

 

150,618

 

 

170,412

 
Special charges relating to restructuring, bonuses and uncompleted acquisitions                 63,345         21,147  
Amortization(2)     4,052     1,774     2,373     51     51     51  
   
 
 
 
 
 
 
Operating earnings (loss)     28,250     18,290     26,737     (49,115 )   54,976     54,644  
Interest expense     10,582     5,633     7,667     13,294     20,511     20,343  
Special charges relating to a settlement agreement and write-off of deferred finance costs                         30,974  
Other expense (income), net     384     368     264     1,744     (742 )   (4,466 )
   
 
 
 
 
 
 
Earnings (loss) before income taxes     17,284     12,289     18,806     (64,153 )   35,207     7,793  
Income tax expense (benefit)     6,970     4,967     8,351     (22,171 )   12,355     2,957  
   
 
 
 
 
 
 
Net earnings (loss)   $ 10,314   $ 7,322   $ 10,455   $ (41,982 ) $ 22,852   $ 4,836  
Series A convertible preferred stock dividends                 (13 )   (24,057 )   (24,689 )
Net (loss) earnings available to common stockholders               $ (41,995 ) $ (1,205 ) $ (19,853 )
   
 
 
 
 
 
 

Net earnings (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Basic                     $ (3.81 ) $ (0.11 ) $ (1.80 )
  Diluted                       (3.81 )   (0.11 )   (1.80 )

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Basic                       11,014,421     11,014,421     11,014,421  
  Diluted                       11,014,421     11,156,267     11,014,421  
 
  Fiscal Year
Ended
March 31,

  Six Months
Ended
September 30,

  Six Months
Ended
March 31,

  Fiscal Year Ended March 31,
 
 
  2000
  2000
  2001
  2002
  2003
  2004
 
 
  (Predecessor Company)

  (EnerSys)

 
      (in thousands)        
Consolidated cash flow data: (3)                                      
Net cash provided by operating activities     n/a     n/a   $ 30,269   $ 21,068   $ 55,438   $ 39,192  
Net cash used in investing activities     n/a     n/a     (15,965 )   (335,951 )   (12,923 )   (26,981 )
Net cash (used in) provided by financing activities     n/a     n/a     (7,303 )   314,795     (8,209 )   (39,989 )
Other Operating Data:(1)                                      
Capital expenditures   $ 16,796   $ 10,317   $ 16,049   $ 12,944   $ 23,623   $ 28,580  
EBITDA(4)     45,692     25,596     35,715     (39,563 )   91,651     65,175  
Special charges related to restructuring, bonuses, uncompleted acquisitions, a settlement agreement and write-off of deferred finance costs(5)                 63,345         52,121  

27



 


 

As of March 31,

 
  2000
  2001
  2002
  2003
  2004
 
  (Predecessor Company)

  (EnerSys)

 
  (in thousands)

Balance Sheet Data:                              
Cash and cash equivalents   $ 199   $ 9,135   $ 9,075   $ 44,296   $ 17,207
Working capital     17,081     52,776     104,418     135,356     134,727
Total assets     244,808     445,002     978,889     1,075,808     1,151,068
Total debt     99,788     152,003     253,394     252,162     511,303
Preferred stock             7     7     7
Total stockholders' equity   $ 69,427   $ 172,362   $ 414,847   $ 465,747   $ 239,302

(1)
Includes the results of operations of ESG for the full years for fiscal 2003 and fiscal 2004, but only for nine days in fiscal 2002.

(2)
If SFAS No. 142, "Goodwill and Other Intangible Assets," had been adopted as of April 1, 1999, the absence of goodwill amortization would have increased the net earnings for the fiscal year ended March 31, 2000, six months ended September 30, 2000, and six months ended March 31, 2001, by approximately $1,847, $780 and $2,365, respectively.

(3)
Information not available for fiscal 2000 and the first six months of 2001.

(4)
EBITDA is defined as earnings before interest expense, income tax expense, depreciation and amortization. EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States and should not be considered an alternative to net income or any other measure of performance under accounting principles generally accepted in the United States as a measure of performance or to cash flows from operating, investing or financing activities as an indicator of cash flows or as a measure of liquidity. EBITDA has its limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under generally accepted accounting principles. Some of these limitations are:

    it does not reflect our cash expenditures for capital expenditures or contractual commitments;

    it does not reflect the impact of changes in effective tax rates or the use of net operating losses;

    although depreciation and amortization are non-cash charges, the assets being depreciated or amortized often will have to be replaced and EBITDA does not reflect the cash requirements for such replacements;

    it does not reflect changes in, or cash requirements for, our working capital requirements; and

    it does not reflect the cash necessary to make payments of interest or principal on our indebtedness.


Because of these limitations, EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying on our GAAP results as well as on our EBITDA and by carefully budgeting our projected cash requirements for debt service, capital expenditures, working capital and taxes. Our calculation of EBITDA may be different from the calculations used by other companies, and therefore comparability may be limited. Certain financial covenants in our senior secured credit facility and our senior second lien credit facility are based on EBITDA, subject to adjustments, and therefore EBITDA for purposes of these financial covenants is calculated differently from EBITDA as shown above. Depreciation and amortization in the table excludes amortization of deferred financing costs, which is included in interest expense.

28


        The following table provides a reconciliation of EBITDA to net earnings (loss):

 
  Fiscal Year Ended March 31,
 
  2002
  2003
  2004
 
  (in thousands)

EBITDA   $ (39,563 ) $ 91,651   $ 65,175
  Depreciation and amortization     11,296     35,933     37,039
  Interest expense     13,294     20,511     20,343
  Income tax (benefit) expense     (22,171 )   12,355     2,957
   
 
 

Net (loss) earnings

 

$

(41,982

)

$

22,852

 

$

4,836
   
 
 

We have included EBITDA primarily as a performance measure because management uses it as a key measure of our performance and ability to generate cash necessary to meet our future requirements for debt service, capital expenditures, working capital and taxes. Management also uses EBITDA to measure our compliance with important financial covenants under our credit facilities and to analyze our performance against our key public-company competitors, recognizing that the different ways in which different companies calculate EBITDA limits its usefulness as a measure of comparability.

(5)
Special charges are discussed in detail in the notes to our consolidated financial statements and in "Management's Discussion and Analysis of Financial Condition and Results of Operations." The fiscal 2002 charges were primarily for the closures of a plant and certain other locations in the U.S. and our South American operations. The charges in fiscal 2004 related primarily to a settlement with Invensys, the recapitalization in March 2004 and costs of uncompleted acquisition attempts.

29



MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion and analysis of our financial condition and results of our operations should be read in conjunction with our consolidated financial statements and accompanying notes included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy, constitutes forward-looking statements that involve risks and uncertainties. See "Forward-Looking Statements" and "Risk Factors" for more information.

Introduction

        We manufacture, market and distribute reserve power and motive power lead-acid industrial batteries and related products such as chargers, power equipment and battery accessories. We also provide related after-market and customer-support services for lead-acid industrial batteries. We market and sell our products globally in more than 100 countries to over 10,000 customers through a network of distributors, independent representatives and an internal sales force. For fiscal 2004, we derived approximately 70% of our revenue from our internal sales force. No single customer accounts for greater than 6% of our consolidated revenue.

        We have two business segments: reserve power and motive power. Net sales classifications by segment are as follows:

        We evaluate business segment performance based primarily upon operating earnings, exclusive of restructuring charges and unusual and special charge items. All other corporate and centrally incurred regional costs are allocated to the business segments based principally on net sales. We evaluate business segment cash flow and financial position performance based primarily upon capital expenditures and primary working capital levels. Primary working capital for this purpose is trade accounts receivable, plus inventories, minus trade accounts payable and the resulting net amount is divided by the trailing three month net sales (annualized) for the respective business segment or reporting location, to derive a primary working capital percentage ratio. Although we monitor the three elements of primary working capital (receivables, inventory and payables), our primary focus is on the total amount. Primary working capital was $201.0 million (yielding a primary working capital percentage ratio of 21.8%) at March 31, 2003, and $246.4 million (yielding a primary working capital percentage ratio of 22.4%) at March 31, 2004. Since fiscal 2003 was the first full year after the ESG acquisition, prior comparative figures for primary working capital are not meaningful. We closely manage our level of working capital due to the significant impact it has on cash flow and, as a result, our level of debt. Lastly, on a consolidated basis, we review short- and long-term debt levels, on a daily basis, with corresponding leverage ratios monitored, primarily using debt to EBITDA ratios, excluding special charges. EBITDA is earnings before interest, income taxes, depreciation and amortization. Special charges are expenses not normally incurred in the day-to-day operations of our business and, in our opinion, are not indicative of our core operating performance. Examples include charges incurred in fiscal 2002 to restructure the predecessor company operations and charges incurred in fiscal 2004 associated with the costs of uncompleted acquisition attempts, an omnibus settlement with Invensys and costs in connection with a recapitalization transaction.

        We operate and manage our business in three primary geographic regions of the world—the Americas, Europe and Asia. Our business is highly decentralized with 19 manufacturing locations throughout the world. Over half of our net sales for fiscal 2003 and fiscal 2004 were generated outside of

30



North America. Approximately half of our manufacturing and distribution facilities are located outside of the U.S. See "Risk Factors—Risks Relating to Our Business" and "Business—Facilities." Our international operations may be adversely affected by actions taken by foreign governments or other forces or events over which we may have no control. Our management structure and financial reporting systems, and associated internal controls and procedures, are all consistent with our two business segments and three geographic regions in which we operate. We report on a March 31 fiscal year.

        Our financial results are largely driven by the following factors:

        In fiscal 2004, approximately one-third of our total costs were fixed and two-thirds were variable. We include within variable costs that portion of overhead, labor and benefits which we believe we can reduce in a normal business environment in response to a decline in sales.

        Starting in fiscal 2002, the telecommunications industry dramatically reduced building new systems in response to massive overcapacity. Additionally, in fiscal 2002 and fiscal 2003 the global economy was weak. These conditions combined to produce excess capacity in some sectors of our industry, driving consolidation among industrial battery purchasers. Several of our competitors experienced financial difficulties. As a result, we have been subjected to continual and significant pricing pressures over the past several years. We anticipate heightened competitive pricing pressure as Chinese and other foreign producers, able to employ labor at significantly lower costs than producers in the U.S. and Western Europe, expand their export capacity and increase their marketing presence in our major U.S. and European markets. Our ability to maintain and improve our operating margins has depended, and continues to depend, on our ability to control our costs and maintain our pricing. As a result, our business strategy has been highly focused on increasing our market share, tightly controlling capital expenditures and cash and reducing our costs.

        There have been several key stages in the development of our business, which explain to a significant degree our results of operations over the past four years.

        We were formed in late 2000 by Morgan Stanley Capital Partners and the management of Yuasa Inc. to acquire the industrial battery business of Yuasa Corporation (Japan) in North and South America. Our reported results for the period prior to the acquisition of this business reflect the operations of the predecessor company to the business we acquired.

        In addition, our results of operations for the past three fiscal years have been significantly affected by our acquisition of ESG on March 22, 2002. This acquisition more than doubled our size. Our results of operations for fiscal 2002 include ESG for only nine days, while our results for fiscal 2003 and 2004 include ESG for the full fiscal year. Giving effect to the ESG acquisition, as if it occurred at the beginning of fiscal 2002, pro forma net sales and net loss would have been $897.5 million and $36.4 million, respectively. We incurred special charges of $63.3 million in fiscal 2002, as discussed under "Consolidated fiscal year ended

31



March 31, 2003, compared to fiscal year ended March 31, 2002, statement of operations highlights—Special Charges." These charges adversely affected our reported results.

        Our successful integration of ESG provided global scale in both the reserve and motive power markets. The ESG acquisition also provided us with a further opportunity to reduce costs and improve operating efficiency that, among other initiatives, led to closing underutilized manufacturing plants, distribution facilities, sales offices and eliminating other redundant costs, including staff. As noted above, we recorded a $63.3 million special charge in fiscal 2002 associated with this business activity and strategy.

        The cash purchase price for ESG was approximately $363 million and was financed by convertible preferred stock of $283 million, a seller note of $58.3 million and additional borrowings. We acquired net assets of approximately $363 million, which included goodwill of approximately $172 million. On March 17, 2004, we refinanced the ESG acquisition debt and completed a recapitalization transaction in which we entered into a new $600 million financing arrangement, consisting of a $100 million senior secured revolving credit facility, a $380 million senior secured term loan B and a $120 million senior second lien term loan. We will repay the $120 million senior second lien term loan and a portion of the $380 million senior secured term loan B with a portion of the proceeds of this offering. We used $500 million of the proceeds of these credit facilities to repay existing debt and accrued interest of $219 million, to fund a cash payment of $270 million to our existing stockholders and management and to pay transaction costs of $11 million.

        Our historical consolidated financial statements show our result of operations as a private company. After completion of this offering, we will be a public company, and we estimate that the incremental costs of complying with our new public company reporting obligations will be approximately $5 million per year.

        Our operating results are directly affected by the general cyclical pattern of the industries in which our major customer groups operate. For example, the significant capital expenditures made by the telecommunications industry during the period from fiscal 1999 through fiscal 2001 drove demand for our reserve power products, as numerous companies expanded their systems and installed standby backup battery power systems. However, the demand for our reserve power systems declined when the telecommunications industry significantly reduced building new systems in response to massive overcapacity.

        Both our reserve power and motive power segments are heavily dependent on the end markets they serve, and our results of operations will vary depending on the capital expenditure environment in these markets. In addition, general economic conditions in the U.S. and international markets in which we and our customers operate also affect demand for our products. Sales of our motive power products, for example, depend significantly on demand for new electric industrial forklift trucks, which in turn depends on end-user demand for additional motive capacity in their distribution and manufacturing facilities. The overall economic conditions in the markets we serve can be expected to have a material effect on our results of operations.

        In fiscal 2003, market and economic conditions stabilized, the euro strengthened on average for the year by 14% against the dollar and our cost reduction initiatives yielded savings. In fiscal 2004, market and economic conditions generally were stable and began improving, particularly in the second half of the fiscal year in the Americas and Asia. See "Quarterly Information." In fiscal 2004, excluding special charges, earnings and operating cash flow increased as sales (excluding the effect of foreign currency translation) increased approximately 4%, the euro strengthened on average for the year by 18% against the dollar and cost reduction programs yielded additional savings.

        In late fiscal 2004, our primary raw materials costs began increasing significantly, with the cost of lead, our most significant raw material, increasing in the spot market approximately 30% in the fourth quarter of fiscal 2004 over the prior fiscal quarter. We anticipate our average cost of lead in fiscal 2005 will be

32



substantially higher than in fiscal 2004. We notified our customers of a series of list price increases totaling approximately 5% in late fiscal 2004 that will increase our battery selling prices during fiscal 2005 if these increases are accepted by our customers. We cannot assure you that our price increases will be accepted by the industry. Further cost-reduction programs have been identified that we anticipate will partially offset rising raw materials costs. If lead prices for fiscal 2004 remain at their current level, and if we are unable to adjust our pricing to accommodate increased lead costs, we would experience a significant decline in operating earnings in fiscal 2005.

        Cost savings programs are and have been a continuous element of our business strategy and are directed primarily at further reductions in plant manufacturing (labor and overhead) and raw materials costs. Numerous individual cost savings opportunities are identified and evaluated by management with a formal selection and approval process that results in an ongoing list of cost savings projects to be implemented. In certain cases, projects are either modified or abandoned during their respective implementation phases. In order to realize cost savings benefits for a majority of these initiatives, costs are incurred either in the form of capital expenditures, funding the cash obligations of previously recorded restructuring expenses or current period expenses. During fiscal 2004, approximately $10 million of capital expenditures, to be incurred throughout the respective implementation phases of our various cost savings initiatives, were approved, and we funded approximately $7.7 million of cash obligations associated with previously recorded restructuring activities. Current period expenses were not significant during fiscal 2004.

        Net sales include: the invoiced amount for all products sold and services provided; freight costs, when paid for by our customers; less all related allowances, rebates, discounts and sales, value-added or similar taxes.

        Cost of goods sold includes: the cost of material, labor and overhead; the cost of our service businesses; freight; warranty and other costs such as distribution centers; obsolete or slow moving inventory provisions; and certain types of insurance.

        For fiscal 2004, we estimate that raw materials costs comprised approximately one-half of cost of goods sold, that freight and all other, including warranty expense, comprised approximately 11% of cost of goods sold and that the balance was attributable to labor and overhead.

        We employ significant amounts of lead, plastics, steel, copper and other materials in our manufacturing processes. The costs of these raw materials, particularly lead, are volatile and beyond our control. Lead costs increased approximately $7 million in fiscal 2004 as a result of price increases experienced during that year. Lead is our single largest raw material item and the price of lead recently has experienced significant volatility. The highest price for lead during fiscal 2004 was $0.4423 per pound on March 1, 2004, and the highest price for lead since the end of fiscal 2004 was $0.4255 per pound on July 23, 2004. Lead, plastics, steel and copper in the aggregate represent our principal raw materials costs. Volatile raw materials costs can significantly affect our operating results and make period-to-period comparisons difficult. The costs of commodity raw materials such as lead, steel and copper have increased significantly in recent periods. We attempt to control our raw materials costs through strategic purchasing decisions. Where possible, we pass along some or all of our increased raw materials costs to our customers. The

33



following table shows certain average commodity prices for fiscal 2002, 2003 and 2004 and the spot prices as of July 23, 2004:

 
  Fiscal year ended March 31,
   
 
  July 23, 2004
 
  2002
  2003
  2004
Lead $/lb.(1)   $ 0.2159   $ 0.2053   $ 0.2773   $ 0.4255
Steel $/lb.(2)     0.1502     0.1700     0.1688     0.3775
Copper $/lb.(3)     0.7158     0.7074     0.9307     1.2519

(1)
Source: London Metal Exchange

(2)
Source: Nucor Corporation

(3)
Source: Comex for 2002 and 2003 and London Metal Exchange for 2004

        Labor and overhead are primarily attributable to our manufacturing facilities. Labor costs represent the majority of this total category. Overhead includes plant operating costs such as utilities, repairs and maintenance, taxes, supplies and depreciation.

        Operating expenses include all non-manufacturing selling, general and administrative, engineering and other expenses. These include salaries and wages, sales commissions, fringe benefits, supplies, maintenance, general business taxes, rent, communications, travel and entertainment, depreciation, advertising and bad debt expenses.

        Operating expenses in fiscal 2004 were incurred in the following functional areas of our business (as a percent of the total) and are substantially similar in both of our business segments. Approximately 61% of total operating expenses are for staff costs.

Selling   67 %
General and administrative   27  
Engineering   6  
   
 
  Total   100 %
   
 

        Special charges are expenses not normally incurred in the day-to-day operations of our business. The special charges recorded in fiscal 2002 related to restructuring, a portion of which resulted from the ESG acquisition. These charges include closure of a redundant U.S. manufacturing facility and terminating non-strategic operations in South America. The special charges recorded in fiscal 2004 related to the settlement with Invensys discussed elsewhere in this prospectus, primarily the early extinguishment of the seller notes that we delivered as part of the consideration for the purchase of ESG in March 2002, as well as costs incurred in connection with our recapitalization in March 2004.

        Other income (expense), net includes non-operating foreign currency transaction gains (losses), fixed asset disposal gains (losses), license fees and rental income. Our exposure to exchange rate fluctuations is largely limited to currency translation gains (losses) reflected on our financial statements. Due to our global manufacturing and distribution footprint, which means that most of our operating costs and revenues are incurred and paid in local currencies, we believe that we have a significant natural hedge against the impact on our business of exchange rate fluctuations.

34



Results of Operations

 
  Fiscal 2003
  Fiscal 2004
  Increase (Decrease)
 
 
  In
Millions

  As %
Net Sales

  In
Millions

  As %
Net Sales

  In
Millions

  %
 
Net sales   $ 859.6   100.0 % $ 969.1   100.0 % $ 109.5   12.7 %
Cost of goods sold     653.9   76.1     722.8   74.6     68.9   10.5  
   
 
 
 
 
     
Gross profit     205.7   23.9     246.3   25.4     40.6   19.7  
Operating expenses     150.6   17.5     170.5   17.6     19.9   13.2  
Special charges relating to restructuring, bonuses and uncompleted acquisitions     0.0   0.0     21.1   2.2     21.1   n/a  
Amortization     0.1   0.0     0.1   0.0     (0.0 ) (0.0 )
   
 
 
 
 
     
Operating earnings     55.0   6.4     54.6   5.6     (0.4 ) (0.7 )
Interest expense     20.5   2.4     20.3   2.1     (0.2 ) (1.0 )
Special charges relating to a settlement agreement and write-off of deferred finance costs     0.0   0.0     31.0   3.2     31.0   n/a  
Other (income) expense, net     (0.7 ) (0.1 )   (4.5 ) (0.5 )   3.8   n/a  
   
 
 
 
 
     
Earnings before income taxes     35.2   4.1     7.8   0.8     (27.4 ) (77.8 )
Income tax expense     12.3   1.4     3.0   0.3     (9.3 ) (75.6 )
   
 
 
 
 
     
Net earnings   $ 22.9   2.7 % $ 4.8   0.5 % $ (18.1 ) (79.0 )
   
 
 
 
 
     

        Our fiscal 2004 results were favorably affected by an improving global economic climate, particularly in the Americas and Asia during the second half of the fiscal year, increased sales (excluding the effect of foreign currency translation) of 4%, savings from cost reduction programs and continued low interest rates. Net earnings were $4.8 million. Comparisons with the prior fiscal year can be misleading, because we incurred no special charges in fiscal 2003 and incurred special charges aggregating $52.1 million in fiscal 2004. In order to make such comparisons more meaningful, we evaluate our performance primarily based on operating earnings without giving effect to special charges and other unusual items. Management believes that it is better able to evaluate performance by focusing on our operations excluding special charges.

        Net sales by geographic region were as follows:

 
  Fiscal 2003
  Fiscal 2004
  Increase
 
 
  In
Millions

  % Total
Sales

  In
Millions

  % Total
Sales

  In
Millions

  %
 
Europe   $ 434.5   50.5 % $ 511.1   52.7 % $ 76.6   17.6 %
Americas     392.0   45.6     408.8   42.2     16.8   4.3  
Asia     33.1   3.9     49.2   5.1     16.1   48.6  
   
 
 
 
 
     
  Total   $ 859.6   100.0 % $ 969.1   100.0 % $ 109.5   12.7  
   
 
 
 
 
     

        The net sales growth in Asia and the Americas was primarily driven by sales increases, while the growth in Europe was virtually all attributable to the strengthening of major European currencies, primarily the euro, against the dollar. Pricing was generally stable during fiscal 2004, with the exception of certain reserve power products, particularly in Asia, where pricing declined modestly.

35



        Operating earnings by geographic region were as follows:

 
  Fiscal 2003
  Fiscal 2004
  Increase (Decrease)
 
 
  In
Millions

  As%
Net Sales

  In
Millions

  As%
Net Sales

  In
Millions

  %
 
Europe   $ 26.7   6.1 % $ 37.0   7.2 % $ 10.3   38.6 %
Americas     24.7   6.3     34.4   8.4     9.7   39.3  
Asia     5.7   17.2     4.3   8.7     (1.4 ) (24.6 )
   
 
 
 
 
     
  Subtotal     57.1   6.6     75.7   7.8     18.6   32.6  
Eliminations, special charges and other     (2.1 ) (0.2 )   (21.1 ) (2.2 )   (19.0 ) n/a  
   
 
 
 
 
     
    Total   $ 55.0   6.4 % $ 54.6   5.6 % $ (0.4 ) (0.7 )
   
 
 
 
 
     

        Our fiscal 2004 operating results reflect $21.1 million of special charges. The table above shows our operating earnings by geographic region, excluding special charges, which is how they are evaluated by management, and reconciles these results to our consolidated operating earnings including special charges. The special charges are described in detail below under "Special Charges." Europe accounted for 49% of our operating earnings for fiscal 2004, the Americas for 45% and Asia for 6%. Our operating earnings, giving effect to the special charges, were 0.7% lower than operating earnings for fiscal 2003, but improved significantly when special charges are excluded. This improvement is primarily attributable to a modest improvement in sales, the strong European currencies, primarily the euro, and cost savings programs. Operating earnings margins for fiscal 2004, giving effect to the special charges, decreased by 80 basis points but, excluding special charges, improved 120 basis points primarily as a result of increased sales and cost savings programs.

        In the Americas, operating earnings increased as substantial improvements were achieved in cost reductions and sales increased, particularly in the motive power business. In Europe, operating earnings increased as substantial improvements were achieved in cost reduction and European currencies, primarily the euro, strengthened compared to the dollar. In Asia, operating earnings decreased as pricing in China declined approximately 10% and significant startup costs were incurred in adding sales offices and related costs during the year.

        A discussion of specific fiscal 2004 versus fiscal 2003 operating results follows, including an analysis and discussion of the results of our two business segments.

 
  Fiscal 2003
  Fiscal 2004
  Increase
 
 
  In
Millions

  % Total
Sales

  In
Millions

  % Total
Sales

  In
Millions

  %
 
Reserve power   $ 426.9   49.7 % $ 480.0   49.5 % $ 53.1   12.4 %
Motive power     432.7   50.3     489.1   50.5     56.4   13.0  
   
 
 
 
 
     
  Total   $ 859.6   100.0 % $ 969.1   100.0 % $ 109.5   12.7  
   
 
 
 
 
     

        Fiscal 2004 sales, excluding the effect of foreign currency translation, increased 3.8% or $32.6 million with the balance of the fiscal 2004 increase of $76.9 million attributable to the strong European currencies, primarily the euro, compared to the dollar. The euro exchange rate to the dollar averaged 1.18 ($ / €) in fiscal 2004 compared to 1.00 ($ / €) in fiscal 2003. Pricing was stable but down slightly for fiscal 2004. Motive power pricing was stable throughout fiscal 2004, with the Americas flat and Europe down approximately 2%. Reserve power pricing was down approximately 1% during fiscal 2004, with the Americas and Europe down slightly and in China down approximately 10%, as competitive factors in China, which recently have stabilized, have driven pricing down over the past two-year period and are now comparable with pricing levels in other regions of the world.

36


        Fiscal 2004 net sales growth in the Asia reserve power business was very strong with an increase of approximately 49%, based primarily upon a focused expansion of our sales offices and added sales personnel, selected new products and strong market growth in China. We expect the Asian market will continue to grow at a faster rate than other regions of the world for our reserve power products.

        Fiscal 2004 net sales growth, excluding the effect of foreign currency translation, in reserve power and motive power was approximately 3.8% and 4.3%, respectively, compared to fiscal 2003 levels. In reserve power, Asia experienced strong fiscal 2004 growth as previously discussed, with the Americas up approximately 1% and Europe flat over fiscal 2003. In motive power, fiscal 2004 sales, excluding the effect of foreign currency translation, increased approximately 7% in the Americas and 2% in Europe compared to fiscal 2003.

        Our fiscal 2004 sales also benefited from improving economic conditions in the second half of the year, particularly in the Americas and Asia, for many of our end markets applications, such as electric industrial forklift trucks, wireless telecom and aerospace and defense. As further evidence of the improved business climate and its favorable impact on our financial results in the second half of fiscal 2004, the following table shows growth rates in fiscal 2004 compared to fiscal 2003 third and fourth quarters net sales and operating earnings:

 
  3rd Quarter
  4th
Quarter

  3rd Quarter
  4th
Quarter

 
 
   
   
  Excluding Special Charges
 
Net sales   $ 253,296   $ 275,379   $ 253,296   $ 275,379  
Net sales growth rate     19.0 %   19.3 %   19.0 %   19.3 %
Special charges relating to restructuring, bonuses and uncompleted acquisitions   $ 9,045   $ 12,052   $   $  
Operating earnings   $ 11,953   $ 12,783   $ 21,048   $ 24,835  

Operating earnings growth rate

 

 

(22.6

)%

 

(26.0

)%

 

36.3

%

 

43.7

%
  Margin (decrease) increase     (2.6 )%   (2.9 )%   1.0 %   1.5 %
 
  Fiscal 2003
  Fiscal 2004
  Increase
 
 
  In
Millions

  As %
Net Sales

  In
Millions

  As %
Net Sales

  In
Millions

  %
 
Gross profit   $ 205.7   23.9 % $ 246.3   25.4 % $ 40.6   19.7 %

        The improvement in gross profit was realized by both business segments and was driven primarily by increased net sales and cost savings programs, partially offset by higher raw materials costs in the second half of fiscal 2004. Lead costs increased approximately $7 million in fiscal 2004 as a result of higher prices. Because of these higher costs and price volatility, we have modified and implemented new purchasing initiatives, such as lead tolling arrangements and lead hedging contracts, to mitigate increased raw materials costs. Fiscal 2004 cost savings initiatives improved gross profit, with most savings related to reductions in manufacturing plant costs (labor and overhead), particularly in Europe, and raw materials costs. These cost reduction programs remain a critical element of our business strategy to continue to improve efficiencies, optimize our manufacturing capacity and further reduce our costs. We anticipate fiscal 2005 cost savings program will realize additional savings.

37



 
  Fiscal 2003
  Fiscal 2004
  Increase
 
 
  In
Millions

  As %
Net Sales

  In
Millions

  As %
Net Sales

  In
Millions

  %
 
Operating expenses   $ 150.6   17.5 % $ 170.4   17.6 % $ 19.8   13.1 %

        Selling expenses, as a percentage of operating expenses, were approximately 64.3% in fiscal 2003 and 66.5% in fiscal 2004. We incurred increased selling expenses in Asia in fiscal 2004 as we expanded our sales locations and personnel in Asia.

        Included in our fiscal 2004 operating results are $52.1 million of special charges as follows:

 
  In
Millions

  Fiscal Quarter
Recorded

Recorded as an operating expense:          
  Special bonus   $ 12.0   4th
  Uncompleted acquisition attempts     6.8   3rd
  Restructuring     2.3   3rd
   
   
    Total operating expense     21.1    

Recorded in other non-operating expenses:

 

 

 

 

 
  Invensys settlement agreement     24.4   3rd
  Deferred finance costs     6.6   4th
   
   
    Total other non-operating expense     31.0    
   
   
     
Combined total

 

$

52.1

 

 
   
   

        The special bonus was paid in connection with the March 17, 2004 recapitalization transaction. As part of the recapitalization transaction, in order to provide liquidity to our existing stockholders, we distributed $258.4 million to our preferred and common stockholders, pro rata in accordance with their stockholdings. In order to treat management equitably with other stockholders, because significant portions of management's equity interests are in the form of options to purchase shares of our common or preferred stock, we made a cash distribution to each individual based on the aggregate in-the-money value of his or her vested options. These one-time bonus payments were made to all members of management who held unexercised options. The aggregate one-time bonus amount was $11.6 million. The special bonus charge also includes $0.4 million in related payroll costs. The amounts paid to our five highest-compensated officers are disclosed in "Management—Executive Compensation."

        The charge for uncompleted acquisitions primarily includes legal and professional fees, and the plant closing costs are related to the final settlement of labor matters from a North American plant closed in fiscal 2002.

        The $24.4 million charge associated with Invensys represents an omnibus settlement that, among other items, repaid seller notes, terminated a battery supply agreement and canceled common stock warrants, all of which were attributable to the ESG acquisition. Approximately $20.0 million of this special charge is attributable to the early extinguishment of the seller notes. The deferred financing costs written off related to debt refinanced in the March 2004 recapitalization.

        In the aggregate, $33.5 million of these special charges were recorded in the third quarter and $18.6 million in the fourth quarter of fiscal 2004. Of the total $52.1 million in special charges, $6.6 million was a non-cash item.

38



 
  Fiscal 2003
  Fiscal 2004
  Increase (Decrease)
 
 
  In
Millions

  As %
Net Sales

  In
Millions

  As %
Net Sales

  In
Millions

  %
 
Reserve power   $ 31.2   7.3 % $ 38.7   8.1 % $ 7.5   24.0 %
Motive power     23.8   5.5     37.0   7.6     13.2   55.5  
   
 
 
 
 
     
  Subtotal     55.0   6.4     75.7   7.8     20.7   37.6  

Special charges relating to restructuring, bonuses and uncompleted acquisitions

 

 


 


 

 

(21.1

)

(2.2

)

 

(21.1

)

n/a

 
   
 
 
 
 
     
  Total   $ 55.0   6.4 % $ 54.6   5.6 % $ (0.4 ) (0.7 )
   
 
 
 
 
     

        Fiscal 2004 operating earnings decreased 0.7% to $54.6 million while the operating margin decreased by 80 basis points to 5.6%. Fiscal 2004 operating earnings, excluding special charges of $21.1 million, increased 37.6% to $75.7 million while the margin increased 140 basis points to 7.8%. We experienced increases and margin improvements in both segments of our business. This improvement in operating earnings excluding special charges is primarily attributable to increases in sales, cost savings initiatives and the strength of the European currencies, partially offset by higher raw materials costs and increased operating expenses.

        Fiscal 2004 interest expense of $20.3 million (net of interest income of $0.3 million) was essentially flat compared to fiscal 2003 of $20.5 million with a lower average interest rate of 5.0% in fiscal 2004 compared to 5.1% in fiscal 2003, and the lower average debt outstanding of $285 million compared to $292 million in fiscal 2003. The average debt outstanding includes the face amount of the discounted seller notes redeemed in December 2003 and borrowings under our accounts receivable financing program. Included in fiscal 2004 interest expense are non-cash charges of $4.9 million compared to $5.2 million in fiscal 2003. This increase is primarily due to the reduction in the non-cash credit in fiscal 2003 associated with our interest rate options, which expired in fiscal 2004, partially offset by a reduction in the charge associated with the accretion expense of the Invensys seller notes. Included in both years is approximately $2 million of amortization of deferred financing costs.

        Fiscal 2004 other income of $4.5 million consists primarily of non-operating foreign currency transaction gains of $4.0 million, which is also the primary reason for the significant increase compared to fiscal 2003. This large fiscal 2004 foreign currency transaction gain is primarily attributable to the strengthening of the euro against the dollar for certain debt transactions that occurred during the first and second quarters of fiscal 2004.

        Fiscal 2004 earnings before income taxes were $7.8 million, a decrease of $27.4 million or 77.8% compared to fiscal 2003, primarily attributable to $52.1 million of fiscal 2004 special charges.

        The fiscal 2004 effective income tax rate was 37% compared to 35% in fiscal 2003. This increase is largely the result of increased U.S. federal income taxes on certain types of undistributed foreign income (Subpart F) and increased U.S. state income taxes, as many states in which we operate continue to increase

39


rates or reduce available income exclusions. We expect the effective tax rate in fiscal 2005 will be approximately 37%.

        Fiscal 2004 net earnings were $4.8 million or a decrease of 78.8% compared to fiscal 2003 net earnings of $22.9 million. Excluding the $52.1 million in special charges (net of tax), we would have recorded net earnings of $37.7 million in fiscal 2004, an increase of 64.6% compared to fiscal 2003 with a margin of 3.9%. This increase in net earnings is primarily attributable to increased sales, cost savings initiatives, stable interest expense and increased other income from foreign currency gains, offset by higher operating costs.

        Consolidated fiscal year ended March 31, 2003, compared to fiscal year ended March 31, 2002, statement of operations highlights

 
  Fiscal 2002
  Fiscal 2003
  Increase (Decrease)
 
 
  In
Millions

  As %
Net Sales

  In
Millions

  As %
Net Sales

  In
Millions

  %
 
Net sales   $ 339.3   100.0 % $ 859.6   100.0 % $ 520.3   153.3   %
Cost of sales     271.6   80.0     653.9   76.1     382.3   140.8   
   
 
 
 
 
     
Gross profit     67.7   20.0     205.7   23.9     138.0   203.8   
Operating expenses     53.5   15.8     150.6   17.5     97.1   181.5   
Special charges relating to restructuring, bonuses and uncompleted acquisitions     63.3   18.7     0.0   0.0     (63.3 ) (100.0 )
Amortization     0.0   0.0     0.1   0.0     0.1   n/a  
   
 
 
 
 
     
Operating (loss) earnings     (49.1 ) (14.5 )   55.0   6.4     104.1   (212.0 )
Interest expense     13.3   3.9     20.5   2.4     7.2   54.1   
Special charges relating to a settlement agreement and write-off of deferred finance costs     0.0   0.0     0.0   0.0     0.0   n/a  
Other (income) expense, net     1.8   0.5     (0.7 ) (0.1 )   (2.5 ) (138.9 )
   
 
 
 
 
     
(Loss) earnings before income taxes     (64.2 ) (18.9 )   35.2   (4.1 )   99.4   (154.8 )
Income tax (benefit) expense     (22.2 ) (6.5 )   12.3   1.4     34.5   (155.4 )
   
 
 
 
 
     
Net (loss) earnings   $ (42.0 ) (12.4 )% $ 22.9   2.7 % $ 64.9   (154.5 )
   
 
 
 
 
     

        Fiscal 2003 operating results include the ESG acquisition for a full fiscal year, while fiscal 2002 includes only nine days or $11.5 million in net sales. Accordingly, the significant increase in most components of fiscal 2003 income statement line items is primarily attributable to the impact of this fiscal 2002 acquisition. Giving effect to the ESG acquisition, as if it occurred at the beginning of fiscal 2002, pro forma net sales and net loss for fiscal 2002 would have been $897.5 million and $36.4 million, respectively. We incurred $63.3 million in fiscal 2002 special charges. The ESG acquisition increased fiscal 2003 net sales by approximately $563 million.

        Our fiscal 2003 operating results were negatively affected by a weak and volatile global economic climate, particularly in the Americas reserve power market, reduced sales, excluding the effect of foreign currency translation, of approximately 10% when giving effect to the ESG acquisition as if it occurred at the beginning of fiscal 2002, higher interest expense attributable to the ESG acquisition, offset in part by

40



non-operating currency gains attributable to strengthening European currencies, primarily the euro, that increased net sales approximately $50 million, and our cost savings initiatives.

        Our fiscal 2002 results included $63.3 million in charges described below under "Special Charges." These charges included $51.7 million in non-cash items.

        Net sales by geographic region were as follows:

 
  Fiscal 2002
  Fiscal 2003
  Increase
 
  In
Millions

  % Total
Sales

  In
Millions

  % Total
Sales

  In Millions
Europe   $ 8.8   2.6%   $ 434.5   50.5%   $ 425.7
Americas     330.2   97.3         392.0   45.6         61.8
Asia     0.3   0.1         33.1   3.9         32.8
   
 
 
 
 
  Total   $ 339.3   100.0%   $ 859.6   100.0%   $ 520.3
   
 
 
 
 

        The $520.3 million increase in fiscal 2003 net sales was principally the result of the ESG acquisition. Pricing declined in fiscal 2003 in excess of 1%, particularly in reserve power products.

        Our fiscal 2003 operating earnings by geographic region were $26.7 million in Europe (6.1% margin), $24.7 million in the Americas (6.3% margin) and $5.7 million (17.2% margin) in Asia. A fiscal 2002 operating loss of $49.1 million (14.5% margin) was incurred. This loss included a special charge of $63.3 million described below under "Special Charges."

        A discussion of specific fiscal 2003 versus fiscal 2002 operating results follows, including an analysis and discussion of the results of our two business segments.

 
  Fiscal 2002
  Fiscal 2003
  Increase (Decrease)
 
  In
Millions

  As %
Total Sales

  In
Millions

  As %
Total Sales

  In
Millions

  %
Reserve power   $ 162.6   47.9%   $ 426.9   49.7%   $ 264.3   162.5%
Motive power     176.7   52.1         432.7   50.3         256.0   144.9    
   
 
 
 
 
   
  Total   $ 339.3   100.0%   $ 859.6   100.0%   $ 520.3   153.3    
   
 
 
 
 
   

        The inclusion of ESG net sales for the full year of fiscal 2003 resulted in an increase of approximately $563 million in net sales compared with fiscal 2002, partially offset by a decrease of approximately $43 million in the pre-acquisition EnerSys business. The $43 million decrease included an approximately $11.0 million decrease in net sales related to the closure of certain facilities in South America at the end of fiscal 2002. Fiscal 2002 net sales included $11.5 million from ESG. Foreign currency translation adjustments of $50.0 million, primarily the euro, had approximately a 6% positive impact on net sales in fiscal 2003. Both reserve power and motive power fiscal 2003 net sales increased by approximately 150% as a result of the ESG acquisition. Giving effect to the ESG acquisition as of the beginning of fiscal 2002, pro forma sales, excluding the effect of foreign currency translation, decreased in fiscal 2003 by approximately 10%. Of this fiscal 2003 pro forma sales decrease, excluding the effect of foreign currency translation, approximately 13% was in the reserve power segment, particularly in the Americas where sales, excluding the effect of foreign currency translation, decreased approximately 28%. The motive power segment decreased approximately 6% in fiscal 2003 on a pro forma basis. The fiscal 2003 weakness experienced in reserve power was primarily the result of the continued retrenchment in the global telecommunications industry that began in fiscal 2002, and reduction in the UPS and other reserve power industries largely attributable to the fiscal 2003 general decline in global economic conditions. The motive power segment

41



decreased largely as a result of the cyclical nature of the electric industrial forklift truck market, due to weak global economic conditions.

        Total gross profit margin was 23.9% in fiscal 2003 and 20.0% in fiscal 2002, an increase of 390 basis points. The increase in gross profit margin in fiscal 2003 principally relates to gaining economies of scale from cost reductions and continued tight cost controls. Cost savings initiatives, resulting principally from the ESG acquisition, were the main factor in increasing margins. The $137.9 million increase in fiscal 2003 gross profit is primarily attributable to the ESG acquisition.

        Operating expenses were $150.6 million in fiscal 2003 (17.5% of net sales) and $53.5 million in fiscal 2002 (15.8% of net sales). Fiscal 2003 operating expenses, as a percent of net sales, increased 170 basis points compared to fiscal 2002 because of the ESG acquisition. Operating expense ratios are higher in our European businesses, primarily due to those operations being more decentralized than our operations in the Americas and Asia. Approximately $97 million of the increase in operating expenses, excluding the effects of strengthening European currencies, is due to the ESG acquisition. Foreign currency translation adjustments, primarily the euro, increased fiscal 2003 operating expenses by approximately 6%. Fiscal 2003 operating expenses, as a percent of net sales, increased 170 basis points compared to fiscal 2002, again because of the ESG acquisition.

        Included in our fiscal 2002 operating results are $63.3 million of special charges. These charges in part resulted from the ESG acquisition, as redundant facilities and costs were eliminated to improve future operating efficiencies and profitability. Redundant facilities closed included a major North American plant, as significant excess manufacturing capacity existed primarily attributable to reserve power products. Additionally, we closed unprofitable operations in South America which had approximately $11.0 million of net sales in fiscal 2002. Both the closure of the North American plant and South American operations resulted in a significant reduction in fiscal 2003 manufacturing costs (labor and overhead), which are a component of cost of goods sold. Of this total cost, $42.9 million was a non-cash charge, primarily from the North American plant closure ($22.3 million), closure of the South American operations ($14.5 million) and cumulative translation losses ($6.1 million). The remaining $20.4 million of cash costs are legal and professional expenses, severance and exit costs of closed facilities, including the South American operations, until disposition. As of March 31, 2004, the cumulative cash costs incurred associated with these special charges was $11.1 million.

 
  Fiscal 2002
  Fiscal 2003
  Increase (Decrease)
 
 
  In
Millions

  As %
Net Sales

  In
Millions

  As %
Net Sales

  In Millions
  %
 
Reserve power   $ 3.5   2.2 % $ 31.2   7.3 % $ 27.7   791.4 %
Motive power     10.7   6.1     23.8   5.5     13.1   122.4  
   
 
 
 
 
     
  Subtotal     14.2   4.2     55.0   6.4     40.8   287.3  

Special charges relating to restructuring, bonuses and uncompleted acquisitions

 

 

(63.3)

 

(18.7

)

 


 


 

 

63.3

 

n/a

 
   
 
 
 
           
  Total   $ (49.1)   (14.5 )% $ 55.0   6.4 %   104.1   n/a  
   
 
 
 
           

42


        Our fiscal 2002 operating results reflect $63.3 million of special charges. The table above shows our operating earnings by segment, excluding special charges, which is how they are evaluated by management, and reconciles these results to our consolidated operating earnings including special charges. The special charges are described above under "Special charges." Operating earnings margins for fiscal 2002 and fiscal 2003 are not comparable due to the special charges incurred in fiscal 2002, which resulted in an operating loss in fiscal 2002. In addition to the improvement in fiscal 2003 operating earnings from the ESG acquisition, operating earning margins, excluding the fiscal 2002 special charge, improved 70 basis points primarily due to cost reduction initiatives.

        Fiscal 2003 interest expense of $20.5 million, net of interest income of $0.2 million, increased by $7.2 million compared to fiscal 2002. The significant increase in fiscal 2003 interest expense was due primarily to the higher average level of debt outstanding ($292 million as compared to $162 million in fiscal 2002) as a result of debt incurred in March 2002 for the acquisition of ESG. The average debt level includes the face amount of the discounted seller notes and borrowings under our accounts receivable financing program. Interest expense attributable to the higher borrowing level was $6.6 million, partially offset by $3.6 million due to lower average borrowing rates of 5.1% as compared to 7.3% in fiscal 2002. Included in fiscal 2003 interest expense are non-cash charges of $5.2 million compared to $1.6 million in fiscal 2002. This $3.7 million increase is primarily attributable to $4.0 million for the accretion expense of the Invensys seller notes, $1.0 million of additional amortization from deferred financing costs associated with the added borrowings for the ESG acquisition, offset by a $1.4 million non-cash credit associated with our interest rate options which expired in fiscal 2004.

        Fiscal 2003 other income of $0.7 million is primarily attributable to non-operating foreign currency transaction gains (euro versus dollar) while the fiscal 2002 other expense of $1.8 million is primarily attributable to non-operating foreign currency transaction losses of $2.0 million. The fiscal 2002 foreign currency transaction losses are attributable to our operations in both Brazil and Argentina, as both the Brazilian real and Argentina peso declined significantly as compared to the dollar during that year. Our South American operations were discontinued as of the end of fiscal 2002.

        Earnings before income taxes was $35.2 million (4.1% of net sales) in fiscal 2003 compared with a loss before income tax benefit of $64.2 million (-18.9% of net sales) in fiscal 2002. Fiscal 2002 loss before tax, excluding the special charges discussed above, were $0.8 million (-0.2% of net sales).

        We recorded a provision for income taxes of $12.4 million in fiscal 2003 compared with a benefit for income taxes of $22.2 million in fiscal 2002. The effective income tax expense and benefit rate is 35% in both fiscal 2002 and 2003.

43


        We recorded net earnings of $22.9 million (2.7% margin) in fiscal 2003 compared with a net loss of $42.0 million (-12.4% margin) in fiscal 2002. This $64.9 million increase in fiscal 2003 net earnings is primarily the result of the ESG acquisition and the $44.1 million special charges net of tax that were recorded in fiscal 2002.

Liquidity and Capital Resources

        Cash and cash equivalents at March 31, 2002, 2003 and 2004 were $9.1 million, $44.3 million and $17.2 million, respectively.

        Cash provided by operating activities for fiscal 2002, 2003 and 2004 was $21.1 million, $55.4 million and $39.2 million, respectively. The reduction in operating cash flow in fiscal 2004 was principally due to the special charges and an increase in working capital commensurate with our sales increase. Cash expenditures related to the fiscal 2002 restructuring actions, which are included in operating activities, were $8.8 million in fiscal 2003 and $2.3 million in fiscal 2004, principally related to staff redundancy. In addition, we paid $12.0 million in fiscal 2003 and $5.3 million in fiscal 2004 primarily for staff redundancy, against a liability established in fiscal 2002 with the acquisition of ESG for ESG-related restructuring activities.

        Cash used in investing activities for fiscal 2002, 2003 and 2004 was $336.0 million, $12.9 million and $27.0 million, respectively. Capital expenditures were $12.9 million, $23.6 million and $28.6 million in fiscal 2002, 2003 and 2004, respectively. The use of cash in fiscal 2002 included the ESG acquisition.

        Cash provided by (used in) financing activities for fiscal 2002, 2003 and 2004 was $314.8 million, $(8.2) million and $(40.0) million, respectively. The fiscal 2002 amount was principally a result of $283.0 million in proceeds from the issuance of preferred stock and $36.0 million in proceeds from the issuance of long-term debt, both of which were used to finance the ESG acquisition. The fiscal 2004 amount reflects the financing transactions related to the Invensys settlement and the recapitalization.

        In December 2003, we entered into an agreement with Invensys plc under which we paid $94.1 million for the repurchase of seller notes and warrants delivered to Invensys as part of the consideration for the ESG acquisition and in settlement of other matters, primarily termination of a supply agreement. The Invensys settlement transaction was funded by utilizing $43.1 million of short-term investments, $19.0 million of borrowings from an accounts receivable financing facility that was paid off on March 9, 2004, $7.0 million additional tranche B borrowing and a $25.0 million revolver drawdown.

        In connection with the cash payment, on March 17, 2004, we refinanced our previously existing credit facilities and entered into a new $480.0 million senior secured credit facility, which consists of a $380.0 million senior secured term loan B and a $100.0 million senior secured revolving credit facility, and entered into a new $120.0 million senior second lien term loan. We used the proceeds of the combined $500.0 million in term loans to fund a cash payment to our existing stockholders and certain members of our management in the amount of $270.0 million, refinance the majority of our existing debt and pay accrued interest in the amount of $219.0 million and to pay transaction costs of $11.0 million. No amounts were borrowed under the revolving credit line in conjunction with the cash payment. The purpose of the $270.0 million cash payment was to provide liquidity to our existing stockholders and management. The decision to provide liquidity at such time was driven primarily by the strength of the debt capital markets at the time, as well as the speed and certainty of execution associated with the recapitalization. Because this distribution was made from the proceeds of the new credit facilities described above, we do not believe it will have any significant impact on our cash and debt management policies.

44



        The $380.0 million senior secured term loan B has a 0.25% quarterly principal amortization and matures on March 17, 2011. The $120.0 million senior second lien term loan matures as a single installment on March 17, 2012. The $100.0 million senior secured revolving credit facility matures on March 17, 2009. Borrowings under the credit agreements bear interest at a floating rate based, at our option, upon a LIBOR rate plus an applicable percentage or the greater of the federal funds rate plus 0.5% or the prime rate, plus an applicable percentage. The effective borrowing rates for fiscal 2002, 2003 and 2004 were 7.3%, 5.1% and 5.0%, respectively.

        All obligations under the credit agreements are secured by, among other things, substantially all of our U.S. assets. Our credit agreements contain various covenants which, absent prepayment in full of the indebtedness and other obligations, or the receipt of waivers, would limit our ability to conduct certain specified business transactions, buy or sell assets out of the ordinary course of business, engage in sale and leaseback transactions, pay dividends and take certain other actions.

        We currently are in compliance with all covenants and conditions under our credit agreements. Since we believe that we will continue to comply with these covenants and conditions, we believe that we have adequate availability of funds to meet our expected cash requirements.

        Continuing to focus on manufacturing efficiency and cost reduction programs is an important element of our strategy. See "Business—Our Strategy." Our cash spending related to cost savings programs in fiscal 2003 and fiscal 2004 was $20.7 million and $7.7 million, respectively. Approved capital expenditures, to be incurred throughout the respective implementation phases of our various cost savings programs, were approximately an additional $11 million in fiscal 2003 and $10 million in fiscal 2004. The cash spending for our ongoing cost reduction initiatives is planned in advance each year and is part of our periodic review of expected cash requirements for future periods. We do not believe the overall impact of this spending on our liquidity and capital resources is material to our cash resources and available liquidity sources.

        In addition to cash flows from operating activities, we had available credit lines of $124.6 million at March 31, 2004 to cover any short-term liquidity requirements. On a long-term basis, our senior secured revolving credit facility is committed through March 2009, as long as we continue to comply with the covenants and conditions of the facility agreement. Our senior secured credit facility also permits us to borrow an additional $145.0 million from all other sources. See "Description of Our Credit Facilities" for additional information on our covenant requirements and on conditions to borrowing.

        At March 31, 2004, we had certain cash obligations, which are due as follows:

 
  Total
  Less than 1 year
  1 to 3 years
  4 to 5 years
  After 5 years
 
  (in millions)

Short-term debt   $ 2.7   $ 2.7   $   $   $
Long-term debt     503.2     7.0     7.6     7.6     481.0
Capital lease obligations     5.4     2.1     3.3        
Operating leases     25.0     10.2     11.4     3.2     0.2
Purchase contracts     11.9     11.9            
Restructuring     50.4     33.5     16.9        
   
 
 
 
 
  Total   $ 598.6   $ 67.4   $ 39.2   $ 10.8   $ 481.2
   
 
 
 
 

        Under our senior secured credit facility, we had outstanding standby letters of credit of $0.0 million, $0.2 million and $0.3 million at March 31, 2002, 2003 and 2004, respectively. The amounts shown in the table above do not include interest charges on these cash obligations.

45



        Our focus on working capital management and cash flow from operations is measured by our ability to reduce total debt and reduce our leverage ratios. Shown below are the leverage ratios in connection with our credit facilities for fiscal 2003 and 2004. Our higher leverage in fiscal 2004 reflects the recapitalization in March 2004. We will reduce leverage substantially with the proceeds of this offering. The leverage ratio for fiscal 2004, adjusted for the offering and assuming net proceeds of $179.1 million (net of the prepayment penalty of $2.4 million on our $120.0 million senior second lien term loan), is 2.7 times adjusted EBITDA as described below. We believe our future operating cash flow, net of capital expenditures, will reduce total debt and our leverage ratios.

 
  Fiscal 2003
  Fiscal 2004
  Fiscal 2004
as adjusted

 
  (in millions)

EBITDA(1)   $ 91.7   $ 65.2   $ 83.8
Adjustments per credit agreement definitions(2)         53.8     35.2
Adjusted EBITDA per credit agreements     91.7     119.0     119.0
Senior debt, net(3)     151.9     375.4     316.3
Total debt, net(3)     254.6     501.3     322.2

Leverage ratios:

 

 

 

 

 

 

 

 

 
Senior debt/adjusted EBITDA ratio(4)     1.7X     3.2X     2.7X
  Maximum ratio permitted     3.2X     3.9X     3.9X
Total debt/adjusted EBITDA ratio(4)     2.8X     4.2X     2.7X
  Maximum ratio permitted     4.8X     5.0X     5.0X

(1)
We have included EBITDA because management uses it as a key measure of our performance and ability to generate cash necessary to meet our future requirements for debt service, capital expenditures, working capital and taxes. EBITDA is defined as earnings before interest expense, income tax expense, depreciation and amortization. EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States and should not be considered an alternative to net earnings or any other measure of performance under accounting principles generally accepted in the United States as a measure of performance or to cash flows from operating, investing or financing activities as an indicator of cash flows or as a measure of liquidity. Our calculation of EBITDA may be different from the calculations used by other companies, and therefore comparability may be limited. Certain financial covenants in our senior secured credit facility and our senior second lien credit facility are based on EBITDA, subject to adjustments, which is shown above. Because we have a significant amount of debt, and because continued availability of credit under our senior secured credit facility is critical to our ability to meet our business plan, we believe that an understanding of the key terms of our credit agreements is important to an investor's understanding of our financial condition and liquidity risks. Failure to comply with our financial covenants, unless waived by our lenders, would mean we could not borrow any further amounts under our revolving credit facility and would give our lenders the right to demand immediate repayment of all outstanding term and revolving credit loans. We would be unable to continue our operations at current levels if we lost the liquidity provided under our credit agreements. Depreciation and

46


 
  Fiscal Year Ended March 31,
 
  2002
  2003
  2004
 
  (in thousands)

EBITDA   $ (39,563 ) $ 91,651   $ 65,175
  Depreciation and amortization     11,296     35,933     37,039
  Interest expense     13,294     20,511     20,343
  Income tax (benefit) expense     (22,171 )   12,355     2,957

Net (loss) earnings

 

$

(41,982

)

$

22,852

 

$

4,836
(2)
Adjustments to EBITDA for the credit agreements' definitions include in fiscal 2004 all of the special charges of $52.1 million and other adjustments in the aggregate of $1.7 million.

(3)
Debt includes capital lease obligations and letters of credit issued under the senior secured credit facility and is net of U.S. cash and cash equivalents. Senior debt excludes the Invensys seller notes in 2003 and the senior second lien term loan and unsecured debt in 2004.

(4)
These ratios are included to show compliance with the leverage ratios set forth in our credit facilities. We show both our current ratios and the maximum ratios permitted under our senior secured credit facility. The maximum ratios permitted under the senior second lien credit facility are less restrictive than those shown.

        Stockholders' equity decreased $226.4 million during fiscal 2004, principally reflecting the cash distribution of $258.4 million in our recapitalization on March 17, 2004, and cancellation of warrants of $5.0 million, partially offset by net earnings of $4.8 million, currency translation adjustments of $30.3 million, primarily due to the strengthening of European currencies, unrealized gain on derivative instruments (interest rate swaps) of $0.9 million and a reduction in the minimum pension liability adjustment of $0.9 million.

        Stockholders' equity increased $50.9 million during fiscal 2003, principally reflecting net earnings of $22.9 million, currency translation adjustments of $32.4 million primarily due to the strengthening of European currencies, partially offset by unrealized loss on derivative instruments (interest rate swaps) of $2.6 million and an increase in the minimum pension liability adjustment of $1.7 million.

        We have exposure to interest rate risk from our short-term and long-term debt, both of which have variable interest rates.

        In February 2001, we entered into interest rate swap agreements to fix the interest rate on $60.0 million of our floating rate debt through February 22, 2006, at 5.59% per year. In April and May 2004, we amended these agreements to extend the maturity to February 22, 2008, and reduce the fixed rate to 5.16% per year beginning May 24, 2004.

        Also in April 2004, we entered into interest rate swap agreements to fix the interest rates on an additional $60.0 million of floating rate debt through May 5, 2008. The fixed rates per year begin May 5, 2004, and are 2.85% during the first year, 3.15% the second year, 3.95% the third year and 4.75% the fourth year.

        In total, these interest rate swap agreements provide protection against significant increases in LIBOR (the base variable interest rate on the majority of our debt) on $120.0 million of our debt.

47



        An increase in base interest rates would increase the fair value of the interest rate swap agreements. However, assuming the swaps stay in place until maturity, the change in fair value would have no effect on interest expense, cash flows or other results of operations.

        We are also exposed to foreign currency exchange risks. The geographic diversity of our sales and costs mitigates the risk of the volatility of currency in any particular region of the world. As of March 31, 2004, we had not entered into any foreign currency forward contracts.

        To ensure a steady supply of lead and to mitigate against large increases in cost, we enter into contracts with our suppliers for the purchase of lead. Each such contract is for a period not extending beyond one year. Under these contracts, we were committed to the purchase of the following amounts of lead:

Date

  $'s Purchased
  # Pounds Purchased
  Average
Cost/Pound

  Approximate % of
Lead Requirements

 
 
  (in millions)

  (in millions)

   
   
 
June 30, 2004   $ 21.8   67.0   $ 0.32   20 %(1)
March 31, 2004     11.9   38.7     0.31   12     (1)
March 31, 2003     16.2   62.6     0.26   19     (2)

(1)
Based on fiscal 2004 lead requirements.

(2)
Based on fiscal 2003 lead requirements.

        We have significant risk in our exposure to certain raw material costs, which we estimate were approximately half of total cost of goods sold in fiscal 2004. Our largest single raw material cost is for lead, which also has experienced a significant increase in cost during the second half of fiscal 2004 and remains volatile. We estimate that a 10% increase in our cost of lead (over our estimated cost in fiscal 2004) would increase our annual total cost of goods sold by approximately $10 million or 1% of net sales.

        Based on changes in the timing and amount of interest rate and foreign currency exchange rate movements and our actual exposures and hedges, actual gains and losses in the future may differ from our historical results.

Seasonality

        Our business generally does not experience significant monthly or quarterly fluctuations in net sales as a result of weather or other trends that can be directly linked to seasonality patterns. However, our second fiscal quarter normally experiences moderate reductions in net sales as compared to our first fiscal quarter for that year, due to summer manufacturing shutdowns of our customers and holidays primarily in the United States and Western Europe. In fiscal 2003 and 2004, the impact of this seasonal weakness was mitigated to a significant degree by strengthening currencies, primarily the euro, in Europe, where we conduct slightly more than half of our business. For the second quarter of fiscal 2005, unless these currencies continue to strengthen against the dollar, we would expect to report moderate declines in net sales and in operating earnings from the prior quarter. Our fourth fiscal quarter normally experiences the highest sales of any fiscal quarter within a given year. Many reserve power telecommunications customers tend to perform extensive service and engage in higher battery replacement and maintenance activities in the first calendar quarter of a year, which is our fourth fiscal quarter. In addition, many of our largest industrial customers are on a calendar fiscal year basis and many tend to purchase their durable goods more heavily in that quarter than any other within the calendar year.

Critical Accounting Policies and Estimates

        The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions about

48



future events that affect the amounts reported in the financial statements and accompanying footnotes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and such differences may be material to the financial statements. The process of determining significant estimates is fact-specific and takes into account factors such as historical experience, current and expected economic conditions, product mix and, in some cases, actuarial techniques. We evaluate these significant factors as facts and circumstances dictate. Historically, actual results have not differed significantly from those determined using estimates. The following are the accounting policies that most frequently require us to make estimates and judgments and are critical to understanding our financial condition, results of operations and cash flows:

        Sales are recorded when the terms of the customer agreement are fulfilled, the product has been shipped and title has passed or the services have been provided, the sales price is fixed or determinable and collectibility is reasonably assured. We reduce sales by applicable allowances, rebates, discounts and sales, value-added or similar taxes at the time of sale.

        We maintain an allowance for estimated losses resulting from the inability of customers to make required payments. The allowance is based on historical data and trends, as well as a review of relevant factors concerning the financial capability of our customers.

        We sell our products to customers with typical manufacturers' product warranties covering defects in workmanship and materials. The length of the warranty term depends on the product being sold, but generally reserve power products carry a one-year warranty and motive power products carry a one- to five-year warranty. We accrue our estimated exposure to warranty claims at the time of sale based upon historical experience. We review these estimates on a regular basis and adjust the warranty provisions as actual experience differs from historical estimates or other information becomes available.

        We adjust our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions.

        We test goodwill for impairment on an annual basis or upon the occurrence of certain circumstances or events. We follow the two-step testing method as prescribed by SFAS No. 142. In the first step, the fair value of the reporting units is determined based on a discounted cash flow analysis approach. If the net book value of the reporting units does not exceed the fair value, the second step of the impairment test (calculating the impairment loss of the goodwill by comparing the book value of the goodwill to the fair value of the goodwill) is not necessary. We have recorded no impairment of goodwill.

        We review and evaluate our long-lived assets for impairment when events or changes in circumstances indicate the related carrying amounts may not be recoverable. An impairment is considered to exist if total estimated future cash flows on an undiscounted basis are less than the carrying value amount of the asset. An impairment loss is measured and recorded based on discounted estimated future cash flows or other

49


fair value techniques. Assumptions underlying future cash flow estimates are subject to risks and uncertainties.

        We use certain assumptions in the calculation of the actuarial valuation of our defined benefit plans. These assumptions include the weighted average discount rate, rates of increase in compensation levels and expected long-term rates of return on assets. If actual results are less favorable than those projected by us, additional expense may be required.

        As of March 31, 2004, our consolidated benefit obligations exceeded the fair value of our plan assets by approximately $15.9 million. Fiscal 2004 periodic pension cost was approximately $4.8 million.

        We account for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes," which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between book and tax bases or recorded assets and liabilities. SFAS No. 109 also requires that deferred tax assets be reduced by a valuation allowance, if it is more likely than not that some portion or all of the deferred tax assets will not be recognized.

        At March 31, 2002, we had deferred tax assets ($50.2 million) in excess of deferred tax liabilities ($45.7 million) of $4.5 million. At March 31, 2003, we had deferred tax liabilities ($71.1 million) in excess of deferred tax assets ($47.4 million) of $23.7 million. At March 31, 2004, we had deferred tax liabilities ($61.3 million) in excess of deferred tax assets ($50.6 million) of $10.7 million. The deferred tax assets at March 31, 2002, 2003 and 2004 of $50.2 million, $47.4 million and $50.6 million, respectively, are net of valuation allowances of $41.1 million, $66.9 million and $74.1 million, respectively. We have recorded the above valuation allowances primarily for net operating loss carryforwards in foreign tax jurisdictions that have incurred significant past tax losses, and have determined that it is more likely than not that these deferred tax assets will not be realized.

        We evaluate on a quarterly basis the realizability of our deferred tax assets by assessing our valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization are our forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets.

New Accounting Pronouncements

        In December 2003, the FASB issued SFAS No. 132 (revised 2003), Employers' Disclosures about Pensions and Other Postretirement Benefits. The revisions to SFAS No. 132 are intended to improve financial statement disclosures for defined benefit plans and was initiated in 2003 in response to concerns raised by investors and other users of financial statements about the need for greater transparency of pension information. In particular, the standard requires that companies provide more details about their plan assets, benefit obligations, cash flows, benefit costs and other relevant quantitative and qualitative information. The guidance is effective for fiscal years ending after December 15, 2003. We have complied with these revised disclosure requirements.

        In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This statement amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, to provide clarification on the financial accounting and reporting of derivative instruments and hedging activities and requires contracts with similar characteristics to be accounted for on a comparable basis. Our adoption of SFAS No. 149 during 2003 did not have a material effect on our financial condition or results of operations.

50



        In January 2003, the FASB issued Financial Interpretation (FIN) 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 and in December 2003 issued a revised interpretation ("FIN 46R"). FIN 46 and FIN 46R address consolidation by business enterprises of certain variable interest entities. It applies to us in our first reporting period ending after March 15, 2004. This pronouncement did not have an effect on our financial position and results of operations.

Quarterly Information

        Fiscal 2003 and 2004 quarterly operating results, and the associated quarterly trends within each of those two fiscal years, are affected by the same economic and business conditions as described in the fiscal 2004 versus fiscal 2003 and fiscal 2003 versus fiscal 2002 analyses previously discussed.

 
  Fiscal 2003
  Fiscal 2004
 
 
  June 30,
2002
1st Qtr.

  Sept 29,
2002
2nd Qtr.

  Dec 29,
2002
3rd Qtr.

  March 31,
2003
4th Qtr.

  June 29,
2003
1st Qtr.

  Sept 28,
2003
2nd Qtr.

  Dec 28,
2003
3rd Qtr.

  March 31,
2004
4th Qtr.

 
 
  (in millions, except per share amounts)

 
Net sales   $208.4   $207.6   $212.9   $230.7   $218.3   $222.1   $253.3   $275.4  
Cost of goods sold   162.8   157.6   160.2   173.3   165.7   164.8   189.3   203.0  
   
 
 
 
 
 
 
 
 
Gross profit   45.6   50.0   52.7   57.4   52.6   57.3   64.0   72.4  
Operating expenses, including amortization   36.3   37.1   37.2   40.1   40.1   39.9   43.0   47.6  
Special charges relating to restructuring, bonuses and uncompleted acquisitions               9.1   12.0  
   
 
 
 
 
 
 
 
 
Operating earnings   9.3   12.9   15.5   17.3   12.5   17.4   11.9   12.8  
Interest expense   5.0   4.5   5.4   5.6   5.1   5.1   5.6   4.5  
Special charges relating to a settlement agreement and write-off of deferred finance costs               24.4   6.6  
Other (income) expense, net   (0.3 ) 0.4     (0.8 ) (2.0 ) (1.7 ) (0.3 ) (0.5 )
   
 
 
 
 
 
 
 
 
Earnings (loss) before income taxes   4.6   8.0   10.1   12.5   9.4   14.0   (17.8 ) 2.2  
Income tax expense (benefit)   1.6   2.8   3.5   4.5   3.6   5.3   (7.4 ) 1.5  
   
 
 
 
 
 
 
 
 
Net earnings (loss)   $3.0   $5.2   $6.6   $8.0   $5.8   $8.7   $(10.4 ) $0.7  
Series A convertible preferred stock dividends   (5.3 ) (5.4 ) (6.2 ) (7.2 ) (5.6 ) (5.7 ) (5.8 ) (7.5 )
Net earnings (loss) available to common stockholders   $(2.3 ) $(0.2 ) $0.4   $0.9   $0.2   $2.9   $(16.2 ) $(6.7 )
   
 
 
 
 
 
 
 
 

Net earnings per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 
Basic

 

$(0.21

)

$(0.02

)

$0.04

 

$0.08

 

$0.01

 

$0.27

 

$(1.47

)

$(0.61

)
 
Diluted

 

(0.21

)

(0.02

)

0.04

 

0.08

 

0.01

 

0.26

 

(1.47

)

(0.61

)

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 
Basic

 

11,014,421

 

11,014,421

 

11,014,421

 

11,014,421

 

11,014,421

 

11,014,421

 

11,014,421

 

11,014,421

 
 
Diluted

 

11,014,421

 

11,014,421

 

11,156,468

 

11,156,883

 

11,157,306

 

11,157,737

 

11,014,421

 

11,014,421

 

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        Quarterly net sales by business segment were as follows:

 
  Fiscal 2003
  Fiscal 2004
 
 
  1st Qtr.
  2nd Qtr.
  3rd Qtr.
  4th Qtr.
  1st Qtr.
  2nd Qtr.
  3rd Qtr.
  4th Qtr.
 
 
  (in millions)

 
Net sales:                                                  
  Reserve power   $ 101.6   $ 102.8   $ 99.7   $ 122.8   $ 107.4   $ 109.4   $ 127.0   $ 136.2  
  Motive power     106.8     104.8     113.2     107.9     110.9     112.7     126.3     139.2  
   
 
 
 
 
 
 
 
 
    Total   $ 208.4   $ 207.6   $ 212.9   $ 230.7   $ 218.3   $ 222.1   $ 253.3   $ 275.4  
   
 
 
 
 
 
 
 
 
Segment net sales as % total:                                                  
    Reserve power     48.8 %   49.5 %   46.8 %   53.2 %   49.2 %   49.3 %   50.1 %   49.5 %
    Motive power     51.2     50.5     53.2     46.8     50.8     50.7     49.9     50.5  
   
 
 
 
 
 
 
 
 
    Total     100.0 %   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %
   
 
 
 
 
 
 
 
 

        Fiscal 2004 net sales on a quarter-to-quarter sequential basis, excluding the effect of foreign currency translation, showed (decreases) increases of approximately (8%), 3%, 10% and 7%, respectively. Fiscal 2004 net sales, excluding the effect of foreign currency translation, increased by approximately 4% for both the reserve power and motive power business segments. The strengthening of European currencies (primarily the Euro) throughout the year further increased net sales as the dollar to euro exchange rate averaged 1.18 for fiscal 2004, with the spot rates 1.09 at March 31, 2003, and 1.23 at March 31, 2004.

        Fiscal 2003 net sales on a quarter-to-quarter sequential basis, excluding the effect of foreign currency translation, showed increases (decreases) of approximately 2%, (2%), 1% and 5%, respectively. For the full year, net sales decreased approximately 10% versus fiscal 2002 on a pro forma basis and excluding the effect of foreign currency translation. The dollar to euro exchange rate averaged 1.00 for fiscal 2003, with the spot rates 0.87 at March 31, 2002, and 1.09 at March 31, 2003. Fiscal 2003 net sales (excluding the effect of foreign currency translation) decreased approximately 14% in reserve power and 1% in motive power when compared to fiscal 2002 levels on a pro forma basis.

        The mix of reserve power and motive power sales to total sales did not fluctuate significantly during the quarterly periods within fiscal 2003 and fiscal 2004.

        Fiscal 2004 quarterly operating earnings were as follows:

 
  1st Qtr.
  2nd Qtr.
  3rd Qtr.
  4th Qtr.
 
 
  (in millions)

 
Operating earnings margin   $ 12.5   $ 17.4   $ 11.9   $ 12.8  
Special charges relating to restructuring, bonuses and uncompleted acquisitions             (9.1 )   (12.0 )
  Margin             (3.6 )%   (4.4 )%
Operating earnings, excluding special charges relating to restructuring, bonuses and uncompleted acquisitions     12.5     17.4     21.0     24.8  
  Margin     5.7 %   7.8 %   8.3 %   9.0 %

        Excluding the special charges in the third and fourth quarters, fiscal 2004 operating earnings grew on a quarter to quarter sequential basis primarily due to sales increases, the strengthening of European currencies and cost savings initiatives. The fiscal 2004 quarterly improvements in operating earnings margins from 5.7% in the first quarter to 9% in the fourth quarter are due to both sales increases and cost savings initiatives.

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        Fiscal 2003 quarterly operating earnings grew on a quarter to quarter sequential basis primarily due to the strengthening European currencies and cost savings initiatives. The fiscal 2003 quarterly improvements in operating earnings margins from 4.5% in the first quarter to 7.5% in the fourth quarter are primarily due to cost savings initiatives.

        Fiscal 2004 other income includes approximately $4 million of non-operating foreign currency gains primarily attributable to certain debt transactions. Included in the fiscal 2004 first and second quarters are $1.6 million and $1.5 million, respectively, of foreign currency gains from these debt transactions.

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BUSINESS

Overview

        We are one of the world's largest manufacturers, marketers and distributors of lead-acid industrial batteries. We also manufacture, market and distribute related products such as chargers, power equipment and battery accessories, and we provide related after-market and customer-support services for lead-acid industrial batteries. Industrial batteries generally are characterized as reserve power batteries or motive power batteries.

        We believe that we hold approximately 24% of the worldwide market share in the lead-acid industrial battery business, with market shares of 30% in North America, 30% in Europe and 5% in Asia. For 2003, we believe that our worldwide market share in reserve power batteries was approximately 20% and in motive power batteries was approximately 28%. In addition, we sell to the aerospace and defense markets. Our net sales for fiscal 2004 were $969.1 million, of which approximately 42% was attributable to the Americas, 53% to Europe, the Middle East and Africa, which we refer to as EMEA, and 5% to Asia.

        Our reserve power batteries are marketed and sold principally under the PowerSafe, DataSafe and Genesis brands. Our motive power batteries are marketed and sold principally under the Hawker, Exide and General brands. We also manufacture and sell related direct current—DC—power products including chargers, electronic power equipment and a wide variety of battery accessories. Our battery products span a broad range of sizes, configurations and electrical capacities, enabling us to meet a wide variety of customer applications.

        We manufacture reserve power and motive power batteries at 19 manufacturing facilities located across the Americas, Europe and Asia and market and sell these products globally in more than 100 countries to over 10,000 customers through a network of distributors, independent representatives and an internal sales force. We provide responsive and efficient after-market support for our products through strategically located warehouses and a company-owned service network supplemented by independent representatives.

Our Industry

        The size of the worldwide industrial lead-acid battery market in 2003 was $3.5 billion, according to BCI, EuroBat and management estimates. The two key components of this market are reserve power batteries—a $2.0 billion market—and motive power batteries—a $1.5 billion market. The aerospace and defense market is an additional important sector of the battery industry, but is not included as a component of the $3.5 billion worldwide market information above.

        Reserve power batteries also are known as network, standby or stationary power batteries and are used primarily for backup power applications to ensure continuous power supply in case of main (primary) power failure or outage.

        Reserve power batteries are used primarily to supply standby DC operating power for:

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        For many critical systems, power loss, even for short periods of time, can result in loss of process control, massive data loss and significant financial liability. Reserve power batteries are essential for the continuing operations of financial institutions, computer and computer-controlled systems, communications providers and electric utilities.

        There are two major reserve power lead-acid battery technologies, each designed for specific applications: vented (flooded) and valve-regulated lead-acid (VRLA, or sealed). Vented batteries require periodic watering and maintenance. Valve-regulated batteries require less maintenance, and are often smaller, than vented batteries. Our thin plate pure lead (TPPL) VRLA technology provides high performance premium solutions for demanding customer applications.

        We estimate that the worldwide market for reserve power lead-acid based battery products in 2003 was $2.0 billion, divided by geographic market and end-use as follows:


2003 Worldwide Reserve Power Battery Market

Geographic
market

 

End-use
application(2)

CHART

 

CHART

Source: BCI, EuroBat and management estimates.

(1)
Europe, Middle East and Africa

(2)
Reflects North American sales for reserve power batteries greater than 25 amp hours

        Motive power batteries are used primarily to provide power for electric material handling and ground handling equipment. Motive power batteries are primarily used in electric industrial forklift trucks. Motive power batteries compete primarily with propane- and diesel-powered internal combustion engines.

        Motive power batteries are used principally in the following applications:

55


        We estimate that the total market for motive power lead-acid based battery products for 2003 was approximately $1.5 billion, consisting of the following:

2003 Worldwide Motive Power Battery Market

Geographic
market

 

End-use
application(1)

CHART

 

CHART

Source: BCI, EuroBat and management estimates.

(1)
North America only

Industry Trends

        We believe that the following key trends will continue to affect the industrial battery business:

56


Our Strengths

        We believe that our competitive strengths should enable us to expand our global market share and position us to achieve profitable growth. These strengths include:

57


Our Strategy

        Our primary business objective is to capitalize on our competitive strengths to continue to expand our global market share, increase our net sales and improve our profit margins. We intend to achieve these objectives by implementing the following strategies:

58


        Our ability to achieve our strategy of expansion through acquisitions could be limited by restrictions contained in our credit facilities. The amounts we may pay for acquisitions are subject to per transaction limits for individual transactions and aggregate limits over the term of the credit facilities (until 2011 under the senior secured credit facility and 2012 if we do not prepay in full the senior second lien credit facility). Our individual transaction limits are $25.0 million cash and $75.0 million total (cash and company stock), and our aggregate limits are $100.0 million cash and $200.0 million total. Furthermore, we may not invest more than $15.0 million in joint ventures and $10.0 million in other ventures over the term of the credit facilities. Our ability to incur additional indebtedness also is restricted such that any significant acquisitions that could not be financed through cash generated from operations would need to be financed through issuance of additional company common stock. Exceeding any of our acquisition, investment or additional indebtedness limitations would require the consent of our lenders. See "Description of Our Credit Facilities—Covenants" for further information on these limitations.

Our Products

        Based on information from industry sources and management estimates, we believe that we are the largest supplier of lead-acid reserve power products on a worldwide basis, with a 20% market share in 2003. We estimate that our sales of reserve power products during fiscal 2004 by end-market were as follows:

Fiscal 2004 Reserve Power Sales

CHART

        Our reserve power products include a variety of lead-acid batteries, both flooded and VRLA, and other DC power equipment and services. Reserve power products are used to provide backup or standby power for critical facilities or electrical equipment in the event of a loss of power from the primary power source.

        The primary applications for reserve power batteries are:

59


        We also manufacture and purchase for resale a wide variety of battery trays, component racks and other accessories that are used in conjunction with our reserve power systems products and a complete line of cabinets for installation of lead-acid batteries. Many of our battery racks and cabinets are designed to meet very demanding customer specifications, including racks designed to withstand seismic shocks. Our ability to customize trays, racks and other accessories gives us a competitive advantage over many of our competitors who do not provide this level of service.

60



        Our reserve power battery product and related products are sold worldwide primarily under the PowerSafe, DataSafe, Genesis, Cyclon, Odyssey, Huada, Varta and Armasafe brand names.

Brand

  Summary technical description
  Applications
PowerSafe   A premium range of highly reliable flooded VRLA products   Serves the demanding requirements of telecommunications, including central office, outside plant and wireless applications, electric utility, including power generation, transmission and distribution applications, and switchgear markets
DataSafe   A full range of flooded and VRLA batteries   Specifically designed for the high power requirements of the most demanding UPS systems, ranging from workstations to data centers
Genesis   An extensive range of premium pure lead, lead calcium and Gel VRLA batteries   Provides superior performance for such diverse applications as security systems, emergency lighting, UPS, mobility, cable TV and medical uses
Cyclon   A special spiral wound design of our TPPL VRLA technology   Delivers high performance in very dense design, while delivering superior battery life characteristics, providing customers with a compact solution to their power requirements
Odyssey   Premium TPPL VRLA batteries   For car audio, marine and starting, lighting and ignition applications for motorcycles, personal watercraft, all terrain vehicles and specialty commercial vehicles
Huada   An extensive range of VRLA batteries designed for the China market   Designed to meet the needs of the various power segments of the China telecommunications and UPS markets
Varta   Flooded standard batteries   A well recognized and highly regarded regional brand in Germany and Eastern Europe that is used extensively in the European defense market, including submarine batteries
Armasafe   TPPL technology designed to perform to military specifications   Used for tactical military vehicles such as the M1-A1 Abrams tank and the Humvee

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        Based on information from industry sources and management estimates, we believe that our worldwide market share in the motive power market was 28% in 2003. We estimate that our sales of motive power products in fiscal 2004 by end-market were as follows:

Fiscal 2004 Motive Power Sales

         GRAPHIC

        Our motive power products include complete systems and individual components used to power, monitor, charge and test the batteries used in electric industrial forklift trucks and other material handling equipment. Motive power batteries typically are designed to provide relatively high discharge rates for a six- to eight-hour operating period. They also require rugged design to withstand the rigors of operation within moving industrial vehicles that subject them to high levels of vibration and shock.

        The primary applications for motive power batteries are:

        Our motive power chargers convert AC to DC power to recharge motive power batteries during the intervals between operating periods of the vehicles in which the batteries are installed. Our other principal motive power accessories include electronic controls to operate chargers from remote locations and a system for periodically adding water to batteries.

        Our motive power batteries are sold worldwide primarily under the brands Hawker, Exide and General, and a line of battery handling equipment and accessories under the ProSeries brand, which includes products such as automated battery charging systems, racks and safety equipment. Our Hawker brand is the largest motive power brand, by sales, in the world.

Brand/Sub-brand

  Summary technical description
  Applications
Hawker        
  Perfect Plus
Evolution
  Utilize round tube, positive plate design   Electric industrial forklift trucks
 
Energy Plus
Powerline
Top Power
Waterless

 

Utilize flat plate design

 

 

Exide-Ironclad
Workhog
Deserthog
Loadhog
Smarthog
Superhog

 

Utilize square tube positive plate design which provides more power over longer periods of time and higher voltages under load

 

Electric industrial forklift trucks
General
General Series
HUP
  Utilize flat plate design for reliable, cost-effective power   Electric industrial forklift trucks

62


        We are one of the largest manufacturers and distributors of motive power battery chargers in the world. These products are sold principally under the brand names Hawker, Exide and General. We are one of the only manufacturers to offer all three types of proven technology: ferro-resonant, silicon rectifiers and switchmode or high-frequency chargers. Our chargers are designed to recharge our batteries as well as any of our competitors' batteries. Recently, we developed a range of "smart" chargers, capable of communicating with our batteries and forklift trucks, enabling users to obtain valuable information.

Our Customers

        We serve over 10,000 customers in over 100 countries, on a direct basis or through our distributors with $408.8 million or 42.2% of our net sales attributable to the Americas and $560.3 million or 57.8% attributable to other countries. No single customer accounts for more than 6% of our revenues.

        Our reserve power customers consist of regional customers such as Verizon, British Telecom, Telstra and China Telecom as well as global customers including Nokia, Powerware, Emerson, MGE and Siemens. These customers are in diverse markets ranging from telecom to UPS, electric utilities, security systems, emergency lighting and personal mobility. In addition, we sell our aerospace and defense products to numerous countries, including the governments of the U.S., Germany and the U.K. and to major defense and aviation original equipment manufacturers, which we refer to as OEMs, including Lockheed-Martin and Boeing.

        Our motive power customers include a large, diversified customer base. We are not overly dependent on any particular end market or geographic region. These customers include materials handling equipment dealers, OEMs and end users of such equipment. End users include manufacturers, distributors, warehouse operators, retailers, airports, mine operations and railroads. Several of our top motive power customers are forklift truck manufacturers, including the Linde Group, Jungheinrich and Crown Lift Trucks. We also sell to a significant buying group, NACCO Materials Handling Group, a subsidiary of NACCO Industries, Inc., whose operations include purchasing on behalf of a group of forklift truck dealers.

Distribution and Services

        We distribute, sell and service reserve power products globally through a combination of company-owned offices, independent manufacturers' representatives and distributors managed by our regional sales managers. With our global manufacturing locations and regional warehouses, we believe we are well positioned to meet our customers' delivery and servicing requirements. We have targeted our approach to meet local market conditions, which we believe provides the best possible service for our regional customers and our global accounts.

        We distribute, sell and service our motive power products throughout the world, principally through company-owned sales and service facilities, as well as through independent manufacturers' representatives. We believe we are the only battery manufacturer in the motive power battery industry that operates a primarily company-owned service network. This company-owned network allows us to offer high-quality service, including preventative maintenance programs and customer support. Our warehouses and service locations enable us to respond quickly to customers in the markets we serve. The extensive industry experience of our sales organization results in strong long-term customer relationships.

63


Manufacturing and Raw Materials

        We believe that our global approach to manufacturing has significantly helped us increase our market share during the past several years. We manufacture our products at nine facilities in the Americas, eight facilities in Europe and two facilities in China. With a view toward projected demand, we strive to optimize and balance capacity at our battery manufacturing facilities located throughout the world, while simultaneously minimizing our product cost. By taking a global view of our manufacturing requirements and capacity, we are better able to anticipate potential capacity bottlenecks and equipment and capital funding needs.

        The primary raw materials used to manufacture our products include lead, plastics, steel and copper. We purchase lead from a number of leading suppliers throughout the world. Because lead is traded on the world's commodity markets and its price fluctuates daily, we enter into hedging arrangements from time to time for our projected requirements to mitigate the adverse effects of these fluctuations. We also enter into similar arrangements in connection with our purchases of steel. With respect to the remainder of our raw materials, we generally seek to enter into one- to two-year fixed-priced contracts when cost-effective.

Competition

        The industrial lead-acid battery market is highly competitive and has experienced substantial consolidation both among competitors who manufacture and sell industrial batteries and among customers who purchase industrial batteries. Our competitors range from development stage companies to major domestic and international corporations. We also compete with other energy storage technologies such as non-lead-acid batteries, fuel cells and flywheels.

        We compete primarily on the basis of reputation, product quality, reliability of service, delivery and price. We believe that our products and services are competitively priced. We believe we possess an approximate 24% global market share in our products and enjoy an incumbent advantage due to barriers to entry. These barriers include the tendency of reserve power battery customers to buy from suppliers on whom they rely with confidence for their critical power needs and the preference of large multinational customers to centralize battery purchases with equally large suppliers equipped with responsive and global servicing networks. An additional barrier is the large initial capital requirement for entrants to develop the necessary manufacturing capacity.

        We believe we have one of the largest market shares, on a worldwide basis, for reserve power products. We compete principally with Exide Technologies, GS Yuasa and C&D Technologies, as well as Fiamm and East Penn Manufacturing.

        We believe we have one of the largest market shares, on a worldwide basis, for motive power products. Our principal competition in our motive power segment is Exide Technologies. In North America, we also compete with East Penn Manufacturing and C&D Technologies. In Europe, we also compete with Fiamm and Hoppecke. In Asia, we also compete with JSB, Shinkobe, Yuasa and Hitachi.

Warranties

        Warranties for our products vary by geography and product and are competitive with other suppliers of these types of products. Generally, our reserve power products carry a one-year warranty and our motive power products' warranties range from one- to five-years. The warranty on our battery chargers typically ranges from one to three years.

64



        The length of our warranties is sometimes extended to reflect varied regional characteristics and competitive influences. In some cases, we may extend the warranty period to include a pro rata period, which is typically based around the design life of the product and the application served. Our warranties generally cover defects in workmanship and materials and are limited to specific usage parameters.

Intellectual Property

        There are no patents that we consider to be material to our business. Although from time to time we apply for patents on new inventions and designs, we believe that the growth of our business will depend primarily upon the quality of our products and our relationships with our customers, rather than the extent of our patent protection.

        Although other manufacturers possess thin plate pure lead technology, we believe we are the only manufacturer of products using TPPL technology in the markets we serve. This technology is not patented. We believe that a significant capital investment would be required by any party desiring to produce products using TPPL technology for these markets.

        We own or possess licenses and other rights to use a number of trademarks. We have registered many of these trademarks in various styles in the U.S. Patent and Trademark Office and with other countries. Our various trademark registrations currently have a duration of approximately one to 12 years, varying by mark and jurisdiction of registration. We endeavor to keep all of our material registrations current. We believe that many such rights and licenses are important to our business by helping to develop strong brand-name recognition in the marketplace. Some of our significant trademarks include: Exide, Exide-Ironclad, HUP, Loadhog, Superhog, Workhog, Deserthog, Smarthog, Cobra, GBC, ESB, Hybernator, Liberator, Oasis, Titan PowerTech, PowerGuard, PowerPlus, LifePlus, Waterless, Powerline, Energy Plus, LifeGuard, PowerLease, Envirolink, Varta, Perfect, Hawker, Armasafe+, Odyssey, PowerSafe, DataSafe, Genesis, Cyclon, Genesis NP, Genesis Pure Lead, Supersafe, Oldham, Chloride and Espace.

        See "Litigation—Exide Litigation" for information concerning currently pending litigation involving our continuing right to use the Exide trademark.

Product and Process Development

        Our product and process development efforts are focused on the creation and optimization of new battery products using existing technologies, which differentiate our stored energy solutions from our competition's. We allocate our resources to the following key areas:


Employees

        At March 31, 2004, we had approximately 6,500 employees. Of these employees, approximately 3,300, almost all of whom work in our European facilities, were covered by collective bargaining agreements. The average term of these agreements is one to two years, with the longest term being three and one-half years. These agreements expire over the period from 2004 to 2007.

65



        We consider our employee relations to be good. We have not experienced any material labor unrest, disruption of production or strike.

Environmental Matters

        In the manufacture of our products throughout the world, we process, store, dispose of and otherwise use large amounts of hazardous materials, especially lead and acid. As a result, we are subject to extensive and changing environmental, health and safety laws and regulations governing, among other things: the generation, handling, storage, use, transportation and disposal of hazardous materials; remediation of polluted ground or water; emissions or discharges of hazardous materials into the ground, air or water; and the health and safety of our employees. Compliance with these laws and regulations results in ongoing costs. Failure to comply with these laws and regulations, or to obtain or comply with required environmental permits, could result in fines, criminal charges or other sanctions by regulators. From time to time we have had instances of alleged or actual noncompliance that have resulted in the imposition of fines, penalties and required corrective actions. Our ongoing compliance with environmental, health and safety laws, regulations and permits could require us to incur significant expenses, limit our ability to modify or expand our facilities or continue production and require us to install additional pollution control equipment and make other capital improvements. In addition, private parties, including current or former employees, could bring personal injury or other claims against us due to the presence of, or their exposure to, hazardous substances used, stored, transported or disposed of by us or contained in our products.

        Certain environmental laws assess liability on owners or operators of real property for the cost of investigation, removal or remediation of hazardous substances at their current or former properties or at properties at which they have disposed of hazardous substances. These laws may also assess costs to repair damage to natural resources. We may be responsible for remediating damage to our properties that was caused by former owners. Soil and groundwater contamination has occurred at some of our current and former properties and may occur or be discovered at other properties in the future. We currently are investigating and monitoring soil and groundwater contamination at certain of our properties, and we may be required to conduct these operations at other properties in the future. In addition, we have been and in the future may be liable to contribute to the cleanup of locations owned or operated by other persons to which we or our predecessor companies have sent wastes for disposal, pursuant to federal and other environmental laws. Under these laws, the owner or operator of contaminated properties and companies that generated, disposed of or arranged for the disposal of wastes sent to a contaminated disposal facility can be held jointly and severally liable for the investigation and cleanup of such properties, regardless of fault.

        Capital expenditures associated with environmental compliance were approximately $0.2 million, $1 million and $2.7 million in fiscal 2002, 2003 and 2004, respectively. Our operating expenses associated with environmental, health and safety compliance are incorporated into our general operating expenses and are not separately quantified. However, we believe that we have not incurred material operating expenses associated with environmental, health and safety compliance over the last three fiscal years.

        Six of our facilities in the United States and Europe are certified to ISO 14001 standards. ISO 14001 is a globally recognized, voluntary program that focuses on the implementation, maintenance and continual improvement of an environmental management system and the improvement of environmental performance.

        Richmond, Kentucky.    We are undertaking a capital project to improve the ventilation system at our Richmond, Kentucky battery facility. This project resulted from multiple citations we received in September 2001 from the Kentucky Labor Cabinet, Occupational Safety and Health Program, alleging certain violations of permissible exposure limits for airborne lead. In response to these citations, we submitted an Abatement Plan to the Kentucky Labor Cabinet, and we entered into a Stipulation and Settlement Agreement with Kentucky in July 2002 that sets forth a schedule and plan for abatement with

66



respect to these airborne exposure levels. Over the past two years, we have taken several steps at this facility in conjunction with this abatement plan. Actions that are in progress or that will be taken in the future include, in part, upgrades to the work stations, exhaust ventilation, and supply ventilation in areas identified in the abatement plan. Our improvements at this facility resulted in capital expenditures of approximately $0.3 million in fiscal 2003 and $1.3 million in fiscal 2004. Our current budget for this project in fiscal 2005 and 2006 is approximately $1.3 million and $0.6 million, respectively. We currently anticipate completing this project by February 2006.

        Manchester, England.    We currently have identified three potentially significant environmental issues at our Manchester, England battery facility: lead slag piles that may pose a health risk are located in the vicinity of a public footpath on the property; the potential restoration of the Manchester, Bolton and Bury Canal by British Waterways may lead to sampling and/or remediation obligations with respect to the canal and surrounding areas located on our property; and there may be multiple and as yet unidentified areas of soil and groundwater contamination at the facility. We believe we have a right to be indemnified by Invensys for these potential environmental liabilities and submitted a notice of claim to Invensys in May 2003 regarding these issues. No government or third-party lawsuits, regulatory actions or orders have been filed with respect to this site to date, and all our actions at this site to date are voluntary. The only action that has been taken at this site is the testing of the footpath area. To date, Invensys has assumed full responsibility for this testing. We have also established reserves of approximately $5.3 million for the facility, which reserve is not discounted by any amounts we expect to recover from Invensys. Based on the information available at this time, we believe these reserves are sufficient to satisfy these environmental liabilities.

        Sumter, South Carolina.    We currently are responsible for certain cleanup obligations at the former Yuasa lead-acid battery facility in Sumter, South Carolina. The lead acid battery facility was closed in 2001 and is separate from our current metal fabrication facility in Sumter. Remediation issues related to lead contamination in the soil were addressed pursuant to a 1998 Consent Order with the State of South Carolina, and we believe this matter to be closed. We are subject to ongoing stormwater inspection requirements under a 2000 Consent Order based on suspected lead contamination. We also are in ongoing discussions with the State of South Carolina regarding alleged trichloroethylene (TCE) and other volatile organic compound (VOC) contamination in the groundwater that predates our ownership of this facility. There may be other unidentified contaminants in the soil or groundwater that also predate our ownership of this facility. There may be other unidentified contaminants in the soil or groundwater that also predate our ownership of this facility. We believe we are insured against losses arising out of the alleged VOC contamination pursuant to our environmental insurance policy for U.S. facilities and filed a notice of claim with our insurance carrier in October 2002 regarding this contamination. In July 2004, we received written confirmation from our insurance carrier that we are insured against losses over $500,000 with respect to the investigation of this VOC contamination. We also believe we may be indemnified by Yuasa for environmental liabilities at this facility and submitted a notice of claim to Yuasa in 2002 regarding these issues. We have not yet received a response to our indemnification claim. We have established reserves of approximately $1.8 million for the environmental issues at this facility, which reserve is not discounted by any amounts we might recover from third parties. Based on current information, we believe these reserves are adequate to satisfy our environmental liabilities at this facility.

        European Union Lead Acid Battery Legislation.    Recent legislation proposed by the European Union may affect us and the lead acid battery industry. In November 2003, the European Commission issued a Directive that recommends the elimination of mercury in batteries and the reclamation of spent lead and cadmium batteries for recycling (a "closed-loop" life cycle). On April 20, 2004, the European Parliament approved legislation that would effectively ban lead and cadmium in batteries as well as mercury, with the exception of batteries for which no suitable alternatives exist. While we do not believe that such alternatives currently exist, a suitable substitute for lead acid batteries may be identified or developed. In response to the vote of the European Parliament, the European Commission stated it would not endorse a

67



ban on lead or cadmium in batteries and affirmed its original proposal for closed-loop recycling regulations. The European Council, the main decision-making body of the European Union, is expected to comment on the new battery Directive within the coming months. We cannot predict whether the Council will adopt the view of the Parliament or the Commission. Enactment and implementation of the European Parliament's Directive by the Member States could have a material adverse effect on our business, results of operations and financial condition.

Litigation

        When we acquired Yuasa's North and South American industrial battery business in 2000, we acquired the worldwide right to use the Exide trademark on industrial batteries. Yuasa had acquired an exclusive, perpetual, worldwide and transferable license to use the Exide name on industrial batteries in 1991 when it bought Exide Technologies' industrial battery business.

        In 2002, Exide Technologies filed for protection under Chapter 11 of the U.S. Bankruptcy Code. During the course of its Chapter 11 proceedings, Exide Technologies sought to reject certain agreements related to the 1991 sale of Exide Technologies' industrial battery business to Yuasa, including the trademark license referred to above. We opposed Exide Technologies' attempt to reject these agreements. If the court were to find in favor of Exide Technologies, our license to use the Exide name could be terminated. If the license were so terminated, we believe that the court might delay the effective date of the termination for some reasonable period.

        The Exide trade name is one of our better-known brands. Our Exide-branded batteries represented approximately 12% of our net sales for fiscal 2004. We introduced testimony in the court proceedings from an expert witness who estimated that we would suffer damages of approximately $60 million over a seven-year period from price erosion, profit on lost sales and incremental rebranding expense in the event that the license were terminated. This expert's assessment of our damages assumed, contrary to our current belief, that the court would not delay the effective date of the termination.

        We believe that we should prevail but, as with any litigation, the outcome is uncertain. If we do not ultimately prevail, we believe that, if the court were to provide us with a reasonable time period to continue to use the name while we rebrand our products in order to mitigate potential price erosion and sales loss, the termination of the license should not have a material adverse effect on our financial condition or operating results.

        From time to time, we are involved in litigation incidental to the conduct of our business. We do not expect that any of this litigation, individually or in the aggregate, will have a material adverse effect on our financial condition, results of operations or cash flow.

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Facilities

        Set forth below is a table of our principal manufacturing and principal distribution facilities, their principal functions, the approximate size of the facility and whether the facility is owned or leased.

Location

  Function/Products Produced(1)
  Size
(square feet)

  Owned/Leased
North America:            
Reading, PA   Corporate Offices   109,000   Owned
Richmond, KY   Motive and Reserve Power Batteries   277,000   Owned
Cleveland, OH   Motive Power Chargers   66,000   Owned
Ooltewah, TN   Motive Power Batteries   90,000   Owned
Warrensburg, MO   Reserve Power Batteries   341,000   Owned
Hays, KS   Reserve Power Batteries   351,000   Owned
Sumter, SC   Metal fabrication, Motive and Reserve Power   52,000   Owned
Santa Fe Springs, CA   Distribution Center, Motive and Reserve Power Batteries   35,000   Leased
Carlstadt, NJ   Distribution Center, Motive and Reserve Power Batteries   25,000   Leased
Tijuana, Mexico   Reserve Power Batteries   156,000   Owned
Monterrey, Mexico   Reserve and Motive Power Batteries   80,000   Owned
Brampton, Canada   Assembly and distribution, Motive and Reserve Power Batteries   37,000   Leased

Europe:

 

 

 

 

 

 
Arras, France   Reserve and Motive Power Batteries   484,000   Owned
Newport, Wales   Reserve Power Batteries   233,000   Owned
Manchester, England   Reserve Power Batteries   475,000   Owned
Hagen, Germany   Reserve and Motive Power Batteries   395,000   Owned/Leased
Bielsko-Biala, Poland   Motive Power Batteries   172,000   Leased
Brebieres, France   Motive Power Chargers   41,000   Leased
Zamudio, Spain   Reserve and Motive Power Batteries   55,000   Owned
Villanova, Italy   Reserve and Motive Power Batteries   50,000   Leased
Herstal, Belgium   Distribution Center, Motive and Reserve Power Batteries   84,000   Leased

Asia:

 

 

 

 

 

 
Shenzhen, China   Reserve Power Batteries   176,000   Owned
Jiangsu, China   Reserve Power Batteries   130,000   Owned

(1)
The primary function of listed facilities is manufacturing industrial batteries, unless otherwise noted.

Quality Systems

        We utilize a global strategy for quality management systems, policies and procedures, the basis of which is the ISO 9001:2000 standard. We believe in the principles of this standard and reinforce this by mandatory compliance for all manufacturing, sales and service locations that are registered to the ISO 9001 standard. This strategy enables us to provide effective products and services to meet our customers' needs.

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MANAGEMENT

Directors and Executive Officers

        Set forth below is certain information regarding our executive officers and directors.

Name

  Age
  Position
John D. Craig   53   Chairman of the Board of Directors, President and Chief Executive Officer
Michael T. Philion   52   Executive Vice President—Finance and Chief Financial Officer
Charles K. McManus   57   Executive Vice President—North America Reserve Power and Worldwide Marketing
John A. Shea   41   Executive Vice President—Motive Power Americas
Richard W. Zuidema   55   Executive Vice President—Administration
Cheryl A. Diuguid   53   Senior Vice President—Asia
Raymond R. Kubis   50   President—Europe
Howard I. Hoffen   40   Director
Eric T. Fry   37   Director
Michael C. Hoffman   41   Director Nominee
Chad L. Elliott   32   Director Nominee
Dennis S. Marlo   61   Director Nominee
John F. Lehman   61   Director Nominee

        Executive officers are appointed by and serve at the pleasure of our board of directors. A brief biography of each director and executive officer follows:

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        Morgan Stanley and a new independent private equity firm, Metalmark Capital LLC, led by Howard Hoffen and senior members of Morgan Stanley Capital Partners, including Eric Fry and Michael Hoffman, have agreed that an affiliate of Metalmark Capital LLC will manage MSCP IV and certain of its related funds on a sub-advisory basis. This sub-advisory relationship is expected to commence in the third quarter of 2004.

Composition of the Board After This Offering

        Upon the closing of this offering, our board of directors will consist of seven members, including Mr. Marlo and Mr. Lehman, independent directors who have been named to serve on our board of directors effective as of the closing of this offering. We expect to add a third independent member to our board of directors within 12 months after the closing of this offering. There are no family relationships among our directors or executive officers.

        Messrs. Hoffen and Fry serve, and Messrs. Hoffman and Elliott have been nominated to serve, on our board of directors by MSCP IV, pursuant to the securityholder agreement that we entered into with the Morgan Stanley Funds and our other principal equity holders prior to this offering. The securityholder agreement entitles MSCP IV to designate a majority of the nominees for election to the board of directors and also provides that our chief executive officer shall be nominated to the board of directors. The parties to the securityholder agreement have agreed with us to vote their shares of common stock to elect such nominees for director.

        Pursuant to our certificate of incorporation, our board of directors is divided into three classes. The members of each class will serve for a staggered, three-year term. Upon the expiration of the term of a class of directors, nominees for directors in that class will be considered for election for three-year terms at the annual meeting of stockholders in the year in which the term of directors in that class expires. The classes are composed of the following directors:

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        Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of our directors. This classification of our board of directors may have the effect of delaying or preventing changes in control of our company.

Committees of our Board of Directors

        At the closing of this offering, our board of directors will have an audit committee, a compensation committee and a nominating and corporate governance committee, each of which will have the composition and responsibilities described below. Our board of directors from time to time may establish other committees.

        Because MSCP IV and our other existing institutional stockholders will continue to hold more than 50% of the voting power of EnerSys after giving effect to the offering, we are a "controlled company" within the meaning given to that term in the New York Stock Exchange listing requirements. So long as we are a "controlled company," we are exempt from certain listing requirements, including, among others, the requirements that a majority of our board of directors be independent directors and that all the members of our compensation and nominating and corporate governance committees be independent directors.

        Upon the closing of this offering, our audit committee will consist of Mr. Marlo, Mr. Lehman and Mr. Fry. Mr. Marlo has been determined to be our "audit committee financial expert," as such term is defined in Item 401(h) of Regulation S-K. The audit committee will be responsible for:

73


        Within 12 months after the closing of this offering, we plan to nominate an additional new independent member to the audit committee to replace Mr. Fry so that all three of our audit committee members will be "independent," as such term is defined in Rule 10A-3(b)(i) under the Securities Exchange Act of 1934, as amended.

        Our board of directors has adopted a written charter for the audit committee, which will be available on our website at http://www.enersys.com.

        Upon the closing of this offering, our compensation committee will consist of one independent director, and Mr. Hoffen and Mr. Fry. The compensation committee is responsible for:

        None of our executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers who serve on our board or compensation committee.

        Upon the closing of this offering, our nominating and corporate governance committee will consist of one independent director, and Mr. Hoffen and Mr. Fry. The nominating and corporate governance committee will be responsible for identifying and recommending potential candidates qualified to become board members, recommending directors for appointment to board committees and developing and recommending to our board a set of corporate governance principles.

Director Compensation

        Upon the closing of the offering, we expect to pay our directors (other than directors who are our employees) an annual retainer of $50,000 and a fee of $2,500 for each of our board meetings, and $1,000 for each committee meeting, attended in person (or $1,250 for each of our board meetings, and $500 for each committee meeting, attended by telephone). We will grant each of our directors (other than directors

74



who are our employees) options to acquire 2,500 shares of common stock annually at an exercise price equal to the closing market price on the date of the grant. We will reimburse any member of our board who is not an employee for reasonable expenses incurred in connection with his or her attendance at board and committee meetings. We also plan to grant stock options or other awards under our 2004 EIP to independent directors.

Limitation of Liability and Indemnification of Directors and Officers

        Delaware law, our certificate of incorporation and our bylaws contain limitation of liability provisions and provisions for indemnification of our directors and officers. See "Description of Capital Stock, Certificate of Incorporation and Bylaws" for a summary of these provisions.

        In addition, we have entered into, or will have entered into prior to the closing of this offering, an indemnity agreement with each of our directors and officers. Pursuant to this agreement, we will indemnify, to the fullest extent permitted by the Delaware General Corporation Law, each director or officer who is, or is threatened to be made, a party to any proceeding by virtue of the fact that such person is or was one of our directors or officers. Indemnification will be provided for all costs, judgments, penalties, fines, liabilities and amounts paid in settlement of any such proceeding and for expenses actually and reasonably incurred in connection with any such proceeding.

Executive Compensation

        The following table shows the annual cash compensation and certain other compensation paid or accrued by us for fiscal 2004 to our Chief Executive Officer and our other four most highly compensated executive officers. We refer to these officers collectively as our named executive officers.

Summary Compensation Table

 
   
   
   
  Long-Term
Compensation
Awards

 
 
  Annual Compensation
  Securities
Underlying
Options
(#)

   
 
Name and Principal Position

  All Other
Compensation

 
  Salary
  Bonus
  Other
 
John D. Craig
Chairman, President and Chief Executive Officer
  $ 725,000   $
$
725,000
3,687,855
(1)
(2)
$ 2,100 (3) 128,278   $ 32,909 (4)
Michael T. Philion
Executive Vice President—Finance, Chief Financial Officer and Director
  $ 335,000   $
$
201,000
1,580,280
(1)
(2)
$ 2,100 (3) 51,300   $ 9,916 (5)
Richard W. Zuidema
Executive Vice President—Administration and Director
  $ 336,000   $
$
201,600
1,207,049
(1)
(2)
$ 2,100 (3) 51,300   $ 10,137 (5)
John A. Shea
Executive Vice President—Motive Power Americas
  $ 311,000   $
$
186,600
1,259,796
(1)
(2)
$ 2,100 (3) 51,300   $ 9,684 (5)
Raymond R. Kubis
President—Europe
  $ 366,048 (6) $
$
217,587
415,477
(1)(7)
(2)
$ 75,894 (8) 51,300   $ 22,860 (9)

(1)
Consists of normal bonus for fiscal 2004 paid in fiscal 2005.

(2)
Consists of a one-time payment in connection with our recapitalization on March 17, 2004. In order to treat management equitably with other stockholders, because significant portions of management's equity interests are in the form of options to purchase shares of our common or preferred stock, we made a cash distribution to each individual based on the aggregate in-the-money value of his or her

75


(3)
Consists of car allowance benefits.

(4)
Consists of long-term disability premiums in the amount of $7,150, 401(k) matching contributions in the amount of $9,859 plus benefits under a split dollar life insurance policy in the amount of $890 of imputed income associated with the term insurance portion of the policy and $15,010 of imputed interest income resulting from the premiums paid in fiscal 2004. These benefits represent the price of the term portion of the policy premiums plus the discounted present value of the imputed interest on the investment portion of the premiums over Mr. Craig's expected life.

(5)
Consists of 401(k) matching contributions.

(6)
U.S. dollar equivalent of annual salary of €297,600, based on the exchange rate at March 31, 2004, $1.23 to €1.00.

(7)
Consists of U.S. dollar equivalent of fiscal 2004 bonus of €176,900, based on the exchange rate at March 31, 2004, $1.23 to €1.00.

(8)
U.S. dollar equivalent of €61,703, based on the exchange rate at March 31, 2004, $1.23 to €1.00. This represents perquisites paid to Mr. Kubis for fiscal 2004 and includes private school tuition of $55,781 for Mr. Kubis' children, personal travel expenses of $9,546, car allowance benefits of $2,688 and payments of $7,879 for tax advisory services.

(9)
This represents the U.S. dollar equivalent of €18,585 in pension contributions to an individual retirement account, based on the exchange rate at March 31, 2004, $1.23 to €1.00.

        The following table sets forth information regarding stock options granted during fiscal 2004 to the executive officers named below.

 
   
   
   
   
  Potential Realizable
Value at Assumed
Annual Rates
of Stock Price
Appreciation for
Option Term(2)

 
  Number of
Securities
Underlying
Options
Granted (#)(1)

  Percentage of
Total Options
Granted to
Employees in
Fiscal 2004

   
   
 
  Exercise Price
per Share
($/Sh)

  Expiration
Date

 
  5%
  10%
John D. Craig
Chairman, President and Chief Executive Officer
  39,643
66,291
22,344
  7.32
12.24
4.12
%

$

16.24
10.82
21.92
  3/22/09
3/22/12
3/22/12
  $

22,200
396,420
  $

53,914
449,453

Michael T. Philion
Executive Vice President—Finance, Chief Financial Officer

 

15,846
26,505
8,949

 

2.92
4.90
1.65

%


$


16.24
10.82
21.92

 

3/22/09
3/22/12
3/22/12

 

$


8,874
158,500

 

$


21,551
179,704

Richard W. Zuidema
Executive Vice President—Administration

 

15,846
26,505
8,949

 

2.92
4.90
1.65

%


$


16.24
10.82
21.92

 

3/22/09
3/22/12
3/22/12

 

$


8,874
158,500

 

$


21,551
179,704

John A. Shea
Executive Vice President—Motive Power Americas

 

15,846
26,505
8,949

 

2.92
4.90
1.65

%


$


16.24
10.82
21.92

 

3/22/09
3/22/12
3/22/12

 

$


8,874
158,500

 

$


21,551
179,704

Raymond R. Kubis
President—Europe

 

15,846
26,505
8,949

 

2.92
4.90
1.65

%


$


16.24
10.82
21.92

 

3/22/09
3/22/12
3/22/12

 

$


8,874
158,500

 

$


21,551
179,704

(1)
One-half of the options granted in fiscal 2004 vested upon grant. The unvested portion of the grant vests 50% per year over two years.

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(2)
Potential realizable values are net of exercise price, but before any taxes associated with exercise. The assumed rates of stock appreciation are provided in accordance with SEC rules based upon an assumed initial public offering price of $16 per share, and do not represent our estimate or projection of future stock price.

Aggregated Option Exercises in Fiscal 2004 and Fiscal Year-End Option Values

        None of our named executive officers exercised options to purchase our common stock during fiscal 2004. The following table shows information about the value of each of our named executive officers' unexercised options as of March 31, 2004.

Fiscal 2004
Year-End Option Values

 
  Number of
Securities Underlying
Unexercised Options
at Fiscal Year-End(1)

  Value of Unexercised
In-the-Money Options
at Fiscal Year-End(2)

 
  Exercisable
  Unexercisable
  Exercisable
  Unexercisable
John D. Craig
Chairman, President and Chief Executive Officer
  1,334,754   755,858   $ 4,971,336   $ 2,007,360
Michael T. Philion
Executive Vice President—Finance, Chief Financial Officer
  549,983   302,272     2,185,241     802,700
Richard W. Zuidema
Executive Vice President—Administration
  493,395   302,272     1,495,701     802,700
John A. Shea
Executive Vice President—Motive Power Americas
  501,496   302,272     1,594,416     802,700
Raymond R. Kubis
President—Europe
  218,822   302,272     603,884     603,889

(1)
Includes common stock equivalent number of shares issuable if certain stock options had been exercised for preferred stock and then converted into common stock, all as of March 31, 2004. As of March 31, 2004, there were 10,609 stock options outstanding for preferred stock, convertible into 350,797 shares of common stock. Named executive officers held 9,045 of these preferred stock options.

(2)
There was no public trading market for our common stock as of March 31, 2004. Accordingly, these values have been based upon an assumed initial public offering price of $16.00 per share less the applicable exercise price payable for these shares, multiplied by the number of shares underlying the option.

Equity Compensation Plan Information

        The following table sets forth information as of March 31, 2004, regarding all of our existing compensation plans pursuant to which equity securities are authorized for issuance to employees and non-employee directors.

Plan Category

  Number of
securities to be issued
upon exercise of
outstanding options,
warrants and rights

  Weighted average
exercise price of
outstanding options,
warrants and rights

  Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))

  Total of securities
reflected in
columns (a) and (c)

 
  (a)

  (b)

  (c)

  (d)

Equity Compensation Plans Approved By Stockholders(1)   7,334,398   $ 13.63   2,000,000   9,334,398

Equity Compensation Plans Not Approved By Stockholders

 


 

 


 


 

   
 
 
 

Total

 

7,334,398

 

$

13.63

 

2,000,000

 

9,334,398

(1)
Consists of options to purchase shares of common stock or preferred stock under the EnerSys Management Equity Plan ("MEP"), which was adopted by stockholders on November 9, 2000. Options granted under this plan generally vest 25% per year from the date of grant. Upon an IPO, an additional 30% of granted options vest immediately.

Employment Agreements

        All of our named executive officers have entered into employment or directorship agreements with us. The following is a description of the material terms of these agreements.

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        We entered into an employment agreement with Mr. Craig on November 9, 2000. Mr. Craig's employment agreement is for a three-year term that is automatically extended on a daily basis to continue for three years from the date of such extension. Mr. Craig's employment agreement provides that after an initial public offering of our stock, we will use our best efforts to nominate him as Chairman of the Board and that he shall also serve as the Chief Executive Officer and Chairman of the Board of each direct and indirect subsidiary of EnerSys. Mr. Craig's employment agreement provides that he may not compete with our business for three years following termination of his employment. We entered into employment agreements with each of Messrs. Philion, Zuidema and Shea on November 9, 2000. The employment agreements entered into by Messrs. Philion, Zuidema and Shea are for a two-year term that is automatically extended on a daily basis to continue for two years from the date of such extension. These employment agreements provide generally that the executive may not compete with our business for two years following termination of his employment.

        Subject to annual increases at the sole discretion of the compensation committee, Mr. Craig's base salary is $725,000, Mr. Philion's base salary is $335,000, Mr. Zuidema's base salary is $336,000 and Mr. Shea's base salary is $311,000. Contingent upon meeting goals established by the Board of Directors and the compensation committee, Mr. Craig is entitled to a bonus of up to 100% of base salary, and each of Mr. Philion, Mr. Zuidema and Mr. Shea is entitled to a bonus of up to 60% of base salary.

        We may terminate the employment of Mr. Craig, Philion, Zuidema or Shea for cause if he has been involved in any of the following: the commission of a felony or crime involving moral turpitude; a knowing and intentional fraud; an act or omission that is materially injurious to EnerSys; or the willful and continued failure or refusal to substantially perform his duties as an employee. If we were to terminate the employment of one of these executives without cause, or if he were to resign with good reason, we would be obligated to pay him his base salary, plus annual bonuses in an amount equal to the average of his two most recent annual bonuses, for the remainder of the term of the employment agreement. The employment agreements provide that if any payments due to the executive are subject to excise tax under Section 4999 of the Internal Revenue Code of 1986, we will provide the executive with a tax gross-up payment to negate the excise tax. "Good reason" means any of the following: a decrease in base salary; a material diminution of authority, responsibilities or positions; a relocation to any office location that is more than 50 miles from Reading, Pennsylvania; or our giving notice that we intend to discontinue the automatic extension of the employment agreement.

        On January 8, 2002, Mr. Kubis entered into a directorship agreement and a managing directorship agreement with respect to his services as President—Europe. These directorship agreements are for two-year terms that may be extended at our option. They provide generally that Mr. Kubis may not compete with our business for at least 12 months following termination of his directorship. Subject to annual increases at the sole discretion of the compensation committee, Mr. Kubis's base salary is €297,600 (U.S. dollar equivalent of $366,048, based on the exchange rate at March 31, 2004, $1.23 to €1.00), and, contingent upon meeting goals established by the Board of Directors and the compensation committee, Mr. Kubis is entitled to an annual bonus of up to 60% of base salary.

        We may terminate Mr. Kubis' directorship appointment for cause if he has been involved in any of the following: the commission of a felony or crime involving moral turpitude; a knowing and intentional fraud; an act or omission that is materially injurious to EnerSys; or the willful and continued failure or refusal to substantially perform his duties as a director. If we were to terminate Mr. Kubis' appointment without cause, or if he were to resign with good reason, we would be obligated to pay him his base remuneration, plus annual bonuses in an amount equal to the average of his two most recent annual bonuses, for two years. The directorship agreement provides that if any payments due to Mr. Kubis are subject to excise tax under Section 4999 of the Internal Revenue Code of 1986, we will provide Mr. Kubis with a tax gross-up

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payment to negate the excise tax. "Good reason" means any of the following: a decrease in base remuneration; a material diminution of authority, responsibilities or positions; a relocation from Brussels, Belgium to any other location, unless Mr. Kubis is relocated to the United States or, upon 90 days' prior notice and the payment of reasonable relocation expenses, to London, Paris or Frankfort; or a failure to renew the managing directorship agreement.

Management Equity Plan

        The following is the summary of the material terms of our Management Equity Plan, which we refer to as the MEP. This description is not complete. For more information, we refer you to the full text of the MEP, which has been filed as an exhibit to the registration statement of which this prospectus forms a part. We originally adopted the MEP effective as of November 22, 2000. Prior to the date of this prospectus, the MEP was amended to provide that no additional awards shall be granted pursuant to it.

        The MEP authorized the grant of "non-qualified" (for purposes of the Internal Revenue Code of 1986, as amended (the "Code")) stock options and restricted stock to our officers and key employees. The number of shares reserved pursuant to outstanding awards under the MEP is subject to adjustment as a result of mergers, consolidations, stock dividends, stock splits and other dilutive changes in our common stock.

        Administration.    The MEP is administered by our compensation committee, provided that all actions of the compensation committee require the prior approval of the board. The compensation committee may adopt such rules as it may deem appropriate in order to carry out the purpose of the MEP. All questions of interpretation, administration and application of the MEP shall be determined in good faith by a majority of the members of the compensation committee, except that the compensation committee may authorize any one or more of its members, or any officer, to execute and deliver documents on behalf of the compensation committee.

        Options.    The compensation committee awarded options to purchase 7,046,857 shares of our common stock pursuant to the MEP. The compensation committee determined the terms for each option, except that the exercise price of the options is specified in the MEP. The exercise of certain options, however, have been adjusted to take into account the effects of certain corporate restructurings and distributions. An option holder may exercise an option by written notice and payment of the exercise price in cash or, in the sole discretion of the compensation committee by "cashless" exercise, in shares of our common stock already owned by the option holder, in other property acceptable to the compensation committee or in any combination of cash, "cashless" exercise, shares of common stock or such other property as determined by the compensation committee in its discretion. Options awarded under the MEP have generally been subject to vesting at the rate of 25% per year. However, certain awards that related to prior option awards were given vesting from the date of their related option awards. Further, as a result of this offering, all outstanding options were given an additional 30 percentage points of vesting (but not in excess of 100% overall vesting).

        In addition, the MEP previously allowed the compensation committee to award options to purchase shares of our preferred stock. Such options were awarded with respect to 357,377 shares of our preferred stock as of June 30, 2004 on an as-converted to common basis. Such options have been converted into options to purchase 357,377 shares of common stock. Such options generally have the same treatment described herein as non-qualified options to purchase common stock awarded under the MEP.

        Restricted Stock.    The compensation committee awarded 285,000 shares of restricted stock pursuant to the MEP. Restricted stock awards consist of shares of stock that are transferred to the participant subject to restrictions that may result in forfeiture if specified conditions are not satisfied. The compensation committee determined the restrictions and conditions applicable to each award of restricted stock at the time of grant. However, all shares of restricted stock were fully vested upon award.

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        Transferability.    Awards granted under the MEP generally are not transferable other than by will or by the laws of descent and distribution.

        Change of Control.    In the event that (i) the company is merged or consolidated with another corporation, (ii) all or substantially all the assets of the company are acquired by another corporation, person or entity, or (iii) the company is reorganized, dissolved or liquidated, the compensation committee may in its discretion (A) adjust the number of awards granted to each participant and the number of awards that may be granted generally pursuant to the MEP, (B) adjust the exercise price of any options, and (C) make any other adjustments, or take such action, as the compensation committee, in its discretion, deems appropriate.

        Forfeiture of Awards.    The MEP generally provides for forfeiture of awards granted under the MEP in the event a participant engages in a "competing business" (as defined in the MEP) or engages in a "wrongful solicitation" (as defined in the MEP) while employed by the Company or a subsidiary or within 13 months of termination of employment.

        Term of the MEP; Amendment and Termination.    The MEP became effective on November 9, 2000, was amended and restated prior to the date of this prospectus, and will continue until terminated by the board. The board may at any time and from time to time alter, amend, suspend or terminate the MEP in whole or in part. Generally, no termination or amendment of the MEP may, without the consent of the participant to whom any awards previously have been granted, adversely affect the rights of such participant in such awards. As indicated above, however, there will be no additional awards under this MEP, except for adjustments required by its terms.

2004 Equity Incentive Plan

        The following is a summary of the material terms of our 2004 Equity Incentive Plan, which we refer to as the 2004 EIP. This description is not complete. For more information, we refer you to the full text of the 2004 EIP, which has been filed as an exhibit to the registration statement of which this prospectus forms a part. We adopted the 2004 EIP effective prior to the date of this prospectus.

        The 2004 EIP authorizes the grant of "non-qualified" (for purposes of the Code) stock options, incentive stock options (for purposes of the Code), stock appreciation rights (including tandem stock appreciation rights), restricted stock, restricted stock units and other stock-based awards to our employees, directors and affiliates. A maximum of 1,000,000 shares of our common stock may be subject to awards under the 2004 EIP. The number of shares issued or reserved pursuant to the 2004 EIP (or pursuant to outstanding awards) is subject to adjustment as a result of mergers, consolidations, reorganizations, stock splits, stock dividends and other dilutive changes in our common stock. Shares subject to any awards that expire without being exercised or that are forfeited shall again be available for future grants of awards under the 2004 EIP. In addition, shares subject to awards that have been retained by us in payment or satisfaction of the purchase price or tax withholding obligation of an award shall not count against the limit described above.

        Administration.    The 2004 EIP is administered by our compensation committee provided that all actions of the compensation committee require prior approval of the board. The committee has the sole discretion to determine the employees and directors to whom awards may be granted under the 2004 EIP, the manner in which such awards will vest and the other conditions applicable to awards. Options, stock appreciation rights, restricted stock and other stock-based awards may be granted by the committee to employees and directors in such numbers and at such times during the term of the 2004 EIP as the committee shall determine. The committee is authorized to interpret the 2004 EIP, to establish, amend and rescind any rules and regulations relating to the 2004 EIP and to make any other determinations that it deems necessary or desirable for the administration of the 2004 EIP. The committee may correct any defect, supply any omission or reconcile any inconsistency in the 2004 EIP in the manner and to the extent the committee deems necessary or desirable.

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        Options.    The compensation committee will determine the exercise price and other terms for each option and whether the options are non-qualifed stock options or incentive stock options. Incentive stock options may be granted only to employees and are subject to certain other restrictions. To the extent an option intended to be an incentive stock option does not so qualify, it will be treated as a non-qualified option. An option holder may exercise an option by written notice and payment of the exercise price in a form acceptable to the committee, which may include: by cash, check or wire transfer; by the surrender of a number of shares of common stock already owned by the option holder for at least the minimum period required by law and to avoid any accounting charge with a fair market value equal to the exercise price; to the extent permitted by law, through the delivery of irrevocable instructions to a broker to sell shares obtained upon the exercise of the option and to deliver to us an amount out of the proceeds of the sale equal to the aggregate exercise price for the shares being purchased; or another method approved by the committee.

        Stock Appreciation Rights.    The compensation committee may grant stock appreciation rights independent of or in connection with an option. The exercise price per share of a stock appreciation right will be an amount determined by the committee, and the committee will determine the other terms applicable to stock appreciation rights. Generally, each stock appreciation right will entitle a participant upon exercise to an amount equal to:

        Payment shall be made in common stock or in cash, or partly in common stock and partly in cash, all as shall be determined by the committee.

        Restricted Stock and Restricted Stock Units.    The compensation committee may award restricted common stock and restricted stock units. Restricted stock awards consist of shares of stock that are transferred to the participant subject to restrictions that may result in forfeiture if specified conditions are not satisfied. Restricted stock unit awards result in the transfer of shares of cash or stock to the participant only after specified conditions are satisfied. The committee will determine the restrictions and conditions applicable to each award of restricted stock or restricted stock units. The vesting period for awards of restricted stock and restricted stock units will generally be not less than three years.

        Other Stock-Based Awards.    The compensation committee may grant awards of rights to purchase stock, bonus shares, phantom stock units, performance shares and other awards that are valued in whole or in part by reference to, or are otherwise based on the fair market value of, shares of our common stock. The other stock-based awards will be subject to terms and conditions established by the committee.

        Performance  Criteria.    Vesting of awards granted under the 2004 EIP may be subject to the satisfaction of one or more performance goals established by the compensation committee. The performance goals may vary from participant to participant, group to group, and period to period.

        Transferability.    Unless otherwise determined by the compensation committee, awards granted under the 2004 EIP are not transferable other than by will or by the laws of descent and distribution.

        Change of Control.    The compensation committee may provide, either at the time an award is granted or thereafter, that a change in control (as defined in the 2004 EIP) that occurs after the offering shall have such effect as specified by the committee, or no effect, as the committee in its sole discretion may provide.

        Term of the 2004 EIP; Amendment and Termination.    The 2004 EIP became effective prior to the date of this prospectus, and will terminate on the tenth anniversary thereof unless sooner terminated. The board may amend, alter or discontinue the 2004 EIP in any respect at any time, but no amendment may diminish any of the rights of a participant under any awards previously granted, without his or her consent, unless such amendment is approved by the committee of plan participants and affects all participants in the same manner.

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In addition, shareholder approval is required for any amendment that would increase the maximum number of shares available for awards, reduce the price at which options may be granted, reduce the exercise price of any outstanding option or extend the term of the 2004 EIP.

Federal Income Tax Consequences of Awards Under the MEP and 2004 EIP.

        The following discussion summarizes certain federal income tax consequences of the issuance and receipt of options and other stock-based awards under the MEP and the 2004 EIP under the law as in effect on the date hereof. The summary does not purport to cover all federal employment tax or other federal tax consequences that may be associated with the MEP or the 2004 EIP, nor does it cover state, local, or non-U.S. taxes.

        When a non-qualified stock option is granted, no income will be recognized by the option holder. When a non-qualified stock option is exercised, in general, the option holder will recognize ordinary compensation income equal to the excess, if any, of the fair market value of the underlying common stock on the date of exercise over the exercise price multiplied by the number of shares of common stock subject to the option that was exercised. We are entitled to a deduction subject to possible limitations under Sections 162(m) and 280G of the Code as discussed below equal to the amount of compensation income recognized by the option holder for our taxable year that ends with or within the taxable year in which the option holder recognized the compensation.

        A participant is not taxed on the grant or exercise of an incentive stock option (an "ISO"). The difference between the exercise price and the fair market value of the shares on the exercise date will, however, be a preference item for purposes of the alternative minimum tax. If an option holder holds the shares acquired upon exercise of an ISO for at least two years following the option grant date and at least one year following exercise, the option holder's gain, if any, upon a subsequent disposition of such shares is long term capital gain. The measure of the gain is the difference between the proceeds received on disposition and the option holder's basis in the shares (which generally equals the exercise price). If an option holder disposes of stock acquired pursuant to exercise of an ISO before satisfying the one and two-year holding periods described above, the option holder will recognize both ordinary income and capital gain in the year of disposition. The amount of the ordinary income will be the lesser of (i) the amount realized on disposition less the option holder's adjusted basis in the stock (usually the exercise price) or (ii) the difference between the fair market value of the stock on the exercise date and the exercise price. The balance of the consideration received on such a disposition will be long-term capital gain if the stock had been held for at least one year following exercise of the ISO and otherwise will be short-term capital gain. We are not entitled to an income tax deduction on the grant or exercise of an ISO or on the option holder's disposition of the shares after satisfying the holding period requirement described above. If the holding periods are not satisfied, we will be entitled to a deduction in the year the option holder disposes of the shares in an amount equal to the ordinary income recognized by the option holder.

        When a stock appreciation right is granted, no income will be recognized by the participant. When a stock appreciation right is exercised, in general, the participant will recognize ordinary compensation income equal to the cash and/or the fair market value of the shares received upon exercise. We are entitled to a deduction subject to possible limitations under Sections 162(m) and 280G of the Code as discussed below equal to the compensation income recognized by the participant.

        Generally, when a restricted stock unit or a share of restricted stock is granted, no income will be recognized by the participant. Upon the payment to the participant of common shares in respect of restricted share units or the release of restrictions on restricted stock, the participant generally recognizes ordinary compensation income equal to the fair market value of the shares as of the date of delivery or release. We are entitled to a deduction subject to possible limitations under Sections 162(m) and 280G of the Code as discussed below equal to the compensation income recognized by the participant.

        In general, under Section l62(m) of the Code, remuneration paid by a public corporation to its chief executive officer or any of its other top four named executive officers, ranked by pay, is not deductible to the

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extent it exceeds $1,000,000 for any year. However, Section 162(m) excepts from this rule certain amounts payable pursuant to plans or agreements adopted before an initial public offering if certain additional requirements are met. We intend to take advantage of this exception and expect that Section 162(m) will not limit the deductibility of any amounts payable pursuant to the MEP or the 2004 EIP.

        Under the so-called "golden parachute" provisions of the Code, the accelerated vesting of stock options and benefits paid under other awards in connection with a change in control of a corporation may be required to be valued and taken into account in determining whether participants have received compensatory payments, contingent on the change in control, in excess of certain limits. If these limits are exceeded, a portion of the amounts payable to the participant may be subject to an additional 20% federal tax and may be nondeductible to us.

        A participant may be required to pay to us or make arrangements satisfactory to us to satisfy all federal, state and other withholding tax requirements related to awards under the MEP or the 2004 EIP.

Employee Stock Purchase Plan

        The following is a summary of the material terms of our Employee Stock Purchase Plan, which we refer to as the ESPP. We adopted the ESPP effective prior to the date of this prospectus.

        The purpose of the ESPP is to encourage and enable our eligible employees and the employees of our U.S. subsidiaries to acquire a proprietary interest in us through the ownership of shares of our common stock. A maximum of 1,000,000 shares of our common stock may be purchased under the ESPP.

        Administration.    The ESPP is administered by our compensation committee subject to direction by the board. All questions of interpretation of the ESPP are determined by the compensation committee, whose decisions are final and binding upon all participants. The committee may delegate its responsibilities under the ESPP to one or more other persons.

        Eligibility.    Each employee who has six months of continuous service as of the beginning of the applicable subscription period, is scheduled to work 20 or more hours per week, and whose customary employment is more than five months in a calendar year is eligible to participate in the ESPP.

        Subscription Periods.    There are twelve monthly subscription periods in each calendar year. Each subscription period begins on the first day of the month and ends on the last day of the month. The first subscription period for the ESPP is a short subscription period that begins on the date of the IPO and ends on the last day of the month in which the IPO occurs.

        An eligible employee may begin participating in the ESPP effective at the beginning of a subscription period. Once enrolled in the ESPP, a participant is able to purchase our common stock with payroll deductions at the end of the applicable subscription period. Once a subscription period is over, a participant is automatically enrolled in the next subscription period unless the participant chooses to withdraw from the ESPP.

        Purchase Price.    The purchase price per share at which shares are purchased under the ESPP is based on the fair market value of the common stock. We generally pay any brokerage fees, commissions and other transaction expenses associated with the purchase of the shares up to a maximum of 5% of fair market value of the purchased shares.

        Payment of Purchase Price; Payroll Deductions.    A participant may designate payroll deductions to be used to purchase stock equal to a percentage of the participant's compensation that is at least 1% and that does not exceed a maximum rate set by the compensation committee (which rate may be changed from time to time, but in no event shall be greater than 15%). A participant may only change the percentage of compensation that is deducted to purchase shares under the ESPP (other than to withdraw entirely from the ESPP, as set forth below) effective at the beginning of a subscription period.

        At the end of each subscription period, unless the participant has withdrawn from the ESPP, payroll deductions are applied automatically to purchase common stock at the price described above. The number

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of shares purchased is determined by dividing the payroll deductions by the applicable purchase price. Fractional shares are issued, so no funds will be carried over to the next subscription period.

        Limitations.    If the event of a stock dividend, stock split, reverse stock split, recapitalization, reorganization, merger, spin-off, or similar event affecting our common stock, the compensation committee will appropriately adjust the number of shares available under the ESPP.

        A participant is not permitted to purchase shares under the ESPP if the participant would own common stock possessing 5% or more of the total combined voting power or value of all classes of the our common stock. A participant is also not permitted to purchase the common stock with a fair market value in excess of $25,000 in any one calendar year.

        A participant does not have the rights of a shareholder until the shares of stock are actually owned by the participant. A participant may not transfer the right to purchase stock under the ESPP.

        Withdrawal.    A participant's interest in a given subscription period may be terminated in whole, but not in part, by signing and delivering a notice of withdrawal from the ESPP. The failure to remain continuously employed for any reason during a subscription period will be deemed to be a withdrawal from that offering. Upon withdrawal for any reason, all withheld payroll amounts will be refunded to the participant (or the participant's estate, if applicable).

        Non-transferability.    Rights to purchase common stock under the ESPP may not be transferred by a participant and may be exercised during a participant's lifetime only by the participant.

        Amendment and Termination of the Plan.    The board has the power to amend or terminate the ESPP at any time, except that the board may not, without first obtaining stockholder approval, increase the number of shares reserved under the ESPP other than as otherwise provided in the ESPP, change the eligibility requirements to participate in the ESPP, or otherwise materially change the benefits provided in the ESPP.

        Federal Income Tax Consequences.    The following discussion summarizes certain federal income tax consequences of participation in the ESPP under the law as in effect on the date hereof. The summary does not purport to cover all federal employment tax or other federal tax consequences that may be associated with the ESPP, nor does it cover state, local, or non-U.S. taxes.

        The ESPP, and the right of participants to make purchases thereunder, meet the requirements of Sections 421 and 423 of the Code. No income will be taxable to a participant at the time of the grant of the right to purchase shares or the actual purchase of the shares. Rather, upon disposition of the shares, the participant will generally be subject to tax, and the amount of the tax will depend upon the participant's holding period. Payroll deductions under the ESPP are subject to income tax and the normal tax withholding rules.

        Upon disposition of shares acquired under the ESPP, the participant generally will not recognize any ordinary income. The difference between the consideration received for the shares and the participant's tax basis (generally the price paid for the shares) will be long-term or short-term capital gain or loss, depending on the holding period from the date the shares are purchased. We are not entitled to a deduction with respect to capital gain recognized by a participant.

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CERTAIN RELATIONSHIPS AND TRANSACTIONS

Relationship with Morgan Stanley

        After giving effect to this offering, the Morgan Stanley Funds will own 61.0% of our outstanding common stock and, should the underwriters exercise in full the over-allotment option, 58.6% of our outstanding common stock.

        As of March 31, 2004, Morgan Stanley Senior Funding, Inc., a subsidiary of Morgan Stanley, had a $5.0 million participation in and acts as an agent under our new senior secured credit facility, and it acts as an agent under our new senior second lien term loan. Morgan Stanley Senior Funding was a lender and acted as agent under our former senior secured credit facility. Morgan Stanley & Co. Incorporated, an affiliate of Morgan Stanley, is acting as one of the representatives of the underwriters of this offering.

        Since the beginning of our 2002 fiscal year until repayment of our former secured credit facility in March 2004, Morgan Stanley Senior Funding received fees totaling $0.3 million for its services as agent under that facility. In addition to these fees, other affiliates of Morgan Stanley have received a total of $0.3 million in fees and expense reimbursements for services provided to us since the beginning of our 2002 fiscal year, including $0.1 million in connection with the ESG acquisition. In connection with the March 2004 refinancing of our existing credit agreements and related recapitalization, Morgan Stanley Senior Funding received the following fees for its role in arranging the new credit facilities: $0.5 million for the senior secured revolving credit facility, $1.1 million for the senior secured term loan B and $0.9 million for the senior second lien term loan. Morgan Stanley Senior Funding is not entitled to receive any ongoing fees or expense reimbursements for any services rendered under the credit agreements. Morgan Stanley Senior Funding is not committed to fund any portion of the senior secured term loan B or the senior second lien term loan and accordingly will not receive any amounts if any of those loans are prepaid.

        As part of the March 2004 recapitalization and the related distribution of $258.4 million to stockholders, the Morgan Stanley Funds received approximately $217 million.

        Morgan Stanley and a new independent private equity firm, Metalmark Capital LLC, led by Howard Hoffen and senior members of Morgan Stanley Capital Partners including Eric Fry and Michael Hoffman, have agreed that an affiliate of Metalmark Capital LLC will manage MSCP IV and certain of its related funds on a sub-advisory basis. This sub-advisory relationship is expected to commence in the third quarter of 2004.

Securityholder Agreement

        We entered into a securityholder agreement with MSCP IV and our other equity holders dated as of November 9, 2000, providing for certain governance matters, restrictions on transfers of our equity interests by certain equity holders and certain registration rights. Prior to the date of this prospectus, we entered into an amended and restated securityholder agreement, which we refer to herein as the securityholder agreement, with MSCP IV, the other Morgan Stanley Funds, the J.P. Morgan Funds, and the GM Stockholders, as well as with certain members of our senior management who own an aggregate of 284,988 shares of common stock and options to purchase an aggregate of 4,826,091 shares of common stock.

        All significant decisions involving our company or our subsidiaries require the approval of our board of directors, acting by a simple majority vote. The securityholder agreement provides that our board of directors will consist of seven members upon the closing of this offering, which may be increased to not more than nine members at the discretion of our board of directors. Our chief executive officer will be a nominee for election to our board of directors. MSCP IV is entitled to designate a majority of the nominees for election to our board of directors and to designate a majority of the members of our compensation committee and nominating and corporate governance committee. The parties to the securityholder agreement have agreed with us to vote their shares of common stock to elect such nominees

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for director. Such rights are subject to any listing requirement of the New York Stock Exchange on which the shares of our common stock are expected to be traded, and to any other requirements of the Exchange Act, which may require that some of such nominees and committee members be "independent," as such term is defined in Rule 10A-3(b)(i) under the Exchange Act or otherwise. Such rights to designate a majority of such nominees or committee members will terminate when we are no longer able to take advantage of the "controlled company" exemption under the New York Stock Exchange listing requirements. Thereafter, and until MSCP IV and our other existing institutional stockholders cease to own at least 15% of our outstanding common stock, MSCP IV will be entitled to designate a number of such nominees or members that is proportionate to such stockholders' percentage holdings of our common stock.

        Since MSCP IV and our other existing institutional stockholders will continue to hold more than 50% of the voting power of our common stock following this offering, we are a "controlled company" within the meaning given to that term in the New York Stock Exchange listing requirements. So long as we are a "controlled company," we are permitted to and have opted out of several of the NYSE's corporate governance requirements, including, among others, the requirements that a majority of our board of directors be independent directors and that all the members of our compensation and nominating and corporate governance committees be independent directors. We intend to continue to take advantage of the "controlled company" exemption to the New York Stock Exchange listing requirements unless and to the extent MSCP IV shall otherwise request.

        We have agreed with each member of our senior management who is a party to the securityholder agreement that such person may not, directly or indirectly, transfer or encumber his or her shares of our common stock owned, or issuable upon the exercise of options, immediately prior to the closing of this offering, subject to certain exceptions. These restrictions terminate with respect to such person when either (a) the Morgan Stanley Funds own less than 15% of our outstanding common stock or (b) with respect to vested shares and options under the MEP, such person's employment is terminated by us without "cause" or by such person for "good reason," or upon such person's death, "permanent disability" or "retirement" (in each case as defined in such agreement), but in no event earlier than the one hundred eightieth day after the completion of this offering. No member of our senior management who is party to the securityholder agreement may make any sale of, or encumber, his or her shares of common stock if the average daily closing price on the securities exchange on which such shares of common stock are traded for the 20-trading day period immediately preceding such proposed sale or encumbrance is equal to or less than the per share initial public offering price of our common stock sold in this offering subject to certain exceptions.

        We have agreed with each of our institutional stockholders, other than certain Morgan Stanley Funds, that is a party to the securityholder agreement that such stockholder may not, directly or indirectly, transfer or encumber its shares of our common stock owned immediately prior to the closing of this offering, subject to certain exceptions. These restrictions terminate when the Morgan Stanley Funds own less than 15% of our outstanding common stock.

        We have agreed that MSCP IV and certain of its related funds and each J. P. Morgan Fund and GM Stockholder has the ability, subject to certain exceptions, to require us to register the shares of common stock held by parties to the securityholder agreement in connection with the resale of such shares, so long as the aggregate market value of the shares to be registered is at least $50 million, in the case of requests involving an underwritten public offering, or $15 million, in the case of any other public offering. In addition, each party to the securityholder agreement will have the ability to exercise certain "piggyback" registration rights in connection with other registered offerings by us. We have agreed to pay all registration expenses in connection with the exercise of the registration rights included under the securityholder agreement. In addition, we have agreed to indemnify the parties to the securityholder agreement who exercise their registration rights against certain liabilities, including under the Securities Act.

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        We urge you to read our complete securityholder agreement, which is included as an exhibit to the registration statement of which this prospectus forms a part.

Indemnity and Expense Agreement

        We have agreed with each Morgan Stanley Fund, in an agreement dated March 22, 2002, that, to the fullest extent permitted by law, none of such stockholders, or any of their respective partners or other affiliates, or their respective members, shareholders, directors, managers, officers, employees, agents or other affiliates, or any person or entity who serves at the request of any such stockholder on behalf of any person or entity as an officer, director, manager, partner or employee of any person or entity (referred to as indemnified parties), shall be liable to us for any act or omission taken or suffered by such indemnified party in connection with the conduct of our affairs or otherwise in connection with such stockholder's ownership of shares of our common stock, unless such act or omission resulted from fraud, wilful misconduct or gross negligence by such indemnified party or any mistake, negligence, dishonesty or bad faith of any agent of such indemnified party.

        We have also agreed with each Morgan Stanley Fund that, to the fullest extent permitted by law, we will indemnify each of such indemnified parties for any and all liabilities and expenses (including amounts paid in satisfaction of judgments, in compromises and settlements, as fines and penalties and legal or other costs and reasonable expenses of investigating or defending against any claim or alleged claim) of any nature whatsoever, known or unknown, liquidated or unliquidated, that are incurred by such indemnified party and arise out of or in connection with our affairs, or any indemnified party's ownership of shares of our common stock, including acting as a director, manager or officer or its equivalent; provided that an indemnified party shall be entitled to indemnification only to the extent that such indemnified party's conduct did not constitute fraud, wilful misconduct or gross negligence.

        We have also agreed to pay, or reimburse, each Morgan Stanley Fund for, all such stockholder's reasonable out-of-pocket fees and expenses incurred in connection with or related to such stockholder's ownership of shares of our common stock. Since the beginning of our 2002 fiscal year, we have paid a total of $0.2 million to the Morgan Stanley Funds under this agreement.

        As a result of the Morgan Stanley Funds holding approximately 61.0% of our outstanding shares of common stock, after giving effect to this offering, and their rights under the securityholder agreement, Morgan Stanley may be deemed to control our management and policies. In addition, Morgan Stanley may be deemed to control all matters requiring stockholder approval, including the election of our directors, the adoption of amendments to our certificate of incorporation and the approval of mergers and sales of all or substantially all our assets. Circumstances could arise under which the interests of Morgan Stanley could be in conflict with the interests of our other stockholders.

Relationship with our Management

        We have entered into employment or directorship agreements with our executive officers, granted stock options to our executive officers under our management equity plan and paid certain bonuses to our executive officers. See "Management."

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PRINCIPAL STOCKHOLDERS

        Set forth below is certain information concerning the beneficial ownership, as of June 30, 2004, of our common stock and preferred stock, and as adjusted to give effect to the offering, by each person known to us to be a beneficial owner of more than 5% of any class of our capital stock, by each of our directors, by each of our named executive officers, by all management equityholders as a group and by all our directors and executive officers as a group.

 
  Before the Offering
  After the Offering
 
 
  Common Stock
  Preferred Stock(1)
  Common Stock
 
 
  Number of
Shares

  Percent
of Class(2)

  Number of
Shares

  Percent
of Class(2)

  Number of
Shares

  Percent
of Class(2)

 
MSCP Funds(3)
1585 Broadway
New York, NY 10036
  10,729,423   62.8% (4) 14,901,274   65.4 % 25,630,697   48.9 %
MSGEM Funds(5)
1585 Broadway
New York, NY 10036
    (6) 2,377,848   10.4   2,377,848   4.5  
J.P. Morgan Funds(7)
522 Fifth Avenue
New York, NY 10036
    (8) 2,774,167   12.2   2,774,167   5.3  
GM Stockholders(9)
767 Fifth Avenue
New York, NY 10153
    (10) 2,377,849   10.4   2,377,849   4.5  
John D. Craig   1,860,651   10.9 (11) 164,692   *   2,025,343   3.9  
Michael T. Philion   744,146   4.4 (12) 82,363   *   826,509   1.6  
Richard W. Zuidema   722,885   4.2 (13) 24,692   *   747,577   1.4  
John A. Shea   722,885   4.2 (14) 32,945   *   755,830   1.4  
Raymond R. Kubis   356,701   2.1 (15)     356,701   *  
Howard I. Hoffen     (16)        
Eric T. Fry     (16)        
Michael C. Hoffman     (16)        
Chad L. Elliott              
Dennis S. Marlo              
John F. Lehman              
All management equityholders as a group (82 persons, including Messrs. Craig, Philion, Zuidema, Shea and Kubis)   6,343,453   37.2 (17) 357,377   1.6   6,668,426   12.7  
All directors and executive officers as a group (11 persons, including Messrs. Craig, Philion, Zuidema, Shea and Kubis)   4,407,268   25.8 (18) 304,692   1.3   4,711,960   9.0  

*
Less than 1% of the class.

(1)
"Preferred Stock" is our Series A Convertible Preferred Stock. See "Description of Capital Stock, Certificate of Incorporation and Bylaws—General Matters." Effective immediately prior to this offering, all outstanding shares of Preferred Stock are being converted into shares of common stock. Accordingly, the share amounts shown are on an as-converted to common stock basis.

(2)
Assumes exercise of all outstanding options held exercisable within 60 days.

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(3)
Includes Morgan Stanley Dean Witter Capital Partners IV, L.P., MSDW IV 892 Investors, L.P. and Morgan Stanley Dean Witter Capital Investors IV, L.P. Morgan Stanley and a new independent private equity firm, Metalmark Capital LLC, led by Howard Hoffen and senior members of Morgan Stanley Capital Partners including Eric Fry and Michael Hoffman, have agreed that an affiliate of Metalmark Capital LLC will manage MSCP IV and certain of its related funds on a sub-advisory basis. This sub-advisory relationship is expected to commence in the third quarter of 2004. As a result of such agreement, Metalmark Capital LLC may be deemed to control our management and policies.

(4)
Does not include 14,901,274 shares of common stock issuable upon the conversion of preferred stock which, if included, and assuming conversion of all outstanding shares of preferred stock and exercise of all outstanding options to purchase preferred stock exercisable within 60 days, would increase the percent of class owned to 64.3%. Assuming no exercise of options, the percent of class owned after the offering would be 55.8%

(5)
Includes Morgan Stanley Global Emerging Markets Private Investment Fund, L.P. and Morgan Stanley Global Emerging Markets Private Investors, L.P.

(6)
Does not include 2,377,848 shares of common stock issuable upon the conversion of preferred stock which, if included, and assuming conversion of all outstanding shares of preferred stock and exercise of all outstanding options to purchase preferred stock exercisable within 60 days, would represent 6.0% of the class. Assuming no exercise of options, the percent of class owned after the offering would be 5.2%.

(7)
Includes J.P. Morgan Direct Corporate Finance Institutional Investors LLC, J.P. Morgan Direct Corporate Finance Private Investors LLC and 522 Fifth Avenue Fund, L.P.

(8)
Does not include 2,774,167 shares of common stock issuable upon the conversion of preferred stock which, if included, and assuming conversion of all outstanding shares of preferred stock and exercise of all outstanding options to purchase preferred stock exercisable within 60 days, would represent 7.0% of the class. Assuming no exercise of options, the percent of class owned after the offering would be 6.0%.

(9)
Includes First Plaza Group Trust and GM Capital Partners I, L.P.

(10)
Does not include 2,377,849 shares of common stock issuable upon the conversion of preferred stock which, if included, and assuming conversion of all outstanding shares of preferred stock and exercise of all outstanding options to purchase preferred stock exercisable within 60 days, would represent 6.0% of the class. Assuming no exercise of options, the percent of class owned after the offering would be 5.2%.

(11)
Includes 134,121 shares of common stock and 1,726,530 shares of common stock subject to outstanding options that are exercisable within 60 days. Does not include 164,692 shares of common stock issuable upon the conversion of preferred stock subject to options that are exercisable within 60 days, which, if included, and assuming conversion of all outstanding shares of preferred stock and exercise of all outstanding options to purchase preferred stock exercisable within 60 days, would decrease the percent of class owned to 4.7%.

(12)
Includes 53,666 shares of common stock and 690,470 shares of common stock subject to outstanding options that are exercisable within 60 days. Does not include 82,363 shares of common stock issuable upon the conversion of preferred stock subject to options that are exercisable within 60 days, which, if included, and assuming conversion of all outstanding shares of preferred stock and exercise of all outstanding options to purchase preferred stock exercisable within 60 days, would decrease the percent of class owned to 1.9%.

(13)
Includes 32,405 shares of common stock and 690,470 shares of common stock subject to outstanding options that are exercisable within 60 days. Does not include 24,692 shares of common stock issuable

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(14)
Includes 32,405 shares of common stock and 690,470 shares of common stock subject to outstanding options that are exercisable within 60 days. Does not include 32,945 shares of common stock issuable upon the conversion of preferred stock subject to options that are exercisable within 60 days, which, if included, and assuming conversion of all outstanding shares of preferred stock and exercise of all outstanding options to purchase preferred stock exercisable within 60 days, would decrease the percent of class owned to 1.8%.

(15)
Includes 0 shares of common stock and 356,701 shares of common stock subject to outstanding options that are exercisable within 60 days.

(16)
Messrs. Hoffen, Fry and Hoffman are Managing Directors of Morgan Stanley and exercise shared voting and investment power over the shares owned by the Morgan Stanley Funds. Messrs. Hoffen, Fry and Hoffman disclaim beneficial ownership of these shares except to the extent of their pecuniary interest therein. Morgan Stanley and a new independent private equity firm, Metalmark Capital LLC, led by Mr. Hoffen and senior members of Morgan Stanley Capital Partners including Messrs. Fry and Hoffman, have agreed that an affiliate of Metalmark Capital LLC will manage MSCP IV and certain of its related funds on a sub-advisory basis. This sub-advisory relationship is expected to commence in the third quarter of 2004.

(17)
Includes 284,998 shares of common stock and 6,058,455 shares of common stock subject to outstanding options that are exercisable within 60 days. Does not include 357,377 shares of common stock issuable upon the conversion of preferred stock subject to options that are exercisable within 60 days, which, if included, and assuming conversion of all outstanding shares of preferred stock, would decrease the percent of class owned to 16.8%.

(18)
Includes 252,594 shares of common stock and 4,154,674 shares of common stock subject to outstanding options that are exercisable within 60 days. Does not include 304,692 shares of common stock issuable upon the conversion of preferred stock subject to options that are exercisable within 60 days, which, if included, and assuming conversion of all outstanding shares of preferred stock, would decrease the percent of class owned to 12.4%.

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DESCRIPTION OF OUR CREDIT FACILITIES

General

        Our wholly-owned subsidiary, EnerSys Capital Inc., entered into new senior secured and senior second lien credit facilities on March 17, 2004, with a group of lenders for which Bank of America, N.A. acts as administrative agent and collateral agent, Morgan Stanley Senior Funding, Inc. acts as syndication agent, and Lehman Commercial Paper Inc. acts as documentation agent. Morgan Stanley & Co. Inc., an affiliate of Morgan Stanley Senior Funding, Lehman Brothers Inc., an affiliate of Lehman Commercial Paper Inc., and Banc of America Securities LLC, an affiliate of Bank of America, N.A., are acting as the representatives of the underwriters of the offering.

        The $480.0 million senior secured facility consists of:

        The senior second lien term loan consists of an eight-year term loan in the initial aggregate principal amount of $120.0 million.

        The proceeds of the term loan B and the second lien term loan were used to repay existing indebtedness and accrued interest in the aggregate amount of $219.0 million, to fund a cash payment in the aggregate amount of $270.0 million to existing stockholders and management and to pay transaction costs of $11.0 million.

Guarantees and Security

        The obligations of EnerSys Capital under the senior secured credit facility and the senior second lien credit facility are guaranteed by the company and each of the existing and future direct and indirect wholly-owned subsidiaries of EnerSys Capital other than foreign subsidiaries. The obligations of EnerSys Capital, the company and each of the subsidiary guarantors under the senior secured credit facility are secured by a first priority security interest in substantially all of the assets of EnerSys Capital, the company and the subsidiary guarantors, but the collateral is limited to 65% of the voting stock of any foreign subsidiary. The obligations of EnerSys Capital, the company and each of the subsidiary guarantors under the senior second lien credit facility are secured by a second-priority lien in the same collateral.

Interest Rates

        Interest accrues on loans under our credit facilities at rates equal to LIBOR or, at our option, an alternate base rate—Bank of America's prime rate or the federal funds rate plus 0.5%—in each case as in effect from time to time, plus an applicable interest rate margin. For LIBOR-based loans under the senior secured credit facility the applicable margin is currently 2.5% per year, with provisions for decreases in the margin in increments of 0.25% if our leverage ratio (determined as described under "Covenants" below) improves. The lowest applicable margin is 1.5%, which would apply if our leverage ratio improved to less than 2.5 to 1. Applicable margins on base rate loans under the senior secured credit facility range from the currently applicable level of 1.5% per year to a low of 0.5% and would decline in tandem with margins on LIBOR-based loans (also in increments of 0.25%) if our leverage ratio improved. Under the senior second lien credit facility the applicable margins are 5.0% per year for LIBOR-based loans and 4.0% for base rate loans. For a period of at least three years, EnerSys Capital is required to maintain interest rate protection on a portion of the term loans to minimize its exposure to increases in short-term interest rates.

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Maturity

        The lenders' commitments under the senior secured revolving credit facility terminate on March 17, 2009. Generally, amounts repaid under the senior secured revolving credit facility may be re-borrowed until its termination or such date as the revolving commitments are earlier terminated or reduced. The senior secured term loan B is subject to quarterly amortization in an amount equal to 0.25% of its initial principal amount, with the entire remaining principal balance payable on March 17, 2011. Principal under the senior second lien term loan is payable in a single installment on March 17, 2012.

Prepayment and Commitment Reductions

        Under the terms of our credit facilities, we are permitted to use proceeds of this offering to repay amounts outstanding under our senior second lien term loan, so long as the net proceeds of the offering are at least $50.0 million and we have a leverage ratio of 3.0 to 1 or less after giving effect to such prepayment. We expect to meet these conditions and intend to repay in full amounts outstanding under our senior second lien term loan. The prepayment of the senior second lien term loan to be made from the proceeds of the common stock offered hereby will require payment of a prepayment premium of 2.00%. Thereafter, the following amounts must be applied to prepay principal outstanding under, and to permanently reduce commitments under, the senior secured credit facility:

        The senior secured facility provides that we may make optional prepayments of loans, in whole or in part, from time to time without premium or penalty. We may reduce or terminate the unused portion of the revolving credit commitment under the senior secured facility at any time without penalty.

Covenants

        The credit facilities contain affirmative covenants and other requirements. In general, the affirmative covenants provide for mandatory reporting of financial and other information to the lenders and notice to the lenders upon the occurrence of certain events. The affirmative covenants also include, among other things, a requirement to implement interest rate protection agreements on a portion of our debt and standard covenants requiring us to, among other things, keep our assets in good repair and insured, comply with laws, keep proper books and records, pay taxes in a timely manner and follow other similar good business practices all in a manner consistent with past practice.

        The credit facilities contain negative covenants and restrictions, including restrictions on our ability to:

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        The credit facilities require that we meet certain specified financial ratios which are measured by reference to our consolidated earnings before interest, income taxes, depreciation and amortization, or EBITDA, as calculated in accordance with the terms of the credit facilities. The following minimum or maximum ratios pertain to the senior secured credit facility. The covenant ratios in the senior second lien credit facility are less restrictive.

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Events of Default

        The credit facilities contain certain customary events of default including non-payment of principal, interest or other amounts, inaccuracy of representations and warranties, violation of covenants, cross-default to certain other indebtedness and agreements, bankruptcy and insolvency events, ERISA events, material judgments, actual or asserted impairment of loan documentation or security and change of control events.

Fees and Expenses

        We are required to pay certain fees in connection with the credit facilities, including letter of credit fees, a fixed annual administrative agency fee and commitment fees on the senior secured credit facility payable quarterly in arrears and based on the average daily unused portion of the commitment.

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DESCRIPTION OF CAPITAL STOCK, CERTIFICATE OF INCORPORATION AND BYLAWS

General Matters

        Upon the closing of this offering, our authorized capital stock will consist of 135,000,000 shares of common stock, par value $0.01 per share, of which 45,945,559 shares will be issued and outstanding (47,820,559 shares if the underwriters exercise their over-allotment option in full) and 1,000,000 shares of undesignated preferred stock, par value $0.01 per share, none of which will be outstanding, and we will have outstanding options to purchase an aggregate of 7,404,234 shares of common stock.

        As of June 30, 2004, we had outstanding 386,471 shares of Class A Common Stock, 787,058 shares of Series A Convertible Preferred Stock, options to purchase an aggregate of 247,260 shares of our Class A Common Stock and options to purchase 12,540 shares of our Series A Convertible Preferred Stock. On July 9, 2004, our then outstanding shares of Class A Common Stock were reclassified into 11,014,421 shares of our common stock and each of such shares of common stock was split into 28.5 shares of common stock. Prior to the date of this prospectus, all outstanding options to purchase shares of Series A Convertible Preferred Stock became options to purchase 357,377 shares of common stock, and all our outstanding shares of Series A Convertible Preferred Stock were converted into 22,431,138 shares of common stock.

        The following summary describes the material provisions of our capital stock. We urge you to read our certificate of incorporation and our bylaws, which are included as exhibits to the registration statement of which this prospectus forms a part.

        Certain provisions of our certificate of incorporation and bylaws summarized below will become operative immediately prior to consummation of this offering and may be deemed to have an anti-takeover effect and may delay or prevent a tender offer or takeover attempt that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares.

Common Stock

        Upon the closing of this offering, we will have one class of common stock. All holders of shares of common stock are entitled to the same rights and privileges. Holders of shares of common stock are entitled to one vote per share on the election or removal of our directors and on all other matters to be voted on by our stockholders.

        Holders of shares of common stock are not entitled to any preemptive right to subscribe for additional shares of common stock. The holders of shares of common stock are entitled to receive dividends, when, as and if declared by our board of directors, out of funds legally available therefor. Holders of shares of common stock are entitled to share ratably, upon dissolution or liquidation, in the assets available for distribution to holders of shares of common stock after the payment of all prior claims.

Preferred Stock

        Upon the closing of this offering, our authorized capital stock will include 1,000,000 shares of undesignated preferred stock, none of which will be issued or outstanding. Our board of directors will be authorized, without further action by our stockholders, to provide for the issuance of such preferred stock in one or more series and to fix the dividend rate, conversion privileges, voting rights, redemption rights, redemption price or prices, liquidation preferences and qualifications, limitations and restrictions thereof with respect to each series. Holders of shares of preferred stock may be entitled to receive a preference payment in the event of any liquidation, dissolution or winding-up of our company before any payment is made to the holders of shares of our common stock. In some circumstances, the issuance of shares of preferred stock may render more difficult or tend to discourage a merger, tender offer or proxy contest, the assumption of control by a holder of a large block of our securities or the removal of incumbent management. Upon the affirmative vote of our board of directors, without stockholder approval, we may

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issue shares of preferred stock with voting and conversion rights that could adversely affect the holders of shares of our common stock. We have no current intention to issue any additional shares of preferred stock. Shares of our Series A Convertible Preferred Stock converted to common stock prior to this offering will not be reissued.

Section 203 of the Delaware General Corporation Law

        Section 203 of the Delaware General Corporation Law may have the effect of delaying, deferring or preventing a change of control. In general, Section 203 of the Delaware General Corporation Law prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years following the date such stockholder became an "interested stockholder," unless:

        A "business combination" includes certain mergers, stock or asset sales and other transactions resulting in a financial benefit to the "interested stockholder." An "interested stockholder" is a person who, together with affiliates and associates, owns (or in the preceding three years, did own) 15% or more of the voting stock. The statute could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire us.

Limitation of Liability and Indemnification of Directors and Officers

        We have included in our certificate of incorporation and bylaws provisions to:

        Acting pursuant to the provisions of our certificate of incorporation and bylaws and the provisions of Section 145 of the Delaware General Corporation Law, we have entered into agreements with each of our officers and directors to indemnify them to the fullest extent permitted by such provisions and such law. We also are authorized to carry directors' and officers' insurance providing indemnification for our directors, officers and certain employees for some liabilities. We believe that these indemnification provisions and insurance are useful to attract and retain qualified directors and executive officers.

        The limitation of liability and indemnification provisions in our certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against

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directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. In addition, your investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.

        Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors or officers pursuant to the provisions described above, or otherwise, we have been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

Other Provisions of our Certificate of Incorporation and Bylaws

        Classified Board of Directors.    Our certificate of incorporation provides for our board of directors to be divided into three classes of directors serving staggered three-year terms. Each class shall consist, as nearly as may be practicable, of one-third of the total number of directors constituting our entire board of directors. As a result, approximately one-third of our board of directors will be elected each year. Moreover, except as otherwise provided in our securityholder agreement, stockholders may remove a director only for cause. This provision, when coupled with the provisions of our certificate of incorporation and bylaws authorizing, except as otherwise provided in our securityholder agreement, only our board of directors to fill vacant directorships, will preclude a stockholder from removing incumbent directors without cause and simultaneously gaining control of our board of directors by filling the vacancies created by such removal with its own nominees. This provision of our certificate of incorporation may not be amended or repealed by our stockholders except with the consent of the holders of two-thirds of our outstanding common stock.

        Special Meeting of Stockholders.    Our certificate of incorporation provides that special meetings of our stockholders may be called only by our board of directors or our Chairman of the Board. This provision will make it more difficult for stockholders to take action opposed by our board of directors. This provision of our certificate of incorporation may not be amended or repealed by our stockholders except with the consent of the holders of two-thirds of our outstanding common stock.

        No Stockholder Action by Written Consent.    Our certificate of incorporation provides that no action required or permitted to be taken at any annual or special meeting of our stockholders may be taken without a meeting, and the power of our stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. Such provision limits the ability of any stockholder to take action immediately and without prior notice to our board of directors. Such a limitation on a majority stockholder's ability to act might affect such person's or entity's decision to purchase our voting securities. This provision of our certificate of incorporation may not be amended or repealed by the stockholders except with the consent of the holders of two-thirds of our outstanding common stock.

        Advance Notice Requirements for Stockholder Proposals and Director Nominations.    Our bylaws provide that stockholders seeking to bring business before an annual meeting of stockholders, or to nominate candidates for election as directors at an annual or special meeting of stockholders, must provide timely notice thereof in writing. To be timely, a stockholder's notice must be delivered to, or mailed and received at, our principal executive offices: in the case of an annual meeting that is called for a date that is within 30 days before or after the anniversary date of the immediately preceding annual meeting of stockholders, not less than 90 days nor more than 120 days prior to such anniversary date or, in the case of a special meeting called for the purpose of electing directors, the close of business on the tenth day following the date on which public disclosure of the date of the meeting is made; and in the case of our annual meeting to be held during fiscal 2005 and in the case of an annual meeting that is called for a date that is not within 30 days before or after the anniversary date of the immediately preceding annual meeting, not later than the close of business on the tenth day following the date on which public disclosure of the date of the meeting was made. Our bylaws also specify certain requirements for a stockholder's notice to be in proper written form. These provisions may preclude some stockholders from bringing

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matters before the stockholders at an annual or special meeting or from making nominations for directors at an annual or special meeting. As set forth below, our bylaws may not be amended or repealed by our stockholders, except with the consent of holders of two-thirds of our outstanding common stock.

        Adjournment of Meetings of Stockholders.    Our bylaws provide that when a meeting of our stockholders is convened, the presiding officer, if directed by our board of directors, may adjourn the meeting if no quorum is present for the transaction of business or if our board of directors determines that adjournment is necessary or appropriate to enable the stockholders to consider fully information that our board of directors determines has not been made sufficiently or timely available to stockholders or to otherwise effectively exercise their voting rights. This provision will, under certain circumstances, make more difficult or delay actions by the stockholders opposed by our board of directors. The effect of such provision could be to delay the timing of a stockholders' meeting, including in cases where stockholders have brought proposals before the stockholders that are in opposition to those brought by our board of directors and therefore may provide our board of directors with additional flexibility in responding to such stockholder proposals. As set forth below, our bylaws may not be amended or repealed by our stockholders, except with the consent of holders of two-thirds of our outstanding common stock.

        No Cumulative Voting.    The Delaware General Corporation Law provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless our certificate of incorporation provides otherwise. Our certificate of incorporation does not provide for cumulative voting.

        Authorized but Unissued Capital Stock.    Our certificate of incorporation authorizes our board of directors to issue one or more classes or series of preferred stock, and to determine, with respect to any such class or series of preferred stock, the voting powers (if any), designations, powers, preferences, rights and qualifications, limitations or restrictions of such preferred stock. We have no current intention to issue any additional shares of preferred stock.

        The Delaware General Corporation Law does not require stockholder approval for any issuance of previously authorized shares of our capital stock. However, the listing requirements of the New York Stock Exchange, which would apply so long as our common stock is listed on the New York Stock Exchange, require stockholder approval of certain issuances equal to or exceeding 20% of the then outstanding voting power or then outstanding number of shares of our common stock. These additional shares may be used for a variety of corporate purposes, including future public offerings, to raise additional capital or to facilitate acquisitions.

        One of the effects of the existence of unissued and unreserved common stock or preferred stock may be to enable our board of directors to issue shares to persons friendly to current management, which issuance could render more difficult or discourage an attempt to obtain control of our company by means of a merger, tender offer, proxy contest or otherwise, and thereby protect the continuity of our management and possibly deprive the stockholders of opportunities to sell their shares of common stock at prices higher than prevailing market prices.

        Amendment of the Bylaws.    Our certificate of incorporation provides that our bylaws may not be amended or repealed by our stockholders except with the consent of holders of two-thirds of our outstanding common stock and grants our board of directors the authority to amend and repeal our bylaws without a stockholder vote in any manner not inconsistent with the laws of Delaware or our certificate of incorporation. This provision will make it more difficult for our stockholders to make changes to our bylaws that are opposed by our board of directors. This provision of our certificate of incorporation may not be amended or repealed by our stockholders except with the consent of the holders of two-thirds of our outstanding common stock.

Transfer Agent and Registrar

        National City Bank, Cleveland, Ohio, is the transfer agent and registrar for our common stock.

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SHARES ELIGIBLE FOR FUTURE SALE

        Prior to this offering, there has been no market for our common stock. Future sales in the public market of substantial amounts of our common stock, including shares issued upon exercise of outstanding options after any restrictions on sale lapse, could adversely affect prevailing market prices and impair our ability to raise equity capital in the future.

        After this offering, 45,945,559 shares of our common stock will be outstanding. The shares sold in the offering, plus any shares sold upon exercise of the over-allotment option described in "Underwriters," will be freely tradable without restriction under the Securities Act, unless purchased by our "affiliates," as that term is defined in Rule 144 under the Securities Act. The remaining shares of common stock held by existing stockholders are "restricted securities" as that term is defined in Rule 144, and may be sold in the public market only if they are registered or if they qualify for an exemption from registration under Rule 144, Rule 144(k) or Rule 701.

        We anticipate that, following the completion of the offering, all 33,445,559 shares of common stock outstanding prior to this offering will be subject to the lock-up agreement described in "Underwriters." All such shares are subject to registration rights, as described above under "Certain Relationships and Transactions—Securityholder Agreement."

        The following table shows the number of shares of our common stock that will be subject to the restrictions of Rule 144, the number of restricted shares eligible for resale under both Rule 144(k) and Rule 701, and the dates that such shares will be eligible for resale. All of the shares in the following table are owned by our 15 current stockholders.

 
  Number of Shares
  Date First Eligible
for Resale

Shares Eligible for Resale under Rule 144   33,445,559             , 2005
Shares Eligible for Resale under Rule 144(k)   5,152,016             , 2005
Shares Eligible for Resale under Rule 701               , 2005

        After this offering, 7,404,234 shares of our common stock will be subject to outstanding options.

Lock-Up Agreements

        We, our executive officers and directors and our other stockholders and optionholders owning substantially all of our shares have agreed with the underwriters not to:

for a period of 180 days after the date of this prospectus, subject to certain extensions, without the prior written consent of Morgan Stanley and Lehman Brothers, as described in "Underwriters."

Rule 144

        Under Rule 144, a person, or persons whose shares are aggregated, who has beneficially owned restricted securities for at least one year will be entitled to sell, within any three-month period, a number of shares that does not exceed the greater of:

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        Sales under Rule 144 also are subject to other requirements regarding the manner of sale, notice and availability of current public information about us.

Rule 144(k)

        Under Rule 144(k), a person who is not deemed to have been one of our "affiliates" at any time during the 90 days preceding a sale, and who has beneficially owned the restricted securities proposed to be sold for at least two years, is entitled to sell those shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Therefore, after the expiration of the lock-up period, a substantial number of additional shares could become available for sale to the public.

Rule 701

        Under Rule 701, shares of our common stock acquired upon the exercise of currently outstanding options or pursuant to other rights granted under our stock plans may be resold, to the extent not subject to lock-up agreements, (1) by persons other than affiliates, beginning 90 days after the effective date of this offering, subject only to the manner-of-sale provisions of Rule 144 and (2) by affiliates, subject to the manner-of-sale, current public information, and filing requirements of Rule 144, in each case, without compliance with the one-year holding period requirement of Rule 144.

Form S-8 Registration Statement

        We intend to file a registration statement on Form S-8 under the Securities Act as soon as practicable after completion of this offering to register shares of common stock reserved for issuance under the MEP and the 2004 EIP. This registration will permit the resale of these shares by nonaffiliates in the public market without restriction under the Securities Act, upon completion of the lock-up period described above. Shares of common stock registered under the Form S-8 registration statement held by affiliates will be subject to Rule 144 volume limitations.

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UNDERWRITERS

        Under the terms and subject to the conditions contained in an underwriting agreement dated the date of this prospectus, the underwriters named below, for whom Morgan Stanley & Co. Incorporated, Lehman Brothers Inc., Banc of America Securities LLC and William Blair & Company, L.L.C. are acting as representatives, have severally agreed to purchase, EnerSys has agreed to sell to them, severally, the number of shares indicated below:

Name

  Number of
Shares

Morgan Stanley & Co. Incorporated    
Lehman Brothers Inc.     
Banc of America Securities LLC    
William Blair & Company, L.L.C.     
   
  Total   12,500,000
   

        The underwriters are offering the shares of common stock subject to their acceptance of the shares from EnerSys and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of common stock offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of common stock offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters' over-allotment option described below.

        The underwriters initially propose to offer part of the shares of common stock directly to the public at the public offering price listed on the cover page of this prospectus and part to certain dealers at a price that represents a concession not in excess of $        a share under the public offering price. Any underwriter may allow, and such dealers may reallow, a concession not in excess of $        a share to other underwriters or to certain dealers. After the initial offering of the shares of common stock, the offering price and other selling terms may from time to time be varied by the representatives.

        The following table shows the offering price to the public, underwriting discounts and commissions and proceeds, before expenses, to EnerSys. The information assumes either no exercise or full exercise by the underwriters of the over-allotment option.

 
  Per Share
  Without
Option

  With Option
Public offering price   $     $     $  
Underwriting discounts and commissions                  
   
 
 
Proceeds, before expenses, to EnerSys   $     $     $  

        EnerSys has granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to an aggregate of 1,875,000 additional shares of common stock at the public offering price set forth on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of common stock offered by this prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the additional shares of common stock as the number listed next to the underwriter's name in the preceding table bears to the total number of shares of common stock listed next to the names of all underwriters in the preceding table. If the underwriters' option is exercised in full, the total price to the public would be $        , the total underwriters' discounts and commissions would be $        and total proceeds to EnerSys would be $        .

        The underwriting discounts and commissions will be determined by negotiations among EnerSys and the representatives and are a percentage of the offering price to the public. Among the factors to be considered in determining the discounts and commissions will be the size of the offering, the nature of the security to be offered and the discounts and commissions charged in comparable transactions. The

101



estimated offering expenses payable by EnerSys in addition to the underwriting discounts and commissions, are approximately $5.0 million, which includes legal, accounting and printing costs and various other fees associated with registering and listing the common stock.

        The underwriters have informed EnerSys that they do not intend to confirm sales to accounts over which they exercise discretionary authority without the prior written approval of the customer.

        Application has been made to have the common stock approved for quotation on the New York Stock Exchange under the symbol "ENS."

        Each of EnerSys and the directors, executive officers and other stockholders and optionholders owning substantially all of EnerSys' shares have agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated and Lehman Brothers Inc. on behalf of the underwriters, they will not, during the period ending 180 days after the date of this prospectus:

whether any such transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise. The restrictions described in this paragraph do not apply to:

        The 180-day restricted period described above is subject to extension such that, in the event that either (1) during the last 17 days of the 180-day restricted period, we issue an earnings release or material news or a material event relating to us occurs or (2) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period, the "lock-up" restrictions described above will, subject to limited exceptions, continue to apply until the expiration of the 18-day period beginning on the earnings release or the occurrence of the material news or material event.

        In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under the over-allotment option. The underwriters can close out a covered short sale by exercising the over-allotment option or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under the over-allotment option. The underwriters may also sell shares in excess of the over-allotment option, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering. As an additional means of facilitating the offering, the underwriters may bid for, and purchase, shares of common stock in the open market to stabilize the price of the common stock. The underwriting syndicate may also reclaim selling concessions allowed to an

102



underwriter or a dealer for distributing the common stock in the offering, if the syndicate repurchases previously distributed common stock to cover syndicate short positions or to stabilize the price of the common stock. These activities may raise or maintain the market price of the common stock above independent market levels or prevent or retard a decline in the market price of the common stock. The underwriters are not required to engage in these activities, and may end any of these activities at any time.

        Investment funds affiliated with Morgan Stanley & Co. Incorporated will continue to own a majority of the outstanding common stock of EnerSys after giving effect to this offering. The securityholder agreement among EnerSys, the Morgan Stanley Funds, the J.P. Morgan Funds, the GM Stockholders and certain members of our senior management provides that MSCP IV is entitled to designate a majority of the nominees for election to our board of directors and to designate a majority of the members of our compensation committee and nominating and corporate governance committee. Eric T. Fry and Howard I. Hoffen, each of whom is an employee of Morgan Stanley & Co. Incorporated, currently serve as and were appointed directors by MSCP IV. Michael C. Hoffman and Chad L. Elliott, each of whom is an employee of Morgan Stanley Capital Partners, are director nominees designated by MSCP IV. See "Certain Relationships and Related Transactions."

        The underwriters and their affiliates have from time to time provided, and expect to provide in the future, investment banking, commercial banking and other financial services to EnerSys for which they have received and may continue to receive customary fees and commissions. Morgan Stanley Senior Funding was a lender and acted as agent under our former senior secured credit facility. Bank of America, N.A., an affiliate of Banc of America Securities LLC, is a lender and acts as administrative agent and collateral agent under our new $480.0 million senior secured facility and $120.0 million senior second lien term loan. In addition, Bank of America, N.A. is the counterparty to three interest rate swap agreements we entered into in order to fix the interest rate on a portion of our floating rate debt. Bank of America, N.A., Morgan Stanley Senior Funding and Lehman Commercial Paper Inc., an affiliate of Lehman Brothers Inc., are committed to provide funding under our senior secured revolving credit facility. In addition, Morgan Stanley Senior Funding acts as syndication agent and Lehman Commercial Paper Inc. acts as documentation agent under our new credit facilities. In connection with the establishment of our new credit facilities, we paid aggregate fees of approximately $2.5 million to Morgan Stanley Senior Funding, $3.9 million to Bank of America, N.A., and $1.8 million to Lehman Commercial Paper.

        Morgan Stanley & Co. Incorporated may be deemed to be an "affiliate" of EnerSys, as defined by Rule 2720 of the Conduct Rules of the National Association of Securities Dealers ("Rule 2720"). Accordingly, this offering will be conducted in compliance with the requirements of Rule 2720. Under the provisions of Rule 2720, when a NASD member distributes securities of an affiliate, the public offering price of the securities can be no higher than that recommended by the "qualified independent underwriter," as such term is defined in Rule 2720. In accordance with such requirements, Lehman Brothers Inc. has agreed to serve as a "qualified independent underwriter" and has conducted due diligence and will recommend a maximum price for the shares of common stock. We have agreed to indemnify Lehman Brothers Inc. for acting as a qualified independent underwriter against certain liabilities, including under the Securities Act.

        EnerSys and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act.

Pricing of the Offering

        Prior to this offering, there has been no public market for the shares of common stock. The initial public offering price will be determined by negotiations among EnerSys and the representatives of the underwriters. Among the factors to be considered in determining the initial public offering price will be the future prospects of EnerSys and its industry in general, sales, earnings and certain other financial operating information of EnerSys in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to those of EnerSys. The estimated initial public offering price range set forth on the cover page of this preliminary prospectus is subject to change as a result of market conditions and other factors.

103



MATERIAL UNITED STATES INCOME AND ESTATE TAX CONSEQUENCES TO
NON-UNITED STATES STOCKHOLDERS

        The following is a general discussion of the material U.S. federal income and estate tax consequences to a non-U.S. holder of the ownership and disposition of our common stock. For the purpose of this discussion, a non-U.S. holder is any holder that for U.S. federal income tax purposes is not a U.S. person or a partnership. For purposes of this discussion, the term U.S. person means:

        If a partnership holds common stock, the tax treatment of a partner will generally depend on the status of the partner and upon the activities of the partnership. Accordingly, partnerships which hold our common stock and partners in such partnerships should consult their tax advisors.

        This discussion assumes that non-U.S. holders will hold our common stock issued pursuant to the offering as a capital asset (generally, property held for investment). This discussion does not address all aspects of U.S. federal income and estate taxation that may be relevant in light of a non-U.S. holder's special tax status or special tax situation. U.S. expatriates or former long-term residents, life insurance companies, tax-exempt organizations, dealers in securities or currency, banks or other financial institutions, investors whose functional currency is other than the U.S. dollar, that have elected mark-to-market accounting, who acquired our common stock as compensation, or that hold our common stock as part of a hedge, straddle, constructive sale, conversion, or other risk reduction transaction, and special status corporations (such as "controlled foreign corporations," "foreign investment companies," "passive foreign investment companies," "foreign personal holding companies," and corporations that accumulate earnings to avoid U.S. income tax) are among those categories of potential investors that are subject to special rules not covered in this discussion. This discussion does not address any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction. Furthermore, the following discussion is based on current provisions of the Internal Revenue Code of 1986, as amended, and Treasury Regulations and administrative and judicial interpretations thereof, all as in effect on the date hereof, and all of which are subject to change, possibly with retroactive effect. Accordingly, each non-U.S. holder should consult its tax advisor regarding the U.S. federal, state, local and non-U.S. income and other tax consequences of acquiring, holding and disposing of shares of our common stock.

Dividends

        We do not anticipate paying any dividends on our common stock for the foreseeable future. However, if we do pay dividends on our common stock, those payments will constitute dividends for U.S. tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent those dividends exceed our current and accumulated earnings and profits, the dividends will constitute a return of capital and will first reduce a holder's tax basis, but not below zero, and then will be treated as gain from the sale of stock.

        Any dividend (out of earnings and profits) paid to a non-U.S. holder of common stock generally will be subject to U.S. withholding tax at a rate of 30% of the gross amount of the dividend or such lower rate as may be specified by an applicable tax treaty. In order to receive a reduced treaty rate, a non-U.S. holder must provide us with an Internal Revenue Service ("IRS") Form W-8BEN (or successor form) or an

104



appropriate substitute form certifying qualification for the reduced rate. The non-U.S. holder must periodically update the information on such forms. Such non-U.S. holder may also be required to obtain and provide a U.S. taxpayer identification number and/or demonstrate residence in the applicable foreign jurisdiction by providing documentation issued by the government of such jurisdiction. Furthermore, Treasury Regulations require special procedures for payments through qualified intermediaries. A non-U.S. holder of common stock that is eligible for a reduced rate of withholding tax pursuant to a tax treaty may obtain a refund of any excess amounts currently withheld by filing an appropriate claim for refund with the IRS.

        Dividends received by a non-U.S. holder that are effectively connected with a U.S. trade or business conducted by the non-U.S. holder are exempt from the 30% withholding tax. In order to obtain this exemption, a non-U.S. holder must provide us with an IRS Form W-8ECI (or successor form) or an appropriate substitute form properly certifying such exemption. "Effectively connected" dividends, although not subject to withholding tax, are taxed at the same graduated rates applicable to U.S. persons, net of certain deductions and credits. If the non-U.S. holder is eligible for the benefits of a tax treaty between the United States and the holder's country of residence, any effectively connected dividends or gain would generally be subject to U.S. federal income tax only if such amount is also attributable to a permanent establishment or fixed base maintained by the holder in the United States.

        In addition to the graduated tax described above, dividends received by a corporate non-U.S. holder that are effectively connected with a U.S. trade or business of the corporate non-U.S. holder may also, under certain circumstances, be subject to a branch profits tax at a rate of 30% or such lower rate as specified by an applicable tax treaty.

Gain on Disposition of Common Stock

        A non-U.S. holder generally will not be subject to U.S. federal income tax on any gain recognized upon the sale or other disposition of our common stock unless:

Federal Estate Taxes

        Common stock owned or treated as owned by an individual who is a non-U.S. holder at the time of death will be included in the individual's gross estate for U.S. federal estate tax purposes and may be subject to U.S. federal estate tax, unless an applicable tax treaty provides otherwise. An individual may be subject to U.S. federal estate tax but not U.S. federal income tax as a resident or may be subject to U.S. federal income tax as a resident but not U.S. federal estate tax.

105



Information Reporting and Backup Withholding

        Generally, we must report annually to the IRS the amount of dividends paid, the name and address of the recipient, and the amount, if any, of tax withheld in the case of each non-U.S. holder. A similar report is sent to the holder. Tax treaties or other agreements may require the IRS to make its reports available to tax authorities in the recipient's country of residence.

        Payments of dividends or of proceeds on the disposition of stock made to a non-U.S. holder may be subject to backup withholding (currently at a rate of 28%) unless the non-U.S. holder establishes an exemption, for example by properly certifying its non-U.S. status on a Form W-8BEN (or successor form) or an appropriate substitute form. Notwithstanding the foregoing, backup withholding may apply if either we or our paying agent has actual knowledge, or reason to know, that the holder is a U.S. person or that any other condition of exemption is not satisfied.

        The payment of the gross proceeds of the sale, exchange or other disposition of our common stock to or through the U.S. office of any broker, U.S. or foreign, will be subject to information reporting and possible backup withholding unless the non-U.S. holder, prior to payment, certifies as to its non-U.S. status under penalties of perjury or otherwise establishes an exemption, and provided that the broker does not have actual knowledge, or reason to know, that the purported non-U.S. holder is actually a U.S. person or that the conditions of any other exemption are not in fact satisfied. The payment of the gross proceeds of the sale, exchange or other disposition of our common stock to or through a non-U.S. office of a non-U.S. broker will not be subject to information reporting or backup withholding unless the non-U.S. broker has certain types of relationships with the United States (a "U.S.-related person"). In the case of the payment of the gross proceeds of the sale, exchange or other disposition of our common stock to or through a non-U.S. office of a broker that is either a U.S. person or a U.S.-related person, Treasury Regulations do not require backup withholding but do require information reporting on the payment unless the broker, prior to payment, (a) has documentary evidence in its files that the owner is a non-U.S. holder, and (b) has no knowledge, or reason to know, to the contrary.

        Backup withholding is not an additional tax. Rather, the U.S. income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained, provided that the required information is furnished to the IRS.

        The preceding discussion of material U.S. federal income and estate tax consequences is general information only and is not tax advice. Accordingly, each investor should consult its own tax advisor as to the particular tax consequences of purchasing, holding and disposing of our common stock, including the applicability and effect of any state, local or non-U.S. tax laws and of any changes or proposed changes in applicable law.


VALIDITY OF COMMON STOCK

        Gibson, Dunn & Crutcher LLP, New York, New York, will pass upon the validity of the shares of our common stock offered in the offering. Stevens & Lee, Reading, Pennsylvania also has acted as our counsel in connection with the offering. The underwriters will be represented by Davis Polk & Wardwell, New York, New York.


EXPERTS

        The consolidated financial statements of EnerSys at March 31, 2004 and 2003, and for each of the three years in the period ended March 31, 2004, appearing in this prospectus and registration statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

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        The combined financial statements of Energy Storage Group for the period from April 1, 2001 to March 22, 2002, appearing in this prospectus and registration statement have been audited by Ernst & Young, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.


WHERE YOU CAN FIND MORE INFORMATION

        We have filed with the Securities and Exchange Commission a registration statement on Form S-1, including exhibits and schedules, under the Securities Act with respect to the common stock to be sold in the offering. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules that are part of the registration statement. Any statements made in this prospectus as to the contents of any contract, agreement or other document are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the registration statement, we refer you to the exhibit for a more complete description of the matter involved, and each statement in this prospectus shall be deemed qualified in its entirety by this reference. You may read and copy all or any portion of the registration statement or any reports, statements or other information in the files at the following public reference facilities of the SEC:

Room 1024
450 Fifth Street, N.W.
Washington, DC 20549

        Upon completion of this offering, we will be required to file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission. You may read and copy any documents filed by us at the address set forth above.

        You can request copies of these documents upon payment of a duplicating fee by writing to the SEC. You may call the SEC at 1-800-SEC-0330 for further information on the operation of its public reference rooms. Our filings, including the registration statement, will also be available to you on the Internet web site maintained by the SEC at http://www.sec.gov.

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FINANCIAL STATEMENTS


Contents

EnerSys
Consolidated financial statements for fiscal years ended March 31, 2002, 2003 and 2004

Report of Independent Registered Public Accounting Firm   F-2

Audited Consolidated Financial Statements

 

 

Consolidated Balance Sheets

 

F-3
Consolidated Statements of Operations   F-4
Consolidated Statements of Changes in Stockholders' Equity   F-5
Consolidated Statements of Cash Flows   F-6
Notes to Consolidated Financial Statements   F-8

Energy Storage Group
Combined financial statements for the period from April 1, 2001 to March 22, 2002

Report of Independent Registered Public Accounting Firm   F-39

Combined Financial Statements

 

 

Combined Statement of Operations

 

F-40
Combined Statement of Invested Capital   F-41
Combined Statement of Cash Flows   F-42
Notes to Combined Financial Statements   F-43

EnerSys Financial Statement Schedule

 

 
Valuation and Qualifying Accounts   S-1

F-1



Report of Independent Registered Public Accounting Firm

The Board of Directors
EnerSys

        We have audited the accompanying consolidated balance sheets of EnerSys as of March 31, 2003 and 2004, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the three years in the period ended March 31, 2004. Our audits also included the financial statement schedule listed in the index at Item 16(b). These consolidated financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits.

        We conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of EnerSys at March 31, 2003 and 2004, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 31, 2004, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

    /s/ Ernst & Young LLP

Philadelphia, Pennsylvania
May 14, 2004, except for
    Note 25, as to which the
    date is July 9, 2004

F-2



EnerSys

Consolidated Balance Sheets

(In Thousands, Except Per Share Data)

 
  March 31
 
 
  2003
  2004
 
Assets              
Current assets:              
  Cash and cash equivalents   $ 44,296   $ 17,207  
  Accounts receivable, net     189,014     227,752  
  Inventories, net     106,998     131,712  
  Deferred taxes     29,798     24,616  
  Prepaid expenses     9,107     17,873  
  Other current assets     3,940     4,543  
   
 
 
Total current assets     383,153     423,703  

Property, plant, and equipment, net

 

 

275,659

 

 

284,850

 
Goodwill     295,705     306,825  
Other intangible assets, net     75,541     75,495  
Deferred taxes     17,634     26,025  
Other     28,116     34,170  
   
 
 
Total assets   $ 1,075,808   $ 1,151,068  
   
 
 

Liabilities and stockholders' equity

 

 

 

 

 

 

 
Current liabilities:              
  Short-term debt   $ 1,311   $ 2,712  
  Current portion of long-term debt     13,052     7,014  
  Current portion of capital lease obligations     2,208     2,150  
  Accounts payable     94,999     113,043  
  Accrued expenses     134,749     163,717  
  Deferred taxes     1,478     340  
   
 
 
Total current liabilities     247,797     288,976  

Long-term debt

 

 

231,844

 

 

496,200

 
Capital lease obligations     3,747     3,227  
Deferred taxes     69,664     60,952  
Other liabilities     57,009     62,411  
   
 
 
Total liabilities     610,061     911,766  

Stockholders' equity:

 

 

 

 

 

 

 
  Series A Convertible Preferred Stock, $0.01 par value, 2,500,000 shares authorized, 665,883 shares issued and outstanding     7     7  
  Class A Common Stock, $0.01 par value, 135,000,000 shares authorized, 11,014,421 shares issued and outstanding     110     110  
  Class B Common Stock, $0.01 par value, 1,000,000 shares authorized, no shares issued and outstanding          
  Paid-in capital     447,133     188,766  
  Retained earnings (deficit)     (8,675 )   (8,839 )
  Accumulated other comprehensive income     27,172     59,258  
   
 
 
Total stockholders' equity     465,747     239,302  
   
 
 
Total liabilities and stockholders' equity   $ 1,075,808   $ 1,151,068  
   
 
 

See accompanying notes.

F-3



EnerSys

Consolidated Statements of Operations

(In Thousands Except Share and Per Share Data)

 
  Fiscal year ended March 31
 
 
  2002
  2003
  2004
 
Net sales   $ 339,340   $ 859,643   $ 969,079  
Cost of goods sold     271,596     653,998     722,825  
   
 
 
 
Gross profit     67,744     205,645     246,254  

Operating expenses

 

 

53,463

 

 

150,618

 

 

170,412

 
Special charges relating to restructuring, bonuses and uncompleted acquisitions     63,345         21,147  
Amortization expense     51     51     51  
   
 
 
 
Operating (loss) earnings     (49,115 )   54,976     54,644  
Interest expense     13,294     20,511     20,343  
Special charges relating to a settlement agreement and write-off of deferred finance costs             30,974  
Other expense (income), net     1,744     (742 )   (4,466 )
   
 
 
 
(Loss) earnings before income taxes     (64,153 )   35,207     7,793  

Income tax (benefit) expense

 

 

(22,171

)

 

12,355

 

 

2,957

 
   
 
 
 
Net (loss) earnings   $ (41,982 ) $ 22,852   $ 4,836  
Series A convertible preferred stock dividends     (13 )   (24,057 )   (24,689 )
   
 
 
 
Net (loss) earnings available to common shareholders   $ (41,995 ) $ (1,205 ) $ (19,853 )
   
 
 
 

Net (loss) earnings per common share:

 

 

 

 

 

 

 

 

 

 
  Basic   $ (3.81 ) $ (0.11 ) $ (1.80 )
   
 
 
 
  Diluted   $ (3.81 ) $ (0.11 ) $ (1.80 )
   
 
 
 

Weighted-average shares of common stock outstanding:

 

 

 

 

 

 

 

 

 

 
  Basic     11,014,421     11,014,421     11,014,421  
   
 
 
 
  Diluted     11,014,421     11,156,267     11,014,421  
   
 
 
 

See accompanying notes.

F-4



EnerSys

Consolidated Statements of Changes in Stockholders' Equity

(In Thousands)

 
  Series A
Convertible
Preferred
Stock

  Class A
Common
Stock

  Class B
Common
Stock

  Paid-in
Capital

  Retained
Earnings
(Deficit)

  Accumulated
Other
Comprehensive
Income (Loss)

  Total
Stockholders'
Equity

 
Balance at March 31, 2001   $   $ 110   $   $ 164,140   $ 10,455   $ (2,343 ) $ 172,362  
Issuance of Series A Convertible Preferred Stock     7             282,993             283,000  
Net loss                     (41,982 )       (41,982 )
Cumulative effect of accounting change on derivative instruments, net of tax $144                         245     245  
Other comprehensive income                                            
Minimum pension liability adjustment, net of tax of $400                         (600 )   (600 )
Unrealized loss on derivative instruments, net of tax of $741                         (1,111 )   (1,111 )
Foreign currency translation adjustment                         2,933     2,933  
                                       
 
Comprehensive loss                                         (40,515 )
   
 
 
 
 
 
 
 
Balance at March 31, 2002     7     110         447,133     (31,527 )   (876 )   414,847  
Net earnings                     22,852         22,852  
Other comprehensive income                                            
Minimum pension liability adjustment, net of tax of $1,030                         (1,741 )   (1,741 )
Unrealized loss on derivative instruments, net of tax of $1,722                         (2,583 )   (2,583 )
Foreign currency translation adjustment                         32,372     32,372  
                                       
 
Comprehensive income                                         50,900  
   
 
 
 
 
 
 
 
Balance at March 31, 2003     7     110         447,133     (8,675 )   27,172     465,747  
Distribution to stockholders                 (258,367 )           (258,367 )
Cancellation of warrants                     (5,000 )       (5,000 )
Net earnings                     4,836         4,836  
Other comprehensive income                                            
Minimum pension liability adjustment, net of tax of $(667)                         885     885  
Unrealized income on derivative instruments, net of tax of $(581)                         871     871  
Foreign currency translation adjustment                         30,330     30,330  
                                       
 
Comprehensive income                                         36,922  
   
 
 
 
 
 
 
 
Balance at March 31, 2004   $ 7   $ 110   $   $ 188,766   $ (8,839 ) $ 59,258   $ 239,302  
   
 
 
 
 
 
 
 

See accompanying notes.

F-5



EnerSys

Consolidated Statements of Cash Flows

(In Thousands)

 
  Fiscal year ended March 31
 
 
  2002
  2003
  2004
 
Cash flows from operating activities                    
Net (loss) earnings   $ (41,982 ) $ 22,852   $ 4,836  
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:                    
  Noncash special charges             6,569  
  Settlement agreement expense             24,405  
  Depreciation and amortization     12,393     38,002     39,047  
  Provision for doubtful accounts     1,804     1,860     849  
  Provision for deferred taxes, less amounts related to restructuring     783     8,379     (6,640 )
  Provision for restructuring, net of related accumulative foreign currency translation adjustments     41,882          
  Accretion of discount on notes payable     97     4,112     3,341  
  Issuance of subordinated notes         2,781      
  Option liability loss (gain)     184     (1,233 )   (27 )
  Loss on disposal of fixed assets     1     97     45  
  Changes in assets and liabilities, net of effects of acquisition:                    
    Accounts receivable     6,248     1,464     (17,556 )
    Inventory     19,415     9,450     (13,927 )
    Prepaid expenses     (6,804 )   (6,822 )   (6,852 )
    Other assets         4,487     2,610  
    Accounts payable     (23,990 )   2,697     9,533  
    Accrued expenses     11,037     (32,688 )   (11,804 )
    Other liabilities             4,763  
   
 
 
 
    Net cash provided by operating activities     21,068     55,438     39,192  
Cash flows from investing activities                    
Capital expenditures     (12,944 )   (23,623 )   (28,580 )
Purchase of businesses, net of cash acquired     (323,200 )   10,707     1,181  
Proceeds from disposal of property, plant, and equipment     193     (7 )   418  
   
 
 
 
Net cash used in investing activities     (335,951 )   (12,923 )   (26,981 )
                     

F-6


Cash flows from financing activities                    
Net (decrease) increase in short-term debt   $ (250 ) $ (877 ) $ 1,401  
Proceeds from the issuance of long-term debt     36,000         507,675  
Deferred financing costs             (11,000 )
Payments of long-term debt     (3,955 )   (6,211 )   (184,453 )
Proceeds from the issuance of Series A Convertible Preferred Stock     283,000          
Payments of capital lease obligations, net         (1,121 )   (1,145 )
Payment under settlement agreement             (89,100 )
Buy back of outstanding stock warrants             (5,000 )
Distribution to stockholders             (258,367 )
   
 
 
 
Net cash provided by (used in) financing activities     314,795     (8,209 )   (39,989 )
Effect of exchange rate changes on cash     28     915     689  
   
 
 
 
Net (decrease) increase in cash     (60 )   35,221     (27,089 )
Cash and cash equivalents at beginning of year     9,135     9,075     44,296  
   
 
 
 
Cash and cash equivalents at end of year   $ 9,075   $ 44,296   $ 17,207  
   
 
 
 

See accompanying notes.

F-7



EnerSys

Notes to Consolidated Financial Statements

March 31, 2004

(In Thousands, Except Per Share Data)

1. Summary of Significant Accounting Policies

Description of Business

        EnerSys (the Company) is a leading worldwide manufacturer and supplier of lead-acid industrial batteries consisting of reserve power batteries serving the telecommunications, uninterruptible power systems (UPS), switchgear and electrical control systems and aerospace and defense markets, and motive power batteries primarily serving the electric industrial forklift truck market. The Company was formed on November 9, 2000 when EnerSys acquired the industrial battery business of Yuasa Inc. in North and South America from Yuasa Corporation (Japan).

Principles of Consolidation

        The consolidated financial statements include the accounts of the Company and its majority-owned and wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Foreign Currency Translation

        Results of foreign operations are translated into United States dollars using average exchange rates during the period while assets and liabilities are translated into United States dollars using current rates as of the balance sheet date. The resulting translation adjustments are accumulated as a separate component of stockholders' equity.

        Transaction gains and losses resulting from exchange rate changes on transactions denominated in currencies other than the functional currency of the applicable subsidiary are included in other expense (income), net in the year in which the change occurs.

Revenue Recognition

        The Company recognizes revenue when the earnings process is complete. This occurs when products are shipped to the customer in accordance with terms of the agreement, transfer of title and risk of loss, collectibility is reasonably assured and pricing is fixed and determinable. Accruals are made at the time of sale for sales returns and other allowances based on the Company's experience.

Freight Expense

        Amounts billed to customers for outbound freight costs are classified as sales in the consolidated income statement. Costs incurred by the Company for outbound freight costs to customers are classified in cost of sales.

Warranties

        Substantially all of the Company's products are generally warranted for a period of one to five years. The Company provides for estimated product warranty expenses when the related products are sold.

Cash and Cash Equivalents

        Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less when purchased. United States short-term investments included in cash and cash equivalents at March 31, 2003 and 2004 were $31,663 and $8,058, respectively.

F-8



Accounts Receivable

        Accounts receivable are reported net of an allowance for doubtful accounts of $8,492 and $6,722 at March 31, 2003 and 2004, respectively. The allowance is based on management's estimate of uncollectible accounts, analysis of historical data and trends, as well as review of all relevant factors concerning the financial capability of its customers. Accounts receivable are considered to be past due based on how payments are received compared to the customer's credit terms. Accounts are written off when management determines the account is worthless. Finance charges are generally not assessed or collected on past due accounts.

Inventories

        Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. The cost of inventory consists principally of material, labor, and associated overhead.

Property, Plant, and Equipment

        Property, plant, and equipment are recorded at cost and include expenditures that substantially increase the useful lives of the assets. Depreciation is provided using the straight-line method over the estimated useful lives of the assets as follows: 10 to 33 years for buildings and improvements and 3 to 15 years for machinery and equipment.

        Depreciation expense for the fiscal years ended March 31, 2002, 2003 and 2004 totaled $10,679, $35,278 and $36,989, respectively. Maintenance and repairs are expensed as incurred. Interest on capital projects is capitalized during the construction period and amounted to $620, $179 and $194 for the fiscal years ended March 31, 2002, 2003 and 2004, respectively. Gains and losses from dispositions or retirements of property, plant, and equipment are recognized currently.

Intangible Assets

        Effective April 1, 2001, the Company early adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 eliminates the amortization of goodwill and indefinite-lived intangible assets and requires a review at least annually for impairment. The Company has determined that tradenames and goodwill are indefinite-lived assets, as defined by SFAS No. 142, and therefore not subject to amortization.

        SFAS No. 142 prescribes a two-step method for determining goodwill impairment. In the first step, the fair value of the Company's reporting units was determined using a discounted cash flow analysis approach. Since the net book value of the reporting units did not exceed the fair value, the second step of the impairment test was not necessary. SFAS No. 142 requires the Company to perform impairment tests on an annual basis and whenever events or circumstances occur indicating that the tradenames or goodwill may be impaired.

Environmental Expenditures

        Environmental expenditures that will benefit future operations are capitalized; all other environmental expenditures are expensed as incurred. Accruals are recorded when environmental expenditures for remedial efforts are probable and the amounts can be reasonably estimated.

F-9



Impairment of Long-Lived Assets

        SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets, requires that companies consider whether indicators of impairment of long-lived assets held for use are present. If such indicators are present, companies determine whether the sum of the estimated undiscounted future cash flows attributable to such assets is less than their carrying amount, and if so, companies recognize an impairment loss based on the excess of the carrying amount of the assets over their fair value. Accordingly, management will periodically evaluate the ongoing value of property and equipment.

Financial Instruments

        The Company's financial instruments include cash and cash equivalents, accounts receivable, accounts payable, and debt. In addition, the Company uses interest rate swap and option agreements to manage risk on a portion of its floating-rate debt.

        Because of short maturities, the carrying amount of cash and cash equivalents, accounts receivable, accounts payable, and short-term debt approximates fair market value. The fair value of the Company's long-term debt, described in Note 9, approximates its carrying value and the fair value of derivative instruments is described in Note 12.

Income Taxes

        Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. These temporary differences are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be realized.

        Valuation allowances are recorded to reduce deferred tax assets when it is probable that a tax benefit will not be realized. The provision for income taxes represents income taxes paid or payable for the current year and the change in deferred taxes adjusted for purchase accounting adjustments during the year.

Deferred Financing Fees

        In March 2004, the Company entered into two credit facilities with various portions that will expire in 2009, 2011 and 2012. Deferred financing fees associated with the new credit facilities of $11,000 were incurred and will be amortized over the life of the new credit facilities. $6,569 of deferred financing fees related to the previously existing credit facility were written off and charged to Special Charges in March 2004. Deferred financing fees, net of accumulated amortization totaled $8,634 and $10,935 as of March 31, 2003 and 2004, respectively. Amortization expense included in interest expense was $1,097, $2,069 and $2,012 for the fiscal years ended March 31, 2002, 2003 and 2004, respectively.

Derivative Financial Instruments

        The Company has entered into interest rate swap agreements and option agreements to manage risk on a portion of its long-term floating-rate debt. The agreements are with major financial institutions, and the Company believes the risk of nonperformance by the counterparties is negligible. The counterparties to these agreements are lenders under the Credit Agreement and liabilities related to these agreements are covered under the security provisions of the Credit Agreement. The Company does not hold or issue

F-10



derivative financial instruments for trading or speculative purposes. SFAS No. 133, as amended, establishes accounting and reporting standards for derivative instruments and hedging activities. The Company recognizes all derivatives as either assets or liabilities in the accompanying balance sheet and measures those instruments at fair value. Changes in the fair value of those instruments are reported in accumulated other comprehensive income (loss) if they qualify for hedge accounting, or in earnings if they do not qualify for hedge accounting. Derivatives qualify for hedge accounting if they are designated as hedge instruments and if the hedge is highly effective in achieving offsetting changes in the fair value of cash flow of the asset or liability hedged. Accordingly, gains and losses from changes in derivative fair value are deferred until the underlying transaction occurs. Interest expense on the debt is adjusted to include the payments made or received under such hedge agreements. Any deferred gains or losses associated with derivative instruments, which on infrequent occasions may be terminated prior to maturity are recognized in earnings in the period in which the underlying hedged transaction is recognized. In the event a designated hedged item is sold, extinguished or matures prior to the termination of the related derivative instrument, such instrument would be closed and the resulting gain or loss would be recognized in earnings.

Stock-Based Compensation Plans

        In December 2002, FASB issued SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure. SFAS No. 148 amends SFAS No. 132, Accounting for Stock-Based Compensation, to provide alternative methods for a voluntary transition to the fair-value method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure provisions of SFAS No. 123 to require disclosure in the summary of significant accounting policies of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income. The adoption of the standard was effective for fiscal years beginning after December 15, 2002. Rather than adopt the fair-value method of accounting for stock-based compensation, the Company chose to continue accounting for such items using the intrinsic value method. As required, the Company did adopt the disclosure provisions of this standard.

        In 2001, the Company established a stock-based compensation plan, which is more fully described in Note 16. The Company uses the accounting method under Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations of this plan. Under APB Opinion No. 25, generally, when the exercise price of the Company stock options equals the fair market value of the underlying stock on the date of the grant, no compensation expense is recognized. The following table illustrates the effect of net income if the Company had applied the fair value recognition

F-11



provisions of SFAS No. 123 to its stock-related compensation. For purposes of pro forma disclosures, the estimated fair value of the stock options is amortized to expense over their vesting periods.

 
  Fiscal year ended March 31
 
 
  2002
  2003
  2004
 
Net (loss) earnings available to common stockholders, as reported   $ (41,995 ) $ 1,995   $ (19,853 )
Stock-based employee compensation cost, net of tax, that would have been included in the determination of net income if the fair value based method had been applied to all awards     (1,588 )   (3,585 )   (3,646 )
   
 
 
 
Net (loss) earnings available to common stockholders, pro forma   $ (43,583 ) $ (1,590 ) $ (23,499 )
   
 
 
 

Pro forma net (loss) earnings per common share:

 

 

 

 

 

 

 

 

 

 
  Basic   $ (3.96 ) $ (0.14 ) $ (2.13 )
   
 
 
 
  Diluted   $ (3.96 ) $ (0.14 ) $ (2.13 )
   
 
 
 

Accumulated Other Comprehensive Income (Loss)

        The components of accumulated other comprehensive (loss) income, net of tax, are as follows:

 
  Beginning
Balance

  Before-Tax
Amount

  Tax Benefit
(Expense)

  Net-of-Tax
Amount

  Ending
Balance

 
March 31, 2002                                
Minimum pension liabilities   $   $ (1,000 ) $ 400   $ (600 ) $ (600 )
Unrealized loss on derivative instruments         (1,463 )   597     (866 )   (866 )
Foreign currency translation adjustment     (2,343 )   2,933         2,933     590  
   
 
 
 
 
 
Accumulated other comprehensive (loss) income, net of tax   $ (2,343 ) $ 470   $ 997   $ 1,467   $ (876 )
   
 
 
 
 
 

March 31, 2003

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Minimum pension liabilities   $ (600 ) $ (2,771 ) $ 1,030   $ (1,741 ) $ (2,341 )
Unrealized loss on derivative instruments     (866 )   (4,305 )   1,722     (2,583 )   (3,449 )
Foreign currency translation adjustment     590     32,372         32,372     32,962  
   
 
 
 
 
 
Accumulated other comprehensive (loss) income, net of tax   $ (876 ) $ 25,296   $ 2,752   $ 28,048   $ 27,172  
   
 
 
 
 
 

March 31, 2004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Minimum pension liabilities   $ (2,341 ) $ 1,552   $ (667 ) $ 885   $ (1,456 )
Unrealized (loss) income on derivative instruments     (3,449 )   1,452     (581 )   871     (2,578 )
Foreign currency translation adjustment     32,962     30,330         30,330     63,292  
   
 
 
 
 
 
Accumulated other comprehensive (loss) income, net of tax   $ 27,172   $ 33,334   $ (1,248 ) $ 32,086   $ 59,258  
   
 
 
 
 
 

F-12


        The foreign currency translation adjustment primarily resulted from the weakening of the United States dollar. The majority of the Company's European subsidiaries utilize the euro as their functional currency. The exchange rate of the euro to the United States dollar increased from $0.87 as of March 31, 2002 to $1.09 as of March 31, 2003 to $1.23 as of March 31, 2004.

Earnings Per Share

        Basic earnings per common share (EPS) are computed by dividing net earnings available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock.

New Accounting Pronouncements

        In December 2003, the FASB issued SFAS No. 132 (revised 2003), Employers' Disclosures about Pensions and Other Postretirement Benefits. The revisions to SFAS No. 132 are intended to improve financial statement disclosures for defined benefit plans and was initiated in 2003 in response to concerns raised by investors and other users of financial statements, about the need for greater transparency of pension information. In particular, the standard requires that companies provide more details about their plan assets, benefit obligations, cash flows, benefit costs and other relevant quantitative and qualitative information. The guidance is effective for fiscal years ending after December 15, 2003. The Company has complied with these revised disclosure requirements (see Note 14).

        In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This statement amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, to provide clarification on the financial accounting and reporting of derivative instruments and hedging activities and requires contracts with similar characteristics to be accounted for on a comparable basis. Our adoption of SFAS No. 149 during 2003 did not have a material effect on our financial condition or results of operations.

        In January 2003, the FASB issued Financial Interpretation (FIN) 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 and in December 2003 issued a revised interpretation ("FIN 46R"). FIN 46 and FIN 46R address consolidation by business enterprises of certain variable interest entities. It applied to the Company in the first reporting period ending after March 15, 2004. This pronouncement did not have an effect on the Company's financial position and results from operations.

Collective Bargaining

        At March 31, 2004, the Company had approximately 6,500 employees. Of these employees, approximately 3,300, almost all of whom work in the Company's European facilities, were covered by collective bargaining agreements. The average term of these agreements is one to two years, and these agreements expire over the period through 2007.

Use of Estimates

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

F-13



Reclassifications

        Certain amounts in the prior years' financial statements have been reclassified to conform to the current year presentation.

2. Recapitalization

        Cash Payment to Stockholders and Management.    In March 2004, the Company paid a $270,000 cash payment to its existing stockholders and certain members of its management, of which $258,367 represents distributions to stockholders and $11,633 represents a bonus.

        New Credit Facilities.    Concurrently with the payment of the $270,000 cash payment, the Company entered into two new credit facilities. The senior secured credit facility consists of a $380,000 seven-year term loan B facility and a $100,000 five-year revolving credit facility. The senior second lien credit facility consists of $120,000 of eight-year notes. In March 2004, the Company borrowed $500,000 under the senior secured credit facility and the senior second lien credit facility. The Company used $219,000 of the proceeds from borrowings under the new credit facilities to repay all amounts then outstanding under the Company's previously existing senior credit facility and $11,000 to pay transaction costs associated with the new credit facilities. Obligations under the new credit facilities are secured by a first-priority security interest in substantially all of the United States existing and hereafter acquired assets, including substantially all of the capital stock of all of the Company's United States subsidiaries that are guarantors under the new credit facility, and 65% of the capital stock of certain of the Company's foreign subsidiaries that are owned by the United States companies. Obligations under the senior second lien facility are secured by a second-priority lien on the same collateral.

        The following sets forth the sources and uses of funds in connection with the recapitalization:

Source of funds      
Borrowings under the new senior secured credit facility   $ 380,000
Borrowings under the new senior second lien credit facility     120,000
   
Total   $ 500,000
   

Use of funds

 

 

 
Cash payment to stockholders and management   $ 270,000
Repayments under previously existing senior credit facility     219,000
Transaction fees and expenses     11,000
   
Total   $ 500,000
   

        Our fiscal 2004 results reflect the impact of the recapitalization including a pretax charge to earnings of $6,569 for the write-off of the remaining deferred financing fees outstanding under the previously existing senior credit facility.

3. Acquisition

        On March 22, 2002, EnerSys acquired the assets, stock and business of substantially all of the subsidiaries and affiliates comprising the Energy Storage Group (ESG) of Invensys PLC (Invensys). ESG is a manufacturer and supplier of lead-acid industrial batteries with facilities located primarily in Europe, North America, and Asia. This acquisition enhanced our product offering with complementary product lines and increased our ability to service global clients and gain global market share. The final acquisition price, after closing adjustments provided in the purchase agreement, was $363,104, including associated transaction costs and warrants to purchase 409,248 shares of Class A Common Stock of the Company at an

F-14



exercise price of $850. Using the Black-Scholes method, no value was attributed to these warrants. The transaction was financed by the following: issuance of Series A Convertible Preferred Stock of $283,000 to Morgan Stanley Capital Partners, a seller note with a fair value of $58,321 ($100,000 face value), and additional borrowings. The acquisition was accounted for under the purchase method of accounting and the ESG operations have been included in the Company's statements of operations since March 22, 2002. ESG's net sales and operating earnings for the fiscal year ended March 31, 2002 were $11,460 and $237, respectively.

        The following table summarizes the estimated fair values of the assets acquired and liabilities assumed related to ESG:

Inventory   $ 67,939  
Accounts Receivable     125,051  
Accounts Payable     (64,635 )
Accrued Expenses     (73,112 )
Fixed assets     174,896  
Goodwill, net of deferred taxes of $15,285     171,585  
Prepaids and other assets     42,678  
Long-term debt and capital leases     (11,178 )
Other liabilities     (70,120 )
   
 
Net assets acquired   $ 363,104  
   
 

        As of the acquisition date, the Company began to formulate an exit and restructuring plan for certain ESG facilities in North America and Europe, which was finalized during the fiscal year ended March 31, 2003. These facilities, located in the United Kingdom, Germany and the United States, were restructured due mainly to excess capacity brought about by the ESG acquisition and relatively high production costs at these locations compared to other EnerSys facilities. The facilities in the United Kingdom and Germany remain open, however, as either a distribution center or as a facility with a significantly reduced manufacturing capacity. The facility in the United States has been closed. The exit and restructuring plan affected direct, indirect and certain administrative personnel. As of March 22, 2002, the Company recorded a liability of $7,873 related to involuntary termination of employees and $10,300 for the cancellation of certain contractual obligations, which represents the cancellation of a contract that required the Company to purchase steam at the Germany location. During the fiscal year ended March 31, 2003, the Company paid $9,687 for the termination of employees and $2,287 for the contractual obligations. During the fiscal year ended March 31, 2004, the Company paid $4,054 for the termination of employees and $1,294 for the contractual obligations. All cash payments were charged against the liability established in purchase accounting.

        A rollforward of the above restructuring reserves is as follows:

Balance at March 31, 2002   $ 18,173  
  Purchase accounting adjustment     26,660  
  Costs incurred     (11,974 )
  Foreign currency impact     6,520  
   
 
Balance at March 31, 2003     39,379  
  Cost incurred     (5,348 )
  Foreign currency impact and other     4,313  
   
 
Balance at March 31, 2004   $ 38,344  
   
 

F-15


        The significant components of the above purchase accounting adjustments include severance costs of $16,900, environmental costs of $5,300, warranty expenses of $3,200 and other expenses of $1,260.

        The remaining restructuring reserve as of March 31, 2004 represents primarily the remaining payments due of $10,300 for the cancellation of the steam plant contract, which are required through fiscal 2007; severance at the Germany location of $10,700, which is expected to be paid during fiscal 2005 and 2006; severance at the United Kingdom location of $9,700, the majority of which is expected to be paid during fiscal 2005; and environmental costs of $5,300, the majority of which is expected to be paid through fiscal 2007.

        The following unaudited pro forma financial information reflects the results of operations as if the acquisition of ESG had occurred as of the beginning of the fiscal year ended March 31, 2002. Pro forma adjustments include only the effects of events directly attributed to a transaction that are factually supportable and expected to have a continuing impact. The pro forma adjustments contained in the table below include adjustments for depreciation expense due to the adjustment of property, plant, and equipment to estimated market value, interest expense on the acquisition debt and the related income tax effects.

 
  Unaudited
 
Net sales   $ 897,540  
   
 
Net loss   $ (36,433 )
   
 

Net loss per share:

 

 

 

 
  Basic and Diluted   $ (3.31 )
   
 

        The unaudited pro forma financial information does not necessarily reflect the operating results that would have occurred had the acquisition been consummated as of the above date, nor is such information indicative of future operating results.

4. Inventories

        Inventories consist of:

 
  2003
  2004
Raw materials   $ 24,474   $ 32,003
Work-in-process     26,583     36,670
Finished goods     55,941     63,039
   
 
    $ 106,998   $ 131,712
   
 

        Inventory reserves for obsolescence and other estimated losses were $7,955 and $10,895 at March 31, 2003 and 2004, respectively.

5. Property, Plant, and Equipment

        Property, plant, and equipment consists of:

 
  2003
  2004
 
Land, buildings, and improvements   $ 87,639   $ 99,239  
Machinery and equipment     225,367     256,382  
Construction in progress     8,884     13,776  
   
 
 
      321,890     369,397  
Less accumulated depreciation     (46,231 )   (84,547 )
   
 
 
Property, plant, and equipment   $ 275,659   $ 284,850  
   
 
 

F-16


6. Goodwill and Other Intangible Assets

        Information regarding the Company's goodwill and other intangible assets follows:

 
  2003
  2004
 
  Gross
Amount

  Accumulated
Amortization

  Net
Amount

  Gross
Amount

  Accumulated
Amortization

  Net
Amount

Unamortizable intangible assets:                                    
  Goodwill   $ 297,117   $ (1,412 ) $ 295,705   $ 308,237   $ (1,412 ) $ 306,825
  Trademarks     76,240     (953 )   75,287     76,240     (953 )   75,287
Amortizable intangible assets:                                    
  Non-compete     131     (85 )   46     131     (115 )   16
  Patents     250     (42 )   208     250     (58 )   192
   
 
 
 
 
 
Total   $ 373,738   $ (2,492 ) $ 371,246   $ 384,858   $ (2,538 ) $ 382,320
   
 
 
 
 
 

        The changes in the carrying amount of goodwill by business segment are as follows:

 
  FY2003
  FY2004
 
 
  Reserve
  Motive
  Total
  Reserve
  Motive
  Total
 
Balance at beginning of year   $ 108,901   $ 116,732   $ 225,633   $ 161,348   $ 134,357   $ 295,705  
Goodwill adjustment for balances acquired in ESG acquisition     43,408     9,494     52,902     (3,491 )   (2,901 )   (6,392 )
Goodwill adjusted for balances acquired in Yuasa Inc. acquisition     938         938     (849 )       (849 )
Foreign currency translation gain     8,101     8,131     16,232     9,183     9,178     18,361  
   
 
 
 
 
 
 
Balance at end of year   $ 161,348   $ 134,357   $ 295,705   $ 166,191   $ 140,634   $ 306,825  
   
 
 
 
 
 
 

        The goodwill adjustment of $52,902 for fiscal year 2003 is a result of the Company's final adjustments to fair value estimates, primarily $16,900 in additional severance accrual, $14,900 in additional decreases to fixed asset valuation estimates, $7,000 of warranty accruals, $5,300 of environmental accruals, additional transaction costs of $4,800 and $4,000 additional allowance for doubtful accounts. The increased severance accrual was caused by the Company making additional capacity reductions at its United Kingdom and Germany locations, which were deemed necessary to make the facilities cost competitive as final analyses were completed. The additional decrease in the fixed asset valuation estimates is primarily due to the Company's Mexican location, as refinements to the estimates were required due to the transaction occurring shortly before the Company's fiscal 2002 year-end. The Company also incurred additional legal and professional costs related to the transaction of $4,800. The goodwill adjustment of $(6,392) for fiscal 2004 is a reclassification to correct the income tax liability assumed in the acquisition of ESG.

        The Company estimated tax-deductible goodwill to be approximately $25,000 and $25,000 as of March 31, 2003 and 2004, respectively.

F-17



7. Other Assets

        Other current assets consist of the following:

 
  March 31
 
  2003
  2004
Nontrade receivables   $ 2,803   $ 2,523
Other     1,137     2,020
   
 
    $ 3,940   $ 4,543
   
 

        Other assets consist of the following:

 
  March 31
 
  2003
  2004
Rental batteries   $ 7,322   $ 7,330
Leases receivable     4,313     3,689
Deferred financing fees     6,608     9,363
Pension     6,886     8,431
Nontrade receivables     1,249    
Other     1,738     5,357
   
 
    $ 28,116   $ 34,170
   
 

8. Accrued Expenses

        Accrued expenses consist of the following:

 
  2003
  2004
Restructuring   $ 30,277   $ 33,517
Payroll and benefits     41,596     40,113
Warranty     24,198     23,280
Income taxes, currently payable     5,955     22,811
Accrued selling expenses     6,048     12,476
Pension and social security     11,897     7,017
Interest     1,615     599
Other     13,163     23,904
   
 
    $ 134,749   $ 163,717
   
 

9. Debt

        In November 2000, the Company entered into a senior Credit Agreement with Morgan Stanley Senior Funding, Inc. and various lending institutions (Credit Agreement) containing a Tranche A Note for $40,000, a Tranche B Note for $110,000, and a Revolving Note for $50,000. In March 2002, an amendment to the Credit Agreement increased the amount available to $146,000 on the Tranche B Note and $57,000

F-18



on the Revolving Note. Quarterly principal payments on the Tranche A and B Notes began March 31, 2001 with final payments due on November 9, 2006 and November 9, 2008, respectively. The maturity date of the Revolving Note was November 9, 2006. Loans and other liabilities under the Credit Agreement were secured by substantially all United States assets of the Company. Borrowings under the Credit Agreement bore interest at a floating rate based, at the Company's option, upon (i) a LIBOR rate plus an applicable percentage or (ii) the greater of the federal funds rate plus 0.5% or the prime rate, plus an applicable percentage. The applicable percentages (the credit spreads) were subject to change based on the ratio of the Company's senior debt to EBITDA (all rates and terms are as defined in the Credit Agreement). In conjunction with the recapitalization in March 2004, the obligations under this Credit Agreement were paid in full and the Credit Agreement was terminated in March 2004.

        In connection with the acquisition of ESG, the Company entered into a seller note agreement with Invensys of $100,000 at a fixed rate of 3.0275%, due March 31, 2010. In accordance with the terms of the seller note agreement, the Company issued two new notes in fiscal 2003 in lieu of paying semi-annual cash interest to Invensys for $1,211 and $1,570, respectively. The two new notes carried the same terms, conditions, interest rate, and maturity date as the original note. The notes were subordinate to the above Credit Agreement. The face values of the notes were discounted by the difference of the estimated market rate of 10.0% and 3.0275%. The estimated market rate of 10.0% was determined to be the rate of interest the Company would have incurred at that time for the issuance of subordinated notes. The discount amount of $38,552 and $0 at March 31, 2003 and 2004, respectively, was being accreted to the principal amount with the accretion being charged to interest expense over the period to its maturity. In conjunction with the Settlement Agreement with Invensys, these notes were paid in full in December 2003.

        In connection with the acquisition of ESG, the Company assumed a $5,000 note payable to the prior owner of an acquired manufacturing plant in Mexico. The note was due on February 2, 2004, plus accrued interest at a one-year LIBOR rate (1.47% at March 31, 2004). In February 2004, the Company paid $1,786 on the note and the balance is pending settlement of certain disputes.

        In December 2003, the Company entered into an agreement with Invensys PLC (Settlement Agreement) under which the Company paid $94,100 for the repurchase of seller notes and warrants delivered to Invensys as part of the consideration for the acquisition of ESG and in settlement of other matters, primarily termination of a supply agreement. This transaction was funded by utilizing $43,100 of short-term investments, $19,000 from an accounts receivable financing facility (which was paid off and terminated on March 9, 2004), $7,000 additional Tranche B borrowing and $25,000 Revolver drawdown.

        In March 2004, the Company paid a $270,000 cash payment to stockholders and certain members of management. In connection with the cash payment, on March 17, 2004, the Company terminated our previously existing senior credit facility and entered into a new $480,000 senior secured credit facility, which consists of a $380,000 term loan B and a $100,000 revolving credit line, and entered into a new $120,000 senior second lien term loan. The Company used the proceeds of the $500,000 in term loans to fund the cash payment in the amount of $270,000, repay all amounts then outstanding under the previously existing senior credit facility in the amount of $219,000, and pay transaction costs associated with the new credit facilities of $11,000. No amounts were borrowed under the revolving credit line in conjunction with the cash payments.

F-19



        The $380,000 senior secured term loan B is subject to a 0.25% quarterly principal amortization and matures on March 17, 2011. The $120,000 senior second lien term loan mature as a single installment on March 17, 2012. The $100,000 revolving credit line matures on March 17, 2009. Obligations under the Credit Facilities are secured by substantially all of our United States existing and hereafter acquired assets, including substantially all of the capital stock of all of our United States subsidiaries that are guarantors under the new credit facility, and 65% of the capital stock of certain of our foreign subsidiaries that are owned by our United States companies. Borrowings under the credit agreements bear interest at a floating rate based, at our option, upon (i) a LIBOR rate plus an applicable percentage or (ii) the greater of the federal funds rate plus 0.5% or the prime rate, plus an applicable percentage. Under the terms of the credit facilities, the Company is required to prepay certain principal amounts outstanding with proceeds of an initial public offering. There is also a provision that would require prepayment based upon certain excess cash flow amounts, as defined. There are prepayment penalties on the Second Lien term notes of 2% if prepaid during the first year after issuance and 1% if prepaid during the second year. There are no prepayment penalties on loans under the $480,000 senior secured credit facility.

        As of March 31, 2003 and 2004, the Company had available under all its lines of credit, including in 2003 its accounts receivable financing program, approximately $92,900 and $124,600, respectively. Included in the March 31, 2003 and 2004 amounts are $10,500 and $24,600, respectively, of uncommitted lines of credit.

        The effective borrowing rates for 2003 and 2004 were 5.1% and 5.0% respectively.

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        The following summarizes the Company's long-term debt:

 
  March 31
 
  2003
  2004
Term Loan B: Payable in quarterly installments through March 17, 2011, bearing interest at 3.59% at March 31, 2004(1)   $   $ 380,000
Second Lien term notes: Payable in a single installment on March 17, 2012, bearing interest at 6.09% at March 31, 2004         120,000
Tranche A: Payable in quarterly installments through November 9, 2008, refinanced on March 17, 2004     32,500    
Tranche B: Payable in quarterly installments through November 9, 2008, refinanced on March 17, 2004     143,075    
Mortgage loan payable in monthly installments through August 1, 2003, bearing interest at 3.00% per annum. Loan was secured by a mortgage lien interest in the Company's corporate headquarters     92    
Subordinated notes payable to Invensys of $102,781 and $0 at March 31, 2003 and 2004 face amounts, respectively, bearing interest at 3.0275% per annum, due in full March 31, 2010 (less unamortized discount of $38,552 and $0 as of March 31, 2003 and 2004, respectively, based on imputed interest rate of 10%).     64,229    
Note payable, pending settlement of disputes, bearing interest at 1.47% at March 31, 2004     5,000     3,214
   
 
Total debt     244,896     503,214
Less current portion     13,052     7,014
   
 
Total long-term debt   $ 231,844   $ 496,200
   
 

(1)
LIBOR component on $120,000 swapped into fixed rates as discussed in Notes 2 and 12.

        The Company paid $13,100, $15,686 and $15,474, net of amounts capitalized, for interest during the fiscal years ended March 31, 2002, 2003 and 2004, respectively. Aggregate maturities of long-term debt in each of the five fiscal years after March 31, 2004 are as follows:


2005

 

$

7,014
2006     3,800
2007     3,800
2008     3,800
2009     3,800
Thereafter     481,000
   
    $ 503,214
   

        The Company's financing agreements contain various covenants which, absent prepayment in full of the indebtedness and other obligations, or the receipt of waivers, would limit the Company's ability to conduct

F-21



certain specified business transactions including incurring debt, mergers, consolidations or similar transactions, buying or selling assets out of the ordinary course of business, engaging in sale and leaseback transactions, paying dividends and certain other actions. The Company is in full compliance with all such covenants. The Company had available under certain conditions a maximum of $35,000 in a receivable financing program at March 31, 2003. This program was terminated in March 2004.

        As of March 31, 2003 and 2004, the Company had $190 and $325, respectively, of standby letters of credit outstanding that reduced the borrowings available under the Revolving Note.

10. Leases

        The Company's future minimum lease payments under capital and operating leases that have noncancelable terms in excess of one year at March 31, 2004 are as follows:

 
  Capital
Leases

  Operating
Leases


2005

 

$

2,503

 

$

10,221
2006     1,755     7,052
2007     934     4,236
2008     528     2,139
2009     250     1,095
Thereafter     218     221
   
 
Total minimum lease payments     6,188   $ 24,964
         
Amounts representing interest     (811 )    
   
     
Net minimum lease payments, including current portion of $2,150   $ 5,377      
   
     

        Rental expense was $6,797, $17,491 and $17,818 for the fiscal years ended March 31, 2002, 2003 and 2004, respectively. Amortization of capitalized leased assets is included in depreciation expense. Certain operating lease agreements contain renewal or purchase options and/or escalation clauses.

F-22



11. Other Liabilities

        Other long-term liabilities consists of the following:

 
  March 31
 
  2003
  2004
Pension and profit sharing obligation   $ 16,802   $ 27,462
Restructuring reserves     20,824     16,890
Claims settlement accrual     4,500     4,500
Swap liability     5,549     4,097
Deferred income     2,514     3,450
Minority interest     2,590     2,807
Other     4,230     3,205
   
 
    $ 57,009   $ 62,411
   
 

12. Derivative Financial Instruments

        In February 2001, the Company entered into interest rate swap agreements to fix the interest rate on $60,000 of its floating-rate obligations at a rate of 5.59% per annum through February 22, 2006. In April and May 2004, the Company amended these agreements to extend the maturity to February 22, 2008, and reduce the fixed rate to 5.16% per annum beginning May 24, 2004. In accordance with SFAS No. 133, the interest rate swaps are considered perfectly effective against changes in the fair value of the underlying debt and, as a result, there is no need to periodically reassess the effectiveness during the term of the hedge. Cash flows related to the interest rate swap agreements are included in interest expense over the terms of the agreements.

        On April 1, 2001, upon adoption of SFAS No. 133, the Company recognized in accumulated other comprehensive income a cumulative effect of a change in accounting principle gain of $389 related to interest rate swap agreements. The Company recorded an unrealized (loss) income on these derivative instruments of $(1,463), $(4,305) and $1,452 for the fiscal years ended March 31, 2002, 2003 and 2004, respectively, that is included in other comprehensive loss. The estimated fair value of the Company's interest rate swap agreements was a liability of $1,463, $5,768 and $4,316 at March 31, 2002, 2003 and 2004, respectively, as estimated based on quotes from the market makers of these instruments.

        In conjunction with the February 2001 swap agreements, the Company entered into option agreements that gave the counterparties the right, exercisable on February 22, 2004, to swap a floating interest rate payment by the Company on a notional amount of $60,000 for the receipt by the Company of a fixed interest rate payment of 5.59%, for the two-year period from February 22, 2004 to February 22, 2006. The option agreements expired on February 22, 2004 and were not exercised by the counterparties. The Company had not designated the option agreements as hedge instruments, thus changes in the fair value of the agreements were recorded as adjustments to interest expense. The estimated fair value of the Company's option agreements was a liability of $45 and $0 at March 31, 2003 and 2004, respectively, as estimated based on quotes from the market makers of these instruments.

        In April 2004, the Company entered into interest rate swap agreements to fix the interest rate on an additional $60,000 of its floating-rate obligations, beginning May 5, 2004, at a rate of 2.85% per annum in Year

F-23



1, 3.15% per annum in Year 2, 3.95% per annum in Year 3 and 4.75% per annum in Year 4. These agreements expire on May 5, 2008. In accordance with SFAS No. 133, these swaps are considered perfectly effective against changes in the fair value of the underlying debt and, as a result, there is no need to periodically reassess the effectiveness during the term of the hedge. Cash flows related to the interest rate swap agreements are included in interest expense over the terms of the agreements.

13. Income Taxes

        Income tax (benefit) expense is composed of the following:

 
  Fiscal year ended March 31
 
 
  2002
  2003
  2004
 
Current:                    
  Federal   $ (8,753 ) $ (1,147 ) $  
  State     (197 )        
  Foreign     159     5,123     9,597  
   
 
 
 
Total current     (8,791 )   3,976     9,597  
Deferred:                    
  Federal     (12,919 )   2,473     (12,348 )
  State     (751 )   120     77  
  Foreign     290     5,786     5,631  
   
 
 
 
Total deferred     (13,380 )   8,379     (6,640 )
   
 
 
 
Income tax (benefit) expense   $ (22,171 ) $ 12,355   $ 2,957  
   
 
 
 

        (Loss) earnings before income taxes consists of the following:

 
  Fiscal year ended March 31
 
 
  2002
  2003
  2004
 
United States   $ (64,324 ) $ 1,161   $ (44,778 )
Foreign     171     34,046     52,571  
   
 
 
 
(Loss) earnings before income taxes   $ (64,153 ) $ 35,207   $ 7,793  
   
 
 
 

        Income taxes paid or (refunds received) by the Company for the fiscal years ended March 31, 2002, 2003 and 2004 were $1,336, $3,830 and $(3,083), respectively.

F-24



        The following table sets forth the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities:

 
  March 31
 
 
  2003
  2004
 
Deferred tax assets:              
  Accounts receivable   $ 1,786   $ 1,547  
  Inventories     3,064     3,543  
  Intangible assets     7,321     2,197  
  Plant and equipment     6,549     5,823  
  Net operating loss carryforwards     70,670     81,023  
  Accrued liabilities and restructuring expenses     24,948     21,314  
  Other noncurrent items         9,303  
   
 
 
Gross deferred tax assets     114,338     124,750  
Less valuation allowance     (66,906 )   (74,109 )
   
 
 
Total deferred tax assets     47,432     50,641  

Deferred tax liabilities:

 

 

 

 

 

 

 
  Inventories     1,478     167  
  Plant and equipment, principally due to differences in depreciation     27,183     30,197  
  Intangible assets     31,128     29,389  
  Other noncurrent items     11,353     1,539  
   
 
 
Total deferred tax liabilities     71,142     61,292  
   
 
 
Net deferred tax assets (liabilities)   $ (23,710 ) $ (10,651 )
   
 
 

        The Company has approximately $34,032 in United States (federal) net operating losses that begin to expire in the year beginning 2023.

        The Company has recorded a deferred tax asset of approximately $11,911 related to net operating losses in the United States. The Company expects to fully realize these United States net operating losses against reversing taxable temporary differences, implementing certain tax planning strategies, and projected future taxable income; therefore management has not recorded a valuation allowance against this amount.

        The Company has certain temporary differences in the United States related to the ESG acquisition, the tax benefit of which is limited by Section 382 of the Internal Revenue Code. The Company has recorded a full valuation allowance against these deferred tax assets as it is more likely than not that these assets will not be realized in the future.

F-25


        The net operating losses at March 31, 2004 related to its foreign subsidiaries are approximately $166,553, which expire at various times over the next 20 years. Part of these net operating losses have an unlimited life. In addition, the Company also had approximately $89,886 of net operating losses for state tax purposes that expire at various times over the next 20 years. The Company has recorded a valuation allowance for net deferred tax assets in certain foreign and state tax jurisdictions, primarily related to net operating loss carryforwards, due to the significant losses incurred in these tax jurisdictions.

        A reconciliation of income taxes at the statutory rate to the income tax provision is as follows:

 
  Fiscal year ended March 31
 
 
  2002
  2003
  2004
 
United States statutory income tax (benefit) expense (at 35%)   $ (22,517 ) $ 12,322   $ 2,728  
Increase (decrease) resulting from:                    
  State income taxes, net of federal effect     (1,730 )   120     50  
  Nondeductible expenses     1,510     359     1,293  
  Effect of foreign operations     566     (446 )   (1,114 )
   
 
 
 
    $ (22,171 ) $ 12,355   $ 2,957  
   
 
 
 

        At March 31, 2004, the Company has not recorded United States income or foreign withholding taxes on approximately $65,654 of undistributed earnings of foreign subsidiaries that could be subject to taxation if remitted to the United States because the Company currently plans to keep these amounts permanently invested overseas.

14. Pension Plans

        The Company provides pension benefits to substantially all eligible salaried and hourly employees. The following table sets forth a reconciliation of the related benefit obligation, plan assets, and accrued benefit costs related to the pension benefits provided by the Company for these employees covered by defined benefit plans:

 
  United States Plans
  International Plans
 
 
  March 31
  March 31
 
 
  2003
  2004
  2003
  2004
 
Change in benefit obligation                          
Benefit obligation at the beginning of the year   $ 6,557   $ 7,993   $ 9,337   $ 14,203  
Service cost     529     392     1,970     3,365  
Interest cost     435     472     806     1,104  
Benefits paid     (541 )   (456 )   (618 )   (1,087 )
Plan participants' contributions             641     922  
Change in assumptions     1,226              
Change due to plan amendment         36          
Experience (gain) loss     (213 )   (98 )   (296 )   (155 )
Foreign currency translation adjustment             2,363     1,901  
   
 
 
 
 
Benefit obligation at the end of the period     7,993     8,339     14,203     20,253  
                           

F-26



Change in plan assets

 

 

 

 

 

 

 

 

 

 

 

 

 
Fair value of plan assets at the beginning of the period     5,856     4,865         2,375  
Actual return (loss) on plan assets     (984 )   1,330     (115 )   315  
Employer contributions     534     32         3,151  
Plan participants' Contributions             2,498     922  
Benefits paid, inclusive of plan expenses     (541 )   (456 )   (8 )   (208 )
Foreign currency translation adjustments                 393  
   
 
 
 
 
Fair value of plan assets at the end of the period     4,865     5,771     2,375     6,948  
   
 
 
 
 
Funded status (deficit)     (3,128 )   (2,568 )   (11,828 )   (13,305 )
Unrecognized net loss (gain)     3,606     2,426          
   
 
 
 
 
Prepaid (accrued) benefit cost   $ 478   $ (142 ) $ (11,828 ) $ (13,305 )
   
 
 
 
 

        Prepaid pension cost is included in other assets and accrued benefit liability is included in other liabilities.

        Net periodic pension cost for 2002, 2003, and 2004 includes the following components:

 
  United States Plans
  International Plans
 
 
  March 31
  March 31
 
 
  2002
  2003
  2004
  2003
  2004
 
Service cost   $ 640   $ 529   $ 392   $ 1,970   $ 3,365  
Interest cost     427     435     472     806     1,104  
Actual (return) loss on plan assets     (58 )   984     (1,330 )   115     (315 )
Amortization and deferral     (409 )   (1,514 )   1,099         (4 )
   
 
 
 
 
 
Net periodic benefit cost   $ 600   $ 434   $ 633   $ 2,891   $ 4,150  
   
 
 
 
 
 

        The international plans were acquired as part of the March 22, 2002 ESG acquisition and the net periodic pension cost for the fiscal year ended March 31, 2002 related to these plans was not material to the Company's results of operations.

        Significant assumptions used in accounting for the pension benefit plans are as follows:

 
  United States Plans
  International Plans
 
 
  March 31
  March 31
 
 
  2002
  2003
  2004
  2003
  2004
 
Discount rate   7.0 % 6.0 % 6.0 % 7.0 % 5.8-7.0 %
Expected return on plan assets   9.0 % 9.0 % 9.0 % 9.0 % 7.8-9.0 %
Rate of compensation increase   N/A   N/A   N/A   3.5 % 3.5-3.8 %

F-27


        The United States plans do not include compensation in the formula for determining the pension benefit as it is based solely on years of service.

        The Company's investment policy emphasizes a balanced approach to investing in securities of high quality and ready marketability. Investment flexibility is encouraged so as not to exclude opportunities available through a diversified investment strategy.

        Equity investments are maintained within a target range of 50%-70% of the total portfolio at market. Investments in debt securities include issues of various maturities, and the average quality rating of bonds should be investment grade with a minimum quality rating of "B" at the time of purchase.

        The Company periodically reviews the asset allocation of its portfolio. The proportion committed to equities, debt securities and cash equivalents is a function of the values available in each category and risk considerations. The plan's overall return will be compared to and expected to meet or exceed established benchmark funds and returns over a three to five year period.

        The objectives of the Company's investment strategies are: (a) the achievement of a reasonable long-term rate of total return consistent with an emphasis on preservation of capital and purchasing power, (b) stability of annual returns through a portfolio risk level which is appropriate to conservative accounts, and (c) reflective of our willingness to forgo significantly above-average rewards in order to minimize above-average risks. These objectives may not be met each year but should be attained over a reasonable period of time.

        The Company expects to make cash contributions of approximately $1,650 to its United States pension plans in fiscal year 2005.

        As a result of the ESG business combination, the Company has assumed a defined benefit plan in Germany. This plan has no assets and a benefit obligation of $11,976 and $13,660 as of March 31, 2003 and 2004, respectively. Other salary and hourly employees are provided defined contribution plans in accordance with governmental regulatory requirements.

        The allocation of investments for the United States pension plans is as follows:

 
  March 31
 
 
  2003
  2004
 
Equity securities   54.4 % 67.5 %
Debt securities   41.4   31.5  
Cash equivalents   4.2   1.0  
   
 
 
Total   100.0 % 100.0 %
   
 
 

        Substantially all salaried employees of the former EnerSys, prior to the acquisition of ESG, were eligible to participate in the Salaried Retirement and 401(k) Plan. Under this plan, the Company contributed annually 4% of eligible employees' salaries to a trust fund. In addition to the employer contribution, a salaried employee could make voluntary contributions to the plan of up to 75% of their salary (as of July 22, 2002). In addition to the automatic contribution, the Company was obligated to make additional contributions, to the extent of the employee's participation in the plan, of 25% of the first 4% of

F-28



the employee's salary contributed by the employee. The 401(k) Plan also allows the Company to make discretionary matching contributions.

        Effective calendar 2004, the Company has gone to a "Safe Harbor Plan" and will not make the automatic 4% contribution. In addition, the 2004 plan covers substantially all salary and hourly employees of EnerSys except those covered by a union plan. Under the 2004 plan, all employees are eligible to receive a match on their contributions as follows: company matches 100% of the first 4% contributed and 50% of the next 2% contributed for a total match of up to 5% by the Company. Employer expenses for the 401(k) plan for the fiscal years ended March 31, 2002, 2003 and 2004 were $231, $302 and $640, respectively.

15. Preferred Stock

        In connection with the acquisition of ESG, the Company issued 665,883 shares of Series A Convertible Preferred Stock (Preferred Stock), which were, at the date of issuance, convertible into an equal number of shares of Class A Common Stock. The Preferred Stock is convertible after that date, at the option of the holder, at an amount of shares equal to the amount at issuance plus a cumulative amount from the date of issuance to the date of conversion at a rate of 7.5% per annum, compounded quarterly. The fair value of additional shares issuable upon conversion of the Preferred Stock has been reflected as a Preferred Stock dividend. At March 31, 2004, the Preferred Stock was convertible into 22,018,294 shares of common stock and that number was reserved for conversion.

        Holders of the Preferred Stock have voting rights equivalent to the amount of common shares they would hold as if they had converted into common stock.

        In the event of a dividend or distribution to holders of common stock, the holders of Preferred Stock will receive a proportionate share based upon the amount of shares of common stock they would hold as if the holders had converted to common stock. No dividends or distributions may be made to holders of common stock unless all dividends to which holders of Preferred Stock are entitled have been paid in full.

        Automatic conversion of the Preferred Stock, at the same rate as if the conversion were at the holder's option, will take place immediately prior to a public offering of the common stock of the Company if the net proceeds to the Company are anticipated to be at least $75,000.

        Upon the dissolution or liquidation of the Company, the holders of the Preferred Stock are entitled to an amount per share at least equal to the original amount at issuance plus the cumulative amount accrued from the date of issuance at a rate of 7.5% per annum, compounded quarterly ($327,677 at March 31, 2004).

16. Stock Plans

Stock Incentive Plans

        The Company maintains a management equity plan that reserves 7,113,611 shares of Class A Common Stock for the grant of restricted shares, and various classes of nonqualified stock options. Options have been granted to employees under various plans at prices not less than the fair market value

F-29



of the shares on the dates the options were granted. Generally, options vest over a four year period and become exercisable in annual installments over the vesting period. Options generally expire in 10 years.

        Pro forma information regarding net income required by SFAS No. 123 has been determined as if the Company had accounted for its employee stock options under the fair value method of SFAS No. 123. The fair value of the options granted was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:

 
  2002
  2003
  2004
Risk-free interest rate   5%   5%   3%
Dividend yield   0%   0%   0%
Expected life   7 years   7 years   7 years

        As permitted under the provisions of SFAS No. 123 and based on the historical lack of a public market for the Company's options, no factor for volatility has been reflected in the option-pricing calculation.

        The following table summarizes the Company's stock option activity in the years indicated:

 
  2002
  2003
  2004
 
  Number of
Options

  Weighted
Average
Exercise
Price

  Number of
Options

  Weighted
Average
Exercise
Price

  Number of
Options

  Weighted
Average
Exercise
Price

Outstanding at beginning of year   2,715,993   $ 19.92   5,715,162   $ 19.47   5,680,164   $ 19.52
March 2004 adjustment to outstanding       N/A       N/A   854,865     N/A
Granted   3,037,872     19.00   23,313     14.91   541,829     19.74
Exercised                  
Forfeited   (38,703 )   14.91   (58,311 )   14.91   (93,257 )   14.91
   
       
       
     
Outstanding at end of year   5,715,162     19.47   5,680,164     19.52   6,983,601     14.13
   
       
       
     
Exercisable at end of year   603,402     20.09   5,680,164     17.94   4,011,273     14.26
   
       
       
     
Reserved for future grant at year-end   27,018         310,678         130,010      
   
       
       
     

        Options were granted with an exercise price that equals or was in excess of the estimated fair market value of a share of EnerSys common stock on the date of grant. The estimated fair market value of EnerSys common stock was determined to be $6.90, $8.58, 12.42 and $14.67, respectively, for the four quarter issuances in fiscal 2004.

        The fair value of the common stock was estimated contemporaneously with the grants. Determining the fair value of the Company's stock requires making complex and subjective judgments. The Company's approach to valuation is based upon a range of factors, including comparable company earning multiples, the illiquidity of the stock in a private company, and the Company's performance and operating results at the time of the grant, among other items. There is inherent uncertainty in making these estimates.

F-30



        As of March 31, 2004 there are also 10,609 of preferred stock options outstanding, which are convertible into 350,797 shares of common stock. The approximate weighted average exercise price is $4.42 per share. These options are fully vested and expire on October 30, 2008. These options are accounted for as variable under FIN 44.

        The Board of Directors approved certain adjustments to the outstanding options as well as the number of options avilable for grant under the stock incentive plans in response to the recapitalization transaction on March 17, 2004 (see Note 2). The adjustments included increasing the number of shares under option from 6,128,612 to 6,983,469, lowering the exercise prices of $14.98 to $10.82 and lowering the range of options with an exercise price of from $22.37–$28.07 to $16.24–$20.39. These adjustments consequently increased the aggregate number of shares or options to purchase shares that are authorized for issuance under the stock incentive plans from 6,258,686 to 7,113,611. All vesting and term provisions of each award remained unchanged. No compensation expense was recognized in connection with these adjustments since (i) the adjustments were executed in response to an equity restructuring and (ii) the modifications to the awards did not increase the aggregate intrinsic value of each award and did not reduce the per share ratio of the exercise price to the market value.

        The following table summarizes information regarding stock options outstanding and exercisable at March 31, 2004:

 
  Options Outstanding

  Options Exercisable

Range of Exercise Prices
  Number of
Options

  Weighted
Average
Remaining
Contractual Life

  Weighted
Average
Exercise Price

  Number of
Options

  Weighted
Average
Exercise Price

$10.82   3,996,781   7.72   10.82   2,243,063   10.82
$16.24   1,965,328   7.54   16.24   1,190,701   16.24
$19.11–$20.39   76,234   9.85   20.06    
$21.91   777,365   7.73   21.91   451,592   21.91
$29.36   167,893   6.61   29.36   125,917   29.36
   
 
 
 
   
    6,983,601   7.67   14.13   4,011,273   14.13
   
         
   

F-31


17. Earnings Per Share

        The following table sets forth the reconciliation from basic to diluted average common shares and the calculations of net earnings per common share (dollars in thousands, except per share data).

 
  March 31
 
 
  2002
  2003
  2004
 
Net (loss) earnings   $ (41,982 ) $ 22,852   $ 4,836  

Series A convertible preferred stock dividends

 

 

(13

)

 

(24,057

)

 

(24,689

)
   
 
 
 
Net (loss) earnings available to common stockholders   $ (41,995 ) $ (1,205 ) $ (19,853 )
   
 
 
 

Average common shares:

 

 

 

 

 

 

 

 

 

 
  Basic (weighted-average outstanding shares)     11,014,421     11,014,421     11,014,421  
  Dilutive potential common shares from common and preferred stock options         141,845      
   
 
 
 
Diluted (weighted-average outstanding shares)     11,014,421     11,156,267     11,014,421  
   
 
 
 

Basic (loss) earnings per common share

 

$

(3.81

)

$

(0.11

)

$

(1.80

)
   
 
 
 
Diluted (loss) earnings per common share   $ (3.81 ) $ (0.11 ) $ (1.80 )
   
 
 
 
Antidilutive options and convertible preferred stock not included in the dilutive (loss) earnings per common share calculation     25,030,268     26,461,851     29,344,854  
   
 
 
 

18. Commitments and Contingencies

        The Company is involved in litigation incidental to the conduct of its business, the results of which, in the opinion of management, are not likely to be material to the Company's financial condition, results of operations, or cash flows.

        As a result of its operations, the Company is subject to various federal, state, local, and foreign environmental laws and regulations and is exposed to the costs and risks of handling, processing, storing, transporting, and disposing of hazardous substances, especially lead and acid. The Company's operations are also subject to federal, state, local, and foreign occupational safety and health regulations, including laws and regulations relating to exposure to lead in the workplace.

        The Company is involved in ongoing environmental issues at certain of its United States and foreign facilities. The Company currently has identified three potential environmental issues at our Manchester, United Kingdom battery facility and has established reserves of approximately $5,300 in accrued restructuring at March 31, 2004. The Company believes it is indemnified in whole or in part for some of these environmental matters. Based on information available at this time, management believes that its reserves are sufficient to satisfy its environmental liabilities.

        In order to ensure a steady supply of lead and to hedge against large increases in cost, the Company has entered into contracts with suppliers for the purchase of lead. Each such contract is for a period not extending beyond one year. Under these contracts, the Company was committed at March 31, 2003 to

F-32



purchase approximately 63 million pounds of lead for a total purchase price of $16,000. At March 31, 2004, the Company was committed to purchase approximately 39 million pounds of lead for a total purchase price of $11,900.

19. Concentration of Credit Risk

        Financial instruments that subject the Company to potential concentration of credit risk consist principally of trade accounts receivable and temporary cash investments. The Company places its temporary cash investments with various financial institutions and, generally, limits the amount of credit exposure to any one financial institution. Concentration of credit risk with respect to trade receivables is limited by a large, diversified customer base and its geographic dispersion. The Company performs ongoing credit evaluations of its customers' financial condition and requires collateral, such as letters of credit, in certain circumstances.

20. Quarterly Financial Data (Unaudited)

 
  1st Quarter
  2nd Quarter
  3rd Quarter
  4th Quarter
  Fiscal Year
 
Fiscal year ended March 31, 2003                                
Net sales   $ 208,400   $ 207,632   $ 212,878   $ 230,733   $ 859,643  
Gross profit     45,555     50,040     52,662     57,388     205,645  
Operating earnings     9,310     12,940     15,445     17,281     54,976  
Net earnings     2,982     5,176     6,574     8,120     22,852  
Series A convertible preferred stock dividends     (5,306 )   (5,406 )   (6,161 )   (7,184 )   (24,057 )
Net earnings (loss) available to common stockholders     (2,324 )   (230 )   413     936     (1,205 )
Net earnings per common share—basic   $ (0.21 ) $ (0.02 ) $ 0.04   $ 0.08   $ (0.11 )
Net earnings per common share—diluted   $ (0.21 ) $ (0.02 ) $ 0.04   $ 0.08   $ (0.11 )

Fiscal year ended March 31, 2004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Net sales   $ 218,265   $ 222,139   $ 253,296   $ 275,379   $ 969,079  
Gross profit     52,556     57,276     64,036     72,386     246,254  
Operating earnings     12,489     17,419     11,953     12,783     54,644  
Net earnings (loss)     5,800     8,672     (10,399 )   763     4,836  
Series A convertible preferred stock dividends     (5,643 )   (5,731 )   (5,844 )   (7,471 )   (24,689 )
Net earnings (loss) available to common stockholders     157     2,941     (16,243 )   (6,708 )   (19,853 )
Net earnings (loss) per common share—basic   $ 0.01   $ 0.27   $ (1.47 ) $ (0.61 ) $ (1.80 )
Net earnings (loss) per common share—diluted   $ 0.01   $ 0.26   $ (1.47 ) $ (0.61 ) $ (1.80 )

F-33


        During the third quarter of fiscal year 2004 the Company recorded special charges of $33,500 related to the settlement agreement with Invensys, costs associated with abandoned acquisitions and provisions for restructuring. During the fourth quarter of fiscal 2004 the Company recorded special charges of $18,621 related to the recapitalization transaction (see Note 23).

21. Operations by Industry Segment and Geographic Area

        The Company has the following two reportable business segments:

        The Reserve Power segment manufactures batteries used to provide backup power for the continuous operation of critical systems during power disruptions. They include telecommunications and computer systems, such as process control and database systems.

        The Motive Power segment manufactures batteries used to power mobile manufacturing, warehousing and other ground handling equipment, primarily industrial forklifts.

 
  Reserve Power
  Motive Power
  Other
  Consolidated
 
Fiscal year ended March 31, 2002                          
Net sales   $ 162,567   $ 176,773   $   $ 339,340  
Operating earnings (loss)   $ 7,676   $ 11,657   $ (68,448 ) $ (49,115 )

Fiscal year ended March 31, 2003

 

 

 

 

 

 

 

 

 

 

 

 

 
Net sales   $ 426,900   $ 432,743   $   $ 859,643  
Operating earnings   $ 31,146   $ 23,830   $   $ 54,976  

Fiscal year ended March 31, 2004

 

 

 

 

 

 

 

 

 

 

 

 

 
Net sales   $ 480,006   $ 489,073   $   $ 969,079  
Operating earnings (loss)   $ 38,723   $ 37,068   $ (21,147 ) $ 54,644  

        Other represents restructuring expense and other special charges (see Note 23).

        Many of the Company's facilities manufacture products for both of the Company's segments. Therefore, it is not practicable to disclose asset information on a segment basis.

F-34



        Summarized financial information related to geographic areas in which the Company operated at March 31, 2002, 2003 and 2004 and for each of the years then ended is show below.

 
  2002
  2003
  2004
 
Net sales                    
Europe   $ 8,843   $ 434,493   $ 511,026  
Americas     330,158     392,003     408,836  
Asia     339     33,147     49,217  
   
 
 
 
Total   $ 339,340   $ 859,643   $ 969,079  
   
 
 
 
Operating (loss) earnings                    
Europe   $ 91   $ 26,709   $ 37,045  
Americas     19,175     24,720     34,413  
Asia     67     5,712     4,333  
Eliminations, special charges and other     (68,448 )   (2,164 )   (21,147 )
   
 
 
 
Total   $ (49,115 ) $ 54,977   $ 54,644  
   
 
 
 

Fixed assets

 

 

 

 

 

 

 

 

 

 
Europe   $ 91,128   $ 141,555   $ 156,470  
Americas     173,610     126,075     120,474  
Asia     8,954     8,029     7,906  
   
 
 
 
Total   $ 273,692   $ 275,659   $ 284,850  
   
 
 
 

22. Warranty

        The Company provides for estimated product warranty expenses when the related products are sold and are primarily included within accrued expenses. Because warranty estimates are forecasts that are based on the best available information, primarily historical claims experience, claims costs may differ from amounts provided. An analysis of changes in the liability for product warranties is as follows:

Balance at April 1, 2002   $ 18,317  
  Current year provisions     14,049  
  Costs incurred     (8,168 )
   
 
Balance at April 1, 2003     24,198  
  Current year provisions     16,176  
  Costs incurred     (17,125 )
   
 
Balance at March 31, 2004   $ 23,249  
   
 

F-35


23. Special Charges

        The following is a summary of special charges:

 
  March 31
 
  2002
  2003
  2004
Uncompleted acquisition attempts   $   $   $ 6,800
Restructuring     63,345         2,295
Bonus and related payroll costs associated with recapitalization             12,052
   
 
 
Special charges—operating     63,345         21,147
   
 
 

Invensys settlement agreement

 

 


 

 


 

 

24,405
Write-off of deferred financing costs             6,569
   
 
 
Special charges—nonoperating             30,974
   
 
 
Total special charges   $ 63,345   $   $ 52,121
   
 
 

        Special charges-operating for the fiscal year ended March 31, 2004 of $21,147 includes charges for uncompleted acquisitions (primarily legal and professional fees), plant closing costs related to the final settlement of labor matters relating to a North American plant closed in fiscal 2002 and a special bonus paid, including related payroll costs, in connection with the March 17, 2004 recapitalization transaction (see Note 2).

        Special charges-nonoperating for the fiscal year ended March 31, 2004 were $30,974, including $24,405 associated with the Settlement Agreement (see Note 9) that among other items, repaid seller notes and canceled stock warrants, all of which were attributable to the ESG acquisition; and deferred financing costs written off related to debt refinanced in the March 2004 recapitalization.

        Special charges from operations for the fiscal year ended March 31, 2002 include $63,345 of expenses associated with the Company's decision to close and downsize certain existing manufacturing locations in North and South America, reduce product offerings, reduce sales and distribution facilities, and implement other consolidation initiatives during the fiscal year ended March 31, 2002. The Company has closed a facility in North America, two facilities in South America, reduced operations in a European sales and distribution location, and provided appropriate reserves for anticipated costs associated with staffing reductions and early termination of contractual agreements. The Company had identified 366 employees to be terminated of which no amounts had been paid as of March 31, 2002. The Company recorded a charge in the fiscal year ended March 31, 2002 statement of operations of $63,345, of which $22,272 primarily related to asset writedown to estimated fair value for the North American facility, $14,507 of asset writedown to estimated fair value for the South American facilities, $6,087 related to cumulative translation losses, $20,479 primarily related to legal costs, including a union settlement, and exit costs of closed facilities until disposition, including severance costs. The facilities closed included a major North American plant and two small plants in South America, both of which primarily produced reserve power products. These plants were closed principally because a significant amount of excess manufacturing capacity existed. Fair market value for all closed facilities, which is the responsibility of the Company, was determined by considering a number of factors, including location, age and potential use of the plants. Significant write-downs for these facilities resulted largely because of the special purpose nature of the

F-36



respective facilities and associated equipment and the industry wide economic downturn, which caused extensive industrial battery plant closures and idle capacity on a global basis. The two facilities in South America were leased, while the North American facility is owned. During the fiscal year ended March 31, 2003, the Company paid $8,757 primarily related to exit costs, including severance costs. As of March 31, 2003, all identified employees had been terminated and $11,722 of restructuring reserves remained, which primarily represented legal and exit costs, including severance costs, to close the South American facilities and the North America facility. During the fiscal year ended March 31, 2004, the Company paid $2,315 of legal costs, severance costs and other exit costs.

        The Company recorded a provision of $6,386 primarily for legal costs, including a union settlement, associated with the closing of the North American facility and a reversal of $3,730 for unused reserves related to the reduction of product offerings, resulting in a net provision of $2,656 during the fiscal year ended March 31, 2004. The Company plans to sell the one remaining North American location and has estimated the sales value, net of costs to sell, at $1,000. As of March 31, 2004 this facility has not been sold and is included within other assets. This facility has been actively listed for sale since fiscal 2002, but remains unsold primarily due to its special purpose nature, size and location. As of March 31, 2004, the cumulative cash expenditures incurred to date were $11,072. As of March 31, 2004, $12,063 of restructuring reserves remained, which represented legal costs, including a union settlement of $7,750, and exit costs, including severance of $4,313. A rollforward of this restructuring reserve is as follows:

Balance at March 31, 2002   $ 20,479  
  Costs incurred     (8,757 )
   
 
Balance at March 31, 2003     11,722  
  Current year provisions, net     2,656  
  Costs incurred     (2,315 )
   
 
Balance at March 31, 2004   $ 12,063  
   
 

        Of this balance of $12,063, approximately $10,000 is anticipated to be incurred during fiscal 2005 and the remaining $2,063 is anticipated to be incurred through fiscal 2007.

24. Other (Income) Expense

 
  March 31
 
 
  2002
  2003
  2004
 
Foreign exchange translation loss (gain)   $ 2,002   $ (1,174 ) $ (3,965 )
Loss on sale of fixed assets         22     831  
Other (income) expense     (222 )   809     (1,549 )
Minority interest     (36 )   (399 )   217  
   
 
 
 
Total   $ 1,744   $ (742 ) $ (4,466 )
   
 
 
 

F-37


25. Initial Public Offering

        In May 2004, the Board of Directors authorized the Company to file a registration statement with the Securities and Exchange Commission covering the proposed sale by the Company of its common stock to the public.

        On July 9, 2004, a twenty-eight and one-half-for-one stock split of the Company's common stock occurred. All references in the consolidated financial statements to common shares, common stock options, common share prices and per share common share amounts have been adjusted retroactively for all periods presented to reflect this stock split. The Company's actual preferred shares, which will automatically convert to common shares immediately prior to the public offering, preferred share prices and per preferred share amounts have not been adjusted for this stock split. However, as a result of the stock split, conversion ratios of all preferred stock have been adjusted retroactively.

F-38



Report of Independent Registered Public Accounting Firm

The Board of Directors
Energy Storage Group

        We have audited the accompanying combined statements of operations, invested capital and cash flows of Energy Storage Group for the period from April 1, 2001 to March 22, 2002. These financial statements are the responsibility of Energy Storage Group's management. Our responsibility is to express an opinion on these financial statements based on our audit.

        We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the combined results of operations of Energy Storage Group and its combined cash flows for the period from April 1, 2001 to March 22, 2002, in conformity with U.S. generally accepted accounting principles.


 

 

/s/ Ernst & Young LLP
     
Bristol, England
May 10, 2004
   

F-39



Energy Storage Group
Combined Statement of Operations
(In millions)

 
  Period from
April 1, 2001 to
March 22, 2002

 
Net sales:        
  To third parties   $ 535.5  
  To affiliates     25.2  
   
 
Total sales     560.7  

Cost of sales

 

 

385.4

 
   
 
Gross profit     175.3  

Selling, general and administrative expenses

 

 

126.1

 
Restructuring and other similar costs     25.3  
Writedown of assets to net realizable value     263.4  
Amortization of intangible assets     11.5  
   
 
Operating loss     (251.0 )

Nonoperating expense:

 

 

 

 
  Interest expense:        
    Third parties     (1.1 )
    Affiliates     (5.2 )
   
 
Loss before income taxes and minority interest     (257.3 )
Provision for income taxes     5.4  
   
 
Loss before minority interest     (262.7 )
Minority interest     (0.3 )
   
 
Net loss   $ (263.0 )
   
 

See accompanying notes.

F-40



Energy Storage Group
Combined Statement of Invested Capital
(In millions)

 
  Invested Capital
 
Balance at April 1, 2001   $ 736.9  
  Comprehensive loss:        
    Net loss     (263.0 )
    Foreign currency translation adjustments     (1.0 )
   
 
    Total comprehensive loss     (264.0 )
  Other activity with affiliates     (109.9 )
   
 
Balance at March 22, 2002   $ 363.0  
   
 

See accompanying notes.

F-41



Energy Storage Group
Combined Statement of Cash Flows
(In millions)

 
  Period from
April 1, 2001 to
March 22, 2002

 
Operating activities        
Net loss   $ (263.0 )
Adjustments to reconcile decrease in net assets:        
  Writedown of assets to net realizable value     263.4  
  Depreciation     28.4  
  Amortization of intangible assets     11.5  
  Allowance for doubtful accounts     0.5  
  Deferred income taxes     (17.4 )
  Non cash restructuring charges     8.6  
  Changes in operating assets and liabilities (net of effects from acquisitions):        
    Accounts receivable     14.5  
    Inventories     6.5  
    Accounts payable and other current liabilities     (48.0 )
    Other current assets     (10.7 )
    Other long-term assets     6.7  
    Other long-term liabilities     (1.1 )
    Pensions     0.4  
   
 
Net cash provided by operating activities     0.3  

Investing activities

 

 

 

 
Expenditures for property, plant and equipment     (24.7 )
Proceeds from disposition of property, plant and equipment     0.6  
   
 
Net cash used in investing activities     (24.1 )

Financing activities

 

 

 

 
Decrease in short-term borrowings     (7.6 )
Decrease in long-term borrowings     (3.7 )
Decrease in capitalized lease obligations     (0.8 )
Other activity with affiliates     (53.6 )
Other, net     4.0  
   
 
Net cash used in financing activities     (61.7 )
Effect of exchange rate changes     0.4  
   
 
Decrease in cash and cash equivalents     (85.1 )
Cash and cash equivalents at beginning of period     93.0  
   
 
Cash and cash equivalents at end of period   $ 7.9  
   
 

Supplemental disclosure of cash flow information

 

 

 

 
Income taxes paid   $ 22.7  
   
 
Interest paid, net   $ 6.1  
   
 

See accompanying notes.

F-42



Energy Storage Group

Notes to Combined Financial Statements

1.    Description of Business and Summary of Significant Accounting Policies

Basis of Preparation and Description of Business

        Energy Storage Group ("ESG"), which comprises the entities listed in Note 2 to the combined financial statements, manufactures, markets, services and installs fully integrated direct current ("DC") power systems for the telecommunications, uninterruptible power systems, electric material handling equipment, military and aerospace markets. ESG operates worldwide with facilities located primarily in Europe, North America and Asia.

        At March 22, 2002, the entities comprising ESG were 100% owned by Invensys plc, except where indicated.

        Following an agreement with Invensys plc to sell ESG on March 22, 2002, the related property, plant and equipment and intangible assets were written down by $263.4 million to their net realizable value.

        All inter-company accounts and transactions, including profits as a result of those transactions, within ESG are eliminated on combination.

Use of Estimates

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the financial statements. Actual results could differ from those estimates.

Cash and Cash Equivalents

        Highly liquid investments with original maturity dates of three months or less are classified as cash equivalents. Cash equivalents are stated at cost, which approximates fair value.

Third-Party Receivables

        ESG factored certain third-party trade receivables to unrelated financial institutions on a nonrecourse basis pursuant to certain agreements. ESG accounted for the transfer of receivables pursuant to these agreements as a sale of financial assets. The agreements, which were negotiated and administered by Invensys plc or its affiliates, required ESG to collect funds with respect to the factored receivables and remit the funds to the financial institutions.

        ESG also factored certain third-party trade receivables to unrelated financial institutions which did not qualify as sales of financial assets.

        For the period ended March 22, 2002, costs incurred relating to factoring agreements amounted to $0.3 million.

        ESG provided an allowance for doubtful accounts equal to estimated collection losses that will be incurred in the collection of receivables. Estimated losses are based on historical collection experience, as well as a review by management of the current status of all receivables.

Inventories

        Inventories are stated at the lower of cost or market using the first-in, first-out ("FIFO") method. Cost is determined based on standard cost with appropriate adjustments to approximate FIFO cost. Market is determined on the basis of estimated realizable values.

F-43



Property, Plant and Equipment

        Property, plant, and equipment is stated at cost, net of accumulated depreciation. Depreciation of property, plant, and equipment is provided using the straight-line method over the estimated useful life of the asset, as follows:

Land   None
Buildings and improvements   40 to 50 years
Machinery and equipment   3 to 14 years
Computer equipment and software   4 to 10 years

        Improvements and replacements are capitalized to the extent that they increase the useful economic life or increase the expected economic benefit of the underlying asset. Repairs and maintenance expenditures are charged to expense as incurred.

Intangible Assets

        Intangible assets consist of goodwill, trademarks and patents. Goodwill represents the excess of the purchase price paid by Invensys plc for ESG businesses over the fair value of the net assets acquired, less provision for impairment. Patents and trademarks are stated at fair value on the date of acquisition of ESG by Invensys plc.

Impairment of Long-Lived Assets

        Long-lived assets are reviewed for impairment when events or circumstances indicate that the carrying amount of a long-lived asset may not be recoverable and for all assets to be disposed of. Long-lived assets held for use are reviewed for impairment by comparing the carrying amount of an asset to the undiscounted future cash flows expected to be generated by the asset over its remaining useful life. If an asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value, and is charged to results of operations at that time. Assets to be disposed of are reported at the lower of the carrying amounts or fair value less cost to sell. Management determines fair value using discounted future cash flow analysis or other accepted valuation techniques.

        For the period from April 1, 2001 to March 22, 2002, ESG identified certain assets that were considered impaired following changes in business activity. Impairment charges for the period ended March 22, 2002 were $8.5 million, as discussed in Note 3.

Income Taxes

        The ESG entities domiciled in the United States are deemed to be included in a consolidated federal income tax return in the United States. Non-U.S. entities are deemed to be included in consolidated returns in countries where such filings are permitted. ESG's tax provisions and related liabilities are reflected in the combined financial statements as if they were on a separate-return basis.

F-44



Deferred Taxes

        ESG recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement basis and the tax basis of ESG's assets and liabilities using enacted statutory tax rates applicable to future periods when the temporary differences are expected to reverse.

Foreign Currency Translation

        Assets and liabilities of subsidiaries operating outside of the United States with a functional currency other than the U.S. dollar are translated into U.S. dollars using exchange rates at the end of the respective period. Revenues and expenses are translated at average exchange rates effective during the respective period.

        Foreign currency translation adjustments are included in accumulated other comprehensive loss as a separate component of invested capital. Currency transaction gains (losses) are included in the results of operations in the period incurred and were not material for the period from April 1, 2001 to March 22, 2002.

Revenue Recognition

        Sales and related cost of sales are recorded upon transfer of the title of the product, which generally occurs upon shipment to the customer. ESG has certain sales rebate programs with some customers which periodically require rebate payments. ESG estimates amounts due under these sales rebate programs at the time of shipment. Net sales relating to any particular shipment are based upon the amount invoiced for the shipped goods less estimated future rebate payments and sales returns. These estimates are based upon ESG's historical experience. Revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known.

Advertising Costs

        Advertising costs are charged to selling, general, and administrative expenses as incurred and amounted to $3.0 million for the period from April 1, 2001 to March 22, 2002.

Research and Development Costs

        Research and development costs are charged to selling, general, and administrative expenses as incurred and amounted to $6.7 million for the period from April 1, 2001 to March 22, 2002.

Concentration of Credit Risk

        ESG had no concentration of credit risk at March 22, 2002.

Shipping and Handling Costs

        Costs associated with shipping and handling activities are classified within cost of sales in the combined statements of operations. Shipping and handling costs were $8.5 million in the period from April 1, 2001 to March 22, 2002.

F-45



Derivative Financial Instruments

        Effective April 1, 2001, ESG adopted Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("FAS 133"). FAS 133 requires ESG to record all derivatives on the balance sheet at fair value regardless of the purpose or intent for holding them. Derivatives that are not hedges are adjusted to fair value through earnings. For derivatives that are hedges, depending on the nature of the hedge, changes in fair value are either offset by changes in the fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value is immediately recognized in earnings. The adoption of FAS 133 had no impact on ESG's net earnings or financial position.

2.    Entities Included Within Combined Financial Statements

        The financial statements of the following entities, all of which are 100% owned unless stated, are reflected in the combined financial statements:

AFA Industriebatterie GmbH   Hawker SA (Formerly Oldham France SA)
Alupower-Chloride Limited   Hawker SpA
BTR Industrial Holdings Limited   Hawker s.r.o.
Chloride Batteries Industrielles SA   Hawker OY
Carlton Plant Limited   Hawker Vertriebs GmbH
Chloride Industrial Batteries Limited   Huada (Jiangsu) Power Supply Co. Ltd (84%)
Crompton Batteries Limited   Huada Mechanical and Electrical Co Ltd (80%)
Haddon Oldham Limited   Huada Shenzen Power Supply Systems Co Ltd
Hawker AS (Denmark)   Irving, Firth & Co Ltd
Hawker AB (Sweden)   KW Battery Company
Hawker Batteri A/S (Norway)   New Pacifico Realty Inc.
Hawker Batterien GmbH   Oldham Batterien GmbH
Hawker Batteries Limited   Oldham Batteries Canada (25%)
Hawker Belgium SA   Oldham Batteries Limited
Hawker BV   Oldham Crompton Batteries Limited
Hawker Energy Limited (Hong Kong)   Oldham International Limited
Hawker Energy Products Inc   Oldham Italia SRL
Hawker Energy Products Limited   Power Sonic SA de CV
Hawker FA SA (Poland) (99.96%)   Powersafe Standby Batteries Inc
Hawker GmbH   Usimetal (37.75%)
Hawker Limited   VHB Industrial Batteries Limited
Hawker Oldham SA (Spain)   VHB Industrial Batteries Ltd (Canada)
Hawker Power Systems Inc   VHB Industrie Batterien GmbH (Austria)
Hawker Powersource Inc.   VHB Ipari Akkumulatorok KFT (Hungary)

F-46


3.    Restructuring and Other Similar Costs

        Following the merger in February 1999 between BTR plc and Siebe plc to create Invensys plc, ESG commenced a series of restructuring programs consistent with the objectives of the Invensys merger and integration program, namely, improving returns in core businesses by consolidating excess manufacturing capacity, rationalizing certain product lines, outsourcing of non-core production activity and streamlining of sales and administrative overhead. These programs extended through the period presented in these combined financial statements.

        Restructuring and other similar costs consist of the following (in millions):

 
  Period from
April 1, 2001 to
March 22, 2002

Severance and other related costs:      
  Related to headcount reduction initiatives   $ 7.6
  Related to plant closures and consolidations     7.3
   
      14.9
   
Asset impairments      
  Related to plant closures and consolidations     8.5
   
Other      
  Excess scrap and production inefficiencies     1.3
  Abandoned lease commitments     0.6
   
      1.9
   
Restructuring and other similar costs charged to operations   $ 25.3
   

Severance and Other Related Costs

        As a result of the restructuring programs mentioned above, 414 employees were terminated in the period ended March 22, 2002, with the main headcount reductions occurring in Europe.

Asset Impairments

        In connection with the closure and consolidation of certain manufacturing and administrative functions, ESG identified certain assets that were impaired. The net book value of these assets less any proceeds from disposition has been charged to "Restructuring and other similar costs" and totaled $8.5 million for the period ended March 22, 2002.

Other

        For the period ended March 22, 2002, ESG also incurred $1.9 million of "Other" restructuring costs which consisted of excess scrap and production inefficiencies ($1.3 million) and the present value of remaining lease payments relating to an abandoned leased property ($0.6 million).

4.    Operating Leases

        Rent expense for operating leases was $1.3 million for the period ended March 22, 2002.

F-47



5.    Retirement Benefits

        Invensys plc sponsored defined-benefit pension plans which covered most of ESG's employees in the United States, Germany and the United Kingdom and provided for monthly pension payments to eligible employees upon retirement. ESG's eligible employees were covered by Invensys plc's various pension plans, which were different for the U.S., German and U.K. employees.

        Pension benefits for salaried employees generally were based on periods of credited service and average earnings. Pension benefits for hourly employees generally were based on specified benefit amounts and periods of service. ESG's policy was to fund its pension obligations in conformity with the funding requirements of laws and governmental regulations applicable in the respective country.

        Pension costs of $4.3 million for the period ended March 22, 2002 with respect to eligible employees in the United States, Germany and the United Kingdom have been reflected in the income statement of ESG. As these amounts have been allocated based on service cost, they may not be representative of ongoing costs.

        The components of net periodic benefit cost for participants in ESG's pension plans reflected in the statement of operations of ESG are as follows (in millions):

 
  Period from
April 1, 2001 to
March 22, 2002

 
Service cost   $ 5.7  
Interest cost     6.2  
Expected return on plan assets     (7.6 )
   
 
Net periodic benefit cost   $ 4.3  
   
 

        ESG used an actuarial measurement date of March 22, 2002 to measure its benefit obligations. Significant assumptions used in determining these benefit obligations and net periodic benefit cost for participants are summarized as follows (in weighted averages):

 
  Period from
April 1, 2001 to
March 22, 2002

   
   
 
Discount rate   6.0 %        
Compensation increase rate   4.2 %        
Rate of increase to pensions in payment   3.2 %        

        The discount rate and compensation increase rate assumptions were determined as of the measurement date.

Defined-Contribution Savings Plans

        ESG sponsored certain defined-contribution savings plans for eligible employees. Expense related to these plans was $0.3 million for the period ended March 22, 2002.

F-48



6.    Income Taxes

 
  Period from
April 1, 2001 to
March 22, 2002

 
Current:        
  United States   $ 11.0  
  Non-United States     3.8  
  State and local     0.9  
   
 
  Total current     15.7  

Deferred:

 

 

 

 
  United States     (9.1 )
  Non-United States     (0.5 )
  State and local     (0.7 )
   
 
Total deferred     (10.3 )
   
 
Income tax provision   $ 5.4  
   
 

        The provision for income taxes was calculated based upon the following components of loss before income taxes (in millions):

 
  Period from
April 1, 2001 to
March 22, 2002

 
United States   $ 5.0  
Non-United States     (262.3 )
   
 
Loss before income taxes   $ (257.3 )
   
 

        The relationship of non-U.S. income tax expense to non-U.S. income before taxes is attributed to operating losses being incurred in Germany and Mexico on which income tax carryforward benefits have been fully reserved.

        These combined financial statements have been prepared on the basis that ESG files a consolidated U.S. federal income tax return composed of its U.S. domiciled entities.

        ESG's U.S. entities have historically been included in a larger U.S. consolidated return that has reflected a net operating loss ("U.S. NOL") for the period covered by these statements. As certain of the ESG entities included in the consolidated return had separate company U.S. NOLs for this period, a purchaser of ESG may be allocated a portion of the consolidated U.S. NOLs at the time of sale.

        These statements have been prepared on the basis that ESG's non-U.S. entities file consolidated returns in taxing jurisdictions where permitted. For the period ended March 22, 2002, this results in non-U.S. net operating losses (Non-U.S. NOLs) in Germany and the United Kingdom. A deferred tax asset has been established for the value of these losses. However, as the ability to utilize these losses is uncertain, a valuation allowance has been established to fully offset the deferred tax asset. These losses have no expiration date.

F-49



        The provision for income taxes differs from the U.S. federal tax due to the following items:

 
  Period from
April 1, 2001 to
March 22, 2002

 
U.S. federal tax rate (35.0%)   $ (90.1 )
State and local income taxes, net of federal benefit     0.2  

Lower taxes in respect of foreign locations

 

 

(2.0

)
Non-U.S. net operating losses for which the benefit was not provided     4.0  
Nondeductible asset writedown to net realizable value     92.2  
Other     1.1  
   
 
Effective income tax rate (-2.1%)   $ 5.4  
   
 

        No provision has been made for U.S. or foreign income taxes related to undistributed earnings of Non-U.S.entities at March 22, 2002, which are considered to be permanently reinvested. It is not considered practical to determine the income tax liability, if any, which would be payable if such earnings were not permanently reinvested.

        Payments for U.S. federal income tax made by ESG to non-ESG affiliates of Invensys plc have historically been reflected as intercompany payments. These payments have been reflected herein as to an external party in order to reflect ESG's satisfaction of these income tax liabilities.

        Cash paid for income taxes to governmental tax authorities and non-ESG affiliates of Invensys plc in the period ended March 22, 2002 was $22.7 million.

7.    Related Party Transactions

Management Charges

        Included within selling, general, and administrative expenses are charges for administrative expenses incurred by Invensys plc on behalf of ESG. These charges are primarily for accounting, legal, and treasury services. These charges totaled $1.7 million for the period ended March 22, 2002.

        The financial information included herein may not reflect the combined financial position, operating results, and cash flows of ESG in the future or what they would have been had ESG been a separate, independent entity during the periods presented.

Trading Activity

        ESG sells to non-ESG affiliates of Invensys plc various products in the normal course of business. Pricing is generally negotiated based on standard pricing schedules.

Funding Activity

        ESG participated in Invensys plc's treasury function whereby funds were loaned to and borrowed from other Invensys plc affiliates in the normal course of business.

        Interest expense and income has been calculated on all intercompany funding payables and receivables based on prevailing market interest rates.

F-50



Schedule II


EnerSys

Valuation and Qualifying Accounts

(In Thousands)

 
  Balance at
Beginning of
Period

  Additions
Charged to
Expense

  Charge-Offs
  Other(1)
  Balance at
End of Period

Allowance for doubtful accounts:                              
  Fiscal year ended March 31, 2002   $ 2,705   $ 1,804   $ (1,236 ) $ 2,281   $ 5,554
  Fiscal year ended March 31, 2003   $ 5,554   $ 1,860   $ (2,675 ) $ 3,753   $ 8,492
  Fiscal year ended March 31, 2004   $ 8,492   $ 849   $ (1,825 ) $ (794 ) $ 6,722

Allowance for inventory valuation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Fiscal year ended March 31, 2002   $ 3,865   $ 6,158   $ (2,307 ) $ 4,680   $ 12,396
  Fiscal year ended March 31, 2003   $ 12,396   $ 2,992   $ (7,114 ) $ (319 ) $ 7,955
  Fiscal year ended March 31, 2004   $ 7,955   $ 5,148   $ (4,542 ) $ 2,334   $ 10,895

Allowance for deferred income tax assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Fiscal year ended March 31, 2002   $ 2,196   $ 3,053   $   $ 44,533   $ 49,782
  Fiscal year ended March 31, 2003   $ 49,782   $ 1,744   $   $ 15,380   $ 66,906
  Fiscal year ended March 31, 2004   $ 66,906   $ 4,415   $   $ 2,788   $ 74,109

(1)
Primarily the impact of currency changes as well as acquisitions of certain businesses.

S-1


[ibc]

LOGO



PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

        The estimated expenses in connection with the offering (all of which will be borne by EnerSys), are as follows:

Expenses

  Amount
 
  (in thousands)

Securities and Exchange Commission registration fee   $ 29
NASD filing fee     24
NYSE listing fees     200
Printing expenses     400
Accounting fees and expenses     1,650
Legal fees and expenses     2,500
Miscellaneous     197
   
  Total   $ 5,000
   


Item 14. Indemnification of Directors and Officers.

        Section 145 of the Delaware General Corporation Law (DGCL) generally provides that all directors and officers (as well as other employees and individuals) may be indemnified against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with certain specified actions, suits or proceedings, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation—a "derivative action"), if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful. A similar standard of care is applicable in the case of derivative actions, except that indemnification extends only to expenses (including attorneys' fees) actually and reasonably incurred in connection with defense or settlement of an action and the DGCL requires court approval before there can be any indemnification where the person seeking indemnification has been found liable to the corporation. Section 145 of the DGCL also provides that the rights conferred thereby are not exclusive of any other right which any person may be entitled to under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, and permits a corporation to advance expenses to or on behalf of a person to be indemnified upon receipt of an undertaking to repay the amounts advanced if it is determined that the person is not entitled to be indemnified.

        We have included in our certificate of incorporation and bylaws provisions to (a) eliminate the personal liability of our directors for monetary damages resulting from breaches of their fiduciary duty (provided that such provision does not eliminate liability for breaches of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, violations under Section 174 of the Delaware General Corporation Law or for any transaction from which the director derived an improper personal benefit) and (b) indemnify our directors and officers to the fullest extent permitted by Section 145 of the Delaware General Corporation Law, including circumstances in which indemnification is otherwise discretionary.

        Acting pursuant to the provisions of our certificate of incorporation and bylaws and the provisions of Section 145 of the Delaware General Corporation Law, we have entered into agreements with each of our officers and directors to indemnify them to the fullest extent permitted by such provisions and such law. We are also expressly authorized to carry directors' and officers' insurance providing indemnification for

II-1



our directors, officers and certain employees for some liabilities. We believe that these indemnification provisions and insurance are useful to attract and retain qualified directors and executive officers.


Item 15. Recent Sales of Unregistered Securities.

        The following is a summary of our sales of our securities during the past three years that were not registered under the Securities Act of 1933, as amended:

        In March 2002, we entered into an agreement with the Morgan Stanley Funds to sell, in a private placement, an aggregate of 18,977,666 shares of our Series A Convertible Preferred Stock. The total aggregate offering price for this sale was $283,000,275.

        Also in March 2002, we issued a warrant to purchase up to 11,663,568 shares of our Class A Common Stock, at an exercise price of $29.82 per share, as adjusted from time to time. The warrant was issued to a subsidiary of Invensys as partial consideration for our acquisition of Invensys's Energy Storage Group. The warrant was never exercised and was cancelled on December 11, 2003.

        From June 2001 through June 2004, we issued stock options to purchase an aggregate of 4,558,781 shares of our common stock. The exercise prices for these options ranged from $10.82 per share to $21.90 per share.

        All of the above-described issuances were exempt from registration pursuant to (i) Section 4(2) of the Securities Act or (ii) Regulation D or Rule 701 promulgated under the Securities Act. With respect to each transaction listed above, no general solicitation was made by either the company or any person acting on its behalf; the securities sold are subject to transfer restrictions, and the certificates for the shares contained an appropriate legend stating such securities have not been registered under the Securities Act and may not be offered or sold absent registration or pursuant to an exemption therefrom. No underwriters were involved in connection with the sales of securities referred to in this Item 15.


Item 16. Exhibits and Financial Statement Schedules.


Exhibit
Number

  Description of Exhibit
1.1   Form of Underwriting Agreement ****

3.1

 

Fifth Restated Certificate of Incorporation ****

3.2

 

Form of Bylaws ****

4.1

 

Form of Common Stock Certificate ****

4.2

 

Form of 2004 Securityholder Agreement

5.1

 

Form of Opinion of Gibson, Dunn & Crutcher LLP ***

10.1

 

Form of 2000 Management Equity Plan ****

10.2

 

Employment Agreement, dated November 9, 2000, between Yuasa, Inc. and John D. Craig and letter of amendment thereto *

10.3

 

Employment Agreement, dated November 9, 2000, between Yuasa, Inc. and Michael T. Philion and letter of amendment thereto *

10.4

 

Employment Agreement, dated November 9, 2000, between Yuasa, Inc. and Charles K. McManus and letter of amendment thereto *
     

II-2



10.5

 

Employment Agreement, dated November 9, 2000, between Yuasa, Inc. and John A. Shea and letter of amendment thereto *

10.6

 

Employment Agreement, dated November 9, 2000, between Yuasa, Inc. and Richard W. Zuidema and letter of amendment thereto *

10.7

 

Directorship Agreement, dated January 8, 2002, between EnerSys, Inc. and Ray Kubis *

10.8

 

Managing Directorship Agreement, dated January 8, 2002, between Hawker Belgium S.A. and Ray Kubis *

10.9

 

Credit Agreement, dated March 17, 2004, among EnerSys, EnerSys Capital Inc., various lending institutions party thereto, Bank of America, N.A., as Administrative Agent, Morgan Stanley Senior Funding, Inc., as Syndication Agent, and Lehman Commercial Paper Inc., as Documentation Agent *

10.10

 

Pledge Agreement, dated March 17, 2004, among EnerSys, various subsidiaries of EnerSys and Bank of America, N.A., as Collateral Agent *

10.11

 

Security Agreement, dated March 17, 2004, among EnerSys, various subsidiaries of EnerSys and Bank of America, N.A., as Collateral Agent *

10.12

 

Subsidiaries Guaranty, dated March 17, 2004, among various subsidiaries of EnerSys, in favor of Bank of America, N.A., as Administrative Agent *

10.13

 

Second-Lien Credit Agreement, dated March 17, 2004, among EnerSys, EnerSys Capital Inc., various lending institutions party thereto, Bank of America, N.A., as Administrative Agent, Morgan Stanley Senior Funding, Inc., as Syndication Agent, and Lehman Commercial Paper Inc., as Documentation Agent *

10.14

 

Second-Lien Pledge Agreement, dated March 17, 2004, among EnerSys, various subsidiaries of EnerSys and Bank of America, N.A., as Second-Lien Collateral Agent *

10.15

 

Second-Lien Security Agreement, dated March 17, 2004, among EnerSys, various subsidiaries of EnerSys and Bank of America, N.A., as Second-Lien Collateral Agent *

10.16

 

Second-Lien Subsidiaries Guaranty, dated March 17, 2004, among various subsidiaries of EnerSys, in favor of Bank of America, N.A., as Administrative Agent *

10.17

 

Intercreditor Agreement, dated March 17, 2004, by and among EnerSys, EnerSys Capital Inc. and Bank of America, N.A., in its capacity as Collateral Agent for the First-Lien Obligations and in its Capacity as Collateral Agent for the Second-Lien Obligations *

10.18

 

Form of Indemnification Agreement ****

10.19

 

Letter, dated May 8, 2003, amending the Employment Agreement between Yuasa, Inc. and John D. Craig **

10.20

 

Letter, dated May 8, 2003, amending the Employment Agreement between Yuasa, Inc. and Michael T. Philion **
     

II-3



10.21

 

Letter, dated May 8, 2003, amending the Employment Agreement between Yuasa, Inc. and John A. Shea **

10.22

 

Letter, dated May 8, 2003, amending the Employment Agreement between Yuasa, Inc. and Richard W. Zuidema **

10.23

 

Letter, dated May 8, 2003, amending the Managing Directorship Agreement between Hawker Belgium S.A. and Raymond R. Kubis ***

10.24

 

Form of 2004 Equity Incentive Plan ****

10.25

 

Trademark and Trade Name License Agreement, dated June 10, 1991, by and between Exide Corporation and Yuasa Battery (America), Inc. ***

10.26

 

Form of Employee Stock Purchase Plan ****

10.27

 

Stock Subscription Agreement, dated March 22, 2002, among EnerSys Holdings Inc., Morgan Stanley Dean Witter Capital Partners IV, L.P., Morgan Stanley Dean Witter Capital Investors IV, L.P., MSDW IV 892 Investors, L.P., Morgan Stanley Global Emerging Markets Private Investment Fund, L.P. and Morgan Stanley Global Emerging Markets Private Investors, L.P. ****

21.1

 

Subsidiaries of the Registrant **

23.1

 

Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1)

23.2

 

Consent of Ernst & Young LLP

23.3

 

Consent of Ernst & Young LLP

24.1

 

Power of Attorney (included in signature page)

99.1

 

Consent of Michael C. Hoffman to be named Director Nominee ***

99.2

 

Consent of Chad L. Elliott to be named Director Nominee ***

99.3

 

Consent of Dennis S. Marlo to be named Director Nominee ***

99.4

 

Consent of John F. Lehman to be named Director Nominee ****

*
Previously filed as an exhibit to EnerSys' Registration Statement on Form S-1 (File No. 333-115553) filed on May 17, 2004 and incorporated herein by reference.

**
Previously filed as an exhibit to Amendment No. 1 to EnerSys' Registration Statement on Form S-1 (File No. 333-115553) filed on June 21, 2004 and incorporated herein by reference.

***
Previously filed as an exhibit to Amendment No. 2 to EnerSys' Registration Statement on Form S-1 (File No. 333-115553) filed on July 6, 2004 and incorporated herein by reference.

****
Previously filed as an exhibit to Amendment No. 3 to EnerSys' Registration Statement on Form S-1 (File No. 333-115553) filed on July 13, 2004 and incorporated herein by reference.

(b)
Financial Statement Schedules

        The financial statement schedules for which provision is made in the applicable accounting regulations of the Commission are either not required under the related instructions or are inapplicable, and therefore have been omitted, except for Schedule II—Valuation and Qualifying Accounts which is provided on page S-1.

II-4



Item 17. Undertakings.

        (a)   The undersigned registrant hereby undertakes to provide to the underwriters, at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

        (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 that:

II-5



SIGNATURES AND POWER OF ATTORNEY

        Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed on behalf of the undersigned, thereunto duly authorized in the City of Reading, Commonwealth of Pennsylvania, on July 26, 2004.

  ENERSYS

 

By:

/s/  
MICHAEL T. PHILION      
    Name: Michael T. Philion
    Title: Executive Vice President—Finance, Chief Financial Officer and Director (Principal Financial Officer)

        KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Michael T. Philion and Richard W. Zuidema his true and lawful attorneys-in-fact and agents, each 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 to the registration statement (including post-effective amendments or any abbreviated registration statement and any amendments thereto filed pursuant to Rule 462(b) increasing the number of securities for which registration is sought), and to file the same, with all exhibits thereto, and 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 in and about the premises, 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 any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

        Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 4 to the registration statement on Form S-1 has been signed by the following persons in the capacities indicated.

Signature
  Title

 

 

 
*    
John D. Craig
  Chairman, President and Chief Executive Officer (Principal Executive Officer)

/s/  
MICHAEL T. PHILION          
Michael T. Philion

 

Executive Vice President—Finance Chief Financial Officer and Director (Principal Financial Officer)

*

Jeffrey J. Petrick

 

Vice President and Corporate Controller (Principal Accounting Officer)

/s/  
CHARLES K. MCMANUS          
Charles K. McManus

 

Executive Vice President—North America Reserve Power and Worldwide Marketing and Director

*    

Richard W. Zuidema

 

Executive Vice President—Administration and Director

*    

Eric T. Fry

 

Director

*    

Howard I. Hoffen

 

Director

        The undersigned, by signing his name hereto, does sign and execute this Amendment No. 4 to the registration statement on Form S-1 pursuant to the Power of Attorney executed by the above named directors and officers of the registrant and previously filed with the Securities and Exchange Commission on behalf of such directors and officers.


*By:

 

/s/  
MICHAEL T. PHILION    

Michael T. Philion
Executive Vice President—Finance, Chief Financial Officer and Director (Principal Financial Officer)

 

Attorney-in-fact

 

July 26, 2004

II-6



EXHIBIT INDEX

Exhibit
Number

  Description of Exhibit
4.2   Form of 2004 Securityholder Agreement
23.2   Consent of Ernst & Young LLP
23.3   Consent of Ernst & Young LLP
24.1   Power of Attorney (included in signature page)



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TABLE OF CONTENTS
PROSPECTUS SUMMARY
THE OFFERING
SUMMARY CONSOLIDATED FINANCIAL, OPERATING AND PRO FORMA DATA
RISK FACTORS
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
USE OF PROCEEDS
DIVIDEND POLICY
CAPITALIZATION
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
DILUTION
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS
MANAGEMENT
CERTAIN RELATIONSHIPS AND TRANSACTIONS
PRINCIPAL STOCKHOLDERS
DESCRIPTION OF OUR CREDIT FACILITIES
DESCRIPTION OF CAPITAL STOCK, CERTIFICATE OF INCORPORATION AND BYLAWS
SHARES ELIGIBLE FOR FUTURE SALE
UNDERWRITERS
MATERIAL UNITED STATES INCOME AND ESTATE TAX CONSEQUENCES TO NON-UNITED STATES STOCKHOLDERS
VALIDITY OF COMMON STOCK
EXPERTS
WHERE YOU CAN FIND MORE INFORMATION
FINANCIAL STATEMENTS
Contents
Report of Independent Registered Public Accounting Firm
EnerSys Consolidated Balance Sheets (In Thousands, Except Per Share Data)
EnerSys Consolidated Statements of Operations (In Thousands Except Share and Per Share Data)
EnerSys Consolidated Statements of Changes in Stockholders' Equity (In Thousands)
EnerSys Consolidated Statements of Cash Flows (In Thousands)
EnerSys Notes to Consolidated Financial Statements March 31, 2004 (In Thousands, Except Per Share Data)
Report of Independent Registered Public Accounting Firm
Energy Storage Group Combined Statement of Operations (In millions)
Energy Storage Group Combined Statement of Invested Capital (In millions)
Energy Storage Group Combined Statement of Cash Flows (In millions)
Energy Storage Group Notes to Combined Financial Statements
EnerSys Valuation and Qualifying Accounts (In Thousands)
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
SIGNATURES AND POWER OF ATTORNEY
EXHIBIT INDEX

Exhibit 4.2

 

2004 SECURITYHOLDER AGREEMENT dated as of July 26, 2004, among ENERSYS, a Delaware corporation (the “Company”), and each of the other parties signatory hereto.

 

WHEREAS, the Company, the MSCP Securityholders and certain members of management of the Company entered into a Shareholder Agreement dated as of November 9, 2000 (the “2000 Shareholder Agreement”), with respect to certain matters related to the Company and its equityholders, and the 2000 Shareholder Agreement was amended and restated as of March 22, 2002 (the “2002 Securityholder Agreement”); and, the parties hereto desire to amend and restate the 2002 Securityholder Agreement with respect to certain matters related to the Company and certain of its equityholders;

 

NOW, THEREFORE, in consideration of the foregoing and the mutual agreements herein contained, the parties hereto agree to amend and restate the 2002 Securityholder Agreement in its entirety as follows:

 

ARTICLE I
CERTAIN DEFINITIONS

 

SECTION 1.1.  Definitions.  For the purposes of this Agreement, the following terms have the following meanings:

 

Affiliate”, with respect to any Person, means any other Person directly or indirectly controlling, controlled by or under common control with, such Person.  For purposes of this definition, “control” (including with correlative meanings, the terms “controlling”, “controlled by” or “under common control with”), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise.

 

beneficial owner” or “beneficially own” has the meaning given such term in Rule 13d-3 under the 1934 Act; provided, however, that for purposes of this Agreement, all Securities owned by a MSCP Securityholder that are beneficially owned by Metalmark shall also be deemed to be beneficially owned by such MSCP Securityholder.

 

Board of Directors” means the Board of Directors of the Company.

 

Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized or obligated to be closed in New York City.

 

Capital” means EnerSys Capital Inc., a Delaware corporation.

 

Cashless Exercise” means an exercise of vested Options outstanding under the MEP through (a) the delivery of irrevocable instructions to a broker to make a Sale of a number of Shares issuable upon the partial exercise of such Options that results in proceeds thereon in an amount required to pay the aggregate exercise price for all the

 



 

Shares underlying such vested Options being so exercised (and any required withholding tax) and to deliver such proceeds to the Company in satisfaction of such aggregate exercise price or (b) any other surrender to the Company of Shares issuable upon the partial exercise of such Options or vested Options outstanding under the MEP to satisfy the applicable aggregate exercise price (and any withholding tax) required to be paid upon such exercise.

 

CEO Employment Agreement” means the Employment Agreement dated as of November 9, 2000, between Yuasa Inc., a Pennsylvania corporation, and John D. Craig.

 

Chief Executive Officer” means the Chief Executive Officer of the Company.

 

Co-Investor” means a “Purchaser” as defined in the 2002 Co-Investor Stock Purchase Agreement.

 

Commission” means the Securities and Exchange Commission, and any successor commission or agency having similar powers.

 

Common Stock” means any of the Common Stock of the Company.

 

Company” means EnerSys, a Delaware corporation, and any successor thereto, whether by merger or otherwise.

 

Encumbrance” means any lien, security interest, pledge, claim, option, right of first refusal, marital right or other encumbrance with respect to any Share.

 

EnerSys Delaware” means EnerSys Delaware, Inc., a Delaware corporation.

 

First Anniversary” means the first anniversary of the 2004 Closing.

 

Independent Counsel” means legal counsel of national reputation that has had no material client relationship with the Company or any MSCP Securityholder or MSGEM Securityholder or any employee of the Company within the three-year period prior to any date of determination.

 

Initial Management Securityholder” means any of John D. Craig, Charles K. McManus, John A. Shea, Richard W. Zuidema or Michael T. Philion.

 

Management Securityholder” means any of John D. Craig, Michael T. Philion, Richard W. Zuidema, Charles K. McManus, John A. Shea, Raymond Kubis and Cheryl Diuguid, and such other Persons as are designated as “Management Securityholders” by the compensation committee of the Board of Directors in consultation with the Chief Executive Officer from time to time, whether or not any such Securityholder is then employed by the Company (and excluding any such Person as is designated from time to time by such committee in consultation with the Chief Executive Officer).

 

MEP” means the Management Equity Plan of the Company, as amended, from time to time.

 

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Metalmark” means Metalmark Capital LLC, a Delaware limited liability company.

 

MSCP IV” means Morgan Stanley Dean Witter Capital Partners IV, L.P., a Delaware limited partnership.

 

MSCP Securityholder” means MSCP IV, MSDW IV 892 Investors, L.P., a Delaware limited partnership, or Morgan Stanley Dean Witter Capital Investors IV, L.P., a Delaware limited partnership.

 

MSGEM Securityholder” means Morgan Stanley Global Emerging Markets Private Investment Fund, L.P., a Delaware limited partnership, or Morgan Stanley Global Emerging Markets Private Investors, L.P., a Delaware limited partnership.

 

1933 Act” means the Securities Act of 1933, as amended, and the rules and regulations thereunder.

 

1934 Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

 

Option” means a Rollover Option, Service Option or Performance Option.

 

Option Value” means, as of any date of determination and with respect to any Security that is an Option, an amount equal to (a) the 20-Day Average Price, as of such date of determination, minus (b) the applicable exercise price of such Option.

 

outstanding”, with respect to any Securities, means, as of any date of determination, all Securities that have been issued on or prior to such date, other than Securities repurchased or otherwise reacquired by the Company, or any controlled Affiliate thereof, on or prior to such date.

 

Owned Equity and Rollover Shares” means, with respect to a Management Securityholder, the number of Shares equal to (a) the total number of Shares owned by such Management Securityholder and issued to such Person pursuant to any reclassification, stock split or conversion of capital stock of the Company in connection with the 2004 IPO that were owned by such Person on November 9, 2000, plus (b) the total number of Shares issuable to such Person upon the exercise of Rollover Options owned by such Person immediately prior to the 2004 Closing.  The number of such Shares and Rollover Options owned by each Management Securityholder immediately prior to the 2004 Closing is as set forth on the 2004 Effective Date Award Summary approved by the compensation committee.

 

Owned Service and Performance Shares” means, with respect to a Management Securityholder, the total number of Shares issued to a Management Securityholder upon the exercise of Service Options and Performance Options owned by such Person immediately prior to the 2004 Closing.  The number of such Service Options and Performance Options owned by each Management Securityholder immediately prior to

 

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the 2004 Closing is as set forth on the 2004 Effective Date Award Summary approved by the compensation committee.

 

Permitted Transferee” means any Person with respect to which the Board of Directors shall have adopted a resolution (which shall have been approved by at least one director who is an employee of any of the MSCP Securityholders or Metalmark or any Affiliate thereof, or, if there are no such directors, a MSCP Designee if there is any such director) stating that the Board of Directors has no objection if a Sale of Securities is made to such Person.

 

Person” means an individual, a partnership, a joint venture, a corporation, an association, a trust, an individual retirement account or any other entity or organization, including a government or any department or agency thereof.

 

Public Offering” means an underwritten public offering of equity securities of the Company pursuant to an effective registration statement on a Form S-1, S-2 or S-3 (or comparable successor forms) under the 1933 Act.

 

Realized Value” means, as of any date of determination and with respect to any Management Securityholder, the sum of (a) the aggregate gross proceeds realized upon all Sales of Securities that are Shares prior to such date of determination (including, without limitation, and for the avoidance of doubt, the gross proceeds delivered to the Company in connection with clause (a) of the definition of Cashless Exercise) and (b) the aggregate gross proceeds that would have been realized by such Management Securityholder upon a Sale for cash of any Shares surrendered pursuant to clause (b) of the definition of Cashless Exercise prior to such date of determination and (c) the product of (i) the aggregate number of Securities that are Shares with respect to which such Management Securityholder has granted a consensual Encumbrance prior to such date of determination and (ii) the 20-Day Average Price, as of such date of encumbrance.

 

Registrable Shares” means, with respect to each Securityholder, (a) Shares held by such Securityholder that are outstanding at the 2004 Closing (other than Shares acquired in the 2004 IPO); (b) Shares issued to such Management Securityholder pursuant to the MEP; and (c) any Shares issued or issuable in respect of Shares referred to in clauses (a) or (b) above by way of a stock dividend or a stock split or in connection with a combination or subdivision of shares, reclassification, recapitalization, merger, consolidation or other reorganization of the Company.  As to any particular Registrable Shares that have been issued, such securities shall cease to be Registrable Shares when (i) a registration statement with respect to the sale of such securities shall have become effective under the 1933 Act and such securities shall have been disposed of under such registration statement, (ii) they shall have been distributed to the public pursuant to Rule 144, (iii) they shall have been otherwise transferred or disposed of, and new certificates therefor not bearing a legend to the effect set forth in the first paragraph of the form of legend required by Section 3.2(a) restricting further transfer shall have been delivered by the Company, and subsequent transfer or disposition of them shall not require their registration or qualification under the 1933 Act or any similar state law then in force or (iv) they shall have ceased to be outstanding.

 

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Registration Expenses” means all out-of-pocket expenses incident to the Company’s performance of or compliance with Article IV, including, without limitation, all registration and filing fees (including filing fees with respect to the National Association of Securities Dealers, Inc.), all fees and expenses of complying with state securities or “blue sky” laws (including reasonable fees and disbursements of underwriters’ counsel in connection with any “blue sky” memorandum or survey), all printing expenses, all listing fees, all registrars’ and transfer agents’ fees, all “road show” expenses of the Company and the underwriters, the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits and/or “cold comfort” letters required by or incident to such performance and compliance, the reasonable fees and disbursements of one outside counsel retained by the holders of Registrable Shares being registered (which counsel shall be satisfactory to the holders of a majority of the shares of Registrable Shares being registered), but excluding underwriting discounts and commissions and applicable transfer taxes, if any, which shall be borne by the sellers of the Registrable Shares being registered in all cases.

 

Restricted Shares” means all Shares other than (a) Shares that have been registered under a registration statement pursuant to the 1933 Act, (b) Shares with respect to which a Sale has been made in reliance on and in accordance with Rule 144 or other applicable exemption from registration under the 1933 Act or (c) Shares with respect to which the holder thereof shall have delivered to the Company either (i) an opinion, in form and substance satisfactory to the Company, of counsel, who shall be satisfactory to the Company, or (ii) a “no action” letter from the Commission, to the effect that subsequent transfers of such Shares may be effected without registration under the 1933 Act.

 

Rule 144” means Rule 144 (or any successor provision) under the 1933 Act.

 

Sale” means (including with correlative meanings, the terms “Sell” or “Sold”) any sale, assignment, transfer, distribution (whether by a partnership to any of its partners or otherwise) or other disposition of Securities or of a participation therein (including entering into any derivative transaction with respect thereto).

 

Second Anniversary” means the second anniversary of the 2004 Closing.

 

Securities” means Shares, or options issued pursuant to the MEP, that, in either case, are held by a Securityholder at the 2004 Closing, and any Shares issued after the 2004 Closing pursuant to such options; provided, however, that Shares acquired by any Person in the 2004 IPO shall not be deemed to be Securities for purposes of this Agreement.

 

Share” means any share of Common Stock.

 

Securityholder” means each Person (other than the Company) holding Securities of the Company that is a party to this Agreement, so long as such Person shall beneficially own any Securities (whether or not any such Person owns any Securities on

 

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the date hereof) and shall not have disposed of any such Securities in contravention of any provision hereof or, to the extent applicable to such Securityholder, of the MEP.

 

Third Anniversary” means the third anniversary of the 2004 Closing.

 

Third Party” means, with respect to any Securityholder, any other Person, other than the Company and its subsidiaries or any Affiliate of such Securityholder.

 

2002 Co-Investor Closing” means the purchase of securities of the Company by the Co-Investors on May 3, 2002.

 

2002 Co-Investor Stock Purchase Agreement” means the Stock Purchase Agreement dated as of May 3, 2002, among the Company and the other parties signatory thereto relating to, and providing for, the 2002 Co-Investor Closing.

 

2004 Closing” means the closing of the 2004 IPO.

 

2004 IPO” means the initial public offering of Shares.

 

Unrealized Value” means, as of any date of determination and with respect to any Management Securityholder, the sum of (a) the product of (i) the 20-Day Average Price, as of such date of determination, and (ii) the number of Securities that are Shares that such Management Securityholder owns and has not granted a consensual Encumbrance with respect to, as of such date of determination, and (b) the aggregate Option Value of all Securities that are Options that such Management Securityholder owns, as of such date of determination.

 

The following terms have the meanings assigned thereto in the MEP:  “Rollover Options”, “Service Options”, “Performance Options”, “Cause”, “Good Reason”, “Permanent Disability” and “Retirement”.

 

ARTICLE II
GOVERNANCE AND SECURITYHOLDER MATTERS

 

SECTION 2.1.  Board of Directors; Committees.  (a) (i) The Board of Directors shall initially consist of seven members, which may be increased, at the discretion of the Board of Directors, from time to time, to not more than nine members; provided, however, that, as required by applicable federal or state securities laws or the rules of any stock exchange on which the Shares are traded (“Applicable Governance Rules”), the Board of Directors shall, if necessary, be expanded to include such additional independent directors as may be required by such Applicable Governance Rules, with such independent directors to be selected by the Board of Directors.

 

(ii)           The Company shall take, or cause to be taken, such actions as may be required from time to time to establish and maintain audit, compensation and nominating/governance committees of the Board of Directors, as well as such other committees of the board of directors of the Company as the Board of Directors shall determine, having such duties and

 

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responsibilities as are customary for such committees.  Each such committee shall be comprised of at least three members.

 

(iii)          The Company shall take all actions necessary to cause the board of directors of EnerSys Delaware and Capital to be comprised, at all times, solely of the same individuals as, from time to time, comprise the Board of Directors.

 

(b)           (i)  MSCP IV shall, from time to time, be entitled to designate a number of nominees (other than the CEO Designee) for election to the Board of Directors (such nominees designated by MSCP IV, the “MSCP Designees”), such that, if elected, such MSCP Designees and all other directors who are MSCP Designees will constitute a majority (or, at its election, any number less than a majority) of the members of the Board of Directors.

 

(ii)           A majority (or, at its election, any number less than a majority) of the members of the compensation and nominating/governance committees shall be directors designated by MSCP IV; provided, however, that such number of members as may be required by Applicable Governance Rules shall meet the independence requirements of such Rules.

 

(iii)          Each Securityholder holding Shares shall vote its Shares, and take or cause to be taken such other actions, as may be required from time to time to elect to the Board of Directors (A) the MSCP Designees, and (B) the CEO Designee.  Without limiting the generality of the foregoing, at each annual meeting of the stockholders of the Company, and at each special meeting of the stockholders of the Company called for the purpose of electing directors of the Company, and at any time at which the stockholders of the Company have the right to elect directors of the Company, in each such event, the Securityholders shall vote all Shares owned by them, or take such other actions as shall be necessary, to elect persons as directors of the Company in accordance with the preceding provisions of this Section 2.1(b).

 

(iv)          Each Securityholder shall take all action necessary to remove forthwith any director when such removal is requested for any reason, with or without cause, by the Securityholders or other Person designating the nominee for election as such director pursuant to Section 2.1(b).  In the case of the death, resignation or removal as herein provided of any director, each Securityholder shall vote all Shares held by it to elect another person designated by the applicable Securityholders or other Person designating the nominee for election as such director pursuant to Section 2.1(b).

 

(v)           Each Securityholder hereby agrees that it will not vote any of its Shares in favor of the removal of any director that shall have been designated by any other Securityholders or other Person, unless such removal shall be for cause or such other Securityholders or other Person shall have consented to such removal in writing.

 

(vi)          In the event that any Securityholder shall fail to vote the Shares held by it in accordance with Section 2.1(b), such Securityholder shall, upon such failure to so vote, be deemed immediately to have granted to the Person entitled to designate the nominee for election as the director for which such Securityholder shall have failed to vote for such person’s election or removal, a proxy to vote its Shares solely for the election of such nominee or the removal of such director, as the case may be.  Such Securityholder acknowledges that each such proxy

 

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granted hereby, including any successive proxy, if necessary, is being given to secure the performance of an obligation hereunder, is coupled with an interest, and shall be irrevocable until such obligation is performed.

 

(vii)         The Company shall take advantage of the exemptions provided by Section 303A of the New York Stock Exchange Listed Company Manual (the “Controlled Company Exemption”), unless and to the extent MSCP IV shall otherwise request.

 

(c)           In the event that Section 2.1(b) shall have terminated, and so long as the MSCP Securityholders, the MSGEM Securityholders and the Co-Investors shall own at least 15% of the outstanding Shares, MSCP IV shall be entitled to designate a number of nominees (rounded to the nearest whole number, but not less than one) for election to the Board of Directors, which when taken together with sitting directors who were designated by MSCP IV, is proportionate to the aggregate percentage of the outstanding Shares held by such MSCP Securityholders, MSGEM Securityholders and the Co-Investors at the time of election of such nominees.

 

(d)           The Company shall designate the Chief Executive Officer as a nominee for election to the Board of Directors (the “CEO Designee”).

 

(e)           The Company shall take, or cause to be taken, such actions as may be required from time to time, to elect, or cause the respective boards of directors of each of the Company, Capital and EnerSys Delaware to elect, the Chief Executive Officer as Chairman of the Board of each thereof; provided, however, that the Company shall not be required to do any thereof to the extent any thereof would, in the opinion of the Board (other than the CEO Designee and the MSCP Designees), based on advice of Independent Counsel who shall be selected by the Board (other than the CEO Designee and the MSCP Designees), be in violation of any Applicable Governance Rules, other laws or the fiduciary duties of the directors of any thereof.  Nothing in this Section 2.1(e) shall have any affect on the rights or obligations of the parties under the CEO Employment Agreement.

 

(f)            No Securityholder shall grant any proxy or enter into or agree to be bound by any voting trust with respect to the Shares held by such Securityholder, or enter into any stockholder agreement or arrangement of any kind with any Person with respect to the Shares held by such Person that is, in either case, inconsistent with the terms of this Agreement (whether or not such agreement and arrangement is with other stockholders of the Company that are not parties to this Agreement).

 

SECTION 2.2.  Observer Rights.  (a) MSCP IV may, at its election and upon written notice to the Company, appoint one nonvoting “observer”, who shall (i) be provided by the Company with all notices of meeting, consents, minutes and other written materials that are provided to the Board of Directors of the Company at the same time as such materials are provided to such Board of Directors and (ii) be entitled to attend all meetings of such Board of Directors.  The Company shall reimburse MSCP IV (and any subadvisor thereof, including Metalmark) for all travel and lodging expenses in connection with attending any Board of Directors meeting of the Company on the same terms, and subject to the same policies, as shall apply to other directors of the Company.  Anything herein to the contrary notwithstanding, neither the Company nor any of its subsidiaries shall be required to disclose any information to

 

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MSCP IV, any subadvisor of MSCP IV, or any “observer” appointed pursuant to this Section 2.2(a), or permit any such “observer” to attend any board of directors meeting pursuant to this Section 2.2(a), if, in the reasonable judgment of the Board of Directors, such disclosure or attendance would be inconsistent with the obligations of the Company or any subsidiary thereof under any applicable laws or regulations.

 

(b)           First Plaza Group Trust and GM Capital Partners I, L.P. may appoint and the MSGEM Securityholders may appoint, at their election and upon written notice to the Company, one nonvoting “observer”, who shall (i) be provided by the Company with all notices of meeting, consents, minutes and other written materials that are provided to the Board of Directors of the Company at the same time as such materials are provided to such Board of Directors and (ii) be entitled to attend all meetings of such Board of Directors.  The Company shall reimburse each such Co-Investor and the MSGEM Securityholders for all travel and lodging expenses in connection with attending any Board of Directors meeting of the Company on the same terms, and subject to the same policies, as shall apply to other directors of the Company.  Anything herein to the contrary notwithstanding, neither the Company nor any of its subsidiaries shall be required to disclose any information to any Co-Investor or MSGEM Securityholder or any “observer” appointed pursuant to this Section 2.3(b), or permit any such “observer” to attend any board of directors meeting pursuant to this Section 2.3(b), if, in the reasonable judgment of the Board of Directors, such disclosure or attendance would be inconsistent with the obligations of the Company or any subsidiary thereof under any antitrust or other laws or regulations regulating competition or the conduct of business.

 

(c)           Unless the Company shall otherwise consent thereto in writing, each Securityholder entitled to appoint an “observer” agrees that it will, and will cause its “observer” to, keep all the Observer Material confidential; provided, however, that nothing in this Section 2.2(b) shall limit the ability of such Securityholder (or “observer”) to disclose any of such Observer Material (i) to its limited partners or members to the extent required by its limited partnership or operating agreement, (ii) to its employees, agents, advisors or representatives who need to know such information with respect to any matters relating hereto, (iii) to the extent required to permit such Securityholder (or “observer”) to comply with any regulatory requirements of any governmental authority or (iv) as may be required in connection with the prosecution or defense by such Securityholder (or “observer”) of any claim, demand, action, suit or proceeding with respect to the Company or any matters related hereto.  If any such Securityholder proposes to disclose any Observer Material (other than periodic summary financial information about the Company) to any third party as contemplated by the proviso to the next preceding sentence, it shall give the Company at least five Business Days (or, if not legally possible, the maximum lesser amount of notice legally possible) prior written notice thereof specifying in reasonable detail the Observer Material to be disclosed, the identity of the parties to receive such Observer Material and the reasons for such disclosure.  For purposes of this Agreement, “Observer Material” means all documents and information concerning the Company and its subsidiaries and their respective affairs provided to such Securityholder or any “observer” appointed by such Securityholder pursuant to this Section 2.2 in connection with any board of directors or committee meeting or consent in lieu thereof, or any information otherwise acquired by such Securityholder or such “observer” in connection therewith; provided, however, that the term “Observer Material” does not include information that (i) is or becomes generally available to the public other than as a result of a disclosure by such Securityholder, or such

 

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“observer”, (ii) was within the possession of such Securityholder, or such “observer”, prior to its being furnished to such Securityholder, or such “observer”, by or on behalf of the Company pursuant hereto, provided that the source of such information was not known by such Securityholder, or such “observer”, to be bound by a confidentiality agreement with or other contractual, legal or fiduciary obligation of confidentiality to the Company or any other party with respect to such information or (iii) becomes available to such Securityholder, or such “observer”, on a non-confidential basis from a source other than the Company or any of its representatives, provided that such source is not known to such Securityholder, or such “observer”, to be bound by a confidentiality agreement with or other contractual, legal or fiduciary obligation of confidentiality to the Company or any other party with respect to such information.

 

SECTION 2.3.  Rule 144.  So long as the Company is subject to the requirements of Section 13 or 15(d) of the 1934 Act, the Company will file any reports required to be filed by it under the 1934 Act in accordance with the requirements of the 1934 Act, and it will take such further action as any Securityholder may reasonably request, so as to enable such Securityholder, to the extent permitted by this Agreement, to sell Registrable Shares without registration under the 1933 Act, within the limitation of the exemptions provided by Rule 144 or any similar rule or regulation hereafter adopted by the Commission.  Upon the request of any such Securityholder, the Company will deliver to such Securityholder a written statement as to whether it has complied with such requirements.

 

ARTICLE III
RESTRICTIONS ON TRANSFER

 

SECTION 3.1.  General Restriction.  Each Securityholder agrees that it will not, directly or indirectly, offer, sell, assign, transfer, grant or sell a participation in, create any Encumbrance on or otherwise dispose of any Securities (or solicit any offers to buy or otherwise acquire, or take a pledge of, any Securities), in any manner that would conflict with or violate the 1933 Act, this Agreement or, to the extent applicable to such Securityholder, the MEP.

 

SECTION 3.2.  Legends.  (a) To the extent required by, or advisable to comply with, the 1933 Act or other applicable law, the Company shall affix to each certificate evidencing outstanding Securities that are Shares that is issued to any Securityholder a legend in substantially the following form:

 

“THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  NO REGISTRATION OF TRANSFER OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF THE ISSUER UNLESS SUCH TRANSFER IS MADE IN CONNECTION WITH AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH ACT DOES NOT APPLY.

 

THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN THE 2004 SECURITYHOLDER AGREEMENT DATED AS OF JULY 26, 2004, A COPY OF

 

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WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER.  NO REGISTRATION OF TRANSFER OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF THE ISSUER UNLESS AND UNTIL SUCH RESTRICTIONS SHALL HAVE BEEN COMPLIED WITH.”

 

(b)           In the event that any Securities that are Shares shall cease to be Restricted Shares, the Company shall, upon the written request of the holder thereof, promptly issue to such holder a new certificate evidencing such Securities without the first paragraph of the legend required by Section 3.2(a) endorsed thereon.  In the event that any Securities that are Shares shall cease to be subject to the restrictions on transfer set forth in this Agreement, the Company shall, upon the written request of the holder thereof, promptly issue to such holder a new certificate evidencing such Securities without the second paragraph of the legend required by Section 3.2(a).

 

SECTION 3.3.  Certain Restrictions on Transfer by Management Securityholders.  (a) Each Management Securityholder agrees that such Person will not, directly or indirectly, make any Sale or create, incur or assume any consensual Encumbrance with respect to any Securities held by such Person, other than (i) any transfer of Shares to a person from a Securityholder by will or the laws of descent and distribution, (ii) any Sale that is made in compliance with the procedures, and subject to the limitations, set forth in Section 3.5, (iii) any Sale of Shares pursuant to a Public Offering in accordance with Article IV, (iv) any Sale of Shares to or consensual Encumbrance of Shares in favor of a Permitted Transferee, (v) any Sale or Encumbrance of Shares following the termination of such Person’s employment with the Company or any of its subsidiaries (A) as a result of such Person’s death, Permanent Disability or Retirement, (B) by the Company or such subsidiaries without Cause, or (C) by such Securityholder for Good Reason, (vi) any Sale or Encumbrance of Shares permitted by Section 3.3(b) or (d), and (vii) any Sale of Shares constituting a Cashless Exercise.  Notwithstanding the foregoing, except as otherwise expressly provided herein, all Sales and Encumbrances permitted by the foregoing clauses (i) through (vii) shall be subject to, and shall not be made other than in compliance with, the provisions of Sections 3.1, 3.2, 3.6 and 4.9.  All Sales and Encumbrances of Securities by Management Securityholders shall be subject to, and shall not be permitted otherwise than as expressly permitted by, this Section 3.3(a).

 

(b)           Each Management Securityholder may make any Sale of, or create, incur or assume any consensual Encumbrance with respect to, any Securities that are Shares owned by such Person as follows:

 

(i)            During the period from the First Anniversary to the Second Anniversary, each Management Securityholder (other than Raymond Kubis and Cheryl Diuguid) may make a Sale of, or grant a consensual Encumbrance with respect to, a number of such Securities that are Owned Equity and Rollover Shares equal to (A) 30.00% of the aggregate number of Owned Equity and Rollover Shares beneficially owned by such Management Securityholder at the 2004 Closing (other than any thereof that have expired or been forfeited as of any date of determination), minus (B) the aggregate number of Securities that are Shares that such Management Securityholder has made a Sale of, or granted a consensual Encumbrance with respect to, during the period from and including the 2004 Closing to and including any date of determination hereunder; provided, however, that no Management Securityholder, during the period from the First

 

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Anniversary to the 18-month anniversary of the 2004 Closing, may make a Sale of, or grant a consensual Encumbrance with respect to, an aggregate number of Securities that are Owned Equity and Rollover Shares in excess of 10.00% of the aggregate number of Owned Equity and Rollover Shares beneficially owned by such Management Securityholder at the 2004 Closing (it being understood that in the event that, as of any date of determination and with respect to any Management Securityholder, the amount calculated pursuant to this first sentence of this Section 3.3(b)(i) is a negative number, then such Management Securityholder shall not be permitted to make a Sale of, or grant a consensual Encumbrance with respect to, any Shares pursuant to this Section 3.3(b)(i) on such date of determination).  During the period from the First Anniversary to the Second Anniversary, each of Raymond Kubis and Cheryl Diuguid may make a Sale of, or grant a consensual Encumbrance with respect to, a number of such Securities that are Owned Service and Performance Shares with a value equal to (A) 10.00% (or 3.33% in the event that such date of determination is prior to the 18-month anniversary of the 2004 Closing) of the aggregate Unrealized Value of such person’s Securities, as of such date of determination, minus (B) 90.00% (or 30.00% in the event that such date of determination is prior to the 18-month anniversary of the 2004 Closing) of the aggregate Realized Value of such person’s Securities, as of such date of determination (it being understood that in the event that, as of any date of determination, such net amount is a negative number, then such person shall not be permitted to make a Sale of, or grant a consensual Encumbrance with respect to, any Securities that are Shares pursuant to this Section 3.3(b)(i) on such date of determination).

 

(ii)           During the period from the Second Anniversary to the Third Anniversary, each Management Securityholder may make a Sale of, or grant a consensual Encumbrance with respect to, a number of such Securities that are Owned Equity and Rollover Shares and Owned Service and Performance Shares with a value equal to (A) 40% of the aggregate Unrealized Value of such Management Securityholder’s Securities, as of such date of determination, minus (B) 60% of the aggregate Realized Value of such Management Securityholder’s Securities, as of such date of determination (it being understood that in the event that, as of any date of determination such net amount is a negative number, then such Management Securityholder shall not be permitted to make a Sale of, or grant a consensual Encumbrance with respect to, any Securities that are Shares pursuant to this Section 3.3(b)(ii) on such date of determination).

 

(iii)          After the Third Anniversary, each Management Securityholder may make a Sale of, or grant a consensual Encumbrance with respect to, a number of such Securities that are Owned Equity and Rollover Shares and Owned Service and Performance Shares with a value equal to (A) 75% of the aggregate Unrealized Value of such Management Securityholder’s Securities, as of such date of determination, minus (B) 25% of the aggregate Realized Value of such Management Securityholder’s Securities, as of such date of determination (it being understood that in the event that, as of any date of determination, such net amount is a negative number, then such Management Securityholder shall not be permitted to make a Sale of, or grant a consensual Encumbrance with respect to, any Securities that are Shares pursuant to this Section 3.3(b)(iii) on such date of determination).

 

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Amounts permitted to be Sold or Encumbered, as of any date of determination, by a Management Securityholder pursuant to Section 3.3(b) shall be reduced by the Unrealized Value of any Shares permitted to be sold or encumbered by such person pursuant to Section 3.3(d) or 3.5 (but not otherwise pursuant to Section 3.3(b)) as of such date of determination.

 

(c)           Anything in Section 3.3(a) to the contrary notwithstanding, no Management Securityholder may make any Sale of, or create, incur or assume any consensual Encumbrance with respect to, any Securities that are Shares permitted by Section 3.3(a)(iv) or (vi), (i) (other than Sales or Encumbrances pursuant to Section 3.3(d)(i) or Sales or Encumbrances of Owned Equity or Rollover Shares pursuant to Section 3.3(b)(iii)), if the simple average daily closing price of Shares on the principal securities exchange on which such Shares are traded for the 20-trading day period immediately preceding such proposed Sale or Encumbrance (the “20-Day Average Price”) is equal to or less than the per Share price to public in the 2004 IPO, or (ii) during the period commencing on the date that a MSCP Securityholder delivers to the Company a written notice of its intention to effect a registered offering of any of its Shares (an “Offering Notice”) pursuant to Section 4.1 or 4.2 and ending on the earlier of (A) the date upon which the offering of such Shares is consummated by such MSCP Securityholder and (B) six months following the date upon which such offering of Shares is Abandoned by such MSCP Securityholder or (iii) during the periods set forth in Section 4.3(d); provided, however, that nothing set forth in this Section 3.3(c) shall prohibit any Management Securityholder from participating in any such offering of registered Shares in accordance with Section 3.3(a) and Article IV.  All Sales of Shares permitted by Sections 3.3 shall be subject to, and shall not be made other than in compliance with, the provisions of Sections 3.1, 3.2 and 3.6.

 

For purposes of Section 3.3(c), a proposed offering of Shares will be deemed to have been “Abandoned” by a MSCP Securityholder on the first to occur of (a) the date that such MSCP Securityholder provides to the Company a written notice of its decision not to proceed with any such proposed offering of Shares, which notice will be delivered by such MSCP Securityholder promptly following any such determination by it, and (b) three months following the delivery of the Offering Notice with respect to such proposed offering.

 

(d)           (i) In connection with any exercise initiated by the MSCP Securityholders of any registration rights with respect to any Registrable Shares owned by such Securityholders pursuant to Section 4.1 or 4.2, if (A) such MSCP Securityholders sell Registrable Shares in an offering pursuant to Section 4.1 or 4.2, (B) any Management Securityholder shall exercise his rights under Section 4.1 or 4.2 to seek to sell Registrable Shares held by such Management Securityholder in such offering, and (C) such Management Securityholder shall be limited in the number of Registrable Shares that may be sold in such offering by the application of Section 4.2(a)(iii) or 4.3(c), then, thereafter, nothing in this Section 3.3 shall limit the right of such Management Securityholder to sell any Unallocated Shares determined with respect to such offering, but not earlier than 30 days after such sale by the MSCP Securityholders.

 

(ii)           With respect to (A) any sale of Securities for cash by any MSCP Securityholder or MSGEM Securityholder to any Affiliate of any thereof or (B) any distribution in kind of Securities by any MSCP Securityholder or MSGEM Securityholder to any partner thereof, in either case pursuant to clause (ii) of the second sentence of Section 3.5(a)(vi), nothing in this Section 3.3 shall limit the right of any Management Securityholder to sell a Pro Rata Amount of

 

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Securities that are Shares determined with respect to such sale or distribution in kind, but not earlier than 30 days after such sale or distribution by the MSCP Securityholders or MSGEM Securityholders.

 

(iii)          For purposes of this Agreement:

 

(A)          Unallocated Shares” means, with respect to a Management Securityholder and an offering pursuant to Section 4.1 and 4.2, a number of Registrable Shares equal to the difference between (1) the lesser of (y) the Pro Rata Amount of Registrable Shares owned (or issuable upon a Cashless Exercise (pursuant to clause (a) of the definition thereof) of Options owned based on a Share price equal to the per Share price at which the MSCP Securityholders sold Shares in such offering) by such Management Securityholder at the 2004 Closing and (z) the number of Registrable Shares such Management Securityholder requested to include, and had a bona fide intent to sell, in such offering pursuant to Section 4.1 or 4.2 and (2) the number of Registrable Shares actually sold by such Management Securityholder in such offering, and
 
(B)           Pro Rata Amount” means a number equal to (1) with respect to Section 3.3(d)(i), the product of (y) the total number of Shares owned (or issuable upon a Cashless Exercise (pursuant to clause (a) of the definition thereof) of Options owned (other than any Options that have expired or been forfeited as of any date of determination) based on a Share price equal to the per Share price at which the MSCP Securityholders sold Shares in such offering) by such Management Securityholder at the 2004 Closing, times (z) a fraction, the numerator of which shall be the total number of Registrable Shares sold by the MSCP Securityholders and the MSGEM Securityholders in such offering, and the denominator of which shall be the total number of Shares owned by the MSCP Securityholders and the MSGEM Securityholders at the 2004 Closing, and (2) with respect to Section 3.3(d)(ii), the product of (y) the total number of Shares owned (or issuable upon a Cashless Exercise (pursuant to clause (a) of the definition thereof) of Options owned (other than any Options that have expired or been forfeited as of any date of determination) based on a Share price equal to the per Share price at which the MSCP Securityholders or MSGEM Securityholders sold Shares in such sale or the fair market value thereof in such distribution in kind, as the case may be) by such Management Securityholder at the 2004 Closing, times (z) a fraction, the numerator of which shall be the total number of Shares sold or distributed in kind, as the case may be, by the MSCP Securityholders and the MSGEM Securityholders, and the denominator of which shall be the total number of Shares owned by the MSCP Securityholders and the MSGEM Securityholders at the 2004 Closing.
 

SECTION 3.4.  Certain Restrictions on Other Securityholders.  (a) Each Co-Investor agrees that it will not, and will not permit any controlled Affiliate of such Co-Investor to, directly or indirectly, make any Sale to any Person (other than a controlled Affiliate or successor trust of such Co-Investor), or create, incur or assume any consensual Encumbrance in favor of any Person (other than a controlled Affiliate of such Co-Investor), with respect to any Securities

 

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owned by such Co-Investor, other than (i) any Sale pursuant to a Public Offering that is made in compliance with the procedures, and subject to the limitations, set forth in Section 3.5 or Article IV, (ii) any sale, or any distribution in kind to the general and limited partners or members of such Co-Investor (in accordance with the distribution priorities set forth in such Co-Investor’s limited partnership or operating agreement), if after such sale, or distribution in kind, is consummated the number of Shares beneficially owned by such Co-Investor would be at least such Co-Investor’s Minimum Amount (provided that such Co-Investor may not make any such sale until the earlier of (A) the second Business Day after the distribution in kind by the MSCP Securityholders permitting such Co-Investor to make such sale and (B) the receipt of notice by such Co-Investor from MSCP IV, given in good faith, that limited partners of the MSCP Securityholders (other than Affiliates of MSCP IV) are then legally able to freely sell the Securities so distributed), or (iii) any Sale to or consensual Encumbrance in favor of a Permitted Transferee.  Notwithstanding the foregoing, except as otherwise expressly provided herein, all transactions permitted by the foregoing clauses (i) through (iii) shall be subject to, and shall not be made other than in compliance with, the provisions of Sections 3.1, 3.2, 3.6 and applicable law.  Each Co-Investor shall give the Company prompt written notice of any transactions in the Securities in reliance upon any of the foregoing clauses (i) through (iii). For purposes of this Section 3.4(a), “Minimum Amount” means, as of any date of determination, a number equal to the product of (i) the total number of Shares beneficially owned by such Co-Investor immediately following the 2002 Co-Investor Closing (adjusted to give effect to any applicable anti-dilution adjustments), times (ii) a fraction, the numerator of which shall be the total number of Shares beneficially owned by the MSCP Securityholders (assuming conversion of all the Series A Convertible Preferred Stock of the Company outstanding) immediately following the 2002 Co-Investor Closing, less the total number of Shares theretofore distributed in kind to the general and limited partners of the MSCP Securityholders by the MSCP Securityholders, and the denominator of which shall be the total number of Shares beneficially owned by the MSCP Securityholders (assuming conversion of all the Series A Convertible Preferred Stock of the Company outstanding) immediately following the 2002 Co-Investor Closing (adjusted in the case of both the numerator and the denominator for any stock splits, stock dividends or similar transactions).

 

(b)           Each MSGEM Securityholder agrees that it will not, and will not permit any controlled Affiliate of such MSGEM Securityholder to, directly or indirectly, make any Sale to any Person (other than a controlled Affiliate of such MSGEM Securityholder), or create, incur or assume any consensual Encumbrance in favor of any Person (other than a controlled Affiliate of such MSGEM Securityholder), with respect to any Securities owned by such MSGEM Securityholder, other than (i) any Sale that is made in compliance with the procedures, and subject to the limitations, set forth in Section 3.5 or Article IV, or (ii) any Sale to or consensual Encumbrance in favor of a Permitted Transferee.  Notwithstanding the foregoing, except as otherwise expressly provided herein, all transactions permitted by the foregoing clauses (i) through (ii) shall be subject to, and shall not be made other than in compliance with, the provisions of Sections 3.1, 3.2, 3.6 and applicable law.  Each MSGEM Securityholder shall give the Company prompt written notice of any transactions in the Securities in reliance upon any of the foregoing clauses (i) through (ii).

 

SECTION 3.5.  Right to Participate in Certain Dispositions.  (a) (i) So long as the MSCP Securityholders and the MSGEM Securityholders shall own, in the aggregate, at least 15% of the

 

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Shares outstanding, no MSCP Securityholder or MSGEM Securityholder shall in any transaction or series of related transactions, directly or indirectly, sell or otherwise dispose of for value (including in connection with a share for share exchange) any Shares held by it to any Third Party or Parties, unless the terms and conditions of such sale or other disposition shall include an offer to include, at the option of each of the other Securityholders (for purposes of this Section 3.5, the “Other Securityholders”), in such sale or other disposition to the Third Party or Third Parties, the Pro Rata Portion of each such Other Securityholder’s Shares.

 

(ii)           If, so long as the MSCP Securityholders and the MSGEM Securityholders shall own, in the aggregate, at least 15% of the Shares outstanding, any MSCP Securityholder or MSGEM Securityholder receives from a Third Party or Parties a bona fide offer or offers to purchase or otherwise acquire (for purposes of this Section 3.5, an “Offer”) any Shares held by such MSCP Securityholder or MSGEM Securityholder (for purposes of this Section 3.5, the “Offered Shares”), and such MSCP Securityholder or MSGEM Securityholder intends to pursue a sale of such Shares to such Third Party or Parties, such MSCP Securityholder or MSGEM Securityholder (for purposes of this Section 3.5, the “Prospective Sellers”) shall provide written notice (for purposes of this Section 3.5, the “Offer Notice”) of such Offer to each of the Other Securityholders not later than the twentieth Business Day prior to the consummation of the sale or other disposition contemplated by the Offer.  The Offer Notice shall identify the Offered Shares, the price offered for such Offered Shares, all other material terms and conditions of the Offer and, in the case of an Offer in which the consideration payable for Shares consists in whole or in part of consideration other than cash, such information relating to such other consideration as the Company may reasonably determine.  The Other Securityholders shall have the right and option, for a period of 20 Business Days after the date the Offer Notice is given to such Other Securityholders (for purposes of this Section 3.5, the “Notice Period”), to notify the Prospective Sellers of such Other Securityholder’s interest in selling or otherwise disposing of up to the Pro Rata Portion of such Other Securityholder’s Shares pursuant to the Offer.  Each Other Securityholder desiring to exercise such option shall, prior to the expiration of the Notice Period, provide the Prospective Sellers with a written notice specifying the number of Shares as to which such Other Securityholder has an interest in selling or otherwise disposing of pursuant to the Offer (for purposes of this Section 3.5, a “Notice of Interest”), and shall deliver to the Prospective Sellers (A) the certificate or certificates evidencing the Shares to be sold or otherwise disposed of pursuant to such Offer by such Other Securityholder duly endorsed in blank or accompanied by written instruments of transfer in form satisfactory to the Prospective Sellers executed by such Other Securityholder, (B) an instrument of assignment reasonably satisfactory to the Prospective Sellers assigning, as of the consummation of the sale or other disposition to the Third Party or Parties, all such Other Securityholder’s rights hereunder with respect to the Shares to be sold or otherwise disposed of, and (C) a special irrevocable power-of-attorney authorizing the Prospective Sellers to sell or otherwise dispose of such Shares pursuant to the terms of the Offer and to take all such actions as shall be necessary or appropriate in order to consummate such sale or other disposition.  Delivery of such certificate or certificates evidencing the Shares to be sold, the instrument of assignment and the special irrevocable power-of-attorney authorizing the Prospective Sellers to sell or otherwise dispose of such Shares shall constitute an irrevocable election by such Other Securityholder to authorize and permit the Prospective Sellers to sell such Shares pursuant to the Offer.

 

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(iii)          Promptly after the consummation of the sale or other disposition of the Shares of the Prospective Sellers and the Other Securityholders to the Third Party or Parties pursuant to the Offer, the Prospective Sellers shall remit to each of the Other Securityholders the total sales price of the Shares of such Other Securityholders sold or otherwise disposed of pursuant thereto.

 

(iv)          If at the end of the Notice Period any Other Securityholder shall not have given a Notice of Interest (and delivered all other required documents) with respect to some or all of the Pro Rata Portion of such Other Securityholder’s Shares, such Other Securityholder will be deemed to have waived all its rights under this Section 3.5 with respect to the sale or other disposition pursuant to the Offer of the portion of the Pro Rata Portion of such Other Securityholder’s Shares with respect to which a Notice of Interest shall not have been given.  If, at the end of the 120-day period following the giving of the Offer Notice, the Prospective Sellers have not completed the sale of all the Offered Shares and the Shares with respect to which Other Securityholders shall have given Notices of Interest pursuant to this Section 3.5, the Prospective Sellers shall return to such Other Securityholders all certificates evidencing the unsold Shares that such Other Securityholders delivered for sale or other disposition pursuant to this Section 3.5 and such Other Securityholders’ related instruments of assignment and powers-of-attorney.

 

(v)           Except as expressly provided in this Section 3.5, the Prospective Sellers shall have no obligation to any Other Securityholder with respect to the sale or other disposition of any of such Other Securityholder’s Shares in connection with this Section 3.5.  Anything herein to the contrary notwithstanding and irrespective of whether any Notice of Interest shall have been given, the Prospective Sellers shall have no obligation to any Other Securityholder to sell or otherwise dispose of any Offered Shares pursuant to this Section 3.5 or as a result of any decision by the Prospective Sellers not to accept or consummate any Offer or sale or other disposition with respect to the Offered Shares (it being understood that any and all such decisions shall be made by the Prospective Sellers in their sole discretion).  No Other Securityholder shall be entitled to sell or otherwise dispose of Shares directly to any Third Party or Parties pursuant to an Offer (it being understood that all such sales and other dispositions shall be made only on the terms and pursuant to the procedures set forth in this Section 3.5).

 

(vi)          For purposes of this Section 3.5, “Pro Rata Portion” means, with respect to each Other Securityholder, a number equal to the product of (a) the total number of Shares owned by such Other Securityholder (or issuable upon a Cashless Exercise (pursuant to clause (a) of the definition thereof) of Options owned based on a Share price equal to the per Share price at which the Prospective Sellers propose to sell Offered Shares) at the 2004 Closing, times (b) a fraction, the numerator of which shall be the total number of Shares proposed to be sold by the Prospective Sellers, and the denominator of which shall be the total number of Shares outstanding and owned by the Prospective Sellers at the 2004 Closing.  Anything in this Section 3.5 to the contrary notwithstanding, the provisions of this Section 3.5 will not be applicable to any Sale of Shares (i) pursuant to and in accordance with Article IV, (ii) between MSCP Securityholders or MSGEM Securityholders or to any of their employees, partners or Affiliates, or (iii) to up to 10 Persons (and their Affiliates) in one or more transactions involving the Sale of up to an aggregate of 5% of the outstanding Shares; provided, however, that the exception set forth in this clause (iii) shall not apply to, or limit, the rights of the Co-Investors under Section 3.5.  Nothing in this Section 3.5 shall affect any of the obligations of any of the Securityholders under any other provision of this Agreement.

 

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SECTION 3.6.  Improper Transfer.  Any attempt to sell, assign, transfer, grant or sell a participation in, pledge or otherwise dispose of any Securities not in compliance with this Agreement shall be null and void and neither the Company nor any transfer agent shall give any effect in the Company’s stock records to such attempted sale, assignment, transfer, grant or sale of a participation, pledge or other disposition.

 

SECTION 3.7.  Required Management Securityholder Notices.  In connection with any Sale or Encumbrance of Securities proposed to be made by any Management Securityholder, such Management Securityholder shall give the compensation committee of the Board not less than five, nor more than 20, Business Days’ prior written notice of his or her intention to make any such Sale or create any such Encumbrance, specifying, in reasonable detail, the number of such Securities proposed to sold or encumbered, whether such Securities are Owned Equity, Rollover Options or Shares, Performance Options or Shares (and the applicable tranche) or Service Options or Shares, when such Securities were acquired by such person, and an explanation (and applicable calculations) supporting such person’s right to make such Sale or create such Encumbrance pursuant to the applicable provisions of Section 3.3.

 

ARTICLE IV
REGISTRATION RIGHTS

 

SECTION 4.1.  Registration Upon Request.  (a) Upon the written request of the holder or holders of Registrable Shares that are MSCP Securityholders or Co-Investors requesting that the Company effect the registration under the 1933 Act of all or part of the Registrable Shares held by such holder or holders and specifying the intended method or methods of disposition of such Registrable Shares (including pursuant to Rule 415 under the 1933 Act), the Company will promptly give written notice of such requested registration to all holders of Registrable Shares and thereupon will use its best efforts to effect the registration under the 1933 Act, as expeditiously as is reasonable, of:

 

(i)            the Registrable Shares that the Company has been so requested to register by such holder or holders, for disposition in accordance with the intended method or methods of disposition stated in such request; and

 

(ii)           all other Registrable Shares that the Company has been requested to register by the holders of Registrable Shares by written request delivered to the Company within 20 Business Days after the giving of such written notice by the Company (which request shall specify the intended method or methods of disposition of such Registrable Shares), all to the extent requisite to permit the disposition (in accordance with the intended method or methods thereof as aforesaid) of the Registrable Shares so to be registered; provided, however, that:

 

(A)          the Company shall not at any time be required to effect any registration pursuant to this Section 4.1 unless the requests from holders of Registrable Shares for such registration cover an aggregate number of Registrable Shares with an aggregate market value on the date of the initial request for such registration of at least (1) $50 million, in the case of a request involving a Public Offering, or (2) $15 million in the case of any other public offering;
 

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(B)           the Company shall not be required to effect a registration pursuant to this Section 4.1, other than with a registration statement on Form S-3 or a similar short-form registration statement, within a period of 12 months after the effective date of any other registration statement relating to any registration request under this Section 4.1 or to any registration of which prior notice shall have been given to all holders of outstanding Registrable Shares pursuant to Section 4.2 that was not effected with a registration statement on Form S-3 or a similar short-form registration statement;
 
(C)           if the Company shall have previously effected a registration pursuant to this Section 4.1 or shall have previously effected a registration of which prior notice shall have been given to all holders of outstanding Registrable Shares pursuant to Section 4.2, the Company shall not be required to effect a registration pursuant to this Section 4.1 until a period of six months shall have elapsed from the effective date of the most recent such registration; and
 
(D)          with respect to any registration statement filed, or to be filed, pursuant to this Section 4.1, if the Board of Directors determines that, in its judgment, it would (because of the existence of plans or negotiations regarding any material acquisition involving, or the sale or recapitalization of, the Company or any of its subsidiaries or any material financing activity, or the existence of material non-public information about the Company, or the unavailability of any required financial statements, or any other event or condition of similar significance to the Company and its subsidiaries, taken as a whole) be significantly disadvantageous (a “Disadvantageous Condition”) to the Company and its Affiliates, taken as a whole, for such a registration statement to become effective, or to be maintained effective, the Company shall, notwithstanding any other provision of this Article IV, be entitled, upon the giving of a written notice (a “Delay Notice”) to such effect to each holder of Registrable Shares included or to be included in such registration statement, to cause such registration statement to be withdrawn and the effectiveness of such registration statement terminated, or, in the event no registration statement has yet been filed, shall be entitled not to file any such registration statement, until, in the judgment of the Board of Directors, such Disadvantageous Condition no longer exists (notice of which the Company shall promptly deliver to the holders of Registrable Shares with respect to which any such registration statement has been filed, or was to have been filed), but in no event for longer than 180 days after the date of the Delay Notice.  Upon receipt of any notice of the existence of a Disadvantageous Condition, such holders of Registrable Shares selling securities pursuant to an effective registration statement will forthwith discontinue use of the prospectus contained in such registration statement and, if so directed by the Company, each such holder of Registrable Shares will deliver to the Company all copies, other than permanent file copies then in such holder’s possession, of the prospectus then covering such Registrable Shares current at the time of receipt of such notice, and, in the event no registration statement has yet been filed, all drafts of the prospectus covering such Registrable Shares.  Notwithstanding the foregoing provisions of this subparagraph (D), no registration statement filed and
 

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subsequently withdrawn by reason of any existing or anticipated Disadvantageous Condition as hereinabove provided shall count as one of the six registration statements referred to in Section 4.1(b), or count against the limitation in Section 4.1(a)(ii)(B) or 4.1(a)(ii)(C).  The Company may not give a Delay Notice more than once in any period of 12 consecutive months.
 

(b)           Anything herein to the contrary notwithstanding, the Company shall not be obligated to file more than four registration statements pursuant to this Section 4.1 that are initiated by the MSCP Securityholders, and two registration statements pursuant to this Section 4.1 that is initiated by the Co-Investors; provided, however, no registration statement filed pursuant to this Article IV shall count as one of the registration statements referred to in this Section 4.1(b) unless sales of Registrable Shares registered thereunder shall have been consummated.

 

(c)           The Company shall pay all Registration Expenses in connection with each of the registrations of Registrable Shares effected by it pursuant to this Section 4.1.

 

(d)           In connection with any firm commitment underwriting pursuant to this Section 4.1, the Company will not register securities for sale for the account of any Persons other than the Company and holders of Registrable Shares.

 

(e)           In connection with any underwritten offering with respect to which holders of Registrable Shares shall have requested registration pursuant to this Section 4.1, the holders of a majority of the Registrable Shares participating in such offering shall have the right to select the managing underwriter with respect to such offering.

 

SECTION 4.2.  Incidental Registration.  (a) If the Company proposes to register (other than pursuant to Section 4.1 or 4.10 or the 2004 IPO) any of its authorized but unissued Shares under the 1933 Act on a form and in a manner that would permit registration of Registrable Shares for sale to the public under the 1933 Act, it will each such time give prompt written notice to all holders of Registrable Shares of its intention to do so, describing such securities and specifying the form and manner and the other relevant facts involved in such proposed registration (including, without limitation, whether or not such registration will be in connection with an underwritten offering of its Common Stock and, if so, the identity of the managing underwriter and whether such offering will be pursuant to a “best efforts” or “firm commitment” underwriting).  Upon the written request of any such holder of Registrable Shares delivered to the Company within 20 Business Days after such notice shall have been given to such holder (which request shall specify the Registrable Shares intended to be disposed of by such holder and the intended method of disposition thereof), the Company will use its best efforts to effect the registration under the 1933 Act, as expeditiously as is reasonable, of all Registrable Shares that the Company has been so requested to register by the holders of Registrable Shares, to the extent requisite to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Shares so to be registered; provided, however, that:

 

(i)            if, at any time after giving such written notice of its intention to register any of such securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to

 

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register such securities, the Company may, at its election, give written notice of such determination to each holder of Registrable Shares that has requested to register Registrable Shares and thereupon the Company shall be relieved of its obligation to register any Registrable Shares in connection with such registration (but not from its obligation to pay the Registration Expenses in connection therewith to the extent provided in Section 4.2(b)), without prejudice, however, to the rights of any one or more holders to request such registration be effected as a registration under Section 4.1 or 4.10;

 

(ii)           if (A) the registration so proposed by the Company involves an underwritten offering of the securities so to be registered, to be distributed by or through one or more underwriters of recognized standing under underwriting terms appropriate for such a transaction, and (B) the managing underwriter of such underwritten offering selected by the Company shall advise the Company that, in its judgment, the number of securities proposed to be included in such offering by the Company (for purposes of this Section 4.2(a), “Company Securities”) and the number of Registrable Shares held by all Securityholders proposed to be included in such offering by the holder or holders thereof should be limited due to market conditions, then the Company will promptly advise each such holder of Registrable Shares thereof and the number of Shares proposed to be included in such registration shall be included in the following order of priority:

 

(i)            first, the Company Securities;

 

(ii)           second, the Registrable Shares requested to be included in such registration that are held by the MSCP Securityholders, the MSGEM Securityholders, the Co-Investors and the Management Securityholders (or, if necessary, such Registrable Shares pro rata among the holders thereof based upon the number of Registrable Shares owned by each such holder);

 

(iii)          third, any other Registrable Shares.

 

(iii)          if (A) the registration so proposed by the Company involves an underwritten offering of the securities so to be registered, to be distributed by or through one or more underwriters of recognized standing under underwriting terms appropriate for such a transaction, and (B) the managing underwriter of such underwritten offering selected by the Company shall advise the Company that, in its judgment, the number of Registrable Shares held by the Management Securityholders proposed to be included in such offering by the holder or holders thereof should be limited, then the Company will promptly advise each such holder of Registrable Shares thereof and the number of Shares proposed to be included in such registration shall be included in the following order of priority:

 

(i)            first, the Company Securities;

 

(ii)           second, the Registrable Shares requested to be included in such registration that are held by the MSCP Securityholders, the MSGEM Securityholders and the Co-Investors (or, if necessary, such Registrable Shares

 

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pro rata among the holders thereof based upon the number of Registrable Shares requested to be registered by each such holder);

 

(iii)          third, the Registrable Shares requested to be included in such registration that are held by the Management Securityholders (or, if necessary, such Registrable Shares pro rata among the holders thereof based upon the number of Registrable Shares requested to be registered by each such holder); and

 

(iv)          fourth, any other Registrable Shares.

 

(iv)          the Company shall not be obligated to effect any registration of Registrable Shares under this Section 4.2 that is incidental to the registration of any of its securities in connection with any merger, acquisition, exchange offer, dividend reinvestment plan or stock option or other employee benefit plan, including with a Form S-8 registration statement and any reoffering prospectus included therein.

 

No registration of Registrable Shares effected under this Section 4.2 shall relieve the Company of its obligation to effect registrations of Registrable Shares upon the request of one or more holders pursuant to Section 4.1 or 4.10.

 

(b)           The Company will pay all Registration Expenses in connection with each registration of Registrable Shares effected by it pursuant to this Section 4.2.

 

SECTION 4.3.  Registration Procedures.  (a) If and whenever the Company is required to use its best efforts to effect the registration of any Registrable Shares under the 1933 Act as provided in Section 4.1, 4.2 or 4.10, the Company will as expeditiously as is reasonable:

 

(i)            prepare and file with the Commission on any appropriate form a registration statement with respect to such Registrable Shares and use its best efforts to cause such registration statement to become effective as soon as practicable after filing;

 

(ii)           prepare and file with the Commission such amendments (including post- effective amendments) and supplements to such registration statement and the prospectus used in connection therewith (including, without limitation, to reflect any specific plan of distribution or method or methods of sale) as may be necessary to keep such registration statement effective and to comply with the provisions of the 1933 Act with respect to the disposition of all Registrable Shares and other securities covered by such registration statement until the earlier of (A) such time as all such Registrable Shares and other securities have been disposed of in accordance with the intended method or methods of disposition by the seller or sellers thereof set forth in such registration statement and (B) the expiration of 20 Business Days (two years in the case of a registration pursuant to Rule 415 under the 1933 Act) from the date such registration statement first becomes effective, as may be determined by the holders of Registrable Shares covered by such registration statement by notice to the Company prior to the date such registration statement becomes effective, and use its best efforts to cause such amendments to become effective as soon as practicable after filing;

 

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(iii)          furnish to each seller of such Registrable Shares such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus and any summary prospectus), in conformity with the requirements of the 1933 Act, such documents incorporated by reference in such registration statement or prospectus, and such other documents, as such seller may reasonably request in order to facilitate the sale or disposition of such Registrable Shares;

 

(iv)          use its best efforts to register or qualify all Registrable Shares and other securities covered by such registration statement under such other securities or “blue sky” laws of such jurisdictions as each seller shall reasonably request, and do any and all other acts and things that may be necessary to enable such seller to consummate the disposition in such jurisdictions of its Registrable Shares covered by such registration statement, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it is not so qualified, or to subject itself to taxation in respect of doing business in any such jurisdiction, or to consent to general service of process in any such jurisdiction;

 

(v)           in connection with any underwritten offering of Registrable Shares, enter into such customary agreements and take all such other actions in connection therewith (including those requested by the holders of a majority of the Registrable Shares being sold in such underwritten offering) in order to expedite or facilitate the disposition of such Registrable Shares, and in such connection, (A) to the extent possible make such representations and warranties to the underwriters of such Registrable Shares with respect to the business of the Company and its subsidiaries, the registration statement, prospectus and documents incorporated by reference or deemed incorporated by reference, if any, with respect to such underwritten offering, in each case, in form, substance and scope as are customarily made by issuers to underwriters in similar underwritten offerings and confirm the same if and when requested, (B) provide indemnities to the effect and to the extent provided in Section 4.5, (C) obtain opinions of counsel to the Company (which counsel and opinions, in form, scope and substance, shall be reasonably satisfactory to the underwriters and their counsel) addressed to each underwriter of Registrable Shares, covering the matters customarily covered in opinions requested in similar underwritten offerings, (D) obtain “cold comfort” letters from the independent certified public accountants of the Company (and, if necessary, any other certified public accountant of any subsidiary of the Company, or of any business acquired by the Company for which financial statements and financial data are or are required to be included in the Registration Statement) addressed to each underwriter of Registrable Shares, such letters to be in customary form and covering matters of the type customarily covered in “cold comfort” letters in connection with similar underwritten offerings, and (E) deliver such documents and certificates as may be reasonably requested by the underwriters, and which are customarily delivered in similar underwritten offerings, to evidence the continued validity of the representations and warranties of the Company made pursuant to clause (A) above and to evidence compliance with any customary conditions contained in an underwriting agreement;

 

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(vi)          immediately notify each seller of Registrable Shares covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the 1933 Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing or if it is necessary to amend or supplement such prospectus to comply with law, and at the request of any such seller prepare and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing and shall otherwise comply in all material respects with law and so that such prospectus, as amended or supplemented, will comply with law;

 

(vii)         otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least 12 months, beginning with the first month of the first fiscal quarter after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the 1933 Act;

 

(viii)        use its best efforts to list such securities on each securities exchange on which shares of Common Stock are then listed, if such securities are not already so listed and if such listing is then permitted under the rules of such exchange, and provide a transfer agent and registrar for such Registrable Shares not later than the effective date of such registration statement; and

 

(ix)           issue to any underwriter to which any holder of Registrable Shares may sell such Registrable Shares in connection with any such registration (and to any direct or indirect transferee of any such underwriter) certificates evidencing shares of Common Stock without the legends described in Section 3.2(a).

 

The Company may require each seller of Registrable Shares as to which any registration is being effected to furnish the Company with such information regarding such seller and the distribution of such securities as the Company may from time to time reasonably request in writing and as shall be required by law or by the Commission in connection therewith.

 

(b)           Whenever a registration requested by one or more holders pursuant to Section 4.1 is for an underwritten offering, only shares constituting Registrable Shares that are to be distributed by the underwriters and such unissued securities of the Company as the Company may elect to include in such offering may be included in such registration.  If (i) the registration so requested by holders of Registrable Shares pursuant to Section 4.1 involves an underwritten offering of such securities, to be distributed (on a firm commitment basis) by or through one or more underwriters of recognized standing under underwriting terms appropriate for such a transaction, and (ii) the managing underwriter of such offering shall advise the Company that, in

 

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its judgment, the number of shares of Registrable Shares held by all Securityholders proposed to be included in such offering by the holder or holders thereof (for purposes of Section 4.3(b), “Company Securities”) and any other securities held by any Securityholder other than the MSCP Securityholders or the MSGEM Securityholders should be limited due to market conditions, then the Company will promptly advise each such holder of Registrable Shares thereof, and the number of Shares proposed to be included in such registration shall be included in the following order of priority:

 

(i)            first, the Registrable Shares requested to be included in such registration that are held by the MSCP Securityholders, the MSGEM Securityholders, the Co-Investors and the Management Securityholders (or, if necessary, such Registrable Shares pro rata among the holders thereof based upon the number of Registrable Shares owned by each such holder);

 

(ii)           second, the Company Securities; and

 

(iii)          third, any other Registrable Shares.

 

(c)           Whenever a registration requested by one or more holders pursuant to Section 4.1 is for an underwritten offering, only shares constituting Registrable Shares that are to be distributed by the underwriters and such unissued securities of the Company as the Company may elect to include in such offering may be included in such registration.  If (i) the registration so requested by holders of Registrable Shares pursuant to Section 4.1 involves an underwritten offering of such securities, to be distributed (on a firm commitment basis) by or through one or more underwriters of recognized standing under underwriting terms appropriate for such a transaction, and (ii) the managing underwriter of such offering shall advise the Company that, in its judgment, the number of shares of Registrable Shares held by the Management Securityholders proposed to be included in such offering by the holder or holders thereof should be limited, then the Company will promptly advise each such holder of Registrable Shares thereof, and the number of Shares proposed to be included in such registration shall be included in the following order of priority:

 

(i)            first, the Registrable Shares requested to be included in such registration that are held by the MSCP Securityholders, the MSGEM Securityholders and the Co-Investors (or, if necessary, such Registrable Shares pro rata among the holders thereof based upon the number of Registrable Shares requested to be registered by each such holder);

 

(ii)           second, the Registrable Shares requested to be included in such registration that are held by the Management Securityholders (or, if necessary, such Registrable Shares pro rata among the holders thereof based upon the number of Registrable Shares requested to be registered by each such holder);

 

(iii)          third, any securities proposed to be included in such offering by the Company; and

 

(iv)          fourth, any other Registrable Shares.

 

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(d)           If any registration pursuant to Section 4.1 or 4.2 shall be in connection with an underwritten public offering, each holder of Registrable Shares agrees by acquisition of such Registrable Shares, if so required by the managing underwriters, not to effect any public sale or distribution (including any sale pursuant to Rule 144) of Registrable Shares (other than as part of such underwritten public offering) for a period to be determined by the relevant managing underwriter, which period shall begin not more than 7 days prior to the effective date of the registration statement with respect to such underwritten public offering and shall last not more than 120 days after the date of the first use of the final prospectus with respect to such proposed sale of Registrable Shares (which 120-day period shall be extended to 180 days at the request of the managing underwriter selected by the Company).

 

(e)           The Company agrees, if so required by the managing underwriters in connection with an underwritten offering of Registrable Shares pursuant to Section 4.1 or 4.2, not to effect any public sale or distribution of any of its equity securities or securities convertible into or exchangeable or exercisable for any of such equity securities during the 7 days prior to and the 120 days after the effective date of any registration statement with respect to such underwritten public offering, except as part of such underwritten offering or except in connection with a stock option plan, stock purchase plan, savings or similar plan, or an acquisition, merger or exchange offer.

 

(f)            It is understood that in any underwritten offering of Registrable Shares in addition to the shares (the “initial shares”) the underwriters have committed to purchase, the underwriting agreement may grant the underwriters an option to purchase a number of additional shares (the “option shares”) equal to up to 15% of the initial shares (or such other maximum amount as the National Association of Securities Dealers, Inc. may then permit), solely to cover over-allotments.  Shares proposed to be sold by the Company and the holders shall be allocated between initial shares and option shares as agreed or, in the absence of agreement, pursuant to Section 4.2(a)(ii) or 4.3(b), as the case may be.  The number of initial shares and option shares to be sold by requesting holders shall be allocated pro rata among all such holders on the basis of the relative number of Registrable Shares each such holder has requested to be included in such registration.

 

SECTION 4.4.  Preparation; Reasonable Investigation.  In connection with the preparation and filing of each registration statement registering Registrable Shares under the 1933 Act, and any amendment, post-effective amendment, prospectus and supplement with respect thereto, the Company will give the holders of Registrable Shares on whose behalf such Registrable Shares are to be so registered and their underwriters, if any, and their respective counsel and accountants, the opportunity to participate in the preparation thereof, and will give each of them such access to its books and records and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have issued a report on its financial statements as shall be necessary, in the opinion of such holders and such underwriters or their respective counsel, to conduct a reasonable investigation within the meaning of the 1933 Act.

 

SECTION 4.5.  Indemnification.  (a) In the event of any registration of any equity securities of the Company under the 1933 Act, the Company will, and hereby does, indemnify and hold harmless, in the case of any registration statement filed pursuant to Section 4.1, 4.2 or

 

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4.10, the seller of any Registrable Shares covered by such registration statement, its directors and officers, general and limited partners and any subadvisor of any such general partner, including Metalmark (and directors and officers of any thereof and, if such seller is a portfolio or investment fund, its investment advisors) each other Person who participates as an underwriter in the offering or sale of such securities, each officer and director of each such underwriter, and each other Person, if any, who controls such seller or any such underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any losses, claims, damages, liabilities and expenses, joint or several, to which such seller or any such director, officer, partner or subadvisor or participating or controlling Person may become subject under the 1933 Act or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the 1933 Act, any preliminary prospectus, final prospectus or summary prospectus included therein, or any amendment or supplement thereto, or any document incorporated by reference therein, or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Company will reimburse such seller, and each such director, officer, partner or subadvisor, underwriter and controlling Person from time to time at such Person’s request for any legal or any other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, liability, action or proceeding; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company for use in the preparation thereof by such seller or underwriter, as the case may be.  Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such seller or any such director, officer, partner or subadvisor, underwriter or controlling Person and shall survive the transfer of such securities by such seller.

 

(b)           The Company may require, as a condition to including any Registrable Shares in any registration statement filed pursuant to Section 4.1, 4.2 or 4.10, that the Company shall have received an undertaking satisfactory to it from (i) the prospective seller of such securities, to indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 4.5(a), except that any such prospective seller shall not in any event be liable to the Company pursuant thereto for an amount in excess of the net proceeds of sale of such prospective seller’s Registrable Shares so to be sold) the Company, each such underwriter of such securities, each officer and director of each such underwriter and each other Person, if any, who controls the Company or any such underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, and (ii) each such underwriter of such securities, to indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 4.5(a)) the Company, each officer and director of the Company, each prospective seller, each officer and director of each prospective seller and each other Person, if any, who controls the Company or any such prospective seller within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, with respect to any statement in or omission from such registration statement, any preliminary prospectus, final prospectus or summary prospectus included therein, or any

 

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amendment or supplement thereto, if such statement or omission was made in reliance upon and in conformity with written information furnished by such prospective seller or such underwriter, as the case may be, to the Company for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement.  Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling Person and shall survive the transfer of such securities by such seller.

 

(c)           Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding (including any governmental investigation) involving a claim referred to in Section 4.5(a) or (b), such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding provisions of this Section 4.5, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice.  In case any such action is brought against an indemnified party, unless in such indemnified party’s reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim (in which case, the indemnifying party shall not be liable for the fees and expenses of more than one counsel for all sellers of Registrable Shares, or more than one counsel for the underwriters in connection with any one action or separate but similar or related actions), the indemnifying party will be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified, to the extent that it may wish with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof.

 

SECTION 4.6.  Contribution.  If the indemnification provided for in Section 4.5 is unavailable to the indemnified party or parties in respect of any losses, claims, damages or liabilities referred to therein, then each such indemnified party and the Company shall contribute to the amount of such losses, claims, damages or liabilities (a) as between the Company and the holders of Registrable Shares covered by a registration statement, on the one hand, and the underwriters, on the other, in such proportion as is appropriate to reflect the relative benefits received by the Company and such holders, on the one hand, and the underwriters, on the other, from the offering of the Registrable Shares, or if such allocation is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits but also the relative fault of the Company and such holders, on the one hand, and of the underwriters, on the other, in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations, and (b) as between the Company, on the one hand, and each holder of Registrable Shares covered by a registration statement, on the other, in such proportion as is appropriate to reflect the relative fault of the Company and of each such holder in connection with such statements or omissions, as well as any other relevant equitable considerations.  The relative benefits received by the Company and such holders, on the one hand, and the underwriters, on the other, shall be deemed to be in the same proportion as the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Company and such holders bear to

 

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the total underwriting discounts and commissions received by the underwriters.  The relative fault of the Company and such holders, on the one hand, and of the underwriters, on the other, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and such holders or by the underwriters.  The relative fault of the Company, on the one hand, and of each such holder, on the other, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact relates to information supplied by such party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

 

The Company and the holders of Registrable Shares agree that it would not be just and equitable if contribution pursuant to this Section 4.6 were determined by pro rata allocation (even if the underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the next preceding paragraph.  The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the next preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim.  Notwithstanding the provisions of this Section 4.6, no underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and no holder of Registrable Shares shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Shares of such holder were offered to the public exceeds the amount of any damages that such holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.  No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.  Each Securityholder’s obligation to contribute pursuant to this Section 4.6 is several in the proportion that the proceeds of the offering received by such Securityholder bears to the total proceeds of the offering received by all the Securityholders and not joint.

 

SECTION 4.7.  Holdback Agreement.  If the Company at any time shall register Registrable Shares under the 1933 Act (including any registration pursuant to Sections 4.1 or 4.2) for sale to the public, the Securityholders shall not sell publicly or privately, make any short sale of, grant any option for the purchase of, or otherwise dispose publicly of, any Registrable Shares (other than those Registrable Shares included in such registration pursuant to Sections 4.1 or 4.2) without the prior written consent of the Company, for a period as shall be determined by the relevant managing underwriter, which period shall begin not more than 10 days prior to the initial filing of the registration statement pursuant to which such public offering shall be made and shall not last more than 180 days after the date of the first use of the final prospectus with respect to such proposed sale of Registrable Shares; provided, however, that the officers and directors of the Company who own capital stock of the Company and all other holders of 5% or more of the capital stock of the Company shall each be subject to similar restrictions.

 

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If the Company shall at any time pursuant to Sections 4.1 or 4.2 register under the 1933 Act Registrable Shares for sale to the public pursuant to an underwritten offering, the Company shall not effect any public sale or distribution of securities similar to those being registered (excluding any registration statement on Form S-4 or S-8), or any securities convertible into or exercisable or exchangeable for such securities, for such period as shall be determined by the managing underwriter, which period shall not extend for more than 90 days after the date of the first use of the final prospectus with respect to such proposed sale of Registrable Shares.

 

SECTION 4.8.  Nominees of Beneficial Owners.  In the event that any Registrable Shares are held by a nominee for the beneficial owner thereof, the beneficial owner thereof may, at its election, be treated as the holder of such Registrable Shares for purposes of any request or other action by any holder or holders of Registrable Shares pursuant to this Agreement or any determination of any number or percentage of shares of Registrable Shares held by any holder or holders of Registrable Shares contemplated by this Agreement.  If the beneficial owner of any Registrable Shares so elects, the Company may require assurances reasonably satisfactory to it of such owner’s beneficial ownership of such Registrable Shares.

 

SECTION 4.9.  Certain Limitations on Management Securityholders.  Anything in this Article IV to the contrary notwithstanding, the number of Registrable Shares that any Management Securityholder may request to register or may sell in connection with any registration pursuant to Article IV (other than Section 4.10), as of any date of determination, may not result, as of such date of determination, in the cumulative number of Securities that are Shares sold (or permitted to be sold) by such Management Securityholder after the 2004 Closing and on or prior to such date of determination exceeding the Saleable Portion of the Securities that are Shares that are owned (or issuable upon a Cashless Exercise of any vested or unvested Options owned (other than any Options that have expired or been forfeited as of such date of determination)) by such Management Securityholder at the 2004 Closing.  For purposes of this Agreement, “Saleable Portion” means, with respect to a Management Securityholder, as of any date of determination, a number equal to the product of (a) the total number of Owned Equity and Rollover Shares and Owned Service and Performance Shares owned (assuming a Cashless Exercise pursuant to clause (a) of the definition thereof (and a share price equal to the 20-Day Average Price as of such date of determination) of all vested and unvested Options owned (other than any Options that have expired or been forfeited as of such date of determination)) by such Management Securityholder at the 2004 Closing, times (b) a fraction, the numerator of which shall be the total number of Registrable Shares sold (or proposed to be sold in such offering) by the MSCP Securityholders and the MSGEM Securityholders after the 2004 Closing and on or prior to such date of determination, and the denominator of which shall be the total number of Securities that are Shares owned by the MSCP Securityholders and the MSGEM Securityholders at the 2004 Closing.

 

SECTION 4.10.  Form S-8.  Upon the written request of the holder or holders of Registrable Shares who are Management Securityholders requesting that the Company effect the registration under the 1933 Act of all or part of the Registrable Shares held by such holder or holders and specifying the intended method or methods of disposition of such Registrable Shares, the Company will promptly use its best efforts to effect the registration on Form S-8 (or any comparable successor form) under the 1933 Act, as expeditiously as is reasonable, of the Registrable Shares that the Company has been so requested to register by such holder or holders,

 

30



 

for disposition in accordance with the intended method or methods of disposition stated in such request subject to the requirements of the 1933 Act applicable thereto.  The Company shall pay all Registration Expenses in connection with each of the registrations of Registrable Shares effected by it pursuant to this Section 4.10.

 

ARTICLE V
MISCELLANEOUS

 

SECTION 5.1.  Termination.  This Agreement shall terminate on November 20, 2011; provided, however, that, notwithstanding the foregoing, (a) Section 2.1(b) shall terminate on the first day after the 2004 Closing that the Company shall no longer be entitled to take advantage of the Controlled Company Exemption as a result of the beneficial ownership of Securities by the MSCP Securityholders, the MSGEM Securityholders and the Co-Investors, (b) Sections 3.3, 3.4 and 3.5 shall terminate at such time as the MSCP Securityholders and the MSGEM Securityholders own less than 15% of the Shares outstanding, and (c) Section 2.2 shall terminate as to MSCP IV at such time as the MSCP Securityholders own less than 5% of the Shares outstanding, (d) Section 2.2 shall terminate as to each Co-Investor at such time as such Co-Investor owns less than 5% of the Shares outstanding, and (e) Section 2.2 shall terminate as to the MSGEM Securityholders at such time as the MSGEM Securityholders own less than 5% of the Shares outstanding.

 

SECTION 5.2.  Certain Representations.  Each of the parties hereto represents that this Agreement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms.  Such representation shall survive the execution and delivery hereof, regardless of any investigation made by any party hereto or on such party’s behalf.

 

SECTION 5.3.  Certain Remedies.  Without intending to limit the remedies available to any of the parties hereto, each of the parties hereto agrees that damages at law will be an insufficient remedy in the event such party violates the terms hereof and each of the parties hereto further agrees that each of the other parties hereto may apply for and have injunctive or other equitable relief in any court of competent jurisdiction to restrain the breach or threatened breach of, or otherwise specifically to enforce, any of such party’s agreements set forth herein.

 

SECTION 5.4.  Amendments and Waivers.  Any term of this Agreement may be amended and the observance of any such term may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of (i) the Company and (ii) the MSCP Securityholders.  None of the terms of this Agreement may be amended nor may the observance of any of such terms be waived (either generally or in a particular instance or either retroactively or prospectively) in either case in any manner adverse to any Co-Investor, MSGEM Securityholder, or Management Securityholder, without the prior written consent of each Person so affected; provided, however, that in the case of the Management Securityholders, the prior written consent, given in such Person’s sole discretion, of John D. Craig (or if Mr. Craig is no longer Chief Executive Officer, another Initial Management Securityholder) shall be conclusively deemed to constitute the consent of all Management Securityholders.  Each Securityholder shall be bound by any amendment or waiver authorized by this Section 5.4, whether or not such Securityholder shall have consented thereto.

 

31



 

SECTION 5.5.  Notices.  All notices and other communications provided for herein shall be in writing and shall be delivered by hand or sent by certified or registered mail, return receipt requested, postage prepaid, addressed, if to any MSCP Securityholder, to such MSCP Securityholder in care of Morgan Stanley Capital Partners, 1585 Broadway, New York, N.Y. 10036, Attention: Howard I. Hoffen and Eric T. Fry; if to any Management Securityholder or the Company, to him or it in care of EnerSys, Inc., P.O. Box 14145, 2366 Bernville Road, Reading, PA 19612, Attention: Chief Executive Officer, (with a copy, in the case of any notice to the Company, to the MSCP Securityholders); if to any MSGEM Securityholder, to such MSGEM Securityholder at the address set forth below its name at the foot hereof; or if to any Co-Investor, to such Co-Investor at the address set forth below its name at the foot hereof (or, in the case of any of the foregoing, to such other address as the Company or any such Securityholder shall have specified in writing to the party giving any such notice or sending any such communication).  All such notices shall be conclusively deemed to be received and shall be effective, if sent by hand delivery, upon receipt, or if sent by registered or certified mail, on the fifth day after the day on which such notice is mailed.

 

SECTION 5.6.  Benefit; Successors and Assigns.  Except as otherwise provided herein, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns.  No Securityholder may assign any of its rights hereunder to any Person; provided, however, that (a) the rights of the MSCP Securityholders hereunder may be assigned to Metalmark; and (b) the rights of any Co-Investor hereunder may be assigned to (i) any controlled Affiliate thereof or successor trust with respect thereto to whom such Co-Investor transfers any Securities held by such Co-Investor and (ii) any entity to which such Co-Investor transfers any Securities held by such Co-Investor formed to continue the business of such Co-Investor pursuant to a “spin-out” (or comparable transaction) of such Co-Investor from its controlling Affiliate, so long as the senior management of such transferee entity is substantially the same as the senior management of such Co-Investor before such “spin-out” (or comparable transaction).  Except as expressly provided in Sections 4.5 and 4.6, nothing in this Agreement either express or implied is intended to confer on any person other than the parties hereto and their respective successors and permitted assigns, any rights, remedies or obligations under or by reason of this Agreement.

 

SECTION 5.7.  Miscellaneous.  This Agreement sets forth the entire agreement and understanding among the parties hereto, and supersedes all prior agreements and understandings, relating to the subject matter hereof.  Each agreement herein by or with any Management Securityholder hereunder shall be deemed to be solely an agreement between such Management Securityholder and the Company and not between such Management Securityholder and any other Securityholder.  Upon the written request of the Chief Executive Officer, the Company shall take, or cause to be taken, such actions as shall be necessary to enforce compliance by the MSCP Securityholders and the MSGEM Securityholders with the covenants herein of each thereof with the Company.

 

This Agreement shall be governed by, and construed in accordance with, the law of the State of New York.  The headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning hereof.  This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one instrument. 

 

32



 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized signatories thereunto duly authorized as of the day and year first above written.

 

 

ENERSYS

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

 

MORGAN STANLEY DEAN WITTER
CAPITAL PARTNERS IV, L.P.

 

 

 

By:

MSDW CAPITAL PARTNERS IV,
LLC, as General Partner

 

 

 

By:

MSDW Capital Partners IV, Inc.,
as Member

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

 

MSDW IV 892 INVESTORS, L.P.

 

 

 

By:

MSDW CAPITAL PARTNERS IV,
LLC, as General Partner

 

 

 

By:

MSDW Capital Partners IV, Inc.,
as Member

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

33



 

 

MORGAN STANLEY DEAN WITTER CAPITAL INVESTORS IV, L.P.

 

 

 

By:

MSDW CAPITAL PARTNERS IV,
LLC, as General Partner

 

 

 

By:

MSDW Capital Partners IV, Inc.,
as Member

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

 

MORGAN STANLEY GLOBAL EMERGING MARKETS PRIVATE INVESTMENT FUND, L.P.

 

 

 

By:

MORGAN STANLEY GLOBAL EMERGING MARKETS, INC., as General Partner

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

MORGAN STANLEY GLOBAL EMERGING MARKETS PRIVATE INVESTORS, L.P.

 

 

 

By:

MORGAN STANLEY GLOBAL EMERGING MARKETS, INC., as General Partner

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

 

METALMARK CAPITAL LLC

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

34



 

 

J.P. MORGAN DIRECT CORPORATE FINANCE INSTITUTIONAL INVESTORS LLC

 

 

 

By:

JPMorgan Chase Bank, as investment advisor

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

Title:

 

 

 

Address:

 

 

 

J.P. Morgan Direct Corporate Finance

 

Institutional Investors LLC

 

c/o J.P. Morgan Investment Management Inc.

 

522 Fifth Avenue

 

New York, New York 10036

 

Attention:  Eduard Beit

 

Telephone:  (212) 837-1867

 

Facsimile:  (212) 837-1377

 

 

 

With copies to:

 

 

 

Proskauer Rose LLP

 

1585 Broadway

 

New York, New York 10036

 

Attention:  Adam Kansler

 

Telephone:  (212) 969-3689

 

Facsimile:  (212) 969-2900

 

35



 

 

J.P. MORGAN DIRECT CORPORATE FINANCE PRIVATE INVESTORS LLC

 

By:

J.P. Morgan Investment Management Inc., as investment advisor

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

Title:

 

 

 

Address:

 

 

 

J.P. Morgan Direct Corporate Finance

 

Private Investors LLC

 

c/o J.P. Morgan Investment Management Inc.

 

522 Fifth Avenue

 

New York, New York 10036

 

Attention:  Eduard Beit

 

Telephone:  (212) 837-1867

 

Facsimile:  (212) 837-1377

 

 

 

With copies to:

 

 

 

Proskauer Rose LLP

 

1585 Broadway

 

New York, New York 10036

 

Attention:  Adam Kansler

 

Telephone:  (212) 969-3689

 

Facsimile:  (212) 969-2900

 

 

 

 

 

522 FIFTH AVENUE FUND, L.P.

 

 

 

 

 

By:

J.P. Morgan Investment Management Inc., as investment advisor

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

Title:

 

36



 

 

Address:

 

 

 

522 Fifth Avenue Fund, L.P.

 

c/o J.P. Morgan Investment Management Inc.

 

522 Fifth Avenue

 

New York, New York 10036

 

Attention:  Eduard Beit

 

Telephone:  (212) 837-1867

 

Facsimile:  (212) 837-1377

 

 

 

With copies to:

 

 

 

Proskauer Rose LLP

 

1585 Broadway

 

New York, New York 10036

 

Attention:  Adam Kansler

 

Telephone:  (212) 969-3689

 

Facsimile:  (212) 969-2900

 

 

 

FIRST PLAZA GROUP TRUST

 

 

 

By:

JPMorgan Chase Bank,
as Trustee for First Plaza Group Trust

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

Address:

 

 

 

First Plaza Group Trust

 

c/o General Motors Asset Management

 

767 Fifth Avenue

 

New York, NY 10153

 

Attention:

John Clark

 

 

Jeffrey Reals

 

Telephone:  (212) 418-6100

 

Facsimile:  (212) 418-3644

 

37



 

 

With copies to:

 

 

 

Kirkland & Ellis

 

Citigroup Center

 

153 East 53rd Street

 

New York, NY 10022

 

Attention:  Michael Movsovich

 

Telephone:  (212) 446-4888

 

Facsimile:  (212) 446-4900

 

 

 

GM CAPITAL PARTNERS I, L.P.

 

 

 

By:

GM Partners I, LLC, with respect to its series, GM Capital Partners I

 

 

 

By:

General Motors Investment Management Corporation, as Managing Member of GM Partners I, LLC

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

Address:

 

 

 

GM Capital Partners I, L.P.

 

c/o General Motors Asset Management

 

767 Fifth Avenue

 

New York, NY 10153

 

Attention:

John Clark

 

 

Jeffrey Reals

 

Telephone:  (212) 418-6100

 

Facsimile:  (212) 418-3644

 

 

 

With copies to:

 

 

 

Kirkland & Ellis

 

Citigroup Center

 

153 East 53rd Street

 

New York, NY 10022

 

Attention:  Michael Movsovich

 

Telephone:  (212) 446-4888

 

Facsimile:  (212) 446-4900

 

38



 

 

 

 

John D. Craig

 

 

 

 

 

Michael T. Philion

 

 

 

 

 

Charles K. McManus

 

 

 

 

 

Richard W. Zuidema

 

 

 

 

 

John A. Shea

 

 

 

 

 

Raymond Kubis

 

 

 

 

 

Cheryl Diuguid

 

39




 

Exhibit 23.2

 

Consent of Independent Registered Public Accounting Firm

 

We consent to the reference to our firm under the captions “Experts”, “Summary Consolidated Financial, Operating and Pro Forma Data”, and “Selected Consolidated Financial and Operating Data” and to the use of our report dated May 14, 2004 (except Note 25, as to which the date is July 9, 2004), in Amendment No. 4 to the Registration Statement (Form S-1 No. 333-115553) and related Prospectus of EnerSys for the Registration of 14,375,000 shares of its common stock.

 

 

/s/ Ernst & Young LLP

 

 

Philadelphia, PA

July 26, 2004

 




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Exhibit 23.3


Consent of Independent Registered Public Accounting Firm

        We consent to the reference to our firm under the caption "Experts" and to the use of our report dated May 10, 2004, with respect to the combined financial statements of Energy Storage Group included in Amendment No. 4 to the Registration Statement (Form S-1 No. 333-115553) and related Prospectus of EnerSys for the registration of 14,375,000 shares of its common stock.

    /s/  Ernst & Young LLP      
     

Bristol, England
July 26, 2004




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Consent of Independent Registered Public Accounting Firm