FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _______________
Commission File No. 1-768
CATERPILLAR INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
37-0602744
(I.R.S. Employer Identification No.)
100 NE Adams Street, Peoria, Illinois
(Address of principal executive offices)
61629
(Zip Code)
(309) 675-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No __.
At March 31, 1998, 366,607,344 shares of common stock of the
Registrant were outstanding.
<PAGE>
SUMMARY
- -------
This summary highlights selected information from this document and
may not contain all of the information that is important to you. For a
detailed analysis of the company's results for the first quarter, you
should read this entire document carefully.
SUMMARY OF RESULTS
- ------------------
On April 17, 1998 Caterpillar Inc. announced its best first quarter
ever. Sales and revenues, profit, and profit per share all set records for
any first quarter. Compared with one year ago, sales and revenues rose
12% to $4.79 billion. Profit was up 9%, totaling $430 million, despite
increased spending for major growth initiatives and product line expansions.
Profit per share grew 12% to $1.17 ($1.15 assuming dilution), as it continued
to benefit from the ongoing share repurchase program.
Caterpillar has now posted record profit in 15 of the last 17 quarters.
Compared with all previous quarters, first-quarter 1998 was the third
best quarter ever for sales and revenues, and profit.
Commenting on the announcement, Caterpillar Chairman and CEO
Donald V. Fites said, "Once again, we are extremely pleased with our
financial performance. The organization continues to deliver record
financial results while also making substantial investments for future
long-term growth throughout the world. Our new line of compact construction
equipment, which we just introduced at a major equipment show in Germany,
is an example of our many outstanding growth opportunities."
"These results are especially gratifying considering the economic
difficulties in the Asia/Pacific region, and reflect our strength and
diversity in the products we offer, in the growing services we provide,
and in the geographic markets we serve."
HIGHLIGHTS - FIRST-QUARTER 1998 COMPARED WITH FIRST-QUARTER 1997
- ----------------------------------------------------------------
* Sales and revenues of $4.79 billion, a first-quarter
record, rose 12%.
* Profit of $430 million, a first-quarter record, was up 9%
over first-quarter 1997.
* Profit per share of $1.17 ($1.15 assuming dilution) was up
12%, a first-quarter record.
* Margin (sales less cost of goods sold) as a percent of
sales was about the same at 27.1% compared with 26.8% a
year ago.
* Operating profit for Machinery and Engines as a percent of
sales was 12.5% compared with 13.5% a year ago. The lower
operating profit rate was due to increased spending for
major growth initiatives and product line expansions that
include electric power generation, agricultural products,
compact machines, and further strengthening of our product
support network to better link customer, dealer, and
company operations.
* Physical sales volume was up 12%.
* The acquisition of Perkins was completed during the
quarter. Caterpillar's first-quarter consolidated results
include one month of Perkins' results.
* Sales inside the United States and outside the United
States both rose 12%.
* Revenues from Financial Products were up 22%.
* Since inception in June 1995 through March 31, 1998, 37.8
million shares have been repurchased under our share
repurchase plan. The number of shares outstanding at
March 31, 1998, was 366.6 million. When the 10% share
repurchase program is completed later this year, we will
have approximately 360 million shares outstanding.
Outlook
- ----------
The company's outlook for 1998 worldwide sales and revenues
remains unchanged from that issued with our third-quarter 1997
results, which called for sales and revenues (excluding Perkins)
to slightly surpass 1997's record levels. The company's outlook
for 1998 profit remains unchanged from that issued with our
fourth-quarter 1997 results, which called for profit to be near
1997's record. (Complete outlook begins on page 20.)
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CATERPILLAR INC.
Statement of Results of Operations
(Unaudited)
(Millions of dollars except per share data)
CONSOLIDATED
Three Months Ended
Mar. 31, Mar. 31,
1998 1997
-------- --------
SALES AND REVENUES:
Sales of Machinery & Engines ........................ $4,573 $4,072
Revenues of Financial Products ...................... 221 190
------ ------
Total sales and revenues ............................ 4,794 4,262
OPERATING COSTS:
Cost of goods sold .................................. 3,334 2,981
Selling, general and administrative expenses ........ 587 498
Research and development expenses ................... 155 117
Interest expense of Financial Products .............. 101 79
------ ------
Total operating costs ............................... 4,177 3,675
------ ------
OPERATING PROFIT ...................................... 617 587
Interest expense excluding Financial Products ........ 61 52
Other income (expense) ............................... 73 42
------ ------
CONSOLIDATED PROFIT BEFORE TAXES ...................... 629 577
Provision for income taxes ........................... 207 196
------ ------
Profit of consolidated companies...................... 422 381
Equity in profit of unconsolidated affiliated
companies (Note 4) ................................. 8 13
Equity in profit of Financial Products subsidiaries .. - -
------ ------
PROFIT ................................................ $ 430 $ 394
====== ======
PROFIT PER SHARE OF COMMON STOCK (NOTE 6) ............. $ 1.17 $ 1.04
====== ======
PROFIT PER SHARE OF COMMON STOCK - ASSUMING DILUTION
(NOTE 6) ........................................... $ 1.15 $ 1.03
====== ======
Cash dividends paid per share of
common stock ........................................ $ .25 $ .20
See accompanying notes to Consolidated Financial Statements.
Page 1
<PAGE>
CATERPILLAR INC.
Statement of Results of Operations
(Unaudited)
(Millions of dollars except per share data)
SUPPLEMENTAL CONSOLIDATING DATA
MACHINERY AND ENGINES<F1>
Three Months Ended
Mar. 31, Mar. 31,
1998 1997
-------- --------
SALES AND REVENUES:
Sales of Machinery & Engines ........................ $4,573 $4,072
Revenues of Financial Products ...................... - -
------ ------
Total sales and revenues ............................ 4,573 4,072
OPERATING COSTS:
Cost of goods sold .................................. 3,334 2,981
Selling, general and administrative expenses ........ 512 424
Research and development expenses ................... 155 117
Interest expense of Financial Products .............. - -
------ ------
Total operating costs ............................... 4,001 3,522
------ ------
OPERATING PROFIT ...................................... 572 550
Interest expense excluding Financial Products ........ 61 52
Other income (expense) ............................... 42 36
------ ------
CONSOLIDATED PROFIT BEFORE TAXES ...................... 553 534
Provision for income taxes ........................... 179 181
------ ------
Profit of consolidated companies...................... 374 353
Equity in profit of unconsolidated affiliated
companies (Note 4) ................................. 8 13
Equity in profit of Financial Products subsidiaries .. 48 28
------ ------
PROFIT ................................................ $ 430 $ 394
====== ======
[FN]
<F1>Represents Caterpillar Inc. and its subsidiaries except for Financial
Products, which is accounted for on the equity basis.
</FN>
The supplemental consolidating data is presented for the purpose of
additional analysis and to provide required supplemental disclosure of
information about the Financial Products' subsidiaries. Transactions between
Machinery and Engines and Financial Products have been eliminated to arrive
at the consolidated data.
See accompanying notes to Consolidated Financial Statements.
Page 2
<PAGE>
CATERPILLAR INC.
Statement of Results of Operations
(Unaudited)
(Millions of dollars except per share data)
SUPPLEMENTAL CONSOLIDATING DATA
FINANCIAL PRODUCTS
Three Months Ended
Mar. 31, Mar. 31,
1998 1997
-------- --------
SALES AND REVENUES:
Sales of Machinery & Engines ........................ $ - $ -
Revenues of Financial Products ...................... 240 196
------ ------
Total sales and revenues ............................ 240 196
OPERATING COSTS:
Cost of goods sold .................................. - -
Selling, general and administrative expenses ........ 81 80
Research and development expenses ................... - -
Interest expense of Financial Products .............. 105 81
------ ------
Total operating costs ............................... 186 161
------ ------
OPERATING PROFIT ...................................... 54 35
Interest expense excluding Financial Products ........ - -
Other income (expense) ............................... 22 8
------ ------
CONSOLIDATED PROFIT BEFORE TAXES ...................... 76 43
Provision for income taxes ........................... 28 15
------ ------
Profit of consolidated companies...................... 48 28
Equity in profit of unconsolidated affiliated
companies (Note 4) ................................. - -
Equity in profit of Financial Products subsidiaries .. - -
------ ------
PROFIT ................................................ $ 48 $ 28
====== ======
The supplemental consolidating data is presented for the purpose of
additional analysis and to provide required supplemental disclosure
of information about the Financial Products' subsidiaries. Transactions
between Machinery and Engines and Financial Products have been eliminated
to arrive at the consolidated data.
See accompanying notes to Consolidated Financial Statements.
Page 3
<PAGE>
CATERPILLAR INC.
Statement of Changes in Stockholders' Equity
For Three Months Ended
(Unaudited)
(Dollars in millions)
CONSOLIDATED
Mar. 31, Mar. 31,
1998 1997
------------ ------------
Common Stock:
Balance at beginning of period ............... $ (442) $ 50
Common Shares issued, including treasury
shares reissued: (March 31, 1998 -- 366,104
shares; March 31, 1997 -- 486,604) .......... 8 10
Treasury shares purchased:
March 31, 1998 -- 1,769,100;
March 31, 1997 -- 3,394,200 ................... (86) (132)
----- -----
Balance at end of period ...................... (520) (72)
----- -----
Profit employed in the business:
Balance at beginning of period ................ 5,026 3,904
Profit ........................................ 430 $430 394 $394
Dividends declared ............................ - -
----- -----
Balance at end of period ...................... 5,456 4,298
----- -----
Accumulated other comprehensive income:
Foreign currency translation adjustment<F1>:
Balance at beginning of period .............. 95 162
Aggregate adjustment for period ............. (22) (22) (22) (22)
----- ----- ----- ----
Balance at end of period .................... 73 140
----- -----
Comprehensive income .......................... $408 $372
==== ====
Stockholders' equity at end of period ........... $5,009 $4,366
====== ======
[FN]
<F1> No reclassification adjustments or tax effects to report.
</FN>
See accompanying notes to Consolidated Financial Statements.
Page 4
<PAGE>
CATERPILLAR INC.
Statement of Financial Position *
(Dollars in millions)
CONSOLIDATED
Mar. 31, Dec. 31,
1998 1997
-------- --------
ASSETS
Current assets:
Cash and short-term investments ................. $ 306 $ 292
Receivables -- trade and other .................. 3,794 3,331
Receivables -- finance .......................... 2,738 2,660
Deferred income taxes and prepaid expenses ...... 947 928
Inventories (Note 5) ............................ 3,091 2,603
------- -------
Total current assets .............................. 10,876 9,814
Property, plant, and equipment -- net ............. 4,376 4,058
Long-term receivables -- trade and other .......... 127 134
Long-term receivables -- finance .................. 4,216 3,881
Investments in unconsolidated affiliated
companies (Note 4) ............................. 814 751
Investments in Financial Products' subsidiaries.... - -
Deferred income taxes ............................. 1,018 1,040
Intangible assets ................................. 1,169 228
Other assets ...................................... 981 850
------- -------
TOTAL ASSETS ........................................ $23,577 $20,756
======= =======
LIABILITIES
Current liabilities:
Short-term borrowings ........................... $ 846 $ 484
Accounts payable and accrued expenses ........... 3,790 3,358
Accrued wages, salaries, and employee benefits .. 1,026 1,128
Dividends payable ............................... - 92
Deferred and current income taxes payable ....... 390 175
Deferred liability .............................. - -
Long-term debt due within one year .............. 1,385 1,142
------- -------
Total current liabilities ......................... 7,437 6,379
Long-term debt due after one year ................. 8,316 6,942
Liability for postemployment benefits ............. 2,698 2,698
Deferred income taxes and other liabilities ....... 117 58
------- -------
TOTAL LIABILITIES ................................... 18,568 16,077
------- -------
STOCKHOLDERS' EQUITY
Common stock of $1.00 par value:
Authorized shares: 450,000,000
Issued shares (March 31, 1998 -- 407,447,312;
Dec. 31, 1997 -- 407,447,312) at paid in amount . 1,069 1,071
Profit employed in the business ................... 5,456 5,026
Accumulated other comprehensive income ............ 73 95
Treasury stock (March 31, 1998 -- 40,839,968
shares; Dec. 31, 1997 -- 39,436,972 shares)
at cost.......................................... (1,589) (1,513)
------- -------
TOTAL STOCKHOLDERS' EQUITY .......................... 5,009 4,679
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $23,577 $20,756
======= =======
See accompanying notes to Consolidated Financial Statements.
* Unaudited except for Consolidated December 31, 1997 amounts.
Page 5
<PAGE>
CATERPILLAR INC.
Statement of Financial Position *
(Dollars in millions)
SUPPLEMENTAL CONSOLIDATING DATA
MACHINERY AND ENGINES<F1>
Mar. 31, Dec. 31,
1998 1997
-------- --------
ASSETS
Current assets:
Cash and short-term investments ................. $ 272 $ 241
Receivables -- trade and other .................. 2,787 3,346
Receivables -- finance .......................... - -
Deferred income taxes and prepaid expenses ...... 934 935
Inventories (Note 5) ............................ 3,091 2,603
------- -------
Total current assets .............................. 7,084 7,125
Property, plant, and equipment -- net ............. 3,773 3,483
Long-term receivables -- trade and other .......... 127 134
Long-term receivables -- finance .................. - -
Investments in unconsolidated affiliated
companies (Note 4) ............................. 814 751
Investments in Financial Products' subsidiaries ... 1,009 882
Deferred income taxes ............................. 1,045 1,075
Intangible assets ................................. 1,169 228
Other assets ...................................... 605 510
------- -------
TOTAL ASSETS ........................................ $15,626 $14,188
======= =======
LIABILITIES
Current liabilities:
Short-term borrowings ........................... $ 382 $ 53
Accounts payable and accrued expenses ........... 3,390 3,020
Accrued wages, salaries, and employee benefits .. 1,021 1,120
Dividends payable ............................... - 92
Deferred and current income taxes payable ....... 270 46
Deferred liability .............................. - -
Long-term debt due within one year .............. 40 54
------- -------
Total current liabilities ......................... 5,103 4,385
Long-term debt due after one year ................. 2,699 2,367
Liability for postemployment benefits ............. 2,698 2,698
Deferred income taxes and other liabilities ....... 117 59
------- -------
TOTAL LIABILITIES ................................... 10,617 9,509
------- -------
STOCKHOLDERS' EQUITY
Common stock of $1.00 par value:
Authorized shares: 450,000,000
Issued shares (March 31, 1998 -- 407,447,312;
Dec. 31, 1997 -- 407,447,312) at paid in amount . 1,069 1,071
Profit employed in the business ................... 5,456 5,026
Accumulated other comprehensive income ............ 73 95
Treasury stock (March 31, 1998 -- 40,839,968
shares; Dec. 31, 1997 -- 39,436,972 shares)
at cost.......................................... (1,589) (1,513)
------- -------
TOTAL STOCKHOLDERS' EQUITY .......................... 5,009 4,679
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $15,626 $14,188
======= =======
[FN]
<F1> Represents Caterpillar Inc. and its subsidiaries except for Financial
Products, which is accounted for on the equity basis.
</FN>
The supplemental consolidating data is presented for the purpose of
additional analysis and to provide required supplemental disclosure
of information about the Financial Products' subsidiaries. Transactions
between Machinery and Engines and Financial Products have been eliminated to
arrive at the consolidated data.
See accompanying notes to Consolidated Financial Statements.
* Unaudited except for Consolidated December 31, 1997 amounts.
Page 6
<PAGE>
CATERPILLAR INC.
Statement of Financial Position *
(Dollars in millions)
SUPPLEMENTAL CONSOLIDATING DATA
FINANCIAL PRODUCTS
Mar. 31, Dec. 31,
1998 1997
-------- --------
ASSETS
Current assets:
Cash and short-term investments ................. $ 34 $ 51
Receivables -- trade and other .................. 1,187 285
Receivables -- finance .......................... 2,738 2,660
Deferred income taxes and prepaid expenses ...... 24 9
Inventories (Note 5) ............................ - -
------- -------
Total current assets .............................. 3,983 3,005
Property, plant, and equipment -- net ............. 603 575
Long-term receivables -- trade and other .......... - -
Long-term receivables -- finance .................. 4,216 3,881
Investments in unconsolidated affiliated
companies (Note 4) ............................. - -
Investments in Financial Products' subsidiaries ... - -
Deferred income taxes ............................. 5 5
Intangible assets ................................. - -
Other assets ...................................... 376 340
------- -------
TOTAL ASSETS ........................................ $ 9,183 $ 7,806
======= =======
LIABILITIES
Current liabilities:
Short-term borrowings ........................... $ 464 $ 431
Accounts payable and accrued expenses ........... 504 654
Accrued wages, salaries, and employee benefits .. 5 8
Dividends payable ............................... - -
Deferred and current income taxes payable ....... 120 129
Deferred liability .............................. 87 -
Long-term debt due within one year .............. 1,345 1,088
------- -------
Total current liabilities ......................... 2,525 2,310
Long-term debt due after one year ................. 5,617 4,575
Liability for postemployment benefits ............. - -
Deferred income taxes and other liabilities ....... 32 39
------- -------
TOTAL LIABILITIES ................................... 8,174 6,924
------- -------
STOCKHOLDERS' EQUITY
Common stock of $1.00 par value:
Authorized shares: 450,000,000
Issued shares (March 31, 1998 -- 407,447,312
Dec. 31, 1997 -- 407,447,312) at paid in amount . 503 403
Profit employed in the business ................... 534 506
Accumulated other comprehensive income ........... (28) (27)
Treasury stock (March 31, 1998 -- 40,839,968
shares; Dec. 31, 1997 -- 39,436,972 shares)
at cost.......................................... - -
------- -------
TOTAL STOCKHOLDERS' EQUITY .......................... 1,009 882
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $ 9,183 $ 7,806
======= =======
The supplemental consolidating data is presented for the purpose of
additional analysis and to provide required supplemental disclosure
of information about the Financial Products' subsidiaries. Transactions
between Machinery and Engines and Financial Products have been eliminated to
arrive at the consolidated data.
See accompanying notes to Consolidated Financial Statements.
* Unaudited except for Consolidated December 31, 1997 amounts.
Page 7
<PAGE>
CATERPILLAR INC.
Statement of Cash Flow for Three Months Ended
(Unaudited)
(Millions of dollars)
CONSOLIDATED
Mar. 31, Mar. 31,
1998 1997
-------- --------
CASH FLOW FROM OPERATING ACTIVITIES:
Profit ............................................ $ 430 $ 394
Adjustments for noncash items:
Depreciation and amortization ................... 204 189
Profit of Financial Products .................... - -
Other ........................................... (4) 20
Changes in assets and liabilities:
Receivables -- trade and other .................. (172) (123)
Inventories ..................................... (381) (250)
Accounts payable and accrued expenses ........... 125 78
Other -- net .................................... (94) 32
------- -------
Net cash provided by operating activities ........... 108 340
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures -- excluding equipment
leased to others ................................ (117) (81)
Expenditures for equipment leased to others ....... (88) (72)
Proceeds from disposals of property, plant, and
equipment ....................................... 32 35
Additions to finance receivables .................. (1,731) (1,302)
Collections of finance receivables ................ 965 679
Proceeds from the sale of finance receivables...... 340 326
Net short-term loans to Financial Products......... - -
Investments and acquisitions(net of cash acquired). (1,103) (13)
Other -- net ...................................... (63) (72)
------- -------
Net cash used for investing activities .............. (1,765) (500)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid .................................... (92) (76)
Common stock issued, including treasury
shares reissued ................................. 2 3
Treasury shares purchased ......................... (86) (133)
Net short-term loans from Machinery and Engines ... - -
Proceeds from long-term debt issued ............... 1,745 768
Payments on long-term debt ........................ (306) (222)
Short-term borrowings -- net ...................... 412 (127)
------- -------
Net cash provided by financing activities ........... 1,675 213
------- -------
Effect of exchange rate changes on cash ............. (4) (22)
------- -------
Increase in cash and short-term investments ......... 14 31
Cash and short-term investments at the
beginning of the period ........................... 292 487
------- -------
Cash and short-term investments at the
end of the period ................................. $ 306 $ 518
======= =======
All short-term investments, which consist primarily of highly liquid
investments with original maturities of three months or less, are considered
to be cash equivalents.
See accompanying notes to Consolidated Financial Statements.
Page 8
<PAGE>
CATERPILLAR INC.
Statement of Cash Flow for Three Months Ended
(Unaudited)
(Millions of dollars)
SUPPLEMENTAL CONSOLIDATING DATA
MACHINERY AND ENGINES<F1>
Mar. 31, Mar. 31,
1998 1997
-------- --------
CASH FLOW FROM OPERATING ACTIVITIES:
Profit ............................................ $ 430 $ 394
Adjustments for noncash items:
Depreciation and amortization ................... 166 157
Profit of Financial Products .................... (48) (28)
Other ........................................... 43 8
Changes in assets and liabilities:
Receivables -- trade and other .................. 599 (99)
Inventories ..................................... (381) (250)
Accounts payable and accrued expenses ........... 64 13
Other -- net .................................... (54) 33
------- -------
Net cash provided by operating activities ........... 819 228
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures -- excluding equipment
leased to others ................................ (116) (80)
Expenditures for equipment leased to others ....... - -
Proceeds from disposals of property, plant,
and equipment ................................... - -
Additions to finance receivables .................. - -
Collections of finance receivables ................ - -
Proceeds from sale of finance receivables.......... - -
Net short-term loans to Financial Products......... 179 (158)
Investments and acquisitions(net of cash acquired). (1,103) (13)
Other -- net ...................................... (143) (29)
------- -------
Net cash used for investing activities .............. (1,183) (280)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid .................................... (92) (76)
Common stock issued, including treasury
shares reissued ................................. 2 3
Treasury shares purchased ......................... (86) (133)
Net short-term loans from Machinery and Engines.... - -
Proceeds from long-term debt issued ............... 279 300
Payments on long-term debt ........................ (26) (5)
Short-term borrowings -- net ...................... 318 7
------- -------
Net cash provided by financing activities ........... 395 96
------- -------
Effect of exchange rate changes on cash ............. - (20)
------- -------
Increase in cash and short-term investments ......... 31 24
Cash and short-term investments at the
beginning of the period ........................... 241 445
------- -------
Cash and short-term investments at the
end of the period ................................. $ 272 $ 469
======= =======
[FN]
<F1> Represents Caterpillar Inc. and its subsidiaries except for Financial
Products, which is accounted for on the equity basis.
</FN>
The supplemental consolidating data is presented for the purpose of
additional analysis and to provide required supplemental disclosure of
information about the Financial Products' subsidiaries. Transactions
between Machinery and Engines and Financial Products have been eliminated
to arrive at the consolidated data.
See accompanying notes to Consolidated Financial Statements.
Page 9
<PAGE>
CATERPILLAR INC.
Statement of Cash Flow for Three Months Ended
(Unaudited)
(Millions of dollars)
SUPPLEMENTAL CONSOLIDATING DATA
FINANCIAL PRODUCTS
Mar. 31, Mar. 31,
1998 1997
-------- --------
CASH FLOW FROM OPERATING ACTIVITIES:
Profit ............................................ $ 48 $ 28
Adjustments for noncash items:
Depreciation and amortization ................... 38 32
Profit of Financial Products .................... - -
Other ........................................... 40 12
Changes in assets and liabilities:
Receivables -- trade and other .................. (830) (4)
Inventories ..................................... - -
Accounts payable and accrued expenses ........... 28 33
Other -- net .................................... (15) 11
------- -------
Net cash (used for) provided by operating activities. (691) 112
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures -- excluding equipment
leased to others ................................ (1) (1)
Expenditures for equipment leased to others ....... (88) (72)
Proceeds from disposals of property, plant,
and equipment ................................... 32 35
Additions to finance receivables .................. (1,731) (1,302)
Collections of finance receivables ................ 965 679
Proceeds from the sale of finance receivables...... 340 326
Net short-term loans to Financial Products......... - -
Investments and acquisitions(net of cash acquired). - -
Other -- net ...................................... (20) (43)
------- -------
Net cash used for investing activities .............. (503) (378)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid .................................... (20) -
Common stock issued, including treasury
shares reissued ................................. 100 -
Treasury shares purchased ......................... - -
Net short-term loans from Machinery and Engines.... (179) 158
Proceeds from long-term debt issued ............... 1,466 468
Payments on long-term debt ........................ (280) (217)
Short-term borrowings -- net ...................... 94 (134)
------- -------
Net cash provided by financing activities ........... 1,181 275
------- -------
Effect of exchange rate changes on cash ............. (4) (2)
------- -------
(Decrease) increase in cash and
short-term investments ............................ (17) 7
Cash and short-term investments at the
beginning of the period ........................... 51 42
------- -------
Cash and short-term investments at the
end of the period ................................. $ 34 $ 49
======= =======
The supplemental consolidating data is presented for the purpose of
additional analysis and to provide required supplemental disclosure of
information about the Financial Products subsidiaries. Transactions
between Machinery and Engines and Financial Products have been eliminated
to arrive at the consolidated data.
See accompanying notes to Consolidated Financial Statements.
Page 10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions except per share data)
1. In the opinion of management, all adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation of (a) the
consolidated results of operations for the three-month periods
ended March 31, 1998 and 1997, (b) the changes in stockholders' equity
for the three-month periods ended March 31, 1998 and 1997, (c) the
consolidated financial position at March 31, 1998 and December 31,
1997, and (d) the consolidated statement of cash flow for the
three-month periods ended March 31, 1998 and 1997 have been made.
Certain amounts for prior periods have been reclassified to
conform with the current period financial statement presentation.
2. The results for the three-month period ended March 31, 1998 are not
necessarily indicative of the results for the entire year 1998.
3. The company has reviewed the status of its environmental and legal
contingencies and believes there are no material changes from that
disclosed in Form 10-K for the year ended December 31, 1997, except
as provided in Section C of Item 2 of this Form 10-Q.
4. Unconsolidated Affiliated Companies
Combined financial information of the unconsolidated affiliated
companies was as follows:
Three Months Ended
RESULTS OF OPERATIONS Dec. 31, Dec. 31,
(Unaudited) 1997 1996
-------- --------
Sales ..................... $ 784 $ 996
====== ======
Profit .................... $ 16 $ 28
====== ======
Dec. 31, Sept. 30,
1997 1997
FINANCIAL POSITION (Unaudited)
Assets: ----------- --------
Current assets ................................. $1,817 $1,949
Property, plant, and equipment - net ........... 761 792
Other assets ................................... 422 331
------ ------
3,000 3,072
------ ------
Liabilities:
Current liabilities ............................ 1,585 1,610
Long-term debt due after one year .............. 222 203
Other liabilities .............................. 101 129
------ ------
1,908 1,942
------ ------
Ownership ........................................ $1,092 $1,130
====== ======
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5. Inventories (principally "last- in, first-out" method) comprised the
following
Mar. 31, Dec. 31,
1998 1997
(unaudited)
----------- --------
Raw materials and work-in-process ................ $1,264 $1,033
Finished goods ................................... 1,617 1,364
Supplies ......................................... 210 206
------ ------
$3,091 $2,603
====== ======
6. Following is a computation of profit per share:
Three Months Ended
Mar. 31, Mar. 31,
1998 1997
(Unaudited)
-------- --------
I. Profit - consolidated (A) ....... $ 430 $ 394
====== ======
II. Determination of shares (millions):
Weighted average common
shares outstanding (B) ......... 367.1 379.2
Assumed conversion of stock
options ....................... 5.4 4.6
------ ------
Weighted average common
shares outstanding - assuming
dilution (C) .................. 372.5 383.8
====== ======
III. Profit per share of common
stock (A/B) ..................... $1.17 $1.04
Profit per share of common
stock - assuming dilution (A/C). $1.15 $1.03
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7. The reserve for plant closing and consolidation costs includes the
following:
Mar. 31, Dec. 31,
1998 1997
(unaudited)
----------- --------
Write down of property, plant, and equipment ..... $ 103 $ 103
Employee severance benefits ...................... 90 95
Rearrangement, start-up costs, and other ......... 39 47
------ ------
Total reserve .................................... $ 232 $ 245
======= ======
The write-down of property, plant, and equipment establishes a new
cost basis for assets that have been permanently impaired.
Employee severance benefits (e.g., pension, medical, and supplemental
unemployment benefits) are provided to employees affected by plant
closings and consolidations. The reserve for such benefits is reduced
as the benefits are provided.
At March 31, 1998 and December 31, 1997, the above reserve includes
$144 and $153 million, respectively, of costs associated with the
closure of the Component Products Division's Precision Barstock Products
(PBP) operation located in York, Pennsylvania. The probable closing of
the PBP manufacturing operation was announced in December 1991. In
March 1996, it was announced that the facility would be closed. We
are currently in the process of closing the unit.
8. Acquisition of Perkins
On February 27, 1998, Caterpillar acquired the net assets of Perkins Ltd.
and the stock of several related subsidiaries for approximately
$1.3 billion, net of cash received. The purchase price is still subject
to post closing adjustments.
Perkins is a leading manufacturer of small to medium diesel engines, and
its 1996 sales were approximately $1.1 billion. The addition of Perkins
to our existing engine business creates a global full-line producer
of reciprocating and turbine engines.
We have accounted for the above acquisitions using the purchase method of
accounting. Caterpillar's first-quarter consolidated results include
one month of Perkins' results.
Amortization of acquired goodwill will be computed using the
straight-line method over a period of 15 years.
Page 13
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND LIQUIDITY AND CAPITAL RESOURCES
A. Consolidated Results of Operations
THREE MONTHS ENDED MARCH 31, 1998 VS. THREE MONTHS ENDED MARCH 31, 1997
First-quarter sales and revenues were 12% higher. Profit was up 9% while
profit per share of common stock increased 12%, as it also reflected the
impact of the ongoing share repurchase program. Profit of $430 million or
$1.17 per share ($1.15 assuming dilution) was the best ever for any first
quarter, an improvement of $36 million over profit of $394 million or $1.04
per share ($1.03 assuming dilution) in 1997. Sales and revenues of
$4.79 billion were $532 million higher and also a first-quarter record. An
increase in physical sales volume of 12% (which includes one month of
Perkins' sales) was the most significant factor contributing to the higher
sales and revenues, and profit.
Machinery and Engines
Sales of Machinery and Engines were $4.57 billion, an increase of
$501 million or 12% over first-quarter 1997. The higher sales were due to
the 12% increase in physical sales volume which resulted from higher machine
and engine sales both inside and outside the United States, as well as the
addition of Perkins' sales.
Price realization was about the same as price increases taken over the
past year were offset by the effect of the stronger dollar on sales
denominated in currencies other than U.S. dollars.
Profit before tax was $553 million, $19 million higher than the first
quarter a year ago. The primary reason for the increased profit was the
higher physical sales volume, although the benefit was partially offset by
increased spending for major growth initiatives and product line expansions
that include electric power generation, agricultural products, compact
machines, and further strengthening of our product support network to better
link customer, dealer, and company operations.
Margin (sales less cost of goods sold) of $1.24 billion increased
$148 million or 14% over first-quarter 1997. Margin as a percent of sales
was 27.1%, about the same as a year ago.
The net effect of the dollar on the margin rate was minimal.
Selling, general, and administrative expenses (SG&A) were $512 million
compared with $424 million in first-quarter 1997. The $88 million increase
primarily reflects increased spending levels in support of major growth
initiatives and product line expansions. The effect of inflation on costs
also contributed to the increase. SG&A expenses, as a percent of sales, were
11.2%, up from 10.4% in the first quarter a year ago.
Research and development expenses (R&D) of $155 million were up
$38 million from first-quarter 1997. The increase reflects higher spending
in support of new and improved products. R&D expenses, as a percent of
sales, were 3.4%, up from 2.9% a year ago.
Operating profit of $572 million was $22 million or 4% higher than
first-quarter 1997. Operating profit, as a percent of sales, was 12.5%
compared with 13.5% a year ago.
Interest expense of $61 million was $9 million higher than a year ago,
mostly due to higher average debt levels in support of the acquisition of
Perkins during first-quarter 1998.
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<PAGE>
Other income/expense was income of $42 million, compared with income of
$36 million in first-quarter 1997. The increase is primarily due to a
favorable change in foreign exchange gains and losses.
Financial Products
Financial Products' revenues of $240 million were a first-quarter record,
up $44 million or 22% compared with first-quarter 1997. The increase
resulted primarily from continued growth in Caterpillar Financial Services
Corporation's (Cat Financial's) portfolio.
Before-tax profit was a record $76 million, up $33 million or 77% from the
first quarter a year ago. The increase resulted primarily from favorable
reserve adjustments and higher investment income at Caterpillar Insurance Co.
Ltd. (Cat Insurance).
Selling, general, and administrative expenses were about the same, as
higher depreciation on leased equipment and other increases due to portfolio
growth at Cat Financial were about offset by a favorable reserve adjustment
at Cat Insurance.
Interest expense was up $24 million due to increased borrowings to support
the larger Cat Financial portfolio.
Other income and expense was income of $22 million, an increase of
$14 million from a year ago, mostly due to higher investment income at Cat
Insurance.
Income Taxes
The provision for income taxes was $207 million, compared with
$196 million last year. The $11 million increase reflects tax on the higher
before-tax profit, partially offset by a lower effective tax rate of 33%,
compared with 34% in first-quarter 1997. The lower tax rate accounted for
$5 million in lower taxes.
Unconsolidated Affiliated Companies
Our share of unconsolidated affiliated companies' results was $8 million,
down $5 million from first quarter a year ago. Lower profits at Shin
Caterpillar Mitsubishi Ltd. and start-up costs at Caterpillar Claas America
L.L.C. and Claas Caterpillar Europe GmbH & Co. KG were the primary reasons
for the decrease.
Sales
Following are summaries of first-quarter company sales and dealer
deliveries compared with the same quarter in 1997.
Caterpillar Sales Inside the United States
- ------------------------------------------
Caterpillar sales inside the United States were $2.44 billion, a
$269 million or 12% increase over first quarter last year. This increase was
due primarily to higher industry demand for both machines and engines,
although an increase in dealer new machine inventory also contributed to
higher company sales. Price realization improved slightly. Sales inside the
United States during the first quarter were 53% of sales, the same as a year
ago.
U.S. Dealer Machine Sales to End Users
U.S. dealer machine sales to end users increased as higher industry demand
for construction, mining, and agricultural equipment more than offset some
loss in share of industry sales. A strong economy, very low inflation,
stable interest rates, and a positive outlook all contributed to higher
industry demand.
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<PAGE>
Sales to end users rose in most key construction sectors.
- Highway-related sales rose as a result of much higher levels of
highway-related construction spending.
- Sales into the housing sector were unchanged from strong,
year-earlier levels.
- Sales for commercial, industrial, and government building-related
construction were also higher despite lower construction spending in
these areas for the quarter.
Sales into commodity applications also increased with gains registered in
all sectors except metal mining.
- Sand and quarry mining-related sales increased due to higher
aggregate production.
- Sales to the coal mining sector rose reflecting higher mine
production.
- Agriculture-related sales were higher because of better industry
demand and a healthy farm economy.
- Sales into the forestry sector were up over year earlier reflecting
higher pulp and lumber prices.
- Metal mining-related sales declined in the face of falling metals
prices.
In other applications, sales to industrial users and landfills declined.
Deliveries to U.S. Dealer Dedicated Rental Fleets
Deliveries to U.S. dealer dedicated rental fleets declined from
first-quarter 1997. At the end of the first quarter, U.S. dealer dedicated
rental units were above year-earlier levels, unchanged from fourth quarter.
U.S. Dealer New Machine Inventories
U.S. dealer new machine inventories rose from the end of the fourth
quarter in preparation for the spring selling season. At the end of the
first quarter, dealer inventories were above year-ago levels and about normal
relative to current high selling rates.
Company Engine Sales Inside the United States
Company engine sales inside the United States were above year-earlier
levels reflecting good economic growth and strong industry demand. The
fundamentals, with the possible exception of oil prices, remained excellent:
industrial production up about 5% over year ago, low inflation, moderate
interest rates, strong business confidence, and a good outlook. Sales of
reciprocating engines were higher in all applications, including on-highway
trucks, electric power generation, industrial, marine, and petroleum. Sales
of turbine engines were below year-earlier levels.
Caterpillar Sales Outside the United States
- -------------------------------------------
Caterpillar sales outside the United States were $2.13 billion, a
$232 million or 12% increase over first-quarter 1997. Sales of engines were
higher reflecting increased end-user demand in all applications and the
addition of Perkins' sales. Sales of machines also were up. In total,
higher physical sales volume more than offset a slight decrease in price
realization.
Sales outside the United States represented 47% of worldwide sales, the
same as a year ago.
Dealer Machine Sales to End Users Outside the United States
Dealer machine sales to end users outside the United States were down from
year-earlier levels as a significant decline in Asia more than offset higher
sales in Latin America, Europe, Canada, and Australia.
- Europe: Sales for the region were higher, reflecting continued
improvement in economic activity and business confidence. There
were sizable gains in Germany, Spain, Italy, and France. Sales were
lower in the United Kingdom.
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<PAGE>
- Latin America: Sales rose primarily due to increased demand in
Brazil and Peru. Higher sales also were reported in Chile while
sales declined in Argentina and Mexico.
- Africa/Middle East: Sales declined reflecting continued weakness in
commodity prices. Sales remained near year-earlier levels in Turkey,
but declined in South Africa.
- Canada: Sales increased in response to higher industry demand,
reflecting continued good economic growth, moderate interest rates,
and higher housing starts. Sales were especially strong in the
non-metal mining sector.
- Australia: Sales were higher as better demand in the construction
and non-metal mining sectors more than offset lower demand for
machines used in coal mining.
- Asia (excluding Japan): Sales declined sharply reflecting the severe
economic downturn in Southeast Asia and South Korea. China, Vietnam,
and Taiwan had higher end-user demand.
- Japan: Sales of imported product continued to fall in the first
quarter as the economy remained in recession.
- Commonwealth of Independent States (CIS): Sales showed some
improvement as the Russian economy continues to emerge from a period
of prolonged weakness.
Dealer New Machine Inventories Outside the United States
Dealer new machine inventories outside the United States were up from both
the end of the fourth quarter and year-earlier levels. Increases in Canada,
Europe, and Latin America more than offset declines in Asia and Australia.
At the end of the first quarter, dealer inventories were slightly above
normal relative to current selling rates.
Company Engine Sales Outside the United States
Company engine sales outside the United States exceeded year-earlier
levels with growth in all regions except Asia. Especially strong gains were
registered in Latin America, Canada, Europe, and Africa/Middle East. Sales
of reciprocating engines were higher for all applications, including
on-highway truck, marine, industrial, petroleum, and electric power
generation applications. (Without Perkins, sales still would have been
higher in all regions except Asia.) Sales of turbine engines also increased
with gains in oil and gas applications more than offsetting a decline in
power generation.
THREE MONTHS ENDED MARCH 31, 1998 VS THREE MONTHS ENDED DECEMBER 31, 1997
First-quarter profit of $430 million or $1.17 per share ($1.15 assuming
dilution) was $21 million lower than fourth-quarter profit of $451 million or
$1.22 per share ($1.20 assuming dilution). A 10% decrease in physical sales
volume was the most significant factor contributing to the lower profit.
Machinery and Engines
Profit before tax for Machinery and Engines was $553 million, a
$47 million decrease from the previous quarter. Sales of $4.57 billion
decreased $404 million or 8%, primarily because of the 10% lower physical
sales volume. Price realization was about 2% higher.
The decrease in physical sales volume was primarily the result of lower
machine and engine sales outside the United States partially offset by the
addition of Perkins' sales. Engine sales inside the United States were also
lower while machine sales were higher.
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<PAGE>
Price realization improved due to lower sales discounts and price
increases taken during the first quarter, partially offset by the effect of
the stronger dollar on sales denominated in currencies other than U.S.
dollars.
Margin was $73 million lower than the fourth quarter, primarily the result
of the 10% lower physical sales volume. As a percent of sales, the margin
rate was 27.1% compared with 26.4% last quarter. The higher margin rate was
primarily due to the lower sales discounts and price increases taken during
the first quarter, partially offset by an unfavorable change in product sales
mix and higher fixed manufacturing costs.
The net effect of the dollar on the margin rate was minimal.
Selling, general, and administrative expenses were $512 million, down
$32 million from the fourth quarter. The decrease was somewhat typical, as
the fourth quarter is generally a higher cost quarter for these types of
expenses. As such, the decrease is primarily reflective of the timing of
expenses and is not indicative of a significant decrease in expenses for the
year.
Research and development expenses of $155 million rose $11 million from
the fourth quarter. The increase reflects continued higher spending in
support of new and improved products.
Operating profit of $572 million decreased $52 million. As a percent of
sales, operating profit was 12.5%, the same as the fourth quarter.
Interest expense of $61 million was $5 million higher than the fourth
quarter, mostly due to higher average debt levels in support of the Perkins'
acquisition.
Other income/expense was income of $42 million, compared with $32 million
last quarter. The increase of $10 million is primarily due to a favorable
change in foreign exchange gains and losses.
Financial Products
Financial Products' revenues of $240 million were up $18 million from the
fourth quarter, primarily due to Cat Financial's portfolio growth.
Before-tax profit was $76 million, an increase of $20 million. The
increase in profit primarily resulted from favorable reserve adjustments and
increased investment income at Cat Insurance.
Income Taxes
Income tax expense of $207 million decreased $10 million from the previous
quarter. The decrease reflects the lower profit before tax. The tax rate
was 33% in both quarters.
Unconsolidated Affiliated Companies
Our share of unconsolidated affiliated companies' results was $8 million,
a decrease of $4 million from the previous quarter. Lower profit at Shin
Caterpillar Mitsubishi Ltd. was the primary reason for the decrease.
EMPLOYMENT
At the end of the first quarter, Caterpillar's worldwide employment was
64,681 compared with 57,412 one year ago. Hourly employment increased 3,578
to 36,780; salaried and management employment increased 3,691 to 27,901. The
increases were largely due to acquisitions.
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<PAGE>
ECONOMIC AND INDUSTRY OUTLOOK
In the United States, Gross Domestic Product (GDP) is now expected to grow
3% in 1998, slightly better than anticipated in January. Non-residential
construction spending should continue to grow and housing starts are now
expected to exceed 1997 levels. Coal and aggregate production also should
continue to increase, but metal mine production is forecast to be down due to
falling metals prices. Overall, industry demand for machines is expected to
be slightly higher than 1997 levels and also higher than anticipated in
January. Industry demand for engines should also rise with gains now
forecast in all markets.
In Canada, economic growth is forecast to remain strong leading to an
increase in both machine and engine industry demand.
In Western Europe, economic activity should continue to improve with GDP
accelerating from 2.4% in 1997 to about 3% in 1998. All key economies are
now registering moderate growth, and both consumer and business confidence
are rising. Industry demand is still expected to increase slightly for
machines, reversing several years of decline, while good industry growth is
now forecast for engines.
In Central Europe, good economic growth should continue, resulting in
improved industry demand for both machines and engines.
In the Asia/Pacific region, governments have raised interest rates, cut
spending, and begun restructuring their economies. Such steps will
ultimately strengthen these economies, but the short-term effect is slower
growth in Malaysia and the Philippines and recessions in Thailand, South
Korea, and Indonesia. Slower growth also is forecast for China. GDP for
developing Asia is now forecast to grow about 2.5% and industry demand for
machines is likely to fall significantly. Demand for engines is now forecast
to fall slightly below 1997 levels. Both the machine and engine forecasts
reflect weaker economic activity and industry demand than expected in
January.
Japan slipped back into recession in 1997. Even if a stimulus package is
approved in the next few months, recessionary conditions are likely much of
the year, and industry demand is forecast to decline further.
The Australian economy also will be affected by a drop in exports to Asia
as well as lower metals prices. Consequently, industry machine demand is
forecast to decline despite lower interest rates, moderate economic growth,
and higher housing starts. Industry demand for turbines also is forecast to
decline, but demand for reciprocating engines should be higher.
In Latin America, industry demand for machines and engines should continue
to improve despite a slowdown in GDP growth from 5% in 1997 to 3.5% in 1998.
In Africa/Middle East, industry demand for engines is forecast to rise but
lower commodity prices will likely keep industry demand for machines near
1997 levels.
In CIS, economic recovery should lead to higher industry sales, but
financial instability remains a risk in Russia.
In summary, the economic and industry outlook has improved since January
for North America but continued to deteriorate for Asia. In total, worldwide
economic growth and industry demand for machines are still expected to
decline slightly due to the slowdown in the Asia/Pacific region. Worldwide
industry demand for engines, however, is now expected to exceed 1997 levels
due to continued strength in North America.
Page 19
<PAGE>
COMPANY OUTLOOK
Our outlook for 1998 worldwide sales and revenues remains unchanged from
that issued with our third-quarter 1997 results, which called for sales and
revenues (excluding Perkins, which was acquired during the first quarter) to
slightly surpass 1997's record levels.
Investments in major initiatives to enhance long-term growth and
shareholder returns continue in 1998. These initiatives include electric
power generation, agricultural products, compact machines, and further
strengthening of our product support network to better link customer, dealer,
and company operations.
For Machinery and Engines (excluding Perkins), total capital expenditures,
which were $819 million in 1997, are expected to be about the same in 1998.
R&D and SG&A expenditures will increase in 1998 in support of expanded
operations and the major growth initiatives; however, the rate of increase is
expected to be less than in recent years.
Despite these expenditures for major growth initiatives, our outlook for
profit in 1998 remains unchanged from that issued with our fourth-quarter
1997 results and is expected to be near 1997's record. Profit per share will
be favorably impacted by the share buy-back program announced in June 1995,
which we anticipate will be completed during 1998. Cash flow from operations
and our financial position are expected to remain strong.
The information included in this Outlook section is forward looking
and involves risks and uncertainties that could significantly impact
expected results. A discussion of these risks and uncertainties is contained
in Form 8-K filed with the Securities & Exchange Commission on
April 17, 1998.
B. Liquidity & Capital Resources
Consolidated operating cash flow totaled $108 million in the first
quarter of 1998, compared with $340 million in the first quarter of 1997.
Total debt at the end of the quarter was $10.55 billion, an increase of
$1.98 billion from year end 1997. Over this period, debt related to
Machinery and Engines increased $647 million, to $3.12 billion, while debt
related to Financial Products increased $1.33 billion to $7.43 billion.
During 1995, the company announced a plan to repurchase up to 10% of its
outstanding common stock over a three to five year period. From inception
in June 1995 to March 31, 1998, 37.8 million shares have been repurchased
under the plan. When the 10% share repurchase program is completed later this
year, the company will have approximately 360 million shares outstanding.
Machinery and Engines
Operating cash flow totaled $819 million in the first quarter of 1998,
compared with $228 million in the first quarter of 1997. The increase in
operating cash flow primarily results from the $599 million decrease in
accounts receivable as opposed to an increase of $99 million over the same
period a year ago. The $599 million decrease in accounts receivable is
largely attributed to the $874 million sale of receivables to Cat Financial.
Partially offsetting the sale of receivables were stronger first quarter
sales over the same period a year ago.
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<PAGE>
Capital expenditures, excluding equipment leased to others, totaled
$116 million in the first quarter compared with $80 million a year ago. As
part of the company's long-term plans, $250 million of five-year Eurobonds
were issued at a premium during the quarter. These bonds are due
February 13, 2003 and were priced to yield 5.914% semi-annually with a
coupon of 6.0%. The company intends to utilize these funds for general
corporate purposes, including the acquisition of Perkins. Additionally,
short-term borrowings increased by $329 million in order to meet working
capital needs. This additional debt increased the percent of debt to
debt plus stockholders equity from 35% at December 31, 1997, to 38% at
March 31, 1998.
Financial Products
Operating cash flow totaled $(691) million in the first quarter of 1998,
compared with $112 million in the first quarter of 1997. This decrease
resulted from the purchasing of $874 million of Machinery and Engines trade
receivables. Cash used to purchase equipment leased to others totaled
$88 million in the first quarter of 1998. In addition, first-quarter 1998
net cash used for finance receivables was $426 million, compared with
$297 million during the first quarter of 1997.
Financial Products' debt was $7.43 billion at March 31, 1998, an
increase of $1.33 billion from December 31, 1997 and was primarily comprised
of $4.51 billion of medium term notes, $138 million of notes payable to banks
and $2.68 billion of commercial paper. At the end of the first quarter,
finance receivables past due over 30 days were 1.6%, compared with 2.7% at
the end of the same period one year ago. The ratio of debt to equity of Cat
Financial was 8.0:1 at March 31, 1998, compared with 7.8:1 at
December 31, 1997.
Financial Products had outstanding credit lines totaling $3.83 billion
at March 31, 1998, which included $2.25 billion of shared revolving credit
agreements with Machinery and Engines. These credit lines are with a number
of banks and are considered support for the company's outstanding commercial
paper, commercial paper guarantees, the discounting of bank and trade bills,
and bank borrowings.
C. Environmental Matter
Item 7 of our Form 10-K for 1997 filed on March 27, 1998, discussed
an environmental matter that is updated by the following disclosure.
The United States Environmental Protection Agency (EPA) has issued
conditional certificates of conformity with the Clean Air Act for
Caterpillar's 1998 model year heavy-duty diesel engines. The EPA has
issued similar conditional certificates to other heavy-duty diesel
engine manufacturers. The EPA is reviewing the impact of advanced
electronic control technologies on the emissions compliance of heavy-duty
trucks in certain operating conditions and whether the use of such
technologies is consistent with the Clean Air Act's requirements.
Caterpillar and the other manufacturers are responding to the EPA
requests for information and are engaged in discussions with them and
the United States Department of Justice in an effort to resolve this
issue.
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<PAGE>
We believe our electronically controlled engines satisfy all
emissions standards promulgated by the EPA and are fully consistent
with the environmental laws of the United States. For nearly a decade,
Caterpillar has utilized electronic controls to achieve dramatic
reductions in urban emissions, while at the same time meeting the
demands of consumers for high performance, durable, and fuel efficient
engines.
We hope that an amicable solution to this matter can be reached.
If we are unable to reach such an agreement, however, and do not prevail
on legal challenges to the government's position, resolution of this
matter could have a material adverse effect on our financial position
or results of operations.
PART II. OTHER INFORMATION
Item 2. Changes in Securities
We have eleven employee stock purchase plans administered outside the
United States for our foreign employees. These plans are not registered with
the Securities and Exchange Commission and are exempt from such registration
pursuant to Regulation S under the Securities Act. As of December 31, 1997,
those plans had approximately 2,850 participants in the aggregate. During the
First Quarter of 1998, a total of 26,891 shares of Caterpillar common stock
or foreign denominated equivalents were distributed under the plans.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of Caterpillar Inc. was held on
April 8, 1998, for the purpose of electing a board of directors,
approving the appointment of auditors, and voting on the proposal
described below. Proxies for the meeting were solicited pursuant to
Section 14(a) of the Securities Exchange Act of 1934 and there was no
solicitation in opposition to management's solicitations.
All of management's nominees for directors as listed in the proxy
statement were elected with the following vote:
Shares Voted Shares
"FOR" "WITHHELD"
John T. Dillon 319,137,327 5,489,767
Juan Gallardo T. 319,035,678 5,591,416
Gordon R. Parker 319,203,846 5,423,248
George A. Schaefer 319,101,840 5,525,254
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<PAGE>
An amendment to the Articles of Incorporation was approved by the
following vote:
Shares Voted Shares Voted Shares Shares
"FOR" "AGAINST" "ABSTAINING" Not Voted
297,621,828 25,433,965 1,571,301 0
The appointment of Price Waterhouse LLP as independent auditor was
approved by the following vote:
Shares Voted Shares Voted Shares Shares
"FOR" "AGAINST" "ABSTAINING" Not Voted
322,903,815 837,193 886,086 0
The stockholder proposal requesting the Board of Directors to establish
guidelines regarding investments in certain countries was defeated with the
following vote:
Shares Voted Shares Voted Shares Shares
"FOR" "AGAINST" "ABSTAINING" Not Voted
19,886,476 251,338,350 21,049,973 32,352,295
A stockholder proposal requesting the Board of Directors to declassify
the Board for the purpose of director elections was not presented for
shareholder consideration by the proponent at the meeting. Based on proxy
results received, had the proposal been presented for a shareholder vote,
it would have been defeated.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
---------- -----------
3(i) Restated Certificate of Incorporation
10 Business Sale Agreement between Perkins
Limited, LucasVarity plc and
Caterpillar Inc.
27 Financial Data Schedule
(b) One report on Form 8-K, dated January 21, 1998, was filed during
the quarter ending March 31, 1998, pursuant to Item 5 of that form.
An additional Form 8-K was filed on April 17, 1998 pursuant to
Item 5. No financial statements were filed as part of those reports.
Page 23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CATERPILLAR INC.
Date: May 13, 1998 By: /s/ D. R. Oberhelman
----------------------
D. R. Oberhelman, Vice President
and Chief Financial Officer
Date: May 13, 1998 By: /s/ R. R. Atterbury III
-------------------------
R. R. Atterbury III, Secretary
Page 24
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
3(i) Restated Certificate of Incorporation
10 Business Sale Agreement between
Perkins Limited, LucasVarity plc and
Caterpillar Inc.
27 Financial Data Schedule
RESTATED CERTIFICATE OF INCORPORATION
OF
CATERPILLAR INC.
Caterpillar Inc., a corporation organized and existing under the laws
of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Caterpillar Inc. The date of filing
its original Certificate of Incorporation with the Secretary of
State was March 12, 1986.
2. This Restated Certificate of Incorporation restates and integrates
and further amends the provisions of the Certificate of
Incorporation of this corporation by amending paragraph (a) of
Article FOURTH to increase the total authorized shares and the
authorized common stock.
3. The text of the Certificate of Incorporation as amended or
supplemented heretofore is hereby further amended to read as herein
set forth in full:
FIRST: The name of this corporation is Caterpillar Inc.
SECOND: The address of the registered office of the
corporation in the State of Delaware is Corporation Trust Center,
1209 Orange Street, in the City of Wilmington, County of New Castle,
and the name of its registered agent at that address is The
Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any
lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
FOURTH: (a) The corporation is authorized to issue two
stock." The total number of such shares shall be nine hundred and
five million (905,000,000), all of which shares shall have a par
value of $1.00 per share. The total number of shares of common
stock authorized to be issued shall be nine hundred million
(900,000,000) and the total number of shares of preferred stock
authorized to be issued shall be five million (5,000,000).
(b) The shares of preferred stock may be issued from time to time
in one or more series. The Board of Directors is hereby authorized
to establish from time to time by resolution or resolutions the
number of shares to be included in each such series, and to fix
the designation, powers, preferences and rights of the shares of
each such series and the qualifications, limitations or restrictions
thereof, including but not limited to the fixing or alteration of
the dividend rights, dividend rate or rates, conversion rights,
voting rights, rights and terms of redemption (including sinking
fund provisions), the redemption price or prices, and the
liquidation preferences of any wholly unissued series of shares of
preferred stock, and the number of shares constituting any such
series and the designation thereof, or any or all of them; and to
increase or decrease the number of shares of any series subsequent
to the issue of shares of that series, but not below the number of
shares of such series then outstanding. In case the number of
shares of any series shall be so decreased, the shares constituting
such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares
of such series.
FIFTH: In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors shall have power to
make, alter, amend and repeal the bylaws (except so far as the
bylaws adopted by the stockholders shall otherwise provide).
Any bylaws made by the Board of Directors under the powers conferred
hereby may be altered, amended or repealed by the Board of Directors
or by the stockholders. Notwithstanding the foregoing and anything
contained in this Certificate of Incorporation to the contrary,
Sections 1(b)(ii), 1(c) and 3(e) of Article II, and Section 1 of
Article III of the bylaws shall not be altered, amended or repealed,
and no provisions inconsistent therewith shall be adopted, without
the affirmative vote of the holders of not less than seventy-five
percent (75%) of the outstanding stock of the corporation entitled
to vote generally in the election of directors, voting together as
a single class (it being understood that for the purposes of this
Article FIFTH, each share shall have one vote except as otherwise
provided in accordance with Article FOURTH).
SIXTH: (a) The number of directors which shall constitute the
whole Board of Directors of this corporation shall be as specified
in the bylaws of the corporation, subject to the provisions of
Article FIFTH herein and this Article SIXTH.
(b) The Board of Directors shall be and is divided into three
classes: Class I, Class II and Class III, which shall be as nearly
equal in number as possible. Each director shall serve for a term
ending on the date of the third annual meeting of stockholders
following the annual meeting at which the director was elected,
provided, however, that each initial director in Class I shall hold
office until the annual meeting of stockholders in 1987; each
initial director in Class II shall hold office until the annual
meeting of stockholders in 1988; and each initial director in
Class III shall hold office until the annual meeting of stockholders
in 1989. Notwithstanding the foregoing provisions of this Article,
each director shall serve until his successor is duly elected and
qualified or until his death, resignation or removal.
(c) In the event of any increase or decrease in the authorized
number of directors, the newly created or eliminated directorships
resulting from such increase or decrease shall be apportioned by
the Board of Directors among the three classes of directors so as
to maintain such classes as nearly equal as possible. No decrease
in the number of directors constituting the Board of Directors
shall shorten the term of any incumbent director.
(d) Newly created directorships resulting from any increase in the
number of directors and any vacancies on the Board of Directors
resulting from death, resignation, disqualification, removal or
other cause shall be filled by the affirmative vote of a majority
of the remaining directors then in office (and not by stockholders),
even though less than a quorum of the Board of Directors. Any
director elected in accordance with the preceding sentence shall
hold office for the remainder of the full term of the class of
directors in which the new directorship was created or the vacancy
occurred and until such director's successor shall have been
elected and qualified.
(e) Any director may be removed from office without cause but
only by the affirmative vote of the holders of not less than
seventy-five percent (75%) of the outstanding stock of the
corporation entitled to vote generally in the election of directors,
voting together as a single class (it being understood that for
the purpose of this Article SIXTH, each share shall have one vote
except as otherwise provided in accordance with Article FOURTH).
(f) Notwithstanding the foregoing, whenever the holders of any
one or more classes or series of stock issued by this corporation
having a preference over the common stock as to dividends or upon
liquidation, shall have the right, voting separately by class or
series, to elect directors at an annual or special meeting of
stockholders, the election, term of office, filling of vacancies,
terms of removal and other features of such directorships shall be
governed by the terms of Article FOURTH and the resolution or
resolutions establishing such class or series adopted pursuant
thereto and such directors so elected shall not be divided into
classes pursuant to this Article SIXTH unless expressly provided by
such terms.
SEVENTH: (a) Any action required or permitted to be taken by
the stockholders of the corporation must be effected at a duly
called annual or special meeting of such holders and may not be
effected by any consent in writing by such holders.
(b) Special meetings of the stockholders of this corporation for
any purpose or purposes may be called at any time by the Chairman
of the Board or the President, or by the Board of Directors pursuant
to a resolution approved by a majority of the entire Board of
Directors, but such special meetings may not be called by any other
person or persons.
(c) Advance notice of stockholder nominations for the election of
directors shall be given in the manner provided in the bylaws of
this corporation.
(d) Election of directors need not be by written ballot unless the
bylaws of this corporation shall so provide.
EIGHTH: The corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute
and this Certificate of Incorporation, and all rights conferred on
stockholders herein are granted subject to this reservation.
Notwithstanding the foregoing, the affirmative vote of not less
than seventy-five percent (75%) of the total voting power of all
outstanding shares of stock in this corporation entitled to vote
generally in the election of directors voting together as a single
class (it being understood that for the purposes of this Article
EIGHTH, each share shall have one vote except as otherwise provided
in accordance with Article FOURTH) shall be required to alter,
amend or repeal, or adopt any provisions inconsistent with the
provisions set forth in Articles FIFTH, SIXTH, SEVENTH, and this
Article EIGHTH.
NINTH: No director shall be personally liable to the
corporation or any stockholders for monetary damages for breach of
fiduciary duty as a director, except for any matter in respect of
which such director shall be liable under Section 174 of Title 8
of the Delaware Code (relating to the Delaware General Corporation
Law) or any amendment thereto or any successor provision thereto
or shall be liable by reason that, in addition to any and all other
requirements for such liability, such director (i) shall have
breached the duty of loyalty to the corporation of its stockholders,
(ii) shall not have acted in good faith, or, in failing to act,
shall not have acted in good faith, (iii) shall have acted in a
manner involving intentional misconduct or a knowing violation of
law or, in failing to act, shall have acted in a manner involving
intentional misconduct or a knowing violation of law, or (iv) shall
have derived an improper personal benefit. Neither the amendment
nor repeal of this Article NINTH, nor the adoption of any provision
of the Certificate of Incorporation inconsistent with this Article
NINTH, shall eliminate or reduce the effect of this Article NINTH
in respect of any matter occurring, or any cause of action, suit
or claim that, but for this Article NINTH would accrue or arise,
prior to such amendment, repeal or adoption of an inconsistent
provision.
4. This Restated Certificate of Incorporation was duly adopted by
vote of the stockholders in accordance with Sections 242 and
245 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Caterpillar Inc. has caused this certificate
to be signed by Donald V. Fites, its Chairman of the Board of Directors,
and attested by R. Rennie Atterbury III, its Secretary, this 16th day
of April, 1998.
CATERPILLAR INC.
By: /s/ Donald V. Fites
Chairman of the Board
ATTEST:
By: /s/ R. Rennie Atterbury III
Secretary
------------------------------------------
BUSINESS SALE AGREEMENT
------------------------------------------
CONTENTS
Page
ARTICLE I BUSINESS SALE
SECTION 1.01 Sale of Business 1
SECTION 1.02 Excluded Assets 3
SECTION 1.03 Non-Assignable Contracts 4
SECTION 1.04 Assumption of Liabilities 4
SECTION 1.05 Excluded Liabilities 4
SECTION 1.06 Relevant Transfer 5
ARTICLE II CONSIDERATION
SECTION 2.01 Consideration 5
SECTION 2.02 Payment of the Purchase Price 5
SECTION 2.03 Net Assets 6
SECTION 2.04 Closing Audit 6
SECTION 2.05 Adjustment to Asset Purchase Price 6
SECTION 2.06 Payment of Adjustments to Purchase Price 7
ARTICLE III CLOSING
SECTION 3.01 Closing 7
SECTION 3.02 Instruments of Transfer and Conveyance 7
SECTION 3.03 Other Documents To Be Delivered on Closing Date 8
SECTION 3.04 Principal Employer 8
ARTICLE IV REPRESENTATIONS AND WARRANTIES
SECTION 4.01 Representations and Warranties of Seller 8
SECTION 4.02 Representations and Warranties of Buyer 15
ARTICLE V COVENANTS RELATING TO CONDUCT OF
BUSINESS
SECTION 5.01 Conduct of Business 17
SECTION 5.02 Other Actions 18
SECTION 5.03 Advice of Changes 18
ARTICLE VI ADDITIONAL AGREEMENTS
SECTION 6.01 Preparation of UK Disclosure Document; Shareholder
Meetings 19
SECTION 6.02 Access to Information; Confidentiality 19
SECTION 6.03 Reasonable Efforts; Notification 20
SECTION 6.04 Expenses 20
SECTION 6.05 Public Announcements 20
SECTION 6.06 Further Assurances 21
SECTION 6.07 Environmental Management 21
SECTION 6.08 Agreement Not to Compete 21
ARTICLE VII CONDITIONS PRECEDENT
SECTION 7.01 Conditions to Each Party's Obligation To Effect the
Business Sale 23
SECTION 7.02 Conditions to Obligations of Baltimore and Buyer 23
SECTION 7.03 Conditions to Obligation of Seller 24
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01 Termination 24
SECTION 8.02 Effect of Termination 25
SECTION 8.03 Amendment 25
SECTION 8.04 Extension; Waiver 25
SECTION 8.05 Procedure for Termination, Amendment, Extension or
Waiver 26
ARTICLE IX INDEMNIFICATION
SECTION 9.01 Seller's Indemnity 26
SECTION 9.02 Survival of Representations and Warranties 26
SECTION 9.03 Losses Net of Insurance 27
SECTION 9.04 Procedures Relating to Indemnification 27
SECTION 9.05 Parent Guarantee 28
ARTICLE X GENERAL PROVISIONS
SECTION 10.01 Notices 28
SECTION 10.02 Definitions 29
SECTION 10.03 Interpretation 31
SECTION 10.04 Entire Agreement; No Third-Party Beneficiaries 31
SECTION 10.05 Governing Law 31
SECTION 10.06 Assignment 31
SECTION 10.07 Enforcement 32
SECTION 10.08 Waivers of Jury Trial 32
SECTION 10.09 Dispute Resolution 32
SECTION 10.10 RTPA 34
SECTION 10.11 Severability 34
SECTION 10.12 Value Added Tax 34
BUSINESS SALE AGREEMENT
WHEREAS Perkins Limited ("Seller") is engaged in the business of
designing, manufacturing, marketing and selling diesel and natural
gas fuelled spark ignition engines and certain related activities
including, but not limited to, the procurement of and sale of after
market parts and the provision of engineering consulting services to
third parties (together with any other business engaged in by Seller,
on the date of the coming into effect of the terms and conditions of
this Agreement, the "Business");
WHEREAS, the Boards of Directors of LucasVarity plc, an English
public limited company ("Parent") and Seller have determined that it
is in the best interests of their respective shareholders to sell the
Business (including the assets currently used by Seller in the
Business) to Caterpillar Inc. ("Buyer") as a going concern upon the
terms and under the conditions set forth herein;
WHEREAS, the Business (including the Assets (as defined herein)) will
be sold by Seller to Buyer for cash and the assumption of the Assumed
Liabilities (as defined herein) (the "Business Sale");
WHEREAS, the Board of Directors of Buyer have determined that it is
in the best interests of their shareholders to purchase the Business
and assume the Assumed Liabilities upon the terms and under the
conditions set forth herein;
WHEREAS, pursuant to requirements of the London Stock Exchange (the
"LSE"), this Agreement and the transactions contemplated hereby will
be submitted to the holders of ordinary shares, nominal value 25p per
share (the "Ordinary Shares"), of Parent, for their approval; and
WHEREAS, Parent, Seller, and Buyer desire to make certain
representations, warranties, covenants and agreements in connection
with the Business Sale and also to prescribe various conditions to
the Business Sale.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties
agree as follows:
ARTICLE I
BUSINESS SALE
SECTION 1.01 Sale of Business. Upon the terms and subject to the
conditions herein stated and on the basis of the representations,
warranties and agreements set forth herein, Seller agrees to sell,
assign, convey, transfer and deliver to Buyer as a going concern the
Business, which is comprised of the Assets, free and clear of any
pledges, claims, liens, charges, mortgages, encumbrances and security
interests of any kind or nature whatsoever (collectively, "Liens")
except for Permitted Liens. The term "Assets" shall mean all of the
assets, properties and rights (including, without limitation, rights
under leases, licenses, purchase orders, sales contracts and
instruments) owned, leased or licensed by Seller in each case
relating to the Business, as such assets, properties and rights exist
at the time of the Business Closing (other than the Excluded Assets),
including, without limitation, the following:
(a) all land and buildings;
(b) all other fixed assets;
(c) all inventory;
(d) all accounts receivable;
(e) all contracts, specifically including the license agreement
relating to the use of the Perkins name and symbol (the
Trademark");
(f) all intellectual property rights (including, without limitation,
trademarks, servicemarks, trade names, copyrights, patents and
patent applications) and trade secrets, together with, in each
case, the associated goodwill (it being acknowledged that the
Trademark is held by Varity Europe Limited and is not being
transferred pursuant to this Agreement);
(g) all customer and supplier lists, price lists, advertising and
promotional materials and field performance data, formulas,
research materials, technical information, proprietary
information, technology, know-how, specifications, designs,
drawings, inventions, processes, procedures, methods and
quality control data owned or licensed by Seller;
(h) all prepaid expenses and deferred income relating to the
Business or any Assumed Liability, excluding prepaid expenses
and deferred income relating to the Excluded Assets and
excluding any pre-paid insurance premium payments;
(i) all rights under warranties and guarantees, express or implied,
which relate to any of the other Assets;
(j) all books and records relating to the Business;
(k) all software and computer programs and documentation (other than
such assets which are available to Seller by access to computer
networks outside of Seller);
(l) all permits;
(m) all rights (including indemnification but excluding insurance
policies), claims and causes of action relating to the Business
or any Assumed Liability, including, without limitation, those
arising by operation of law or equity or otherwise.
For purposes of this Agreement, "Permitted Liens" shall mean with
respect to any assets or property (i) any Lien listed on Schedule
1.01 of the Seller Disclosure Schedule, (ii) any Lien for current
taxes not delinquent or taxes being contested in good faith for which
there exist adequate reserves, (iii) statutory Liens of landlords,
carriers, warehousemen, mechanics and materialmen and other similar
liens, (iv) all matters in the nature of easements, rights,
exceptions, reservations, restrictions and covenants; (v) all notices
served and orders, demands, proposals or requirements made by any
local or other public or competent authority; and (vi) all actual or
proposed orders, directions, plans, notices, instruments, charges,
restrictions, conditions, agreements or other matters arising under
any statute relating to town and country planning and any laws and
regulations intended to control or regulate the construction,
demolition, alteration or change of use of land or buildings or to
preserve or protect the environment.
SECTION 1.02 Excluded Assets. Notwithstanding anything contained
herein or in any Transfer Document to the contrary, the Assets shall
not include the following (collectively, the "Excluded Assets"):
(a) all cash and cash equivalents;
(b) the general books of account and books of original entry that
comprise Seller's permanent accounting or tax records, and
those books and records that Seller is required to retain
pursuant to any statute, rule or regulation;
(c) Seller's bank accounts;
(d) insurance policies of Seller and rights in connection therewith;
(e) rights arising from any refunds due with respect to insurance
premium payments and refunds due from U.K. or other
Governmental Entities with respect to taxes paid by Seller
prior to the Closing Date;
(f) Seller's rights under this Agreement;
(g) Seller's corporate charter, minute and stock record books, and
corporate seal and tax returns;
(h) Seller's corporate name;
(i) for the avoidance of doubt, Seller's interest in the Excluded
Subsidiaries and Non-Business Assets; and
(j) up to one employee of the Seller for each of the U.K. Pension
Plans where such employee is in employment to which the U.K.
Pension Plan relates and where such employee elects before the
Closing Date not to transfer to the Buyer (on the basis that
such employee will remain employed by the Seller after the
Closing Date for such period as Buyer may specify).
SECTION 1.03 Non-Assignable Contracts. In the case of any contracts,
permits or other items included in the Assets which are by their
terms, by virtue of their subject matter or by operation of law not
assignable to Buyer without the consent of a third party (the
"Non-Assignable Contracts"), Seller agrees to use its reasonable best
efforts as soon as reasonably practicable after the coming into
effect of the terms and conditions of this Agreement to obtain any
consents necessary to convey to Buyer such Non-Assignable Contracts
or the benefits thereof to the extent they would otherwise constitute
an Asset. Notwithstanding any provision to the contrary contained
herein (i) Seller shall not assign to Buyer any Non-Assignable
Contract for which such consent is not obtained, and (ii) with
respect to any Non-Assignable Contract for which such consent is not
obtained, Seller shall enter into any reasonable arrangement with
Buyer designed to provide the economic and other benefits thereof to
Buyer. Buyer shall indemnify Seller for any liabilities arising after
the Business Closing under such Non-Assignable Contracts in respect
of which Buyer derives the economic and other benefits (provided
however that such indemnification by Buyer shall be limited to an
amount equal to the amount of such economic and other benefits) and
under any Non-Assignable Contract for which consent was or is
obtained but as a condition to obtaining such consent Seller agreed
in its sole discretion to remain secondarily liable under such
contract. Nothing in this Agreement shall be construed as an attempt
or an agreement to assign or cause the assignment of any
Non-Assignable Contract, unless such consent shall have been given,
or to assign any remedy for the enforcement of such Contract enjoyed
by Seller which would not, as a matter of law, pass to Buyer as an
incident of the assignments provided by this Agreement.
SECTION 1.04 Assumption of Liabilities. Subject to the terms and
conditions of this Agreement, upon the Business Closing, Buyer will
assume and undertake to pay, perform and discharge, in accordance
with and subject to their respective terms, all debts, liabilities,
payables and obligations, whether accrued, absolute, contingent,
unasserted or otherwise, of Seller relating to the Business, as and
to the extent existing at the Business Closing, but excluding the
Excluded Liabilities, as defined herein (collectively, the "Assumed
Liabilities").
SECTION 1.05 Excluded Liabilities. Buyer shall not assume or be
liable for, and Seller expressly agrees to remain liable for, the
following (collectively, the "Excluded Liabilities"):
(a) all liabilities with respect to indebtedness for money borrowed
or the equivalent thereof (including, without limitation, fees
and accrued interest and intercompany funding arrangements), in
each case, of, by or on behalf of Seller (collectively, "Funded
Debt");
(b) any liabilities of Seller, or any of its affiliates, for any tax
based in whole or in part on net or gross income, or capital
gains, of Seller including interest, penalties, additions to
tax or fines relating to such tax and including, without
limitation, any United Kingdom income or corporation tax; and
(c) all liabilities to the extent they relate to the Excluded
Assets.
SECTION 1.06 Relevant Transfer. Buyer and Seller acknowledge and
agree that the sale of the Assets is a "relevant transfer" within the
meaning of the Transfer of Undertakings (Protection of Employment)
Regulations 1981. Buyer further confirms that it has provided Seller
with all information as Seller may require to enable it to comply
with any obligations to inform, consult or notify any person about
the matters contemplated by or arising as a result of this Agreement
insofar as they relate to employees engaged in the Business.
ARTICLE II
CONSIDERATION
Section 2.01 Consideration. The total aggregate purchase price for
the assets shall be $1,000,000,000 (the "Asset Purchase Price") and
the assumption of the Assumed Liabilities. Seller and Buyer agree
that the value of the assets described in Sections 1.01(a) through
(d) are at least equal to the amounts at which such assets are set
forth on Seller's books. Buyer shall determine on a reasonable basis
the allocation of the price among the Assets. The parties shall
report the sale of the Assets on all tax reports and returns and
financial and other statements in a manner that is consistent with
Buyer's allocation, provided that the amounts allocated to the Assets
described in Sections 1.01(a) through (d) are at least equal to the
amounts at which such assets are set forth on the books, and shall
not take any position for tax purposes that is inconsistent with such
allocation. Each party shall notify the other if any taxing authority
proposes to reallocate the asset purchase price. Each party hereto
agrees to elect by notice given jointly under Section 531(3) of the
Income and Corporation Taxes Act 1988 (the "ICTA 1988") within 12
months of the Business Closing that the provisions of Section 531(2)
of the ICTA 1988 shall not apply to the consideration for the Assets
which represent Know-how within the meaning set forth in Section
533(7), ICTA 1988.
SECTION 2.02 Payment of the Purchase Price. At the Business Closing,
Buyer shall pay, or otherwise cause to be paid, the Asset Purchase
Price by payment to an account or accounts designated by Seller. Such
payment shall be in federal or other immediately available funds, by
wire transfer in United States Dollars.
SECTION 2.03 Net Assets. Seller hereby agrees that the Net Assets
included in the Business shall be in the amount of GBP182 million (the
"Base Amount"). "Net Assets" shall mean such amount as would appear
on a balance sheet of Seller, prepared in accordance with generally
accepted accounting principles in the United Kingdom ("U.K. GAAP")
applying such principles on a basis consistent with that used in the
preparation of the balance sheet of Seller dated January 31, 1997 and
set forth on Schedule 2.03, which excludes the Excluded Subsidiaries,
the Non-Business Assets, the Excluded Assets, the Excluded
Liabilities and all deferred taxes.
SECTION 2.04 Closing Audit. (a) Within 45 days after the Closing
Date, Seller shall prepare, or cause to be prepared, a statement of
the Net Assets included in the Business as of the Closing Date, which
Seller shall cause to be prepared in accordance with the definition
of Net Assets and certified by KPMG Peat Marwick (the "Closing Date
Statement" and the amount of Net Assets indicated thereon is referred
to as the "Closing Net Assets").
(b) Upon receipt of the Closing Date Statement, Buyer and its
representatives shall have the right during the succeeding 30-day
period to examine, at Buyer's expense, the Closing Date Statement and
all records (including all KPMG work papers used in connection with
the audit and certification of the Closing Date Statement) used to
prepare such Closing Date Statement. Buyer shall inform Seller, on or
before the last day of such 30-day period, in writing that the
Closing Date Statement is acceptable or deliver to Seller a letter
objecting to the Closing Date Statement, setting forth a reasonably
specific description of Buyer's objections.
If Buyer does not deliver such a letter within such 30-day period,
the Closing Date Statement shall be deemed to have been accepted by
Buyer. In the event Buyer objects to the Closing Date Statement,
Buyer and Seller shall attempt to resolve any such objections within
30 days of Seller's receipt of Buyer's objections. If Buyer and
Seller are unable to resolve the matter within such 30-day period,
they shall jointly appoint Arthur Andersen or another mutually agreed
independent, internationally recognised auditing firm (the "Firm") to
resolve the disputes and make any adjustments to the Closing Date
Statement. The fees of the Firm shall be divided equally between
Seller and Buyer.
Seller and Buyer and their respective agents shall make readily
available to the other party and to the Firm all relevant books,
records, employees and any work papers relating to the Closing Date
Statement and all other items requested by the other party or the
Firm in connection with the preparation and certification of the
Closing Date Statement or the resolution of any disputes. The Firm's
resolution of the dispute and its adjustments to the Closing Date
Statement shall be conclusive and binding upon the parties.
SECTION 2.05 Adjustment to Asset Purchase Price. Upon acceptance of
the Closing Date Statement or the resolution of Buyer's objections in
connection therewith, the Asset Purchase Price shall be either (i)
decreased by an amount equal to the sum of the deficiency (if any) of
the Closing Net Assets as compared with the Base Amount plus
GBP10,000,000 or (ii) increased (or decreased, as the case may be) by
the excess (if any) of the Closing Net Assets as compared with the
Base Amount less GBP10,000,000. Such difference (the "Adjustment
Amount") shall be payable as provided in Section 2.06 below within
five business days after the final determination of such amount.
SECTION 2.06 Payment of Adjustments to Asset Purchase Price. In the
event the Adjustment Amount is negative, the absolute value thereof
shall be payable by Seller. In the event the Adjustment Amount is
positive, the value thereof shall be payable by Buyer. All payments
under this Section 2.06 shall be made in United States Dollars
(converted from Pounds Sterling (GBP) at the closing London spot rate
on the date prior to the date of final determination of the
Adjustment Amount) in immediately available funds. Adjustments to the
Asset Purchase Price shall be allocated among the Assets to which the
Adjustment Amount relates consistently with Section 2.01 hereof.
ARTICLE III
CLOSING
SECTION 3.01 Closing. The closing ("Business Closing") of the
purchase and sale of the Assets, and the assumption of the Assumed
Liabilities, shall take place at the offices of Seller's counsel,
Freshfields at 65 Fleet Street, London EC4Y 1HS, as soon as
practicable following the satisfaction or waiver of the conditions to
Closing hereunder, or on such other date and such other place as the
parties may agree, but not later than June 30, 1998. The day of
Business Closing is hereinafter called the "Closing Date".
SECTION 3.02 Instruments of Transfer and Conveyance. The conveyance,
transfer, assignment and delivery of the Assets as herein provided
shall be effected so far as possible by delivery thereof or, where
necessary, by delivery by Seller on the Closing Date of such deeds,
bills of sale, transfer agreements, endorsements, assignments,
certificates, drafts, checks or other instruments of transfer and
conveyance, and deeds or other instruments of release from security
interests, guarantees and encumbrances duly executed by Seller, as
Buyer shall reasonably request to vest on the Closing Date in Buyer
good title to the Assets, free and clear of any Lien (other than
Permitted Liens) in the manner provided for herein. Title to all
Assets which are capable of transfer by delivery shall pass on
delivery on the Closing Date. Any and all of the ancillary documents
delivered by Seller or Buyer hereunder shall be referred to herein as
the "Transfer Documents". Buyer shall not be obliged to complete the
Business Closing in respect of any of the Assets unless Seller
delivers all Transfer Documents reasonably requested by Buyer in
respect of all of them.
SECTION 3.03 Other Documents To Be Delivered on Closing Date. At the
Business Closing, Seller shall deliver to Buyer deeds or other
instruments of conveyance to convey the real property constituting a
part of the Assets.
SECTION 3.04 Principal Employer. Subject to the consent of the U.K.
Inland Revenue, Seller and Buyer shall use their respective best
endeavours to procure that the current principal employer of each of
the Pension Schemes is, with effect from the Closing Date, replaced
as principal company of the relevant Pension Scheme by Buyer. A deed
relating to each Pension Scheme shall be duly executed as a deed by
the relevant current principal employer and by Buyer.
For the purposes of this section, "Pension Scheme" means Perkins
Engines Staff Pension Scheme, Perkins Engines Works Pension Scheme,
The Perkins Engines (Shrewsbury) Pension Scheme, The Perkins Engines
(Stafford) Limited Group Pension Scheme, The Varity Group Executive
Pension Scheme, Varity Perkins Defined Contribution Pension Plan, The
Varity Unapproved Executive Pension Scheme, and "Pension Schemes"
have a corresponding meaning.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01 Representations and Warranties of Seller. Except as set
forth in the Seller Disclosure Schedule delivered by Seller to Buyer
on or prior to the date of the coming into effect of the terms and
conditions of this Agreement (the "Seller Disclosure Schedule"),
Seller represents and warrants to Buyer as follows:
(a) Organization, Standing and Corporate Power. Each of Parent and
Seller is a corporation duly organized and validly existing
under the laws of England and Wales and has the requisite
corporate power and authority to own, operate and lease its
properties and carry on its business as now being conducted.
Seller is duly qualified or licensed to do business and (with
respect to jurisdictions which recognize the concept of good
standing) is in good standing in each jurisdiction in which the
nature of its business or the ownership or leasing of its
properties makes such qualification or licensing necessary,
other than in such jurisdictions where the failure to be so
qualified or licensed (individually or in the aggregate) would
not have a Material Adverse Effect.
(b) Subsidiaries. Except as set forth in Schedule 4.01(b) of the
Seller Disclosure Schedule, Seller has no subsidiaries and does
not, directly or indirectly, own or have the right to acquire
any equity interest in any person.
(c) Authority; Noncontravention. Each of Parent and Seller has the
requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated by
this Agreement. The making of this Agreement by Parent and
Seller and the consummation by Parent and Seller of the
transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action on the part of
Parent and Seller, subject to receipt of the Required Vote.
This Agreement has been duly made by Parent and Seller and
constitutes a valid and binding obligation of Parent and
Seller. The making by each of Parent and Seller of this
Agreement does not, and the consummation by each of Parent and
Seller of the transactions contemplated by this Agreement and
compliance by each of Parent and Seller with the provisions of
this Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination,
cancellation, vesting, acceleration of payment of any
obligation or to loss of a material benefit or to additional
material obligations under, or result in the creation of any
Lien upon any of the properties or assets used to conduct the
Business under, (i) the Memorandum and Articles of Association
of Seller, (ii) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument,
permit, concession, franchise or license applicable to Seller
or its properties or assets or (iii) subject to the
governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Seller or its
respective properties or assets, other than, in the case of
clauses (ii) and (iii), any such conflicts, violations,
defaults, rights or Liens that individually or in the aggregate
would not have a Material Adverse Effect. No consent, approval,
order or authorization of, or registration, declaration or
filing with, any government or any court, administrative agency
or commission or other governmental authority or agency,
whether inside or outside the United Kingdom or elsewhere (a
"Governmental Entity") or any other person, is required by or
with respect to Parent or Seller in connection with the making
of this Agreement by Parent or Seller or the consummation by
Parent or Seller of the transactions contemplated by this
Agreement, except for (i) the filing of a premerger
notification and report form by Parent under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
Act"), (ii) the approval of a circular relating to the approval
by Parent's shareholders of this Agreement and the transactions
contemplated hereby (as amended or supplemented from time to
time, the "Disclosure Document") by the LSE, (iii) the filing
of reports under disclosure requirements of NYSE and Section 13
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as may be required in connection with this
Agreement and the transactions contemplated by this Agreement,
and (iv) such consents, approvals, orders, authorizations,
regulations, declarations and filings the failure to obtain
which (individually or in the aggregate) would not have a
Material Adverse Effect
(d) Reports and Financial Statements; Undisclosed Liabilities.
(i) Seller has delivered to Buyer (A) the annual report
of Parent to holders of Ordinary Shares for its
fiscal year ended January 31, 1997 and its interim
report to shareholders for the nine months ended
October 31, 1997 (B) all documents distributed to
Parent shareholders relating to meetings of, or
actions taken without a meeting by, the shareholders
of Parent since January 31, 1997 and (C) of the
Seller Disclosure Schedule, other reports and
statements distributed to Parent shareholders
together with copies of all prospectuses and listing
particulars issued by Parent or any of its
subsidiaries since January 31, 1997 (the "Parent
Documents"). As of the date of its distribution to
shareholders, as such report or statement concerns
the Business, each such report or statement
distributed to shareholders did not contain any
untrue statement of material fact or omit a material
fact required to be stated therein or necessary to
make the statements therein, in the light of the
circumstances under which they were made, not
misleading. The consolidated financial statements of
Parent included in the Parent Documents have been
prepared in accordance with U.K. GAAP applied on a
consistent basis during the periods involved (except
as may be indicated in the notes thereto), and
present a true and fair view of the consolidated
financial position of Parent and its consolidated
subsidiaries as of the dates thereof and the
consolidated results of their operations and cash
flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end
adjustments).
(ii) The financial statements of Seller for the year
ended January 31, 1997 and for the nine months
ended October 31, 1997 and as set forth in
Schedule 4.01(d)(ii) of the Seller Disclosure
Schedule (the "Financial Statements") have been
prepared in accordance with U.K. GAAP applied on a
consistent basis during the periods involved
(except as may be indicated in the notes thereto),
and present a true and fair view of the financial
condition of Seller, as of the dates thereof, and
the results of operations and cash flows of Seller
for the periods indicated (subject, in the case of
unaudited statements, to normal year-end
adjustments). The balance sheet of Seller as at
October 31, 1997 is referred to herein as the
"Interim Balance Sheet." Seller has no material
liabilities or obligations of any nature,
absolute, accrued, contingent or otherwise and
whether due or to become due, arising out of or
relating to the Business, except (a) as set forth
in Section 4.01(d) of the Seller Disclosure
Schedule, or (b) as and to the extent disclosed or
reserved against the Interim Balance Sheet. Seller
has no material liabilities or obligations of any
nature, absolute, accrued, contingent or
otherwise, that were incurred after the date of
the Interim Balance Sheet except for those
incurred in the ordinary course of business or
disclosed in Section 4.01(d) of the Seller
Disclosure Schedule.
(e) Absence of Certain Changes or Events. Except as disclosed in
the Financial Statements since the date of the most recent
financial statements included in the Financial Statements or as
set forth in Section 4.01(e) of the Seller Disclosure Schedule,
the Business has been conducted only in the ordinary course,
and there has not been (i) any Material Adverse Change, (ii)
any declaration, setting aside or payment of any dividend or
other distribution by Seller to its stockholder other than
dividends paid in cash or interests in the Excluded
Subsidiaries or in Non-Business Assets, (iii) (x) any granting
to any of its executive officers of any increase in
compensation, except in the ordinary course of business
consistent with prior practice or as was required under
employment agreements in effect as of the date of the most
recent financial statements included in the Financial
Statements, (y) any granting to any such executive officer of
any increase in severance or termination pay, except as was
required under any employment, severance or termination
agreements in effect as of the date of the most recent audited
financial statements included in the Financial Statements or
(z) any entry into any employment, severance or termination
agreement with any such executive officer, (iv) any damage,
destruction or loss, whether or not covered by insurance, that
has had or is likely to have a Material Adverse Effect, or (v)
any change in accounting methods, principles or practices
materially affecting the Assets, liabilities or the Business,
except insofar as may have been required by a change in U.K.
GAAP.
(f) Assets. The Assets constitute, in all material respects, all
the assets, tangible and intangible, used or useful in
connection with the Business. Seller has good and marketable
title to all such Assets, free and clear of any Lien except for
Permitted Liens.
(g) License Agreements. All license agreements, including
amendments thereto providing for the payment of minimum
royalties, relating to the use of the Trademark have been
delivered to Buyer. Seller has a valid and continuing license
to use the Trademark. There have not been any claims, disputes,
actions or proceedings involving or known to Seller concerning
the Trademark and, to the knowledge of Seller, there is no
basis for any such action or proceeding. The license agreements
relating to the Trademark may be validly assigned to Buyer
pursuant to this Agreement.
(h) No Default. Seller is not in default or violation (and no event
has occurred which, with notice or the lapse of time or both,
would constitute a default or violation) of any term, condition
or provision of (i) any note, bond, mortgage, indenture,
license, agreement or other instrument or obligation to which
Seller is now a party or by which Seller or any of its
properties or assets may be bound, or (ii) any order, writ,
injunction, decree, statute, rule or regulation applicable to
Seller, except in each case for defaults or violations which in
the aggregate would not reasonably be expected to have a
Material Adverse Effect.
(i) Litigation. (i) Except as disclosed in the Financial Statements
or in Section 4.01(i)(ii) of the Seller Disclosure Schedule, as
of the date hereof there is no suit, action or proceeding
pending or, to the knowledge of Seller, threatened against
Seller or affecting the Business or the Assets that,
individually or in the aggregate, would reasonably be expected
to have a Material Adverse Effect. (ii) Section 4.01(i) of the
Seller Disclosure Schedule sets forth information regarding
product liability claims asserted within the past two years or
pending as of the date of the coming into effect of the terms
and conditions of this Agreement excluding any claim resulting
or reasonably likely to result in a liability to Seller of less
than GBP100,000.
(j) Absence of Changes in Benefit Plans. Except as disclosed in the
Financial Statements, since the date of the most recent
financial statements included in the Financial Statements or in
Section 4.01(j) of the Seller Disclosure Schedule, there has
not been any adoption or amendment in any material respect (nor
has any understanding or reassurance been given in relation
thereto) by Seller of any collective bargaining agreement or
any bonus, pension, profit sharing, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance,
disability, death benefit, hospitalization, medical or other
plan, arrangement or understanding (whether or not legally
binding) providing benefits to any current or former employee
officer or director of Seller collectively, "Benefit Plans").
Except as disclosed in the Financial Statements or in Section
4.01(j) of the Seller Disclosure Schedule, there exist no
employment, consulting, severance, termination or
indemnification agreements, arrangements or understandings
between Seller and any current or former executive officer,
director or key employee of Seller.
(k) UK Benefit Plans. Seller has delivered to Buyer true, complete
and correct copies of (x) the documents governing each Benefit
Plan or arrangement maintained or contributed to in the United
Kingdom by Seller for the benefit of any current or former
employees, officers or directors of Seller (a "UK Benefit
Plan") (or, in the case of any unwritten UK Benefit Plans,
written descriptions thereof), (y) the most recent actuarial
valuation report and most recent audited accounts, where
prepared in the ordinary course, of each UK Benefit Plan and
(z) the most recent summary plan description for or explanatory
booklet or handbook relating to each UK Benefit Plan
(i) All occupational pension schemes and personal pension
schemes (as defined in Section 1 of the Pension Schemes Act
1993) applicable to employees of Seller (sometimes referred
to herein as "UK Pension Plans") are treated as exempt
approved schemes by the UK Inland Revenue and no such
approval has been revoked nor, to the knowledge of Seller,
has revocation been threatened, nor has any such UK Pension
Plan been amended since the most recent actuarial valuation
report in any respect that is likely to adversely affect
its status as an exempt approved scheme or materially
increase its costs.
(ii) None of Seller, any officer of Seller or any UK Pension
Plans, any trusts created thereunder or, to the knowledge
of Seller, any trustee or administrator thereof has engaged
in a breach of fiduciary responsibility with respect to any
UK Pension Plan that could subject Seller or any officer of
Seller to any tax or penalty or any other liability which
would be reasonably expected to have a Material Adverse
Effect.
(iii) With respect to UK Benefit Plans except to the extent that
any non-compliance would not, in the aggregate, have a
Material Adverse Effect, such plans comply with applicable
legislative, regulatory and other administrative
requirements.
(l) Compliance of Other Benefit Plans. With respect to Benefit
Plans maintained or contributed to by Seller for employees of
Seller outside the United Kingdom, (A) except to the extent
that any non-compliance would not, in the aggregate, have a
Material Adverse Effect, such plans comply with applicable
local laws and (B) there are no material unfunded liabilities
with respect thereto.
(m) Taxes. (i) All documents in the possession or under the
control of Seller or to the production of which Seller is
entitled which establish or are necessary to establish the
title of Seller to any of the Assets have been duly stamped and
any applicable stamp duties or similar duties or charges in
respect of such documents have been duly accounted for and
paid.
(ii) Neither Seller nor any relevant associate (within the
meaning of Schedule 10 to the Value Added Tax Act 1994) has
elected to waive the exemption from value added tax in relation
to the land and buildings referred to in Section 1.01(a).
(n) Environmental Matters. Except as disclosed in Section 4.01(n)
of the Seller Disclosure Schedule:
(i) Seller is, and has been, in compliance with all applicable
Environmental Laws, and Seller has not received any written
notice of a pending or, to the knowledge of Seller,
threatened, action, demand, investigation or claim by any
Governmental Entity or other person regarding any actual or
alleged violations of Environmental Law by Seller or any
actual or potential liability of Seller under any
Environmental Law;
(ii) Seller has not assumed, by contract, any liabilities or
obligations arising under Environmental Laws regarding any
properties or facilities formerly owned, leased, operated or
used by Seller;
(iii) There are no events, conditions, or actions which would
reasonably be expected to prevent compliance by Seller with
any Environmental Law, or which would reasonably be expected
to result in any liability of Seller under any Environmental
Law;
(iv) There are no underground storage tanks or related piping
located at any properties currently owned or leased by
Seller; and
(v) All Hazardous Materials generated by Seller in the operation
of the Business have been transported, stored, treated,
disposed of, and handled in material compliance with all
Environmental Laws.
Seller has delivered or otherwise made available for
Inspection to Buyer copies of any material
reports,assessments, evaluations and audits in its
possession of Hazardous Materials at, in, beneath or
adjacent to any properties or facilities now or formerly
owned, leased, operated or used by Seller, or of compliance
by any of them with, or liability of any of them under,
applicable Environmental Laws.
As used in this Agreement, the term "Environmental Laws"
means, to the extent in force at the date of this Agreement,
any law, statute, rule, regulation, ordinance, judgment,
directive, order or decree relating to pollution or the
protection of the environment (including, without
limitation, ambient air, indoor air, surface water, ground
water, land surface and subsurface) including, without
limitation, those relating to the Release or threat of
Release, or generation, use, treatment, storage, transport
or disposal of any Hazardous Materials; the term "Hazardous
Materials" means any pollutant, contaminant, hazardous or
toxic substance, material, constituent, or waste, or any
other waste, substance or material regulated by any
applicable Environmental Law; the term "Release" means any
spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, disposing or
dumping into the environment.
(o) Voting Requirements. The approval of this Agreement and the
transactions contemplated hereby by the passing of an ordinary
resolution by the holders of the Ordinary Shares of Parent (the
"Required Vote") is the only vote of the holders of any class
or series of capital stock of Parent and its subsidiaries
necessary to approve this Agreement or any of the transactions
contemplated hereby.
(p) Broker. No broker, investment banker, financial advisor or
other person, other than Lazard Freres & Co. LLC and Lazard
Brothers & Co., Limited, the fees and expenses of which will be
paid by Parent, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Parent.
(q) Disclaimer of Implied Warranties. BUYER ACKNOWLEDGES THAT,
EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, NEITHER SELLER
NOR ANY OF ITS AFFILIATES, EMPLOYEES OR AGENTS HAS MADE ANY
REPRESENTATIONS OR WARRANTIES REGARDING SELLER, ITS ASSETS OR
LIABILITIES, ANY PORTION THEREOF OR OTHERWISE. SELLER HEREBY
DISCLAIMS ANY IMPLIED WARRANTIES, INCLUDING, WITHOUT
LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
SECTION 4.02 Representations and Warranties of Buyer. Except as set
forth in the disclosure schedule delivered by Buyer to Seller prior
to the date of the coming into effect of the terms and conditions of
this Agreement (the "Buyer Disclosure Schedule"), Buyer represents
and warrants to Seller as follows:
(a) Organization, Standing and Corporate Power. Buyer is a
corporation duly incorporated and validly existing under the
laws of the jurisdiction in which it is incorporated and is in
good standing (with respect to jurisdictions which recognize
the concept of good standing) under the laws of the
jurisdiction in which it is incorporated, and has all corporate
power and authority required to own, operate and lease its
properties and carry on its business as now conducted.
(b) Authority; Non-contravention. Buyer has all requisite corporate
power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement. The
making of this Agreement by Buyer and the consummation by Buyer
of the transactions contemplated by this Agreement have been
duly authorized by all necessary corporate action on the part
of Buyer. This Agreement has been duly made by Buyer and
constitutes a valid and binding obligation of Buyer. The making
of this Agreement by Buyer does not, and the consummation by
Buyer of the transactions contemplated by this Agreement and
compliance by Buyer with the provisions of this Agreement will
not, conflict with, or result in any violation of, or default
(with or without notice or lapse of time, or both) under, or
give rise to a right of termination, cancellation, vesting,
acceleration or payment of any obligation or to loss of a
material benefit or to additional material obligations under,
or result in the creation of any Lien upon any of the
properties or assets of Buyer under, (i) the Certificate of
Incorporation or By-laws or the comparable charter or
organizational documents of Buyer, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license
applicable to Buyer or their respective properties or assets or
(iii) subject to the governmental filings and other matters
referred to in the following sentence, any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable
to Buyer or its properties or assets, other than, in the case
of clause (ii) or (iii), any such conflicts, violations,
defaults, rights or Liens that individually or in the aggregate
would not have a Material Adverse Effect. No consent, approval,
order or authorization of, or registration, declaration or
filing with, any Governmental Entity or any other person is
required by or with respect to Buyer or any of its subsidiaries
in connection with the making of this Agreement by Buyer or the
consummation by Buyer of any of the transactions contemplated
by this Agreement, except for (i) the filing of a premerger
notification and report form under the HSR Act, (ii) compliance
with any applicable requirements of the Exchange Act and the
NYSE, (iii) the filing of the Form CO notification by Buyer
with the European Commission under Council Regulation (EEC) No.
4064/89 ("ECMR") and receipt of a decision from the European
Commission in accordance with Article VII, Section 7.04 of this
Agreement, (iv) such consents, approvals, orders,
authorizations, regulations, declarations and filings the
failure to obtain which (individually or in the aggregate)
would not (x) have a Material Adverse Effect, (y) impair the
ability of Buyer to perform its obligations under this
Agreement or (z) prevent the consummation of any of the
transactions contemplated by this Agreement.
(c) Availability of Funds. Buyer has cash available, or irrevocable
commitments from financial institutions, to enable it to
consummate the transactions contemplated by this Agreement.
(d) Broker. No broker, investment banker, financial advisor or
other person, other than Merrill Lynch, Pierce, Fenner & Smith
Incorporated, the fees and expenses of which will be paid by
Buyer, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with
the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Buyer.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 5.01 Conduct of Business. Except as set forth in Section 5.01
of the Seller Disclosure Schedule, during the period from the date of
the coming into effect of the terms and conditions of this Agreement
to the Closing Date, Seller shall carry on the Business in the usual,
regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent related to the Business, use
all reasonable efforts to preserve intact its current business
organization, keep available the services of its current officers and
employees and preserve its relationships with customers, suppliers,
licensors, licensees, distributors and others having business
dealings with it to the end that its goodwill and ongoing businesses
shall be unimpaired at the Closing Date. Except as set forth in
Section 5.01 of the Seller Disclosure Schedule, without limiting the
generality of the foregoing, during the period from the date of the
coming into effect of the terms and conditions of this Agreement to
the Closing Date with respect to the Business only, Seller shall not:
(i) (x) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its share
capital, other than dividends paid in cash or of
interests in the Excluded Subsidiaries as such term is
defined in Section 5.01(i) of the Seller Disclosure
Schedule or of the Non-Business Assets as such term is
defined in Section 5.01(i) of the Seller Disclosure
Schedule, or (y) purchase, redeem or otherwise acquire
any of its share capital or any other of its securities;
(ii) acquire or agree to acquire (x) by merging or consolidating
with, or by purchasing a substantial portion of the assets
of, or by any other manner, any business or any corporation,
partnership, joint venture, association or other business
organization or division thereof, or (y) any assets that are
material, individually or in the aggregate, to the Business
taken as a whole, except purchases in the ordinary course of
business consistent with past practice;
(iii) sell, lease, license, mortgage or otherwise encumber or
subject to any Lien or otherwise dispose of any properties
or assets, other than sales in the ordinary course of
business consistent with past practice, or transfers of
shares in Excluded Subsidiaries or Non-Business Assets;
(iv) make any material tax election or settle or compromise any
material income tax liability;
(v) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge
or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with their
terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial
statements (or the notes thereto) of the Business included
in the Financial Statements or incurred in the ordinary
course of business consistent with past practice, or waive
the benefits of, or agree to modify in any manner, any
confidentiality agreement to which Seller is a party;
(vi) (A) enter into, adopt or amend in any material respect or
terminate any Benefit Plan or any other agreement or
arrangement involving Seller and one or more of their
employees or directors or (B) except for normal increases in
the ordinary course of business consistent with past
practice, increase the compensation of any director, officer
or key employee or pay any benefit or amount not required by
a plan or arrangement in effect on the date of this
Agreement; or
(vii) authorize any of, or commit or agree to take any of, the
foregoing actions.
SECTION 5.02 Other Actions. Parent, Seller, and Buyer shall not, and
Buyer shall not permit any of its or their subsidiaries to, take any
action that would, or that could reasonably be expected to, result in
(i) any of the representations and warranties of such party set forth
in this Agreement that are qualified as to materiality becoming
untrue, (ii) any of such representations and warranties that are not
so qualified becoming untrue in any material respect or (iii) any of
the conditions to the Business Sale set forth in Article VII not
being satisfied.
SECTION 5.03 Advice of Changes. Seller shall promptly advise Buyer
orally and in writing of any change or event having, or which,
insofar as can reasonably be foreseen, would have, a Material Adverse
Effect.
SECTION 5.04 Employee Benefit Trusts. This section applies to
any employee benefit trusts (the "EB Trusts") of or established or
sponsored by any of the Companies which any of the Sellers may
nominate by written notice to Caterpillar Inc. before the Closing
Date.
The Sellers shall arrange on or before the Closing Date that a Seller
(or other person nominated by a Seller) is substituted for the
relevant Company as the establishing or sponsoring company (howsoever
called) in relation to the EB Trusts with effect on and from a date
which is on or before the Closing Date (including by entering into
such deeds and documents as the Sellers and the trustees of the EB
Trusts may require for that purpose).
The Sellers shall procure that Caterpillar Inc. and the Companies
have no liabilities, and shall indemnify the Buyer and the Companies
in respect of any loss or liabilities whatsoever, in relation to the
EB Trusts.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01 Preparation of UK Disclosure Document; Shareholder
Meeting.
(a) Subject to clause (c) below, Parent will, as soon as
practicable following the date of the coming into effect of the
terms and conditions of this Agreement, duly call, give notice
of, convene and hold a meeting of its shareholders (the
"Shareholders Meeting") for the purpose of obtaining the
Required Vote with respect to this Agreement, the Business Sale
and the other transactions contemplated hereby. Parent will,
through its Board of Directors, unless there is a legal
requirement based on the Directors' fiduciary duties to do
otherwise, recommend to its shareholders approval of all such
matters required to be so approved.
(b) Subject to clause (c) below, in connection with the
Shareholders Meeting, (i) Parent will, as soon as practicable
after the date of the coming into effect of the terms and
conditions of this Agreement, prepare and will use all
reasonable efforts to have cleared by the LSE and will
thereafter mail to its shareholders the Disclosure Document
which will comply with all requirements of law and the LSE
applicable to the Shareholders Meeting.
(c) Buyer will, and will cause each of its subsidiaries to, supply
Parent with all information reasonably requested by Parent
concerning Buyer and its subsidiaries, its source of financing
and any other information required or advisable to include in
the Disclosure Document.
SECTION 6.02 Access to information; Confidentiality. Seller shall
afford to Buyer and to the officers, employees, accountants, counsel,
financial advisors and other representatives of Buyer, reasonable
access during the period prior to the Closing Date and upon
reasonable prior notice to Seller to all of its properties, books,
contracts, commitments, personnel and records, in each case, related
to the Business, as Buyer may reasonably request. Any such
information shall be subject to the terms and provisions of the
Confidentiality Agreement dated August 1, 1997, as amended, between
Buyer and Parent (the "Confidentiality Agreement")
SECTION 6.03 Reasonable Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use all reasonable
efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, and to assist and cooperate with the other
parties in doing, all things necessary, proper or advisable to
consummate and make effective, in the most expeditious manner
practicable, the Business Sale and the other transactions
contemplated by this Agreement, including (i) the obtaining of
all necessary actions or non-actions, waivers, consents and
approvals from Governmental Entities and the making of all
necessary registrations and filings (including filings with
Governmental Entities, if any) and the taking of all reasonable
steps as may be necessary to obtain an approval or waiver from,
or to avoid an action or proceeding by, any Governmental
Entity, (ii) the obtaining of all necessary consents, approvals
or waivers from third parties, (iii) the defending of any
lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the consummation
of the transactions contemplated by this Agreement, including
seeking to have any stay or temporary restraining order entered
by any court or other Governmental Entity vacated or reversed
and (iv) the execution and delivery of any additional
instruments necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, this
Agreement.
(b) Seller shall give prompt notice to Buyer, and Buyer shall give
prompt notice to Seller, of (i) any representation or warranty
on its part contained in this Agreement that is qualified as to
materiality becoming untrue or inaccurate in any respect or any
such representation or warranty that is not so qualified
becoming untrue or inaccurate in any material respect or (ii)
the failure by it to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied
with or satisfied by it under this Agreement; provided,
however, that no such notification shall affect the
representations, warranties, covenants or agreements of the
parties or the conditions to the obligations of the parties
under this Agreement.
SECTION 6.04 Expenses. All fees and expenses incurred in connection
with the Business Sale, this Agreement and the transactions
contemplated by this Agreement shall be paid by the party incurring
such fees or expenses, whether or not the Business Sale is
consummated. Any stamp duty, value added tax or similar taxes payable
in connection with the Business Sale, this Agreement and the
transactions contemplated by this Agreement shall be paid by Buyer
SECTION 6.05 Public Announcements. The parties will use all
reasonable endeavours to consult with each other before issuing, and
provide each other the opportunity to review and comment upon, any
press release or other public statement with respect to the
transactions contemplated by this Agreement and shall not issue any
such press release or make any such public statement prior to such
consultation, except as may be required by applicable law, court
process or by obligations pursuant to any listing agreement with or
the rules of any securities exchange.
SECTION 6.06 Further Assurances. From time to time after the Closing
Date, each of the parties hereto will execute and deliver such other
and further instruments and documents as may be reasonably required
to carry out the provisions hereof and the transactions contemplated
hereby and fully and effectively to vest the Assets in the Buyer and
procure that Buyer obtains the full benefit thereof.
SECTION 6.07 Environmental Management. After the Closing Date Buyer
shall consult with Seller or Parent prior to undertaking any measures
whatsoever with respect to any proposed environmental investigation
or remediation activity and take into account any representations
made by Seller or Parent and shall consider in good faith any
reasonable request of Seller or Parent relating to any such proposed
environmental investigation or remediation activity. Unless required
by law to do so, Buyer will undertake no such environmental
investigation or remediation. Where it appears that any proposed
environmental investigation or remediation activity may involve
expenditure of more than $500,000, Buyer shall not undertake any
proposed environmental investigation or remediation activity without
Seller's and Parent's prior written consent (which shall not be
unreasonably withheld). The terms of reference for any proposed
environmental investigation or remediation activity and the manner in
which it is to be carried out shall be agreed between the parties.
Where the parties fail to agree upon any such matter, the parties
shall jointly instruct an independent environmental consultant with
relevant experience in relation to the subject matter of the proposed
activity to act as an expert (the "Expert") to determine that matter
and, if the parties cannot agree upon the appointment of an Expert,
or if either of the parties refuse to issue a formal appointment of
an Expert agreed between them, either party may apply to the
President for the time being of the Royal Institution of Chartered
Surveyors to select an Expert.
The above provisions shall not apply where the proposed environmental
investigation or remediation activity is legally required to be taken
pursuant to a mandatory order made by a regulatory authority having
responsibility for the environment acting lawfully or by order of a
court of law, in which case written notice giving full particulars
shall be provided to Seller and Parent as soon as possible and in any
case within 48 hours of the measures having been taken.
SECTION 6.08 Agreement Not To Compete.
(a) For and in consideration of the benefits to be derived,
directly and indirectly, from this Agreement, Seller and Parent
each covenant and agree that for a period of 5 years following
the Closing Date (the "Noncompetition Period"), it will not,
and will cause its affiliates not to, engage, directly or
indirectly, in any business that competes with the Business
("Competitive Business") as conducted at the Closing Date
(b) Notwithstanding paragraph (a) of this Section 6.08, Seller,
Parent and the affiliates of each shall not be prohibited from
(1) the acquisition, directly or indirectly, by asset purchase,
stock purchase, merger, consolidation or otherwise, ownership,
management or operation of any corporation, partnership or
other business entity partially engaged in a Competitive
Business, provided that such activities either (i) do not
exceed 15% of the revenues of such entity or (ii) involve the
manufacture of products competitive with the Business where all
such products are manufactured for incorporation solely into
other products of Parent or its affiliates intended to be
distributed to end users, or (2) the ownership of not more than
5% of any class of debt or publicly traded equity securities of
any corporation, partnership or other business entity engaged
in a Competitive Business. In the event that any provision of
this Section 6.08 shall be held invalid, illegal, void,
inoperative or unenforceable by a court of competent
jurisdiction by reason of the geographic or business scope or
the duration of such provision, such invalidity, illegality or
unenforceability shall attach only to the scope or duration of
such provision and shall not affect or render invalid, illegal,
void, inoperative or unenforceable any other provision of this
Agreement and, to the fullest extent permitted by law, this
Agreement shall be construed as if the geographic or business
scope or the duration of such provision had been more narrowly
drafted so as not to be invalid, illegal, void, inoperative or
unenforceable.
(c) Seller and Parent each covenant and agree that during the
Noncompetition Period it shall not, and shall not permit any of
its subsidiaries to, solicit, encourage or induce any employee
to discontinue his or its business relationship with Buyer in
respect of the Competitive Business. The foregoing shall not
prohibit general advertising by Seller or Parent that is not
targeted to such employees.
(d) Seller and Parent each agree that Buyer's remedy at law for any
breach of this Section 6.08 is inadequate and that in the event
of any such breach or violation by Seller, Parent or one of the
affiliates of either, Buyer shall be entitled to injunctive
relief in addition to any other remedy at law, in equity or
under this Agreement to which either or both may be entitled.
Without limiting the generality of the preceding sentence, the
parties acknowledge and agree that it is impossible to measure
in monies all of the damages that would accrue to Buyer by
reason of any breach of this Section 6.08. Seller and Parent
each waive in advance any claim or defense, in any action or
proceeding that may in the future be commenced by Buyer to
enforce such provisions, that Buyer has an adequate remedy at
law, and Seller and Parent each agree not to assert in any such
action that an adequate remedy at law exists.
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.01 Conditions to Each Party's Obligation To Effect the
Business Sale. The obligations of Seller to effect the Business Sale
and the obligations of Buyer to pay the Asset Purchase Price are
subject to the satisfaction or waiver on or prior to the date of the
Business Sale of the following conditions
(a) Shareholder Approval. Parent shall have obtained all approvals
of holders of Ordinary Shares necessary to approve this
Agreement and the Business Sale and all of the other
transactions contemplated hereby.
(b) HSR Act. The waiting period (and any extension thereof)
applicable to the Business Sale under the HSR Act shall have
been terminated or shall have expired.
(c) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Business Sale
shall be in effect; provided, however, that each of the parties
shall have used all reasonable efforts to prevent the entry of
any such injunction or other order and to appeal as promptly as
possible any such injunction or other order that may be
entered.
SECTION 7.02 Conditions to Obligations of Buyer. The obligations of
Buyer to effect the Business Sale are further subject to the
following conditions:
(a) Representations and Warranties. The representations and
warranties of Seller set forth in this Agreement shall be true
and correct in all material respects as of the date of the
coming into effect of the terms and conditions of this
Agreement and as of the Closing Date as though made on and as
of the Closing Date, except as otherwise specifically
contemplated by this Agreement, and Buyer shall have received a
certificate signed on behalf of each of Seller and Parent by
the chief executive officer and the chief financial officer of
each of Seller and Parent to such effect.
(b) Performance of Obligations of Seller and Parent. Seller and
Parent shall have performed in all material respects all
obligations required to be performed by them under this
Agreement at or prior to the Closing Date, and Buyer shall have
received a certificate signed on behalf of Seller and Parent by
the chief executive officer and the chief financial officer of
Seller and Parent to such effect
(c) Material Adverse Change. There shall not have been any
Material Adverse Change in the Business since the date of this
Agreement.
(d) European Commission. Buyer shall have received, in terms
reasonably satisfactory to Buyer, confirmation by way of
decision from the European Commission under the ECMR (with or
without the initiation of proceedings under Article 6(1)(c) of
the ECMR), that the Business Sale and any matters arising
therefrom or connected therewith are compatible with the common
market, and that there will not be a referral of the Business
Sale (and any matters arising therefrom or connected therewith)
to any competent authority or dealing with the Business Sale
(and any matters arising therefrom or connected therewith)
by the European Commission pursuant to Article 9(3) of the
ECMR.
(e) An Intellectual Property License Agreement in the form attached
as Exhibit 1 shall have been executed and delivered by Seller,
Varity Europe Limited, Varity Holdings Limited and Perkins
Engine Group Limited.
SECTION 7.03 Conditions to Obligation of Seller. The obligation of
Seller to effect the Business Sale is further subject to the
following conditions
(a) Representations and Warranties. The representations and
warranties of Buyer set forth in this Agreement shall be true
and correct in all material respects, in each case as of the
date of the coming into effect of the terms of this Agreement
and as of the Closing Date as though made on and as of the
Closing Date, except as otherwise specifically contemplated by
this Agreement, and Seller shall have received a certificate
signed on behalf of Buyer by its chief executive officer and
chief financial officer.
(b) Performance of Obligations of Buyer. Buyer shall have performed
in all material respects all material obligations required to
be performed by it under this Agreement at or prior to the
Closing Date, and Seller shall have received a certificate
signed on behalf of Buyer by its chief executive officer and
chief financial officer.
(c) An Intellectual Property License Agreement in the form attached
as Exhibit 1 shall have been executed and delivered by Buyer.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01 Termination. This Agreement may be terminated at any
time prior to the Business Sale whether before or after approval of
matters presented in connection with the Business Sale by the
shareholders of Parent:
(a) by mutual written consent of Buyer and Seller; or
(b) by either Buyer or Seller:
(i) if, upon a vote at a duly held Shareholders Meeting or
any adjournment thereof, the Required Vote shall not
have been obtained;
(ii) if the Business Sale shall not have been consummated on
or before June 30, 1998 (the "Termination Date"),
unless the failure to consummate the Business Sale is
the result of a wilful and material breach of this
Agreement by the party seeking to terminate this
Agreement;
(iii) if any Governmental Entity shall have issued an order,
decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the
Business Sale and such order, decree, ruling or other
action shall have become final (and, in respect of a
ruling or other action by a Governmental Entity, other
than the European Commission, nonappealable); o
(iv) in the event of a breach by the other party of any
representation, warranty, covenant or other agreement
contained in this Agreement which (A) would give rise
to the failure of a condition set forth in Section
7.02(a) or (b) or Section 7.03(a) or (b), as
applicable, and (B) cannot reasonably be or has not
been cured prior to the Termination Date after the
giving of written notice to the breaching party of such
breach (a "Material Breach") (provided that the
terminating party is not then in Material Breach of any
representation, warranty, covenant or other agreement
contained in this Agreement).
SECTION 8.02 Effect of Termination. In the event of termination of
this Agreement by either Seller or Buyer as provided in Section 8.01,
this Agreement shall forthwith become void and have no effect,
without any liability or obligation on the part of Seller, Parent, or
Buyer, other than the provisions of the last sentence of Section
6.02, Section 6.04, Section 6.05, and this Section 8.02 and except to
the extent that such termination results from the wilful and material
breach by a party of any of its representations, warranties,
covenants or agreements set forth in this Agreement.
SECTION 8.03 Amendment. This Agreement may be amended by the parties
at any time. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties or by
the oral acceptance of a written offer to amend it witnessed by a
solicitor independent of all parties.
SECTION 8.04 Extension; Waiver. At any time prior to the Closing
Date, the parties may (a) extend the time for the performance of any
of the obligations or other acts of the other parties, (b) waive any
inaccuracies in the representations and warranties contained in this
Agreement or in any document delivered pursuant to this Agreement or
(c) waive compliance with any of the agreements or conditions
contained in this Agreement. Any agreement on the part of a party to
any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party. The failure of
any party to this Agreement to assert any of its rights under this
Agreement or otherwise shall not constitute a waiver of such right
SECTION 8.05 Procedure for Termination, Amendment, Extension or
Waiver. A termination of this Agreement pursuant to Section 8.01, an
amendment of this Agreement pursuant to Section 8.03 or an extension
or waiver pursuant to Section 8.04 shall, in order to be effective,
require in the case of each of Seller, Parent, and Buyer, action by
its Board of Directors or the duly authorized designee of its Board
of Directors.
ARTICLE IX
INDEMNIFICATION
SECTION 9.01 Seller's Indemnity. Subject to the terms and
limitations of this Article IX, Seller shall indemnify Buyer and hold
it harmless from any and all losses, liabilities and damages
(including punitive or exemplary damages and fines or penalties and
any interest thereon), costs and expenses (including reasonable fees
and disbursements of counsel) ("Losses"), suffered or incurred by it
or any of its subsidiaries, affiliates, directors, officers,
employees or successors to the extent arising from (i) a breach of
the representations and warranties of Seller contained in the first
sentence of Section 4.01(a), Sections 4.01(c), 4.01(d), 4.01(i)(ii),
and 4.01(n) of this Agreement or (ii) any breach or non-fulfilment by
Seller or Parent of any agreement or covenant of Seller or Parent
contained in this Agreement or by reason of any claim, action or
proceeding asserted or instituted by a third party to the extent
relating or in any way pertaining to any matter or thing constituting
a breach or nonfulfilment of any such agreement or covenant, or (iii)
the failure of Parent to discharge when due any of the Excluded
Liabilities. Buyer may not assert any claim for indemnification under
this Article IX (a "Buyer Claim"), other than a claim referred to in
clause (ii) or (iii) of the preceding sentence, unless and until the
aggregate amount of such Buyer Claims assertible under this paragraph
shall exceed $5,000,000, and thereafter Seller shall indemnify Buyer
for all Losses in excess of $5,000,000; provided, that if the Buyer
Claim is made in respect of a breach of the representations and
warranties of Seller contained in Section 4.01(n), Seller shall only
be required to indemnify Buyer for 50% of the Losses otherwise
subject to the indemnification provisions hereunder which are
incurred with respect to such breach, provided, that Seller shall not
be obligated to indemnify Buyer for Losses in connection with
business interruption with respect to such breach. Buyer Claims of
less than $100,000 shall be disregarded for all purposes of this
Section 9.01.
SECTION 9.02 Survival of Representations and Warranties. The
representations and warranties of Seller and the indemnification
provisions with respect thereto shall not survive the Business
Closing except that the representations and warranties set forth in
the first sentence of Section 4.01(a), Sections 4.01(c), 4.01(d),
4.01(i)(ii) and 4.01(n) and the indemnification provisions with
respect thereto shall survive the Business Closing but shall
terminate at the close of business on (x) the completion of the first
audit of the financial statements of Buyer for the fiscal year of
Buyer during which the Business Closing occurs in respect of claims
based on Section 4.01(d) hereof, (y) the second anniversary of the
Business Closing in respect of claims based on Section 4.01(i)(ii)
and (z) the fourth anniversary of the Business Closing in respect of
claims based on Section 4.01(a) (but the first sentence only),
Section 4.01(c) and Section 4.01(n) hereof.
After the Business Closing, this Article IX shall provide the
exclusive remedy for any breach of a representation or warranty of
Seller. Buyer hereby waives any and all other rights or remedies at
law or in equity in connection therewith except as may be prohibited
by applicable law.
SECTION 9.03 Losses Net of Insurance. The amount of any and all
Losses under Section 9.01 shall be determined net of any amounts
recovered or recoverable by the indemnified party under insurance
policies, indemnities or other reimbursement arrangements with
respect to such Losses. Each party hereby waives, to the extent
permitted under its applicable insurance policies, any subrogation
rights that its insurer may have with respect to any indemnifiable
Losses.
SECTION 9.04 Procedures Relating to Indemnification.
(a) In order for a party (the "Indemnified Party") to be entitled
to any indemnification provided for under this Agreement, such
Indemnified Party must notify the indemnifying party in
writing, and in reasonable detail, of the Loss for which
indemnification is sought hereunder as promptly as reasonably
possible after receipt by a person having management
responsibility for such Indemnified Party of notice of such
Loss; provided, however, that failure to give such notification
on a timely basis shall not affect the indemnification provided
hereunder except to the extent the indemnifying party shall
have been actually prejudiced as a result of such failure.
Thereafter, the Indemnified Party shall deliver to the
indemnifying party within five business days after the
Indemnified Party's receipt thereof, copies of all notices and
documents (including court papers) received by the Indemnified
Party relating to the Loss. In the case of any indemnification
sought pursuant to Section 9.01(ii) or 9.01(iii), notice shall
be provided as described in the first sentence of this Section
9.04(a). Notwithstanding any other provision of this Article
IX, in the case of indemnification relating to (x) a breach of
any representation or warranty set forth in Section 4.01(d),
notice of such matter on which such right of indemnification is
based shall be given no later than the close of business on the
completion of the first audit of the Financial Statements of
Buyer for the fiscal year of Buyer during which the Business
Closing occurs, or (y) a breach of any representation or
warranty set forth in Section 4.01(i)(ii), notice of such
matter on which such right of indemnification is based shall be
given no later than the second anniversary of the Business
Closing, or (z) a breach of any representation or warranty set
forth in the first sentence of Section 4.01(a), Section 4.01(c)
or Section 4.01(n), notice of such matter on which such right
of indemnification is based shall be given no later than the
fourth anniversary of the Business Closing
(b) If a claim in respect of, arising out of or involving a claim
or demand made by any person. firm, governmental authority or
corporation against the Indemnified Party (a "Third Party
Claim") is made against an Indemnified Party, the indemnifying
party shall be entitled to notice thereof and to be fully
informed and consulted as to the defense thereof. The
Indemnified Party shall not admit any liability with respect
to, or settle, compromise or discharge, such Third Party Claim
without the indemnifying party's prior written consent (which
consent shall not be unreasonably withheld).
SECTION 9.05 Parent Guarantee. Parent hereby unconditionally and
irrevocably guarantees to Buyer the full and complete performance by
Seller of each of its obligations under this Agreement, in accordance
with the terms hereof. Parent shall not seek any indemnity or
contribution from Seller in respect of any liability of Parent to
Buyer under this Agreement, and waives all rights of subrogation
against Seller in respect of any such liability.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01 Notices. All notices, requests, claims, demands and
other communications under this Agreement shall be in writing and
shall be deemed given if delivered personally or sent by overnight
courier or transmitted by facsimile (providing proof of delivery) to
the parties at the following addresses (or at such other address for
a party as shall be specified by like notice):
(a) if to Seller, to
Perkins Limited
9 Upper Belgrave Street
London SW1
Attention: Tim Voak
Facsimile No: 0171 465 0630
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, NY 10005
Attention: Immanuel Kohn
Facsimile No.: (212) 269 5420
(b) if to Buyer, to
Caterpillar Inc.
100 N.E. Adams Street
Peoria, Illinois 61629-7310
Attention: R.R. Atterbury
Facsimile No.: (309) 675 6886
with a copy to:
Rogers & Wells
200 Park Avenue
New York, NY 10166
Attention: Klaus H. Jander
Facsimile No.: (212) 878 8375
SECTION 10.02. Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly
or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such first
person;
(b) "Material Adverse Change" or "Material Adverse Effect" means
any change or effect (or any development that, insofar as can
reasonably be foreseen, is likely to result in any change or
effect), except in respect of general economic or financial
conditions in the industry of which Seller is a part, that is
materially adverse to the business, properties, assets,
condition (financial or otherwise) or results of operations of
the Business taken as a whole;
(c) "person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or
other entity;
(d) a "subsidiary" of any person means another person, an amount of
the voting securities, other voting ownership or voting
partnership interests of which is sufficient to elect at least
a majority of its Board of Directors or other governing body
(or, if there are no such voting interests, 50% or more of the
equity interests of which) is owned directly or indirectly by
such first person;
(e) other terms used in this Agreement are defined in the
referenced Sections:
Defined Term Section
Business Closing 3.01
Asset Purchase Price 2.01
Business Sale Preamble
Assumed Liabilities 1.05
Interim Balance Sheet 4.01(d)
Buyer Disclosure Schedule 4.02
Benefit Plans 4.01(j)
Business Preamble
Buyer Preamble
Closing Date 3.01
Confidentiality Agreement 6.02
Disclosure Document 4.01(c)
ECMR 4.02(b)
Environmental Laws 4.01(n)
Exchange Act 5.01(c)
Excluded Assets 1.02
Excluded Liabilities 1.06
Excluded Subsidiaries 5.01
Financial Statements 4.01(d)
Funded Debt 1.06
Governmental Entity 4.01(c)
Hazardous Materials 4.01(n)
HSR Act 4.01(c)
ICTA 1988 2.01
Interim Balance Sheet 4.01(d)
Know-how 2.01
Liens 1.01
Non-Assignable Contracts 1.03
Non-Business Assets 5.01
Ordinary Shares Preamble
Parent Preamble
Parent Documents 4.01(d)
Permitted Liens 1.01
Release 4.01(n)
Required Vote 4.01(o)
Seller Preamble
Seller Disclosure Schedule 4.01
Shareholders Meeting 6.01
Trademark 1.01
Transfer Documents 3.02
U.K. Assets 1.01
U.K. Benefit Plan 4.01(k)
U.K. GAAP 2.03
U.K. Pension Plans 4.01(k)
SECTION 10.03 Interpretation. When a reference is made in this
Agreement to a Section or Exhibit, such reference shall be to a
Section of or an Exhibit to this Agreement unless otherwise
indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. Whenever the
words "include", "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation," and the word "or" shall not be exclusive unless the
context requires otherwise.
SECTION 10.04. Entire Agreement; No Third-Party Beneficiaries. This
Agreement and the Confidentiality Agreement (a) constitute the entire
agreement, and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject
matter of this Agreement and (b) are not intended to confer upon any
person other than the parties any rights or remedies.
SECTION 10.05 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York,
regardless of the laws that might otherwise govern under applicable
principles of conflicts of laws thereof, except that the rules of
English law as to the validity and enforceability of a contract
formed by the oral acceptance of a written offer shall apply instead
of Section 5-701 of the General Obligations Law of the State of New
York.
SECTION 10.06 Assignment. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be
assigned, in whole or in part, by operation of law or otherwise by
any of the parties without the prior written consent of the other
parties; provided, however, that Buyer may assign any of its rights,
interests or obligations under this Agreement, in whole or in part,
without such consent to any directly or indirectly wholly owned
subsidiary of Buyer (each, an "Assignee"). If Buyer assigns its
rights, interests or obligations under this Agreement in accordance
with this Section 10.06, all references to Buyer herein shall refer
to the applicable Assignee as well as to Buyer, and Buyer shall be
jointly and severally liable with respect to such Assignee's
performance of its respective obligations hereunder.
SECTION 10.07 Enforcement. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties waive
the defense in any action for specific performance that a remedy at
law would be adequate and that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and
to enforce specifically, without the necessity of proving actual
damage or securing or posting any bond or providing prior notice, the
terms and provisions of this Agreement in any court of the United
States located in the Southern District of New York, any New York
state court located in the Southern District of New York, any
Delaware state court or any court of competent jurisdiction located
in London, England, this being in addition to any other remedy to
which they are entitled at law or in equity. In addition, each of the
parties hereto (a) consents to submit itself to the personal
jurisdiction of the Federal District Court for the Southern District
of New York, any New York state court located in the Southern
District of New York, any Delaware state court and any court of
competent jurisdiction located in London, England in the event any
dispute arises out of this Agreement or any of the transactions
contemplated by this Agreement, (b) agrees that it will not attempt
to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court and (c) agrees that it will not
bring any action relating to this Agreement or any of the
transactions contemplated by this Agreement in any court other than a
Federal District Court for the Southern District of New York, a New
York state court located in the Southern District of New York, a
Delaware state court or a court of competent jurisdiction located in
London, England. The provisions of this Section 10.07 are subject to
the provisions of Section 10.10.
SECTION 10.08 Waivers of Jury Trial. Each of the parties hereto
irrevocably and unconditionally waives trial by jury in any legal
action or proceeding relating to this Agreement or the transactions
contemplated hereby and for any counterclaim therein
SECTION 10.09 Dispute Resolution.
(a) Dispute resolution under the procedures provided in this
Section 10.09 shall be the exclusive remedy for all disputes
between the parties in respect of a breach of any term of this
Agreement. Each party agrees not to resort to any court, agency
or private group with respect to such disputes except in
accordance with this Section 10.09.
(b) In any disputes arising out of or relating to the performance
of this Agreement the parties shall attempt reasonably to
resolve such disputes in good faith by negotiation between
senior executives of each.
(c) If any such dispute has not been resolved by negotiation
between senior executives of the parties within a period of
thirty calendar days (or such other reasonable amount of time
as the parties may in good faith agree is warranted by the
circumstances), the dispute shall be settled exclusively by
arbitration, as described in this Section 10.09 pursuant to the
applicable rules of the American Arbitration Association, such
arbitration to be conducted in the City of New York. If, for
any reason, certain claims or disputes are deemed to be
non-arbitrable, the non-arbitrability of those claims or
disputes shall in no way affect the arbitrability of any other
claims or disputes. The parties may initiate the arbitration
procedures set forth in this Section 10.09 by providing notice
to the other party, as provided in this Section 10.09, and to
the American Arbitration Association of the existence of a
dispute to be arbitrated.
(d) Arbitration shall be conducted by one arbitrator to be selected
by the parties. The arbitrator shall be an attorney licensed to
practice law and familiar with the rules of evidence and shall
be generally knowledgeable with respect to business issues that
would reasonably be expected to arise in relation to this
Agreement being submitted to arbitration. If the parties are
unable to agree on an arbitrator within 15 calendar days of the
effective delivery of the notice required by Section 10.10(c),
then the American Arbitration Association shall appoint the
arbitrator. The arbitrator shall not be an officer, director or
employee of either party or any of their respective affiliates.
The decision of the arbitrator shall be final and binding upon
the parties. The arbitrator shall provide reasoned, written
opinions for all decisions.
(e) All hearings that may be required shall be concluded within
sixty calendar days (or such other reasonable amount of time as
the parties may in good faith agree is warranted by the
circumstances) after the selection of the arbitrator. The
arbitrator shall render his award within fifteen calendar days
after the last hearing.
(f) The parties may by written notice to one another and to the
arbitrator freely specify further controversies or claims to be
arbitrated up until the date of any pre-hearing conference held
by the arbitrator for such purpose. Thereafter, additional
controversies or claims may be added only with the consent of
the arbitrator.
(g) The arbitrator may make interim awards and may award equitable
and declaratory relief; provided, however, that the arbitrator
may not order the termination of this Agreement for any reason
other than as expressly set forth in Article VIII hereof.
(h) The costs and expenses of the Arbitration (including reasonable
attorneys' fees) shall be allocated by the arbitrator between
the parties as the arbitrator sees fit.
(i) The arbitrator shall not consider, nor shall any award include
amounts for, punitive or exemplary damages.
(j) Notwithstanding any other provision of this Section 10.09,
either party may seek from any court of competent jurisdiction
specified in Section 10.07 interim relief, including but not
limited to temporary restraining orders, preliminary
injunctions, and other interim equitable relief as the same may
vary from jurisdiction to jurisdiction, in aid of arbitration
or to protect the rights of a party pending the appointment of
the arbitrator and rendering the arbitration decision.
(k) In addition to the available remedy or remedies, in an action
to enforce a decision of the arbitrators, the prevailing party
shall be entitled to its reasonable attorneys' fees, expert
fees, costs and expenses without regard to the local rules of
the district in which the suit is brought.
SECTION 10.10 RTPA. Notwithstanding any other provisions of this
Agreement (or any other agreement which, together with this
Agreement, may form part of an agreement for the purposes of the
Restrictive Trade Practices Act 1976 (the "Act") (together, the
"RTPA Agreement"), each party hereto declares that it will not give
effect, and will procure that none of their subsidiaries shall give
effect, to any restriction or restrictions contained in the RTPA
Agreement which cause the RTPA Agreement to be registrable under the
Act until one day after particulars of the RTPA Agreement shall have
been furnished to the Director General of Fair Trading.
SECTION 10.11 Severability. If any provision of this Agreement or the
application of any such provision to any person or circumstance is
held invalid, illegal or unenforceable in any respect by a court of
competent jurisdiction, such invalidity, illegality or
unenforceability will not affect any other provision hereof
SECTION 10.12 Value Added Tax. All amounts expressed in this
Agreement as payable by the Buyer are expressed exclusive of any VAT
that may be chargeable thereon. Buyer and Seller intend that Art. 5
of the Value Added Tax (Special Provisions) Order 1995 shall apply to
the transfer of the Assets hereunder and accordingly: (i) Buyer and
Seller shall as soon as reasonably practicable after this Agreement
is made give notice of the transfer to H.M. Customs & Excise; and
(ii) shall in their dealings with H.M. Customs & Excise, Buyer and
Seller use all reasonable endeavors to secure that, the sale of the
Assets pursuant to this Agreement is treated pursuant to the said
Art. 5 as neither a supply of goods nor a supply of services for the
purposes of VAT.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM FINANCIAL STATEMENTS FOR THREE-MONTHS
ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 150
<SECURITIES> 156
<RECEIVABLES> 3,794<F1>
<ALLOWANCES> 0<F1><F2>
<INVENTORY> 3,091
<CURRENT-ASSETS> 10,876
<PP&E> 12,335
<DEPRECIATION> 7,959
<TOTAL-ASSETS> 23,577
<CURRENT-LIABILITIES> 7,437
<BONDS> 8,316
0<F2>
0<F2>
<COMMON> 407
<OTHER-SE> 4,602
<TOTAL-LIABILITY-AND-EQUITY> 23,577
<SALES> 4,573
<TOTAL-REVENUES> 4,794
<CGS> 3,334
<TOTAL-COSTS> 4,177
<OTHER-EXPENSES> (73)
<LOSS-PROVISION> 0<F2>
<INTEREST-EXPENSE> 61
<INCOME-PRETAX> 629
<INCOME-TAX> 207
<INCOME-CONTINUING> 430
<DISCONTINUED> 0<F2>
<EXTRAORDINARY> 0<F2>
<CHANGES> 0<F2>
<NET-INCOME> 430
<EPS-PRIMARY> $1.17
<EPS-DILUTED> $1.15
<FN>
<F1> Notes and accounts receivable - trade are reported net of allowances
for doubtful accounts in the Statement of Financial Position.
<F2> Amounts inapplicable or not disclosed as a separate line on the
Statement of Financial Position or Results of Operations are reported as
0 herein.
</FN>
</TABLE>
