<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-13098
----------------
CASE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0433811
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
700 STATE STREET, RACINE, WI 53404
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (414) 636-6011
----------------
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 [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common Stock, par value $0.01 per share: 74,444,695 shares outstanding as of
June 30, 1998.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I--Financial Information
Case Corporation and Consolidated Subsidiaries--
Statements of Income.................................................. 3
Balance Sheets........................................................ 5
Statements of Cash Flows.............................................. 6
Statements of Changes in Stockholders' Equity......................... 7
Notes to Financial Statements......................................... 8
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 12
Part II--Other Information
Item 1. Legal Proceedings............................................... 19
Item 2. Changes in Securities........................................... *
Item 3. Defaults Upon Senior Securities................................. *
Item 4. Submission of Matters to a Vote of Security Holders............. 19
Item 5. Other Information............................................... *
Item 6. Exhibits and Reports on Form 8-K................................ 19
</TABLE>
- --------
*No response to this item is included herein for the reason that it is
inapplicable or the answer to such item is negative.
2
<PAGE>
PART I
FINANCIAL INFORMATION
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
CONSOLIDATED
---------------------------
THREE MONTHS SIX MONTHS
ENDED JUNE ENDED JUNE
30, 30,
------------- -------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
Net sales......................................... $1,672 $1,547 $2,984 $2,723
Interest income and other......................... 62 54 131 110
------ ------ ------ ------
1,734 1,601 3,115 2,833
Costs and Expenses:
Cost of goods sold................................ 1,274 1,153 2,293 2,063
Selling, general and administrative............... 155 143 301 277
Research, development and engineering............. 57 46 109 92
Interest expense.................................. 57 40 104 79
Other, net........................................ 9 17 24 25
------ ------ ------ ------
Income before taxes................................. 182 202 284 297
Income tax provision................................ 56 64 89 95
------ ------ ------ ------
126 138 195 202
Equity in income--Case Credit....................... -- -- -- --
------ ------ ------ ------
Net income.......................................... $ 126 $ 138 $ 195 $ 202
====== ====== ====== ======
Preferred stock dividends........................... 1 1 3 3
------ ------ ------ ------
Net income to common................................ $ 125 $ 137 $ 192 $ 199
====== ====== ====== ======
Per share data:
Basic earnings per share of common stock.......... $ 1.68 $ 1.86 $ 2.59 $ 2.70
====== ====== ====== ======
Diluted earnings per share of common stock........ $ 1.61 $ 1.75 $ 2.48 $ 2.57
====== ====== ====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
Statements of Income.
Reference is made to Note 1 for definitions of "Case Industrial" and "Case
Credit."
3
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
CASE INDUSTRIAL CASE CREDIT
---------------------------- -------------------------
THREE MONTHS SIX MONTHS THREE MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
-------------- ------------- ------------- -----------
1998 1997 1998 1997 1998 1997 1998 1997
------ ------ ------ ------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Net sales............. $1,672 $1,547 $2,984 $2,723 $ -- $ -- $ -- $ --
Interest income and
other................ 8 8 16 18 80 60 156 126
------ ------ ------ ------ ------ ------ ----- -----
1,680 1,555 3,000 2,741 80 60 156 126
Costs and Expenses:
Costs of goods sold... 1,274 1,153 2,293 2,063 -- -- -- --
Selling, general and
administrative....... 169 151 321 296 12 7 21 15
Research, development
and engineering...... 57 46 109 92 -- -- -- --
Interest expense...... 26 17 44 35 31 22 60 44
Other, net............ (1) 11 6 15 10 6 18 10
------ ------ ------ ------ ------ ------ ----- -----
Income before taxes..... 155 177 227 240 27 25 57 57
Income tax provision.... 47 56 69 77 9 8 20 18
------ ------ ------ ------ ------ ------ ----- -----
108 121 158 163 18 17 37 39
Equity in income--Case
Credit................. 18 17 37 39 -- -- -- --
------ ------ ------ ------ ------ ------ ----- -----
Net income.............. $ 126 $ 138 $ 195 $ 202 $ 18 $ 17 $ 37 $ 39
====== ====== ====== ====== ====== ====== ===== =====
</TABLE>
The accompanying notes to financial statements are an integral part of these
Statements of Income.
Reference is made to Note 1 for definitions of "Case Industrial" and "Case
Credit."
4
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1998, AND DECEMBER 31, 1997
(IN MILLIONS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
CONSOLIDATED CASE INDUSTRIAL CASE CREDIT
---------------------- ---------------------- ---------------------
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
ASSETS 1998 1997 1998 1997 1998 1997
------ -------- ------------ -------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash
equivalents........... $ 115 $ 252 $ 94 $ 185 $ 21 $ 67
Accounts and notes
receivable............ 2,532 2,053 1,790 1,459 745 705
Inventories............ 1,363 1,064 1,363 1,064 -- --
Deferred income taxes.. 181 191 165 175 16 16
Prepayments and other.. 43 40 42 40 1 --
------- ------ ------- ------ ------ ------
Total current assets. 4,234 3,600 3,454 2,923 783 788
------- ------ ------- ------ ------ ------
Long-Term Receivables... 1,820 1,605 221 252 1,579 1,340
Other Assets:
Investments in joint
ventures.............. 79 82 64 66 15 16
Investment in Case
Credit................ -- -- 391 357 -- --
Goodwill and
intangibles........... 327 319 327 319 -- --
Other.................. 630 376 187 173 462 215
------- ------ ------- ------ ------ ------
Total other assets... 1,036 777 969 915 477 231
------- ------ ------- ------ ------ ------
Property, Plant and
Equipment, at cost..... 2,028 1,987 2,024 1,983 4 4
Accumulated
Depreciation........... (1,007) (988) (1,006) (987) (1) (1)
------- ------ ------- ------ ------ ------
Net property, plant
and equipment....... 1,021 999 1,018 996 3 3
------- ------ ------- ------ ------ ------
Total................ $ 8,111 $6,981 $ 5,662 $5,086 $2,842 $2,362
======= ====== ======= ====== ====== ======
<CAPTION>
LIABILITIES AND EQUITY
----------------------
<S> <C> <C> <C> <C> <C> <C>
Current Liabilities:
Current maturities of
long-term debt........ $ 5 $ 8 $ 5 $ 8 $ -- $ --
Short-term debt........ 2,047 1,326 690 179 1,357 1,147
Accounts payable....... 728 708 699 753 31 27
Other accrued
liabilities........... 742 828 715 799 27 67
------- ------ ------- ------ ------ ------
Total current
liabilities......... 3,522 2,870 2,109 1,739 1,415 1,241
------- ------ ------- ------ ------ ------
Long-Term Debt.......... 1,679 1,404 671 669 1,008 735
Other Liabilities:
Pension benefits....... 108 109 108 109 -- --
Other postretirement
benefits.............. 150 137 150 137 -- --
Other postemployment
benefits.............. 38 38 38 38 -- --
Other.................. 186 147 160 120 26 27
------- ------ ------- ------ ------ ------
Total other
liabilities......... 482 431 456 404 26 27
------- ------ ------- ------ ------ ------
Commitments and
Contingencies (Note 6)
Minority Interest....... 8 2 6 -- 2 2
Preferred Stock with
Mandatory Redemption
Provisions............. 77 77 77 77 -- --
Stockholders' Equity:
Common Stock, $0.01 par
value; authorized
200,000,000 shares,
issued 77,028,106,
outstanding
74,444,695............ 1 1 1 1 -- --
Paid-in capital........ 1,380 1,334 1,380 1,334 244 244
Cumulative translation
adjustment............ (114) (94) (114) (94) (19) (16)
Unearned compensation
on restricted stock... (19) (14) (19) (14) -- --
Pension liability
adjustment............ (8) (8) (8) (8) -- --
Retained earnings...... 1,258 1,074 1,258 1,074 166 129
Treasury stock,
2,583,411 shares, at
cost.................. (155) (96) (155) (96) -- --
------- ------ ------- ------ ------ ------
Total stockholders'
equity.............. 2,343 2,197 2,343 2,197 391 357
------- ------ ------- ------ ------ ------
Total................ $ 8,111 $6,981 $ 5,662 $5,086 $2,842 $2,362
======= ====== ======= ====== ====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
Balance Sheets.
Reference is made to Note 1 for definitions of "Case Industrial" and "Case
Credit."
5
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE MONTHS ENDED JUNE 30, 1998 AND 1997
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
CONSOLIDATED CASE INDUSTRIAL CASE CREDIT
------------------ ------------------ ------------------
SIX MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30,
------------------ ------------------ ------------------
1998 1997 1998 1997 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Operating activities:
Net income............ $ 195 $ 202 $ 195 $ 202 $ 37 $ 39
Adjustments to
reconcile net income
to net cash provided
(used) by operating
activities--
Depreciation and
amortization......... 88 80 71 70 17 10
Deferred income tax
expense (benefit).... 12 9 12 11 -- (2)
(Gain) loss on
disposal of fixed
assets............... 1 (1) 1 (1) -- --
Cash paid for
restructuring........ (21) (55) (21) (55) -- --
Undistributed
(earnings) loss of
unconsolidated
subsidiaries......... (5) (16) (39) (52) 1 --
Changes in components
of working capital--
(Increase) decrease in
receivables.......... (501) (326) (342) (194) (51) (125)
(Increase) decrease
in inventories...... (293) (251) (293) (251) -- --
(Increase) decrease
in prepayments and
other current
assets.............. (3) 17 (3) 17 -- --
Increase (decrease)
in payables......... 65 41 (47) 51 4 (18)
Increase (decrease)
in accrued
liabilities......... (107) 22 (68) 24 (39) (2)
(Increase) decrease in
long-term
receivables.......... (246) (16) 24 117 (263) (133)
Increase (decrease) in
other liabilities.... 54 (4) 54 (4) -- --
Other, net............ (59) 7 (18) 7 (52) 3
-------- -------- -------- -------- -------- --------
Net cash provided
(used) by operating
activities......... (820) (291) (474) (58) (346) (228)
-------- -------- -------- -------- -------- --------
Investing activities:
Proceeds from sale of
businesses and
assets............... 1 9 1 9 -- --
Expenditures for
property, plant and
equipment............ (49) (36) (49) (35) -- (1)
Expenditures for
equipment on
operating leases..... (189) (51) -- -- (189) (51)
Acquisitions and
investments.......... (40) (8) (40) (8) -- --
-------- -------- -------- -------- -------- --------
Net cash provided
(used) by investing
activities......... (277) (86) (88) (34) (189) (52)
-------- -------- -------- -------- -------- --------
Financing activities:
Proceeds from issuance
of long-term debt.... 279 -- -- -- 279 --
Payment of long-term
debt................. (8) -- (8) -- -- --
Net increase
(decrease) in short-
term debt and
revolving credit
facilities........... 718 430 508 90 210 335
Capital contributions. -- -- -- (20) -- 20
Proceeds from issuance
of common stock...... 46 22 46 22 -- --
Repurchases of common
stock................ (58) -- (58) -- -- --
Dividends paid (common
and preferred)....... (11) (10) (11) (10) -- --
Other, net............ (5) (2) (5) (2) -- --
-------- -------- -------- -------- -------- --------
Net cash provided
(used) by financing
activities......... 961 440 472 80 489 355
-------- -------- -------- -------- -------- --------
Effect of foreign
exchange rate changes
on cash and cash
equivalents........... (1) (2) (1) (2) -- --
-------- -------- -------- -------- -------- --------
Increase (decrease) in
cash and cash
equivalents........... $ (137) $ 61 $ (91) $ (14) $ (46) $ 75
Cash and cash
equivalents, beginning
of period............. 252 116 185 99 67 17
-------- -------- -------- -------- -------- --------
Cash and cash
equivalents, end of
period................ $ 115 $ 177 $ 94 $ 85 $ 21 $ 92
======== ======== ======== ======== ======== ========
Cash paid during the
period for interest... $ 96 $ 78 $ 40 $ 35 $ 56 $ 43
======== ======== ======== ======== ======== ========
Cash paid during the
period for taxes...... $ 88 $ 95 $ 62 $ 76 $ 26 $ 19
======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
Statements of Cash Flows.
Reference is made to Note 1 of "Case Industrial" and "Case Credit."
6
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE PENSION
COMMON PAID-IN TRANSLATION UNEARNED LIABILITY RETAINED TREASURY
STOCK CAPITAL ADJUSTMENT COMPENSATION ADJUSTMENT EARNINGS STOCK TOTAL
------ ------- ----------- ------------ ---------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1996................... $ 1 $1,238 $ (14) $ (9) (4) $ 693 $ (1) $1,904
Net income............. -- -- -- -- -- 403 -- 403
Dividends declared..... -- -- -- -- -- (22) -- (22)
Translation adjustment. -- -- (80) -- -- -- -- (80)
Capital contributions
on stock issuance..... -- 84 -- -- -- -- -- 84
Recognition of
compensation on
restricted stock...... -- -- -- 6 -- -- -- 6
Issuance of restricted
stock, net of
forfeitures........... -- 12 -- (11) -- -- (1) --
Pension liability
adjustment............ -- -- -- -- (4) -- -- (4)
Acquisition of treasury
stock................. -- -- -- -- -- -- (94) (94)
--- ------ ----- ---- ---- ------ ----- ------
BALANCE, DECEMBER 31,
1997................... 1 1,334 (94) (14) (8) 1,074 (96) 2,197
Net income............. -- -- -- -- -- 195 -- 195
Dividends declared..... -- -- -- -- -- (11) -- (11)
Translation adjustment. -- -- (20) -- -- -- -- (20)
Capital contributions
on stock issuance..... -- 37 -- -- -- -- -- 37
Recognition of
compensation on
restricted stock...... -- -- -- 3 -- -- -- 3
Issuance of restricted
stock, net of
forfeitures........... -- 9 -- 8 -- -- (1) --
Acquisition of treasury
stock................. -- -- -- -- -- -- (58) (58)
--- ------ ----- ---- ---- ------ ----- ------
BALANCE, JUNE 30, 1998.. $ 1 $1,380 $(114) $(19) $(8) $1,258 $(155) $2,343
=== ====== ===== ==== ==== ====== ===== ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
Statements of Changes in Stockholders' Equity.
7
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying financial statements reflect the consolidated results of
Case Corporation ("Case" or the "Company") and also include, on a separate and
supplemental basis, the combination of Case's industrial companies and credit
companies as follows:
Case Industrial--The financial information captioned "Case Industrial"
reflects the consolidation of all majority-owned subsidiaries
except for the wholly owned retail credit subsidiaries. The
credit operations are included on an equity basis.
Case Credit --The financial information captioned "Case Credit" reflects the
consolidation of Case's retail credit subsidiaries.
All significant intercompany transactions, including activity within and
between Case Industrial and Case Credit, have been eliminated.
In the opinion of management, the accompanying unaudited financial
statements of Case Corporation and Consolidated Subsidiaries contain all
adjustments which are of a normal recurring nature necessary to present fairly
the financial position as of June 30, 1998, and the results of operations,
changes in stockholders' equity and cash flows for the periods indicated. It
is suggested that these interim financial statements be read in conjunction
with the financial statements and notes thereto included in the Company's 1997
Annual Report on Form 10-K. Interim financial results are not necessarily
indicative of operating results for an entire year.
Certain reclassifications have been made to conform the prior years'
financial statements to the 1998 presentation.
(2) ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." This
statement establishes standards for the reporting and display of comprehensive
income and its components. Components of comprehensive income include net
income and all other non-owner changes in equity. SFAS No. 130 requires that
an enterprise classify items of comprehensive income by their nature in a
financial statement for the period in which they are recognized. For interim
reporting, the Company has chosen to disclose comprehensive income in the
Notes to Financial Statements. See Note 9, "Comprehensive Income."
Effective January 1, 1998, the Company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." This statement
standardizes the disclosure requirements for pensions and other postretirement
benefits.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. This statement must be adopted no later than January 1,
2000, although earlier application is permitted. The Company is currently
evaluating the impact of adopting SFAS No. 133.
Effective January 1, 1998, the Company adopted Statement of Position ("SOP)"
No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use." The Company's accounting for costs of computer software
developed or obtained for internal use is consistent with the guidelines
established in the SOP and, as a result, the adoption of this statement had no
effect on the Company's financial position or results of operations.
8
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Case will adopt SOP No. 98-5, "Reporting on the Costs of Start-Up
Activities," effective January 1, 1999. Adoption of this statement will have no
material effect on the Company's financial position or results of operations.
(3) INVENTORIES
Inventories are stated at the lower of cost or market, generally using the
first-in, first-out (FIFO) method. Inventory cost includes material, labor and
overhead.
Inventories consist of the following (in millions):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
<S> <C> <C>
Raw materials....................................... $ 264 $ 207
Work-in-process..................................... 176 135
Finished goods...................................... 923 722
------ ------
Total inventories................................... $1,363 $1,064
====== ======
</TABLE>
(4) ASSET-BACKED SECURITIZATIONS
During the first half of 1998, limited-purpose business trusts organized by
Case Credit issued $766 million of asset-backed securities to outside
investors, of which $50 million was issued pursuant to a private placement. As
of June 30, 1998, Case Credit has sold $753 million of U.S. and Canadian retail
notes to the trusts in connection with these issuances. Case Credit will sell
the remaining retail notes to the trusts as receivables are generated. During
the first half of 1997, limited-purpose business trusts organized by Case
Credit issued $830 million of asset-backed securities to outside investors. As
of June 30, 1997, Case Credit had sold $822 million of U.S. and Canadian retail
notes to the trusts in connection with these issuances. The proceeds from the
sale of the retail notes were used to repay outstanding debt and to finance
additional receivables.
(5) INCOME TAXES
On a consolidated basis, the Company's first half effective income tax rate
of 31% for 1998 and 32% for 1997 were lower than the U.S. statutory tax rate of
35%, primarily due to recognition of tax benefits associated with the Company's
foreign sales corporation, research and development tax credits and a reduction
in the tax valuation reserve in certain foreign jurisdictions, partially offset
by state income taxes and foreign income taxed at different rates.
(6) COMMITMENTS AND CONTINGENCIES
Environmental
Expenditures for ongoing compliance with environmental regulations that
relate to current operations are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations and
which do not contribute to current or future revenue generation are expensed.
Liabilities are recorded when environmental assessments indicate that remedial
efforts are probable and the costs can be reasonably estimated. Estimates of
the liability are based upon currently available facts, existing technology and
presently enacted laws and regulations. All available evidence is considered,
including prior experience in remediation of contaminated sites, other parties'
share of liability at the waste sites and their ability to pay and data
concerning the waste sites
9
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
released by the U.S. Environmental Protection Agency or other organizations.
These liabilities are included in the accompanying Balance Sheets at their
undiscounted amounts. Recoveries are evaluated separately from the liability
and, if appropriate, are recorded separately from the associated liability in
the accompanying Balance Sheets.
Case has received and from time to time receives inquiries and/or notices of
potential liability at multiple sites that are the subject of remedial
activities under Federal or state environmental laws and Case may be required
to share in the cost of clean-up. Case is also involved in remediating a
number of other sites, including certain of its currently and formerly
operated facilities or those assumed through corporate acquisitions. Based
upon information currently available, management is of the opinion that any
such potential liability or remediation costs will not have a material adverse
effect on Case's financial position or results of operations.
Product liability
Product liability claims against Case arise from time to time in the
ordinary course of business. There is an inherent uncertainty as to the
eventual resolution of unsettled claims. However, in the opinion of
management, any losses with respect to existing claims will not have a
material adverse effect on Case's financial position or results of operations.
Other
Case is the subject of various other legal claims arising from its
operations, including product warranty, dealer disputes, workmen's
compensation and employment matters. Management is of the opinion that the
resolution of these claims, individually and in the aggregate, will not have a
material adverse effect on Case's financial position or results of operations.
(7) ACQUISITIONS
During the second quarter of 1998, the Company acquired certain assets of
the Tyler Industries division ("Tyler") of IBOCO, Inc., a privately owned
company. The acquisition of Tyler, a designer, manufacturer and distributor of
a complete line of chemical and fertilizer sprayers and applicators,
strengthens Case's equipment line for large-scale production agriculture and
provides another application for Case's Advanced Farming Systems. Tyler, with
operations in Benson, Minnesota, had sales of approximately $66 million in
1997.
(8) EARNINGS PER SHARE OF COMMON STOCK
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -----------------
1998 1997 1998 1997
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Earnings per average share of common
stock (shares in millions):
Basic
Net earnings per share of common
stock................................ $ 1.68 $ 1.86 $ 2.59 $ 2.70
--------- --------- -------- --------
Weighted-average shares outstanding... 73.9 73.7 73.9 73.6
Diluted
Net earnings per share of common
stock................................ $ 1.61 $ 1.75 $ 2.48 $ 2.57
--------- --------- -------- --------
Weighted-average shares outstanding,
assuming full dilution............... 78.4 78.9 78.5 78.7
</TABLE>
10
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(9) COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." The components of comprehensive income for the three
and six months ended June 30, 1998 and 1997, are as follows (in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ------------------
1998 1997 1998 1997
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Net income........................... $ 126 $ 138 $ 195 $ 202
Pension liability adjustment, net of
taxes............................... -- -- -- --
Translation adjustment, net of taxes. (13) (14) (20) (48)
--------- --------- -------- --------
Comprehensive income................. $ 113 $ 124 $ 175 $ 154
========= ========= ======== ========
</TABLE>
(10) OTHER MATTERS
The Company's contract with the United Automobile, Aerospace and
Agricultural Implement Workers of America (the "UAW") expired on March 29,
1998. During the second quarter, UAW-represented workers ratified a new 73
month labor agreement with the Company.
The UAW represents approximately 3,300 Case employees at facilities in
Burlington, Iowa; East Moline, Illinois; Burr Ridge, Illinois; Racine,
Wisconsin; and St. Paul, Minnesota.
(11) SUBSEQUENT EVENTS
During the second quarter of 1998, Case Credit Corporation increased its
$550 million medium-term note program to $1 billion pursuant to a shelf
registration statement filed with the Securities and Exchange Commission in
May 1998. During the third quarter, and as of the date of this filing, Case
Credit has issued $350 million of its fixed and floating rate medium-term
notes under this program, with maturities of two to three years and interest
rates ranging from 5.9% to 6.1%.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ANALYSIS OF RESULTS OF OPERATIONS
Three Months Ended June 30, 1998 vs. Three Months Ended June 30, 1997
EARNINGS
The Company recorded net income of $126 million for the second quarter of
1998, down 9% or $12 million from $138 million for the second quarter of 1997.
Diluted earnings per share for the second quarter of 1998 was $1.61 per share
as compared to $1.75 per share in the same quarter of 1997, primarily
reflecting the year-over-year decrease in net income partially offset by a
decrease in the number of common shares outstanding.
The Company's industrial operations recorded income, before equity income of
Case Credit, of $108 million in the second quarter of 1998 versus $121 million
in the comparable quarter of 1997. On a pretax basis, the Company's industrial
operations recorded earnings of $155 million in comparison to $177 million in
the same quarter of 1997. The industrial effective income tax rate decreased
from 32% in the second quarter of 1997 to 30% in the second quarter of 1998,
primarily due to tax benefits associated with the Company's foreign sales
corporation, research and development tax credits and reductions in the tax
valuation reserves in certain foreign jurisdictions, partially offset by state
income taxes and foreign income taxed at different rates.
Case's operating earnings for the second quarter of 1998 were $199 million
versus $211 million for the same period in 1997. Case defines operating
earnings as industrial earnings before interest, taxes, changes in accounting
principles and extraordinary items, including the income of Case Credit on an
equity basis. The year-over-year decrease in operating earnings is primarily
attributable to expenses and operating inefficiencies related to the Company's
negotiations with the United Automobile, Aerospace and Agricultural Implement
Workers of America (the "UAW"), unfavorable foreign exchange rates, including
a 17% decline in the value of the Australian dollar, and substantially higher
new product launch expenses, partially offset by pricing and cost reduction
initiatives. The Company's contract with the UAW expired on March 29, 1998.
During the second quarter, UAW-represented workers ratified a new 73 month
labor agreement with the Company.
A reconciliation of the Company's industrial net income to operating
earnings is as follows (in millions):
<TABLE>
<CAPTION>
CASE INDUSTRIAL
-------------------
THREE MONTHS ENDED
JUNE 30,
-------------------
1998 1997
--------- ---------
<S> <C> <C>
Net income............................................ $ 126 $ 138
Income tax provision.................................. 47 56
Interest expense...................................... 26 17
--------- ---------
Operating earnings................................ $ 199 $ 211
========= =========
</TABLE>
REVENUES
On a consolidated basis, worldwide revenues increased $133 million or 8% in
the second quarter of 1998 to $1,734 million. Net sales of equipment and parts
increased $125 million or 8% to $1,672 million. The increase in net sales
consists primarily of an 8% volume increase and a 2% improvement in price
realization, partially offset by a 2% deterioration resulting from the impact
of foreign exchange. Net sales in the second quarter of 1998 increased in
North America and Europe, with year-over-year increases of 12% and 7%,
respectively. In addition, net sales in the Company's Latin American region
increased 35% as compared to the prior year. Net sales in the Asia Pacific
region were down 30% versus the prior year due to continued unfavorable
economic conditions in that region. Worldwide, net sales of agricultural
equipment increased 2% over the comparable period in 1997, while second
quarter net sales of construction equipment increased 22% over the same period
in 1997.
12
<PAGE>
NET SALES
Worldwide net sales of agricultural equipment increased 2% in the second
quarter of 1998 as compared to the second quarter of 1997. The increase in
sales of agricultural equipment in North America was driven by increases in
sales of tractors, hay and forage equipment and implements, partially offset
by decreased sales of combines and cotton pickers. In Europe, the Company
experienced higher year-over-year second quarter sales of combines, cotton
pickers, hay and forage equipment and implements, partially offset by
decreased tractor sales. Year-over-year sales in the Company's Asia Pacific
region decreased, reflecting continued unfavorable economic conditions in that
region. The decrease in agricultural sales in the Asia Pacific region reflects
lower sales of sugar cane harvesters, MAGNUM(TM) and four-wheel drive tractors
and combines, partially offset by increased sales of cotton pickers. In the
Company's Latin American region, the Company experienced increases in year-
over-year sales of tractors, combines and cotton pickers, partially offset by
decreased sales of sugar cane harvesters.
Worldwide net sales of construction equipment increased 22% in the second
quarter of 1998 as compared to the second quarter of 1997. In North America,
second quarter sales of construction equipment increased in all product
categories, led by increased sales of loader/backhoes, skid steers, excavators
and wheel loaders. Net sales of construction equipment in Europe increased in
virtually all product categories, led by significant increases in sales of
excavators, loader/backhoes and skid steers. In the Company's Asia Pacific
region, sales of construction equipment were primarily impacted by lower sales
of loader/backhoes, partially offset by higher excavator and wheel loader
sales, as unfavorable economic conditions in the region continued during the
second quarter of 1998. In the Company's Latin American region, increased
sales of construction equipment reflects increased sales of loader/backhoes,
wheel loaders and excavators, partially offset by lower sales of skid steers.
COSTS AND EXPENSES
Cost of goods sold for the industrial operations increased $121 million to
$1,274 million in the second quarter of 1998 as compared to the same period in
1997, primarily due to the sales volume increase. Cost of goods sold as a
percentage of net sales increased to 76.2% in the second quarter of 1998 from
74.5% in the second quarter of 1997. This increase as a percentage of net
sales reflects changes in geographic and product line sales mix, the impact of
foreign currency exchange and operating inefficiencies associated with the
Company's negotiations with the UAW, partially offset by pricing actions and
cost improvement initiatives.
Selling, general and administrative expenses for the industrial operations
increased $18 million to $169 million in the second quarter of 1998 as
compared to $151 million in the second quarter of 1997. As a percentage of net
sales, selling, general and administrative expenses for the second quarter of
1998 was 10.1% as compared to 9.8% in the second quarter of 1997. This year-
over-year increase as a percentage of net sales reflects increases in general
and administrative expenses related to information services and one-time costs
associated with the Company's negotiations with the UAW, as well as increased
selling expenses related to low rate and other sales financing programs,
partially offset by ongoing cost reduction initiatives. Case Industrial makes
payments to Case Credit in an amount equal to the difference between the rate
actually paid by retail customers and the rate charged by Case Credit. These
payments are included in selling, general and administrative expenses of Case
Industrial and are eliminated to arrive at consolidated selling, general and
administrative expenses.
Research, development and engineering expenses increased to $57 million in
the second quarter of 1998 as compared to $46 million in the second quarter of
1997, primarily due to expenditures for new product development.
Interest expense for Case's industrial operations was $26 million for the
second quarter of 1998, $9 million higher than the same period of 1997. The
increase in interest expense was due to higher average debt levels during the
second quarter of 1998 as compared to the second quarter of 1997.
13
<PAGE>
CREDIT OPERATIONS
Net income for the second quarter of 1998 was $18 million as compared to $17
million for the second quarter of 1997. The $1 million increase in year-over-
year net income is primarily due to higher earnings as a result of increased
levels of on-balance-sheet receivables, including higher lease income from
operating leases. These amounts were largely offset by increased interest
expense due to higher average on-book receivables, as well as increased
depreciation of equipment on operating leases.
Case Credit reported total revenues of $80 million for the second quarter of
1998 and $60 million for the second quarter of 1997. Finance income earned on
retail notes and finance leases increased to $32 million in the second quarter
of 1998 as compared to $24 million for the same period in 1997, primarily due
to increased levels of on-balance-sheet receivables. In addition, operating
lease income increased $7 million to a total of $15 million for the second
quarter of 1998, reflecting the growth in Case Credit's operating lease
portfolio.
Interest expense for the second quarter of 1998 was $31 million, up $9
million from the $22 million reported for the second quarter of 1997. The
increase in interest expense resulted from higher average debt levels during
the second quarter of 1998 as compared to the second quarter of 1997,
primarily due to the growth in Case Credit's on-balance-sheet receivables and
increased equipment on operating leases.
Operating expenses increased $9 million to a total of $22 million in the
second quarter of 1998 as compared to the second quarter of 1997. This
increase primarily resulted from higher year-over-year depreciation expense
for equipment on operating leases relating to Case Credit's larger operating
lease portfolio, as well as higher operating expenses in support of Case
Credit's growth initiatives.
As of June 30, 1998, Case Credit's serviced portfolio of receivables
increased 23% over the same time last year to a record $5.8 billion. This
growth resulted from Case Credit's focus on new markets and new products,
including retail financing through Case Credit's European joint venture, Case
Credit Europe S.A.S. Gross receivables originated in the first six months of
1998 increased $557 million or 36% to $2.1 billion versus the same period in
1997. During the second quarter of 1998, Case Credit sold $264 million of U.S.
and Canadian retail notes to limited-purpose business trusts organized by Case
Credit in connection with asset-backed securitization transactions, as
compared to $320 million in the second quarter of 1997. The proceeds from the
sale of the retail notes were used to repay outstanding debt and to finance
additional receivables.
Six Months Ended June 30, 1998 vs. Six Months Ended June 30, 1997
EARNINGS
The Company recorded net income of $195 million for the first six months of
1998, down 3% or $7 million from net income of $202 million for the first six
months of 1997. Diluted earnings per share for the first six months of 1998
was $2.48 per share as compared to $2.57 per share in the same period of 1997,
primarily reflecting the year-over-year decrease in net income.
The Company's industrial operations recorded income, before equity income in
Case Credit, of $158 million in the first six months of 1998 versus $163
million in the first six months of 1997. On a pretax basis, the Company's
industrial operations recorded earnings of $227 million in comparison to $240
million in 1997, a $13 million or 5% decrease from the first six months of
1997. The industrial effective income tax rate decreased from 32% in the first
half of 1997 to 30% in the first half of 1998 primarily due to tax benefits
associated with the Company's foreign sales corporation, research and
development tax credits and a reduction in the tax valuation reserves in
certain foreign jurisdictions, partially offset by state income taxes and
foreign income taxed at different rates.
Case's operating earnings for the first six months of 1998 were $308 million
versus $314 million for the same period in 1997. Case defines operating
earnings as industrial earnings before interest, taxes, changes in
14
<PAGE>
accounting principles and extraordinary items, including the income of Case
Credit on an equity basis. The year-over-year decrease in operating earnings
is primarily attributable to expenses and operating inefficiencies related to
the Company's negotiations with the UAW, unfavorable foreign exchange rates
and substantially higher new product launch expenses, partially offset by
pricing and cost reduction initiatives.
A reconciliation of the Company's industrial net income to operating
earnings is as follows (in millions):
<TABLE>
<CAPTION>
CASE INDUSTRIAL
-----------------
SIX MONTHS ENDED
JUNE 30,
-----------------
1998 1997
-------- --------
<S> <C> <C>
Net income.............................................. $ 195 $ 202
Income tax provision.................................... 69 77
Interest expense........................................ 44 35
-------- --------
Operating earnings.................................. $ 308 $ 314
======== ========
</TABLE>
REVENUES
On a consolidated basis, worldwide revenues increased $282 million or 10% in
the first six months of 1998 to $3,115 million. Net sales of equipment and
parts increased $261 million or 10% to $2,984 million. The increase in net
sales consists primarily of a 10% volume increase and a 2% improvement in
price realization, partially offset by a 2% deterioration resulting from the
impact of foreign exchange. Net sales in the first six months of 1998
increased in North America and Europe, with year-over-year increases of 14%
and 5%, respectively. Net sales also increased in the Company's Latin American
region, increasing 43% as compared to the prior year. Net sales in the Asia
Pacific region were down 26% versus the prior year as unfavorable economic
conditions continued in this region during the first six months of 1998.
Worldwide, net sales of agricultural equipment increased 8% over the
comparable period in 1997, while net sales of construction equipment increased
18% over prior year levels.
NET SALES
Worldwide net sales of agricultural equipment increased 8% in the first six
months of 1998 as compared to the first six months of 1997. The increase in
sales of agricultural equipment in North America was driven by increases in
sales of tractors, combines, implements and hay and forage equipment,
partially offset by decreased sales of cotton pickers. In Europe, the Company
experienced higher year-over-year first half sales of combines, cotton
pickers, implements and hay and forage equipment, partially offset by
decreased sales of tractors. In the Company's Asia Pacific region,
agricultural sales were down in all product categories, reflecting continued
unfavorable economic conditions in that region. In the Company's Latin
American region, the Company experienced increases in year-over-year sales of
tractors, combines and cotton pickers, partially offset by decreased sales of
sugar cane harvesters.
Worldwide net sales of construction equipment increased 18% in the first six
months of 1998 as compared to the first six months of 1997. In North America,
first half sales of construction equipment increased in all product
categories, driven by significant increases in sales of excavators, skid
steers and wheel loaders. The increase in net sales of construction equipment
in Europe primarily reflects increased sales of excavators, loader/backhoes,
wheel loaders and skid steers. Unfavorable economic conditions continued
during the first six months of 1998 in the Company's Asia Pacific region. As a
result, the Company experienced lower year-over-year sales of construction
equipment in most product categories, partially offset by increased sales of
excavators. In the Company's Latin American region, increased sales of
construction equipment reflects increased sales of wheel loaders and
loader/backhoes.
15
<PAGE>
COSTS AND EXPENSES
Cost of goods sold for the industrial operations increased $230 million to
$2,293 million in the first six months of 1998 as compared to the same period
in 1997, primarily due to the sales volume increase. Cost of goods sold as a
percentage of net sales increased to 76.8% in the first six months of 1998
from 75.8% in 1997. This increase as a percentage of net sales reflects
changes in geographic and product line sales mix, the impact of foreign
currency exchange and operating inefficiencies associated with the Company's
negotiations with the UAW, partially offset by pricing actions and cost
improvement initiatives.
Selling, general and administrative expenses for the industrial operations
increased $25 million to $321 million in the first six months of 1998, as
compared to $296 million in the comparable period of 1997. This year-over-year
increase reflects increases in general and administrative expenses related to
information services and one-time costs associated with the Company's
negotiations with the UAW, as well as increased selling expenses related to
low rate and other sales financing programs, partially offset by the impact of
foreign currency and ongoing cost reduction initiatives. As a percentage of
net sales, selling, general and administrative expenses decreased slightly to
10.8% in the first six months of 1998 as compared to 10.9% in the first six
months of 1997.
Research, development and engineering expenses increased to $109 million in
the first six months of 1998 as compared to $92 million in the first six
months of 1997, primarily due to expenditures for new product development.
Interest expense for Case's industrial operations was $44 million for the
first six months of 1998, $9 million higher than the same period of 1997. The
increase in interest expense was due to higher average debt levels during the
first six months of 1998 as compared to the first six months of 1997.
The consolidated effective income tax rates of 31% for the first half of
1998 and 32% for the first half of 1997 were lower than the U.S. statutory
rate of 35% primarily due to tax benefits associated with the Company's
foreign sales corporation, research and development tax credits and reductions
in the tax valuation reserves in certain foreign jurisdictions, partially
offset by state income taxes and foreign income taxed at different rates.
CREDIT OPERATIONS
Net income for the first six months of 1998 was $37 million as compared to
$39 million for the first six months of 1997. The $2 million decrease in year-
over-year net income is primarily due to increased interest expense as a
result of higher average on-book receivables, as well as increased
depreciation of equipment on operating leases. These amounts were partially
offset by higher earnings as a result of increased levels of on-balance-sheet
receivables, including higher lease income from operating leases.
Case Credit reported total revenues of $156 million for the first six months
of 1998 and $126 million for the first six months of 1997. Finance income
earned on retail notes and finance leases increased to $62 million in the
first six months of 1998 as compared to $46 million for the same period in
1997, primarily due to increased levels of on-balance-sheet receivables. In
addition, operating lease income increased $12 million to a total of $26
million for the first six months of 1998, reflecting the growth in Case
Credit's operating lease portfolio.
Interest expense for the first six months of 1998 was $60 million, up $16
million from the $44 million reported in the first six months of 1997. The
increase in interest expense resulted from higher average debt levels during
the first six months of 1998 as compared to the first six months of 1997,
primarily due to the growth in Case Credit's on-balance-sheet receivables and
increased equipment on operating leases.
Operating expenses increased $14 million to a total of $39 million in the
first six months of 1998 as compared to the first six months of 1997. This
increase primarily resulted from higher year-over-year depreciation expense
for equipment on operating leases relating to Case Credit's larger operating
lease portfolio, as well as higher operating expenses in support of Case
Credit's growth initiatives.
16
<PAGE>
During the first six months of 1998, Case Credit's serviced portfolio of
receivables increased 23% over the same time last year to a record $5.8
billion. Growth in the first six months resulted from Case Credit's focus on
new markets and new products, including retail financing through Case Credit's
European joint venture, Case Credit Europe S.A.S. Gross receivables originated
in the first six months of 1998 increased 36% to $2.1 billion versus the same
period in 1997. During the first six months of 1998, limited-purpose business
trusts organized by Case Credit issued $766 million of asset-backed securities
to outside investors, of which $50 million was issued pursuant to a private
placement. Case Credit has sold $753 million of U.S. and Canadian retail notes
to the trusts in connection with these issuances. During the first six months
of 1997, Case Credit issued $830 million of asset-backed securities to outside
investors. Case Credit had sold $822 million of U.S. and Canadian retail notes
to the trusts in connection with these issuances. The proceeds from the sale
of the retail notes were used to repay outstanding debt and to finance
additional receivables.
LIQUIDITY AND CAPITAL RESOURCES
The discussion of liquidity and capital resources focuses on the balance
sheets and statements of cash flows. The Company's operations are capital
intensive and subject to seasonal variations in financing requirements for
dealer receivables and inventories. Whenever necessary, funds provided from
operations are supplemented from external sources.
In the first six months of 1998, cash used by operating activities was $820
million. Cash used by the industrial operations and Case Credit during the
first six months of 1998 was $474 million and $346 million, respectively. The
net cash used by operating activities primarily resulted from increased levels
of wholesale receivables and inventory, partially offset by net income and
depreciation and amortization. The increase in wholesale and retail
receivables reflects higher levels of actual sales volumes, as well as
increased levels of on-balance-sheet receivables as part of Case Credit's
growth initiatives. Inventories have increased since December 31, 1997, due to
growth in the Company's Latin American region, the impact of 1997 acquisitions
and increased inventory for impending third quarter shipments to the former
Soviet Union. Cash used by operating activities was $291 million in the first
six months of 1997. This use of cash primarily reflects increased inventories
and retail receivables, offset by net income and depreciation and
amortization.
Cash used by investing activities was $277 million in the first six months
of 1998. During the first half of 1998, the Company expended $49 million for
property, plant and equipment in comparison to $36 million in the first half
of 1997. Cash used by Case Credit was $189 million versus $52 million for the
comparable period of 1997, reflecting increased year-over-year expenditures
for equipment on operating leases due to the growth in Case Credit's operating
lease portfolio. Also during the first six months of 1998, the Company
expended approximately $40 million to acquire certain assets of the Tyler
Industries division of IBOCO, Inc., a designer, manufacturer and distributor
of a complete line of chemical and fertilizer sprayers and applicators.
Net cash provided by financing activities was $961 million for the first
half of 1998 and was primarily used to support increased levels of receivables
and inventories. During the first six months of 1998, Case Credit issued an
aggregate of $279 million of medium-term notes pursuant to a shelf
registration filed with the Securities and Exchange Commission in September of
1997. The net proceeds from the medium-term note issuances will be used to
fund Case Credit's growth initiatives and for other corporate purposes,
including the repayment of indebtedness. During the first six months of 1997,
net cash provided by financing activities was $440 million, primarily due to
increases under the Company's short-term debt and revolving credit facilities
to fund Case Credit's growing portfolio of receivables.
Total debt at June 30, 1998, was $3,731 million, $2,365 million of which
related to Case Credit. The consolidated debt to capitalization ratio, defined
as total debt divided by the sum of total debt, stockholders' equity and
preferred stock with mandatory redemption provisions, was 60.7% at June 30,
1998, and the Company's industrial debt to capitalization ratio was 36.1%. The
consolidated and industrial ratios at December 31, 1997, were 54.6% and 27.3%,
respectively.
17
<PAGE>
FUTURE LIQUIDITY AND CAPITAL RESOURCES
The Company has various sources of future liquidity including asset-backed
securitization markets, public debt offerings and other available lines of
credit.
The Company recently announced that it would accelerate its four million
share repurchase program, authorized by the Company's Board of Directors in
May 1997, and substantially complete the buy back in the third quarter of
1998. On July 10, 1998, the Company's Board of Directors authorized a second
program for the purchase from time to time of up to eight million shares of
the Company's Common Stock. The purchase of Case Common Stock under these
programs is at the Company's discretion, subject to prevailing financial and
market conditions.
OUTLOOK
The market conditions for Case's agricultural and construction equipment and
financial services businesses vary by regions of the world.
Sales of agricultural equipment have been strong in North America and Latin
America, although weakness continues in the Asia Pacific region and parts of
Europe. Commodity prices, which are comparably lower, have been affected by
expectations of a strong harvest and could possibly impact net farm income.
However, farmers' balance sheets are in good condition in North America. In
other regions of the world, additional factors such as the need for self-
sufficiency or adoption of advanced equipment and farming practices support
continued demand.
The worldwide construction equipment market is led by excellent demand in
North America as a result of continued strong housing starts and a favorable
interest rate environment. This outlook is strengthened by increased spending
as a result of the new U.S. highway bill. In Europe, economic conditions
continue to show signs of improvement, and the construction sectors are
beginning to reflect that improvement. In the Asia Pacific region, overall
economic conditions have resulted in a weaker Australian dollar, which has
impacted the overall economy and construction activity there. In Latin
America, economic conditions in Brazil and Mexico are greatly improved and
retail sales of construction equipment are expected to continue to show
strength year-over-year.
The information included in the "Outlook" section represents forward-looking
statements and involves risks and uncertainties that could cause actual
results to differ materially from those in the forward-looking statements. The
Company's outlook is predominantly based on its interpretation of what it
considers key economic assumptions. Crop production and commodity prices are
strongly affected by weather and can fluctuate significantly. Housing starts
and other construction activity are sensitive to interest rates and government
spending. Some of the other significant factors for the Company and its
customers include general economic and capital market conditions, the cyclical
nature of its business, foreign currency movements, the Company's and its
customers' access to credit, political uncertainty and civil unrest in various
areas of the world, pricing, product initiatives and other actions taken by
competitors, disruptions in production capacity, excess inventory levels, the
effect of changes in laws and regulations (including government subsidies and
international trade regulations), changes in environmental laws, and employee
and labor relations. Further information concerning factors that could
significantly impact expected results is included in the following sections of
the Company's Form 10-K Annual Report for 1997, as filed with the Securities
and Exchange Commission: Business--Employees, Business--Environmental Matters,
Business--Significant International Operations, Business--Seasonality and
Production Schedules, Business--Competition, Legal Proceedings, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
DERIVATIVES
The Company uses derivative financial instruments to manage its foreign
currency and interest rate exposures. Case does not hold or issue financial
instruments for trading purposes. For information regarding Case's foreign
currency and interest rate risk management, reference is made to Item 7 and
Note 11 to the Case Financial Statements in the Company's 1997 Annual Report
on Form 10-K. There has been no material change in the Company's market risk
exposures that affect the quantitative and qualitative disclosures as
presented as of December 31, 1997.
18
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a description of legal proceedings to which the Company is party, see
footnote 6 to the Case financial statements included in this Form 10-Q.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on May 13, 1998.
At the meeting, stockholders voted upon (i) the election of a Board of
Directors to serve until the 1999 Annual Meeting of Stockholders and until
their successors are elected and have qualified, and (ii) the appointment of
Arthur Andersen LLP as independent public accountants for the year 1998.
Proxies for the meeting were solicited pursuant to Regulation 14 under the
Securities Exchange Act of 1934. There were 66,736,535 shares of common stock
present at the meeting in person or by proxy, each such share being entitled
to one vote on each matter being voted upon.
There was no solicitation in opposition to management's nominees for
director as listed in the proxy statement for the meeting and all such
nominees were elected by the following vote:
<TABLE>
<CAPTION>
VOTES
NOMINEE VOTES FOR WITHHELD
------- ---------- --------
<S> <C> <C>
Pei-yuan Chia......................................... 66,519,382 217,153
Ronald E. Goldsberry.................................. 66,512,268 224,267
Jeffery T. Grade...................................... 66,515,104 221,431
Thomas R. Hodgson..................................... 66,516,742 219,793
Katherine M. Hudson................................... 66,517,691 218,844
Gerald Rosenfeld...................................... 66,515,253 221,282
Jean-Pierre Rosso..................................... 66,509,194 227,341
Theodore R. Tetzlaff.................................. 66,512,993 223,542
Thomas N. Urban....................................... 66,519,589 216,946
</TABLE>
The appointment of Arthur Andersen LLP as independent public accountants was
approved by the following vote:
<TABLE>
<CAPTION>
VOTES
VOTES FOR AGAINST ABSTENTIONS
---------- ------- -----------
<S> <C> <C>
66,614,368 54,664 67,503
</TABLE>
There were no broker non-votes on either of the aforementioned matters at
the meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
A list of the exhibits included as part of this Form 10-Q is set forth in
the Index to Exhibits that immediately precedes such exhibits, which is
incorporated herein by reference.
(b) Reports on Form 8-K.
The Company did not file any Current Reports on Form 8-K during the quarter
ended June 30, 1998.
19
<PAGE>
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
CASE CORPORATION
/s/ Theodore R. French
By __________________________________
Theodore R. French
President, Financial Services, and
Chief Financial Officer
(Principal Financial Officer and
authorized signatory for Case
Corporation)
Date: August 13, 1998
20
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBITS NUMBER
------- ----------------------- ----------
<C> <S> <C>
4 The Company hereby agrees to furnish to the Securities
and Exchange Commission, upon its request, the instru-
ments with respect to its guaranty of certain indebted-
ness issued by its subsidiaries, which indebtedness
does not exceed 10% of the Company's total consolidated
assets.
*10 Amended and Restated Sponsors' Agreement, dated as of
April 21, 1998, between the Company, Cummins Engine
Company, Inc., Cummins Engine Holding Company, Inc. and
Case CDC Holdings, Inc.
11 Computation of Earnings Per Share of Common Stock.
12 Computation of Ratio of Earnings to Fixed Charges and
Preferred Dividends.
27 Financial Data Schedule
</TABLE>
- --------
*Confidential information contained in this agreement has been omitted from
this filing and has been filed separately with the Securities and Exchange
Commission.
<PAGE>
EXHIBIT 10
Amended and Restated Sponsors' Agreement, dated April 21, 1998, between
Cummins Engine Company Inc., an Indiana corporation, Case Corporation, a
Delaware corporation, Cummins Engine Holding Company, Inc., an Indiana
corporation, and Case CDC Holdings, Inc., a Delaware corporation.
Pursuant to Item 601(b)(2) of Regulation S-K of the Rules and Regulations
promulgated pursuant to the Securities Exchange Act of 1934, Case requests
omission of the following Schedules:
(i) Schedule 2.05: Midrange Central Purchasing Agreement, dated April
21, 1998, between Case, Cummins Engine Company, Inc. and Consolidated
Diesel Company; and
(ii) Schedule 2.10: Supplier Tooling Agreement, dated April 21, 1998,
between Case and Cummins Engine Company, Inc.
Case agrees to furnish (a) copies of the foregoing Schedules and (b) copies
of the actual signature pages to the agreements contained in this Exhibit 10 to
the Securities and Exchange Commission upon request by the Securities and
Exchange Commission.
This Exhibit 10 contains confidential information, which has been omitted
and filed separately with the Securities and Exchange Commission, concurrently
with the filing hereof, in an Application for Order Granting Confidential
Treatment Pursuant to Rule 24b-2. Each location containing such confidential
information contains the following legend:
[CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION]
<PAGE>
AMENDED AND RESTATED SPONSORS' AGREEMENT
THIS AMENDED AND RESTATED SPONSORS' AGREEMENT, dated as of April 21, 1998,
between CUMMINS ENGINE COMPANY, INC., an Indiana corporation ("Cummins"), CASE
-------
CORPORATION, a Delaware corporation ("Case"), and for purposes of Section 6.01,
---- ------------
CUMMINS ENGINE HOLDING COMPANY, INC., an Indiana corporation ("Cummins
-------
Holding"), and CASE CDC HOLDINGS, INC., a Delaware corporation ("Case Holding"),
------------
amends and restates the Sponsors' Agreement dated as of October 16, 1980, as
amended, between Cummins and Case. This Sponsors' Agreement and the Related
Agreements shall be deemed effective as of January 1, 1998.
WHEREAS, Case uses diesel engines in agricultural and construction
equipment manufactured and sold by Case;
WHEREAS, Cummins designs, manufactures and distributes high speed, heavy
duty diesel engines and has the technical personnel and research and development
facilities to conduct engine design programs;
WHEREAS, Case organized Case Holding as a wholly-owned subsidiary and
Cummins organized Cummins Holding as a wholly-owned subsidiary, and such
subsidiaries entered into the Partnership Agreement concerning a general
partnership (the "Partnership") named Consolidated Diesel Company for the
-----------
purpose of manufacturing, assembling, testing and selling certain engines,
components and parts to Case and Cummins and their Affiliates;
WHEREAS, the Partnership has entered into the Purchase Agreement with Case
and Cummins, providing for the sale of engines, components and parts to Case and
Cummins;
WHEREAS, Cummins owns all Industrial Property Rights with regard to the
Licensed Engines and Case Products, and Case and Cummins have entered into the
License Agreement pursuant to which Cummins has granted a license to Case to use
such Industrial Property Rights under certain circumstances;
WHEREAS, Cummins will continue as provided herein, to develop such
Industrial Property Rights for the benefit of Case and Cummins;
WHEREAS, Case, Cummins and the Partnership entered into the Technical
Assistance Agreement pursuant to which Cummins will provide technical assistance
to Case and its Affiliates and the Partnership; and
WHEREAS, the parties hereto desire to further amend and restate this
Agreement and the other Related Agreements effective as of January 1, 1998.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereby agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.01 DEFINITIONS. As used in this Agreement, capitalized terms
-----------
shall have the meanings set forth in Exhibit G, unless otherwise defined herein.
---------
ARTICLE II
SPONSORS' UNDERTAKINGS
SECTION 2.01 PERFORMANCE OF AFFILIATES. Case and Cummins each covenants
-------------------------
to the other that it shall perform, and each shall cause its Affiliates to
perform, all actions reasonably necessary and appropriate to fulfill all of the
respective duties and obligations set forth in this Sponsors' Agreement.
SECTION 2.02 MODIFICATION OF RELATED AGREEMENTS. The Sponsors shall not
----------------------------------
cause or permit the Related Agreements to be amended or modified in any way
without the prior written consent of both Sponsors. Notwithstanding anything to
the contrary contained in this Sponsors' Agreement or any other Related
Agreement, the Sponsors, through the Partnership Committee, shall review the
operation of all of the Related Agreements on or before [CONFIDENTIAL
INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION] to determine if amendments thereof are then
necessary or desirable. If the Partnership Committee cannot resolve any
disputes with respect to the need for any such amendments, such disputes shall
be resolved in accordance with Section 6.02.
------------
SECTION 2.03 RESTRICTION ON TRANSFER OF INTEREST AND REVIEW OF INTEREST.
----------------------------------------------------------
Neither Sponsor shall sell, assign, transfer or encumber all or any part of the
issued and outstanding stock of the Partners nor shall either Sponsor permit a
Partner to issue any additional stock to any other Person without the prior
written consent of the other Sponsor. [CONFIDENTIAL INFORMATION CONTAINED HERE
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION], the Sponsors shall discuss and determine whether the interests of
the Partners in the Partnership should continue to be shared on an equal basis.
SECTION 2.04 ACTIONS BY THE PARTNERSHIP. Case and Cummins each covenants
--------------------------
to the other that it shall take all action reasonably necessary and appropriate
to cause the Partnership to do the following:
(a) Manufacture, assemble, test and sell Licensed Engines, Cummins
Products, Case Products and Components, subject to the conditions of Section
-------
3.05;
- ----
(b) The latest technology reasonably available to Cummins shall be used
with the objective that the following performance parameters be competitive or
superior to other Diesel Engines: fuel consumption, noise, cold starting,
emissions and heat rejection;
-3-
<PAGE>
(c) Implement all appropriate engineering changes in the Licensed Engines,
Cummins Products and Case Products from time to time as directed by Cummins,
subject to the conditions of the Technical Assistance Agreement, and promptly
give written notice to the Sponsors of all such changes;
(d) Manufacture only Components and purchase all other items necessary to
assemble Licensed Engines, Cummins Products and Case Products subject to the
provisions of Section 2.04(e);
---------------
(e) Evaluate periodically the desirability of manufacturing Purchased Parts
and manufacture any such item if (i) the Partnership Committee recommends to the
Sponsors that it would be mutually beneficial to the Sponsors or to the
Partnership to manufacture such item regardless of any benefits then being
realized by a Sponsor as a result of sales by it, or one of its Affiliates, of
any such item to the Partnership, and (ii) the Sponsors in their discretion
approve, in writing, the manufacture of such item;
(f) Sell Licensed Engines, Cummins Products, Case Products, Components and
Service Parts only to the Sponsors and their respective Affiliates, subject to
the terms and conditions hereof and in the Related Agreements;
(g) Refrain from selling Licensed Engines, Cummins Products, Case Products,
Components and Service Parts to Case and its Affiliates for use other than as
provided in the License Agreement and/or the Purchase Agreement;
(h) Refrain from imposing any restrictions upon the use and sale of
Licensed Engines, Cummins Products, Components and Service Parts by Cummins and
its Affiliates; and
(i) Endeavor to expand the manufacture, distribution and use of engines
produced by the Partnership for use in the agricultural and construction
equipment markets and to amend the definition of "Case Equipment" to expand the
items covered therein where such expansion is deemed beneficial to both
sponsors.
SECTION 2.05 PURCHASED PARTS. The Sponsors shall purchase, and shall
---------------
cause their respective Affiliates to purchase, Purchased Parts in accordance
with this Section 2.05. This Section 2.05 is subject to the terms and
------------ ------------
provisions of the MCP Agreement. The MCP Agreement is attached as Schedule
--------
2.05.
(a) Purchased Parts for Sponsors and North American Affiliates and
--------------------------------------------------------------
Licensees. All Purchased Parts shall be purchased solely from vendors selected
- ---------
and approved by the Partnership, as follows:
(1) The Partnership shall establish or may utilize an agreed agent,
MCP, or such other agent as the Sponsors shall agree, to establish the
price for all such Purchased Parts
-4-
<PAGE>
with such vendors, including, without limitation, unit price, payment
terms, return goods policy and warranty terms.
(2) The Partnership shall assure compliance by such vendors with the
Partnership's specifications and quality standards with regard to such
Purchased Parts.
(3) The Partnership shall establish with such vendors the quantities
of such items which otherwise will be available to the Partnership as
Purchased Parts and the quantities which will be available to the Sponsors
and their Affiliates and Licensees.
(4) The Sponsors shall, and shall cause their respective Affiliates
to, (i) order Purchased Parts directly from such vendors, (ii) establish
directly with such vendors delivery terms and special packaging
requirements, (iii) administer warranty claims with regard to such
Purchased Parts directly with such vendors, and (iv) be solely responsible
for payment to such vendors for all Purchased Parts so ordered.
(5) The Partnership may purchase Purchased Parts from any European
Tooled Vendor, and no payment shall be due to either Sponsor as
reimbursement of any support costs associated with such Tooled Vendors as a
result of such Partnership purchase. If either Sponsor feels any inequity
occurs as a result of the operation of this Section 2.05(a)(5), such
------------------
Sponsor shall notify the other Sponsor in writing of the inequity and such
issue shall be resolved in accordance with Section 6.02.
------------
(6) Any other terms with regard to the purchase of Purchased Parts
shall be determined by the Partnership Committee.
(b) Purchased Parts for Certain Affiliates and Licensees Outside of North
---------------------------------------------------------------------
America. The Sponsors shall permit their (i) Affiliates and Licensees, which do
- -------
not have substantial manufacturing facilities in North America, to purchase
directly from any vendor to the Partnership, Purchased Parts which have been
manufactured by such vendor upon terms negotiated by such Affiliates or
Licensees. If such Affiliates or Licensees and the Partnership both obtain
Purchased Parts from such vendors, the Sponsors shall cause such Affiliates or
Licensees to coordinate their purchases with the Partnership. If quantities of
Purchased Parts are not adequately available to meet the requirements of the
Partnership and Affiliates or Licensees which do not have substantial
manufacturing facilities in North America, the Sponsors shall request that the
Partnership work with its vendors to allocate such Purchased Parts in proportion
to the level of firm orders or in such other proportion as the Sponsors may
agree. For transactions pursuant to this Section 2.05(b), no payment shall be
---------------
due to either Sponsor, or to the Partnership, as reimbursement of any support
costs associated with these vendors. If either Sponsor feels any inequity
occurs as a result of the operation of this Section 2.05(b), the procedures set
---------------
forth in Section 6.02 shall be followed.
------------
-5-
<PAGE>
(c) Distribution of Service Parts. The Partnership shall not be
-----------------------------
responsible for the distribution of Service Parts to distributors, dealers or
customers of the Sponsors or of their respective Affiliates and Licensees.
SECTION 2.06 OTHER PLANTS. (a) North America. Case may construct and
------------ -------------
operate one plant in North America, and Cummins may construct and operate one or
more plants in North America to produce Licensed Engines, Cummins Products, Case
Products and/or Components so long as such Sponsor continues to forecast
purchases from the Partnership of the lesser of (i) at least [CONFIDENTIAL
INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION] Licensed Engines and engines included in
Cummins Products and Case Products annually, and (ii) the full amount of
Licensed Engines and engines included in Cummins Products and Case Products
available to such Sponsor, during the five years following the beginning of
construction or acquisition of such other plant. Cummins shall be free to
construct and operate any number of plants outside of North America to produce
Licensed Engines, Cummins Products and/or Components without regard to forecast
purchases from the Partnership.
(b) Western Europe. Case agrees that it shall not utilize a Manufacturing
--------------
Affiliate to produce Licensed Engines in Western Europe unless (i) Case first
offers to Cummins the opportunity to supply Case's European requirements of such
engines under the Engine Transfer Agreement, and Cummins declines to supply or
is unable to supply such requirements or (ii) Cummins agrees to supply such
engines under the Engine Transfer Agreement but does not materially comply with
the terms of the Engine Transfer Agreement, including, without limitation, terms
relating to the quality and timely delivery of such engines, after
implementation of the dispute resolutions provisions of Section 6.02.
------------
SECTION 2.07 PURCHASES AND ORDER ENTRY.
-------------------------
(a) Rights to Purchase Engines. Each Sponsor has the right to purchase
--------------------------
Licensed Engines, Case Products, Cummins Products, Components and Service Parts
from the Partnership pursuant to the terms and conditions of the Purchase
Agreement.
(b) Order Entry. Cummins and Case shall each establish a single point to
-----------
receive and process orders for Licensed Engines, Case Products and Cummins
Products from the Partnership and shall order, and cause their respective
Affiliates to order, Licensed Engines, Case Products and Cummins Products
through the corresponding order point. Case shall establish its order point at
the Partnership. All costs of establishing and maintaining Case's order point
at the Partnership shall be Case Partner Only Expenses under the Purchase
Agreement. All costs of establishing and maintaining an order point at the
Partnership for Cummins, if any, shall be Cummins Partner Only Expenses under
the Purchase Agreement.
(c) CEOM. Cummins receives and processes orders from its customers
----
through its central engine order management department ("CEOM").
-6-
<PAGE>
----
(d) Acknowledgments. Acknowledgments of order receipts and shipment
---------------
commitments shall be in accordance with order rules established by the
Partnership.
SECTION 2.08 CAPITAL EXPENDITURES. At least 120 days before the end of
--------------------
any calendar year, each Sponsor shall use reasonable efforts to provide the
Project Manager with a forecast of Licensed Engines, Cummins Products, Case
Products, Components and Purchased Parts that it and its Affiliates will require
from the Plant during the next five years. The forecast will be used, among
other things, in connection with the determination required under paragraph 3 of
Exhibit D to the Sponsors' Agreement. With respect to future production
- ---------
capacity of the Plant, the Sponsors agree as follows:
(a) Maintenance of Current Capacity. Except as the Sponsors shall
-------------------------------
otherwise agree, each year, as necessary, the Sponsors shall cause each Partner
to contribute 50% of any capital necessary to maintain the capacity of the
Plant at least at the level of the demonstrated production capacity of the Plant
for the prior year.
(b) Capacity Investments. Each Sponsor shall have the right unilaterally,
--------------------
in accordance with this Section 2.08(b) and subject to the review process of
---------------
Section 3.06(b) of the Partnership Agreement, to make expenditures to increase
- ---------------
the capacity of the Plant beyond Theoretical Current Capacity for any Units at
the Plant or to cause or permit the Plant to produce in excess of Theoretical
Current Capacity for any Units at the Plant but shall not have the right to make
Unilateral Investments or take any other action that reasonably would be
expected to result in a decrease of the Theoretical Current Capacity for any
Units at the Plant or causes the Plant to produce less than demonstrated
production for the prior year. If any five-year forecast described at the
beginning of this Section 2.08 implies sustained production by the Plant in
------------
excess of Theoretical Current Capacity for any Units at the Plant, the Project
Manager shall perform an analysis of the expenses, investments or costs
(including ongoing operating costs such as employee overtime costs) required to
increase the production capacity at the Plant so as to eliminate persistent
production shortfalls. Based on that analysis, the Sponsors shall make such
investments in the Plant's production capacity as are reasonably necessary and
are consistent with the investment objectives at the Sponsors and prudent
business judgment. Each Sponsor shall have the right, but not the obligation,
to jointly fund the expenses, costs and/or investments in connection with the
increase of the Plant's capacity (a "Jointly Funded Investment"). In the event
-------------------------
of a Jointly Funded Investment, each Sponsor shall pay one-half of the aggregate
costs, expenses and/or investments related to such Jointly Funded Investment.
If the Sponsors do not agree to a Jointly Funded Investment, then either
Sponsor shall have the right, but not the obligation, to unilaterally make such
investments and incur such costs and expenses in connection with the increase to
the Plant's Theoretical Current Capacity for any Units at the Plant (a
"Unilateral Investment"). All investments, costs and expenses in connection
- ----------------------
with the installation or operation of any Unilateral Investment shall be borne
by the Sponsor making such investments and/or incurring such costs and expenses
and shall not be considered part of the Partnership's expenses, assets or
liabilities.
(c) A Sponsor may utilize the additional capacity of the Plant created by a
Unilateral Investment of the other Sponsor only upon payment to the other
Sponsor of an amount equal to (A)
-7-
<PAGE>
(i) one-half of the average of (x) the acquisition costs to the other Sponsor of
the assets acquired (and/or the amount of capitalized expenditures) in
connection with such Unilateral Investment and (y) the then current book value
of such assets (and/or capitalized expenditures), plus (ii) one-half of the one-
time Partner Only Expenses required for installation of such capacity, plus
(iii) an amount sufficient to provide the other Sponsor with a [CONFIDENTIAL
INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION] on the Unilateral Investment or (B) such
other amount as the Sponsors shall agree. To the extent that a Sponsor utilizes
the additional capacity created by the other Sponsor's Unilateral Investment by
payment of the foregoing amount, the assets in connection with such expansion
shall be deemed equal contributions of the Partners to the Partnership and shall
be reflected in the Partnership's books accordingly. If one Sponsor makes a
minimal and infrequent use of the additional capacity created by a Unilateral
Investment of the other Sponsor, such first Sponsor shall not be required to
invest in such Unilateral Investment solely because of such minimal and
infrequent use; provided, however, that in such event, such first Sponsor shall
-------- -------
reasonably compensate the other Sponsor for such use and shall take such other
actions as determined by the Partner Representatives.
SECTION 2.09 UPFIT CENTER.
------------
(a) Nature of Upfit Center. The Sponsors shall cause the Partnership to
----------------------
allocate a portion of the Plant, not to exceed 20,000 square feet, to be used as
a center (the "Upfit Center") for storing and installing certain upfit items
------------
(not ordinarily included in engines that the Partnership produces) which Cummins
requires on its engine purchases. The Sponsors shall permit the Plant to
install such items on engines that have been assembled, tested and painted for
Cummins.
(b) Cummins' Use of Upfit Center. For so long as Cummins is the only party
----------------------------
requiring the use of the Upfit Center at the Plant, Cummins shall be solely
responsible for the amount of any expenditures necessary to maintain and operate
the same. Any assets acquired by Cummins in connection with such Upfit Center
shall be carried on Cummins' books and shall not be considered assets of the
Partnership.
(c) Joint Use of Upfit Center. If Case decides to use a portion of the
-------------------------
Upfit Center at the Plant, Case agrees to reimburse Cummins for an amount equal
to the average of the sum of one-half of the cost of the asset purchases after
June 25, 1986, and one-half of the current book value of such assets, or such
other amount as Cummins and Case may agree.
(d) Assets of Upfit Center. To the extent Cummins and Case participate
----------------------
equally in the capital requirements of the Upfit Center, the assets acquired
shall be deemed equal contributions of the Partners to the Partnership and shall
be reflected as such in the Partnership books.
SECTION 2.10 GENERAL TOOLING OBLIGATIONS. The rights and obligations of
---------------------------
the Sponsors with respect to Tooled Vendors and Supplier Tooling shall be
governed by the Supplier Tooling Agreement attached as Schedule 2.10.
-------------
-8-
<PAGE>
SECTION 2.11 EMISSIONS NON-COMPLIANT ENGINES. The Sponsors intend that
-------------------------------
the Partnership shall continue to supply Licensed Engines not certified as
complying with the emissions standards of any governmental authority for diesel
engines as long as the demand for such Licensed Engines continues, unless it
becomes economically unfeasible to do so. If at any time a demand for such non-
certified Licensed Engines exists, and it is uneconomical for the Partnership to
produce such Licensed Engines, the Partnership Representatives shall meet and
attempt to reach an equitable solution. If they are unable to agree on a
solution, the dispute shall be resolved in accordance with Section 6.02.
------------
ARTICLE III
ADDITIONAL ENGINE MODELS
SECTION 3.01 ADDITIONAL CASE PRODUCTS. Case may, by written notice to
------------------------
Cummins, request that Cummins design and develop one or more models of engines
(other than the models of Licensed Engines set forth in Exhibit A) based on
---------
Licensed Engines and one or more additional components. If Cummins agrees in
writing, within 60 days of such notice, to jointly fund on an equal basis with
Case all capital investment (except Supplier Tooling, which shall be governed by
Section 5 of the Supplier Tooling Agreement) for such additional engine or
- ---------
component and all design and development costs thereof up to the launch of such
engine or component, then any such additional engine model shall be added to
Exhibit A and shall be a Licensed Engine. If Cummins does not agree to jointly
- ---------
fund such design and development work, Cummins shall have no responsibility to
fund or design such engine model. If Cummins agrees to design and develop such
engine model or component at Case's sole expense (plus any margin as may be
agreed by Cummins and Case), such engine model shall be a "Case Product" and
---- -------
shall be included in Licensed Products. Case shall fund all design and
development costs with respect to Case Products and all costs to keep Case
Products current and competitive. Any such Case Product shall be subject to the
License Agreement but not the Technical Assistance Agreement.
SECTION 3.02 ADDITIONAL CUMMINS PRODUCTS. Cummins shall have the right
---------------------------
to design and develop a model of engine other than the models of Licensed
Engines set forth in Exhibit A to this Sponsors' Agreement. Before Cummins
---------
begins work on the design or development of such an engine model to be produced
by the Partnership, Cummins shall give Case written notice thereof. Cummins'
notice shall include sufficiently detailed information about such engine model
so that Case can reasonably determine whether it wishes to jointly fund such
engine, including, without limitation, information with respect to design and
development expenses, capital expenditures, product target cost, program timing
and design objectives.
(a) If Case agrees in writing, within 60 days of such notice, to jointly
fund on an equal basis with Cummins such design and development work, then such
additional engine model shall be added to Exhibit A and shall be a Licensed
---------
Engine. Case shall contribute to the Partnership 50% of all capital investment
(other than Supplier Tooling, which shall be governed by Section 5 of the
---------
Supplier Tooling Agreement) and shall pay to Cummins 50% of all design and
development costs, in both cases for the Base Engine and options used by Case up
to the launch of such engine or
-9-
<PAGE>
component. The assets acquired thereby shall be deemed equal contributions of
the Partners to the Partnership and shall be reflected in the Partnership books
accordingly.
(b) If Case does not agree in writing, within 60 days of such notice, to
jointly fund on an equal basis with Cummins the design and development work for
an additional engine model, then such additional engine model shall not be added
to Exhibit A. Cummins may nevertheless undertake to design and develop any such
---------
additional engine model or component proposed by Cummins (a "Cummins Product")
---------------
by itself or with the help of another Person.
(c) The following provisions shall apply to any additional engine models or
components in Section 3.01 or 3.02:
------------ ----
(1) The Sponsors shall cause the Partnership to produce such engine or
component for sale to the Sponsor that unilaterally funds the design and
development costs of such engine or component (the "Funding Sponsor"),
---------------
subject to the terms and conditions of the Purchase Agreement.
(2) If production of such engine or component by the Partnership
requires any capital investment or any other costs, the Funding Sponsor
shall bear full responsibility for the same.
(3) The other Sponsor shall not be entitled to purchase such engine or
component from the Partnership unless:
(A) starting at the time of initial investment and continuing up
to the launch of such engine or component, pursuant to Section 3.01 or
---------------
3.02(a), as applicable, such other Sponsor contributes to the Partnership
-------
50% of all related capital investment (except Supplier Tooling, which shall
be governed by Section 5 of the Supplier Tooling Agreement), and pays to
---------
the Funding Sponsor 50% of all design and development costs, in both cases
for the Base Engine and new options that are specific to such other Sponsor
relating to such engine; or
(B) at any time after the expiration of the 60-day notice period
pursuant to Section 3.01 or 3.02(b), as applicable, such other Sponsor pays
-----------------------
to the Funding Sponsor an amount equal to the sum of (i) 50% of all related
capital investment (except Supplier Tooling, which shall be governed by
Section 5 of the Supplier Tooling Agreement), and 50% of all design and
---------
development costs for the Base Engine and new options that are specific to
such other Sponsor for such engine that have been paid by the Funding
Sponsor to that date, and (ii) the sum of (x) an amount equal to the
monthly interest rate equal to the Funding Sponsor's monthly average cost
of borrowings over the period it expended funds under clause (i),
----------
multiplied by the amount specified in clause (i) calculated as of the end
----------
of each month to the date such other Sponsor pays the Funding Sponsor
hereunder, and (y) a one-time buy-in fee equal to [CONFIDENTIAL INFORMATION
CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND
-10-
<PAGE>
EXCHANGE COMMISSION] multiplied by the sum of all amounts specified in
clause (i) that are actually paid or committed to be paid (i.e., for which
---------- ----
a purchase order has been issued) by the Funding Sponsor. Thereafter and
continuing up to the launch of such engine or component, such other Sponsor
shall contribute to the Partnership 50% of any additional capital
investment and shall pay to the Funding Sponsor 50% of any additional
design and development costs, in both cases required for the Base Engine
and new options that are specific to such other Sponsor relating to such
engine. If the other Sponsor makes such payments in this clause (B), such
----------
additional engine model shall be added to Exhibit A and shall be a Licensed
---------
Engine.
(4) Where Cummins is the Funding Sponsor, if Case does not choose
either of the options in Section 3.02(c)(3), Cummins shall offer to sell
------------------
such engine to Case pursuant to the Engine Supply Agreement.
(5) For so long as the Funding Sponsor is the only party to make
capital investments under this Section 3.02(c), the assets acquired by such
---------------
investments shall be carried on the Funding Sponsor's books and shall not
be considered Partnership assets. However, to the extent that Cummins and
Case participate equally in such investments, the assets acquired thereby
shall be deemed equal contributions of the Partners to the Partnership and
shall be reflected in the Partnership books accordingly.
(d) So long as the engines produced by the Partnership contain the same
bore and stroke as well as the resultant displacement as that set forth on
Exhibit A, including any enhancements or upgrades to such engines, such engines
- ---------
shall be included on Exhibit A and shall be Licensed Engines. If Cummins states
---------
that it intends to replace any Licensed Engine with a replacement engine (i.e.,
an engine with a different bore and stroke than the engine to be replaced),
Cummins shall notify Case, and such replacement engine shall be deemed an
additional engine model of the type described in the first sentence of this
Section 3.02. Case may agree to jointly fund such replacement engine as
- ------------
provided in this Section 3.02.
------------
(e) 4B ENGINE. The Sponsors acknowledge that the "4B Engine" is, as of the
---------
date hereof, under development by Cummins and that the 4B Engine shall be a
Licensed Engine. The Sponsors acknowledge that a principal objective is to
develop engines that will satisfy emissions standards prescribed by various
governmental authorities, including the United States Environmental Protection
Agency. The parties further acknowledge that it will become necessary for the
4B Engine to achieve compliance with United States Environmental Protection
Agency "Tier II" emissions standards when those standards become applicable to
the 4B Engine in coming years. Cummins has assured Case that it will be
possible for the Partnership to produce, without substantial additional capital
expenditures to the Partnership on the part of Case, a 4B Engine that achieves
compliance with the aforementioned emissions standards while also achieving
performance approaching that of the Encore engine ("Tier II Compliance"). As of
------------------
1995, Cummins informed Case that such capital expenditures were estimated to be
[CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION]. The Sponsors therefore agree that
Case shall make payments
-11-
<PAGE>
pursuant to the terms hereof and of the other Related Agreements or agreements
subsequently entered into in furtherance hereof to the extent required to cover
Case's share of the capital expenditures necessary for the 4B Engine to achieve
Tier II Compliance; provided, however, that if at any time the Partnership
-------- -------
proposes to make capital expenditures that would cause the aggregate capital
expenditures for 4B Engine Tier II Compliance to exceed [CONFIDENTIAL
INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION], Case shall not be required to make
payments to cover its share of any portion of such excess except to the extent
that Case is given the opportunity to review and approve the proposed excess
expenditures prior to the time the Partnership commits to such expenditures.
(f) ENCORE ENGINE. Case shall participate in the D Family (8.8 liter)
-------------
models of Encore engine pursuant to Section 3.02. Cummins shall sell to Case,
------------
and Case shall have the right to purchase from Cummins, all fuel systems and
electronic technology improvements and advancements developed by Cummins or on
behalf of Cummins in connection with the Encore model Cummins engine now
available or made available in the future at [CONFIDENTIAL INFORMATION CONTAINED
HERE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION] of Cummins' production cost as demonstrated by Cummins to the
reasonable satisfaction of Case.
SECTION 3.03 OTHER ENGINES. If the Partnership plans to produce engines
-------------
other than Licensed Engines and Cummins engines currently produced by the
Partnership (which are natural gas B engines and natural gas C engines) at the
Plant, the Sponsors shall meet and discuss the impact of such plans on this
Agreement, including the capital expenditures, fee and pricing provisions of
this Agreement, and shall agree upon such modifications to this Sponsors'
Agreement and the other Related Documents as are necessary to avoid any inequity
or detriment to either Sponsor or their Affiliates.
SECTION 3.04 THIRD PARTY ENGINES. Notwithstanding anything in this
-------------------
Article III to the contrary, Cummins shall have the right to design and develop,
- -----------
at its sole cost and expense, proprietary engines for third parties based on
Family I, Family II and Family III designs; provided, however, that Cummins
-------- -------
shall not have the right to manufacture or assemble such engines at the Plant or
to have such engines manufactured or assembled by the Partnership.
SECTION 3.05 THREE-CYLINDER ENGINES. The 3-290, 3T-290 and 3TA-290
----------------------
engines are included in Exhibit A and the definition of "Licensed Engine";
---------
provided, however, that, unless the Sponsors otherwise agree, the Partnership
- -------- -------
shall not be required to (i) manufacture blocks and heads for any three-cylinder
Licensed Engines unless the combined annual volume of the Sponsors' aggregate
orders for such blocks and heads exceeds [CONFIDENTIAL INFORMATION CONTAINED
HERE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION] Components or (ii) assemble any three-cylinder Licensed Engines
unless the combined annual volume of the Sponsors' orders for such Licensed
Engines exceeds [CONFIDENTIAL INFORMATION CONTAINED HERE HAS
-12-
<PAGE>
BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION]
Components.
SECTION 3.06 NON-DIESEL ENGINES. If Cummins develops a model of engine
------------------
based on the Family I, II or III Engine designs that is not a Diesel Engine and
is to be produced at the Plant, Case's level of participation in the use of the
design and a reasonable sharing of the capital and costs for the development and
implementation of the design shall be agreed to by the Sponsors at the time
production of such engine is actually required by Case. If so agreed by the
Sponsors, any such non-Diesel Engine shall be added to Exhibit A and shall be a
---------
Licensed Engine.
ARTICLE IV
PROJECT MANAGEMENT
SECTION 4.01 PROJECT MANAGER. The Project Manager shall be responsible
---------------
for the normal and customary day-to-day management of the operations of the
Plant, in accordance with the Annual Operating Plan, as well as any emergency
management not provided for in the Annual Operating Plan, including, without
limitation, production, planning, scheduling, manufacturing, maintenance,
finance and administration, compensation and employment policies of the
Partnership, and management of the Partnership supply base. In addition, the
Project Manager hereby agrees to fulfill the responsibilities delegated to it in
the Partnership Agreement.
SECTION 4.02 NO DETRIMENT. The Project Manager shall not intentionally
------------
manage the Plant for the benefit of one Sponsor or its Affiliates to the
detriment of the other Sponsor or its Affiliates.
SECTION 4.03 OPERATING REPORTS. The Sponsors shall cause the
-----------------
Partnership to use accounting systems approved by the Sponsors and to provide
monthly financial reports to the Sponsors. The Sponsors and the Partners shall
cause the Controller to use his best efforts to provide promptly information
reasonably requested by the Sponsors from time to time.
ARTICLE V
TECHNICAL ASSISTANCE
SECTION 5.01 TECHNICAL INFORMATION AND SUPPORT SERVICES. Cummins shall
------------------------------------------
provide Technical Information and support services to the Partnership pursuant
to the terms of the Technical Assistance Agreement. Cummins shall, at least on
a quarterly basis, review with Case the activities, programs and projects being
performed to provide such Technical Information and services to the Partnership
and provide to Case such written reports relative thereto as may reasonably be
requested.
SECTION 5.02 COORDINATION BETWEEN SPONSORS. On a quarterly basis
-----------------------------
Cummins shall consult with Case with regard to, and take into consideration the
needs of, the Partnership and Case for Technical Information and support
services to be provided under the Technical Assistance Agreement prior to
establishing priorities for such work to be performed by Cummins.
ARTICLE VI
-13-
<PAGE>
GENERAL PROVISIONS
SECTION 6.01 TERMINATION OF ENCORE AGREEMENT. The Sponsors and the
-------------------------------
Partners hereby agree that this Sponsors' Agreement shall supersede and
terminate the Agreement, dated as of September 29, 1995, between Case, Cummins,
Case Holding and Cummins Holding, relating to the so-called Encore engines.
SECTION 6.02 DISPUTE RESOLUTION. If a dispute or inequity arises that
------------------
is to be resolved pursuant to this Section 6.02, the Sponsor that initiates such
------------
dispute or feels such inequity shall so notify the other Sponsor in writing.
The Partner Representatives shall then discuss the situation and try to agree
upon whatever modifications are reasonably necessary to prevent any further
inequity or dispute. If the Partner Representatives agree, they shall submit
their recommendations to the Partnership Committee for review and approval. If
the Partner Representatives are unable to agree after two weeks, or such
additional time as they may determine, the matter shall be submitted, along with
any recommendations, to the officers at Cummins and Case, acting as executive
vice presidents or the equivalent, who are generally responsible for Partnership
matters. Such officers shall discuss the situation and try to agree upon
whatever modifications are reasonably necessary to prevent any further inequity
or dispute. If they agree, they shall submit their recommendations to the
Partnership Committee for review and approval. If such officers are unable to
agree after two weeks, or such additional time as they may determine, the matter
shall be submitted, along with any recommendations, to the chief executive
officer of Cummins and the chief executive officer of Case. They shall discuss
the situation and try to agree upon whatever modifications are reasonably
necessary to prevent any further inequity or dispute. If they agree, they shall
submit their recommendations to the Partnership Committee for review and
approval. If the chief executive officers are unable to agree within two weeks,
or such additional time as they may determine, the matter shall be resolved in a
manner to be determined by the Sponsors.
SECTION 6.03 FORCE MAJEURE. If either Sponsor is rendered unable,
-------------
wholly or in part, by Force Majeure, to fulfill any obligation or condition of
this Agreement, then upon giving notice and reasonably full particulars to the
other Sponsor, such obligation or condition, other than the obligation to pay
money when due, shall be suspended, to the extent fulfillment is impeded, from
the date of such notice until such Force Majeure ceases or abates sufficiently
to permit full or partial performance, and such Sponsor shall be relieved of
liability and shall suffer no prejudice under this Agreement for failure to
perform the same during such period.
SECTION 6.04 PROPRIETARY INFORMATION. Neither Sponsor shall divulge,
-----------------------
nor permit its Affiliates or the Partnership to divulge, any proprietary or
confidential information (including, but not limited to Technical Information)
of the other Sponsor or its Affiliates or of the Partnership to any Person,
except to those employees, agents, independent contractors and representatives
of such Sponsor, its Affiliates or the Partnership who, and to the extent they,
require knowledge of the same in connection with transactions contemplated by
this Agreement or except as mutually agreed by the Sponsors. Each Sponsor shall
inform its employees, agents, independent contractors and representatives of the
proprietary or confidential nature of such information and the obligation to
keep such information confidential and shall take such other action as shall
reasonably be required
-14-
<PAGE>
to cause such information to be kept confidential. This Section 6.04 shall not
------------
apply to information which is in the public domain or to information legally in
the possession of a Sponsor or any of its Affiliates otherwise than as a result
of the creation of the Partnership.
SECTION 6.05 NO REPRESENTATIONS OR WARRANTIES. Except as otherwise
--------------------------------
expressly provided in a Related Agreement, Cummins, its Affiliates, agents and
employees, have not made and do not make any representations, warranties or
guarantees, express or implied, of any kind or nature whatsoever, under this
Agreement, the Related Agreements or in connection with the transactions
contemplated hereby with regard to the:
(a) The ability to meet the design objectives of the Licensed Engines set
forth in Section 2.04(b) or the ability of the Licensed Engines to be produced
---------------
or to perform in any manner or the ability of the Licensed Engines to meet any
specifications, standards or requirements imposed by law or otherwise, whether
existing now or imposed in the future;
(b) Plant site and improvements thereon, if any, the design engineering and
planning of the Plant and manufacturing operations, the architects and
engineering firms retained in accordance with this Agreement, the machine tools
and the related equipment selected for the Plant, the machine tool vendors, or
the construction of the Plant;
(c) Operation of the Plant including, without limitation, the time or
numbers of Licensed Engines, Case Products, Components and Parts, to be produced
and delivered, the costs of production, or the capability of the Plant to meet
the one-year operating plan approved in accordance with the Partnership
Agreement; and
(d) Industrial Property Rights, technical assistance, technical information
and support services to be provided under this Sponsors' Agreement, the License
Agreement or Technical Assistance Agreement to Case, its Affiliates and the
Partnership.
SECTION 6.06 SEVERABILITY. If any part of this Agreement or the Related
------------
Agreements , for any reason, shall be finally adjudged by any court of competent
jurisdiction to be invalid, such judgment shall not affect, impair or invalidate
the remainder of this Agreement or the Related Agreements and there shall be
deemed substituted for the part at issue a valid, legal and enforceable
provision as similar as possible to the part at issue. The invalidity of any
part or parts of this Agreement or the Related Agreements shall not relieve the
Sponsors from their other duties and obligations under this Agreement or Related
Agreements.
SECTION 6.07 WAIVER. The failure of either Sponsor to enforce any
------
provision of this Agreement or exercise any right granted hereby shall not be
construed to be a waiver of such provision or right, nor shall it affect the
validity of this Agreement or any part hereof, or limit in any way the right of
any party subsequently to enforce any such provision or exercise such right in
accordance with its terms.
-15-
<PAGE>
SECTION 6.08 NOTICES. Any notice, report or consent required or
-------
permitted by this Agreement to be given or delivered shall be in writing and
shall be delivered by hand, sent by confirmed facsimile transmission or mailed,
postage prepaid, by certified or registered mail, return receipt requested, as
follows:
If to Cummins or Cummins Holding:
Cummins Engine Company, Inc.
Box 3005
Columbus, Indiana 47202
Attention: General Counsel
Facsimile: (812) 377-3272
If to Case or Case Holding:
Case Corporation
700 State Street
Racine, Wisconsin 53404
Attention: General Counsel
Facsimile: (414) 636-5631
Any such notice, report or consent shall be effective upon receipt. Any party
may change its address for receipt of any notice, report or consent by giving
the other parties 30 days' notice of such change as above provided.
SECTION 6.09 ENTIRE AGREEMENT. This Sponsors' Agreement, with its
----------------
exhibits and other attachments, constitutes the entire understanding of the
Sponsors relating to the subject matter hereof and supersedes all prior
agreements or understandings of the Sponsors with respect thereto.
SECTION 6.10 CHANGE IN CONTROL.
-----------------
(a) Each Sponsor covenants that it will not merge or consolidate with or
into any other Person or sell, lease, transfer or otherwise dispose of its
property and assets as, or substantially as, an entirety unless:
(i) the Sponsor shall be the continuing or surviving corporation; or
(ii) the Sponsor merges or consolidates with one of its Affiliates; or
(iii) the Sponsor is not the continuing or surviving corporation and
the successor or acquiring Person has a net worth thereafter not less than
the net worth of the Sponsor immediately prior to such merger,
consolidation or sale of property and assets, and such successor or
acquiring Person assumes in writing all of the obligations of the Sponsor
under this Sponsors' Agreement and the other Related Agreements. Any such
successor or
-16-
<PAGE>
acquiring Person shall succeed to and be substituted for the
Sponsor merging into or consolidating with it, with the same effect as if
such successor or acquiring corporation had been named herein as a party
hereto.
(b) Each Sponsor covenants that it will not engage in a Change in Control
if the other entity or entities that is a party to the transaction(s)
constituting a Change in Control, or an Affiliate of such other entity or
entities, is a Competitor of the other Sponsor, nor will either Sponsor or its
Affiliate consummate a Change in Control of a Competitor of the other Sponsor.
(i) "Competitor" of either party means a material competitor with a
----------
major business of such competitor in a substantial portion of the
geographic areas where such party or its Affiliates does business.
(ii) "Change in Control" of an entity means a change in the beneficial
-----------------
ownership of the entity's voting stock or a change in the composition of
the entity's board of directors or other principal governing body (either
such body being the "Board of Directors"), which occurs as follows:
------------------
(A) any person or entity (or group of persons or entities) other
than:
(I) a trustee or other fiduciary of securities held under an
employee benefit plan of the entity; or
(II) an entity owned, directly or indirectly, by the
stockholders of such entity in substantially the same proportions
as their ownership of such entity;
is or becomes a beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of stock of
the entity representing 50% or more of the total voting power of the
entity's then outstanding stock;
(B) during any period of two consecutive years there shall cease
to be a majority of the entity's Board of Directors comprised as
follows: individuals who at the beginning of such period constitute
the Board of Directors and any new director(s) whose election by the
Board of Directors or nomination for election by the entity's
stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election
was previously so approved; or
(C) the stockholders of the entity approve a merger or
consolidation of the entity with any other entity other than:
(I) a merger or consolidation that would result in the
entity's voting stock outstanding immediately prior thereto
continuing to represent (either
-17-
<PAGE>
by remaining outstanding or by being converted into voting stock
of the surviving entity) more than 50% of the combined voting
power of the entity's or such surviving entity's outstanding
voting stock immediately after such merger or consolidation; or
(II) a merger or consolidation that would result in the
directors of the entity who were directors immediately prior
thereto continuing to constitute at least 50% of the directors of
the surviving entity immediately after such merger or
consolidation.
For purposes of this paragraph (C), "surviving entity" means only
----------------
an entity in which all of the entity's stockholders become
stockholders by the terms of such merger or consolidation, and
the phrase "directors of the entity who were directors
------------------------------------------
immediately prior thereto" shall not include:
-------------------------
(III) any director of the entity who was designated by a
person who has entered into an agreement with the entity to
effect a transaction described in this paragraph or in paragraph
(A) above; or
(IV) any director who was not a director at the beginning of
the 24-month period preceding the date of such merger or
consolidation unless his election by the Board of Directors or
nomination for election by the entity's stockholders was approved
by a vote of at least two-thirds of the directors then still in
office who were directors before the beginning of such period.
(iii) For purposes of the definition of "Change in Control" in
paragraph (ii) above, references to "stock," "voting stock" or
-------------- ----- ------------
"stockholders" of an entity shall include other equivalent equity interests
-------------
issued by entities that are not corporations.
SECTION 6.11 NO THIRD-PARTY BENEFICIARIES. This Sponsors' Agreement
----------------------------
shall be construed to be for the benefit of the Sponsors only and shall confer
no right or benefit upon any other Person. Without limitation of the foregoing,
no covenant herein contained is intended, nor shall it be construed, to operate
as a guaranty to any Person of any indebtedness of the Partnership, the
subsidiaries or any Affiliate of a Sponsor.
SECTION 6.12 VERBAL MODIFICATIONS OR WAIVERS. No modification or waiver
-------------------------------
of any provision hereof shall be effective unless in writing and signed by an
authorized representative of the Sponsor or Sponsors bound thereby.
SECTION 6.13 TITLES AND HEADINGS. The titles and headings included in
-------------------
this Sponsors' Agreement are inserted for convenience only and shall not be
considered in construing this Sponsors' Agreement.
-18-
<PAGE>
SECTION 6.14 APPLICABLE LAW. This Sponsors' Agreement shall be
--------------
construed in accordance with the laws of the State of Indiana.
-19-
<PAGE>
IN WITNESS WHEREOF, the Sponsors have caused this Sponsors' Agreement to
be executed by their officers thereunto duly authorized as of the day and year
first above written.
CUMMINS ENGINE COMPANY, INC.
By: / F. Joseph Loughrey /
---------------------------------------
Name: F. Joseph Loughrey
Title: Executive Vice President
Group President - Industrial
CASE CORPORATION
By: / Steven G. Lamb /
-------------------------------------
Name: Steven G. Lamb
Title: President and Chief Operating Officer
CUMMINS ENGINE HOLDING COMPANY, INC.
By: / F. Joseph Loughrey /
----------------------------------------
Name: F. Joseph Loughrey
Title: President
CASE CDC HOLDINGS, INC.
By: / Steven G. Lamb /
--------------------------------------
Name: Steven G. Lamb
Title: Attorney in Fact
<PAGE>
EXHIBIT A
SPONSORS' AGREEMENT
LICENSED ENGINE DESCRIPTION
The "Licensed Engines" referred to in Exhibit G of the Sponsors'
---------
Agreement shall consist of two families of Diesel Engines. Family I Engines
shall have a common bore and stroke of 102 mm by 120 mm. Family II Engines
shall have a bore of 114 mm and a stroke of 135 mm. Family III Engines will have
a bore of 114 mm and a stroke of 144.5 mm.
<TABLE>
<CAPTION>
ENGINE MODELS CONFIGURATION DISPLACEMENT ASPIRATION
FAMILY I ENGINES ('B' Engines)
<S> <C> <C> <C>
3-290* Inline - 3 cylinder 2.94 litres Natural
3T-290* Inline - 3 cylinder 2.94 litres Turbo-charged
3TA-290* Inline - 3 cylinder 2.94 litres Turbo-charged/after-cooled
4-390 Inline - 4 cylinder 3.92 litres Natural
4T-390 Inline - 4 cylinder 3.92 litres Turbo-charged
4TA-390 Inline - 4 cylinder 3.92 litres Turbo-charged/after-cooled
6-590 Inline - 6 cylinder 5.88 litres Natural
6T-590 Inline - 6 cylinder 5.88 litres Turbo-charged
6TA-590 Inline - 6 cylinder 5.88 litres Turbo-charged/after-cooled
6TAA-590 Inline - 6 cylinder 5.88 litres Turbo-charged/after-cooled/air to air
<CAPTION>
FAMILY II ENGINES ('C' Engines)
<S> <C> <C> <C>
6-830 Inline - 6 cylinder 8.27 litres Natural
6T-830 Inline - 6 cylinder 8.27 litres Turbo-charged
6TA-830 Inline - 6 cylinder 8.27 litres Turbo-charged/after cooled
6TAA-830 Inline - 6 cylinder 8.27 litres Turbo-charged/after cooled/air to air
<CAPTION>
FAMILY III ENGINES ('D' Engines)
<S> <C> <C> <C>
6-890 Inline - 6 cylinder 8.88 litres Natural
6T-890 Inline - 6 cylinder 8.88 litres Turbo-charged
6TA-890 Inline - 6 cylinder 8.88 litres Turbo-charged/after cooled
6TAA-890 Inline - 6 cylinder 8.88 litres Turbo-charged/after cooled/air to air
</TABLE>
* Engine Models marked with an asterisk represent models which the
Partnership shall not be required to manufacture or assemble unless the
criteria in Section 3.05 of the Sponsors' Agreement have been met.
------------
Ex. A-1
<PAGE>
EXHIBIT B TO THE
SPONSORS' AGREEMENT
AMENDED AND RESTATED LICENSE AGREEMENT
--------------------------------------
THIS AMENDED AND RESTATED LICENSE AGREEMENT, dated as of April 21, 1998,
between CUMMINS ENGINE COMPANY, INC., an Indiana corporation ("Cummins"), and
-------
CASE CORPORATION, a Delaware corporation ("Case"), amends and restates the
----
License Agreement, dated as of October 16, 1980, as amended, between Cummins and
Case.
WHEREAS, Cummins designed and developed a line of Diesel Engines for the
benefit of Case and Cummins, and Cummins is and will be the exclusive owner of
the Industrial Property Rights therein; and
WHEREAS, it is necessary for Case to have a license for the use of the
Industrial Property Rights of Cummins; and
WHEREAS, the parties hereto desire to amend and restate this License
Agreement as provided herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 DEFINITIONS. The capitalized terms which are defined in
-----------
Exhibit G to the Amended and Restated Sponsors' Agreement, dated as of the date
hereof (the "Sponsors' Agreement"), between Case, Cummins, Case Holdings and
-------------------
Cummins Holding have the meanings herein as set forth in the Sponsors'
Agreement, unless otherwise defined herein.
ARTICLE II
GRANT OF RIGHTS
SECTION 2.01 LICENSE. To the extent set forth in Article IV and on the
------- ----------
terms and subject to conditions of this License Agreement, Cummins hereby
grants to Case, during the term specified herein, a worldwide, non-exclusive,
non-assignable, non-sublicensable and non-transferable license and right to use
the Industrial Property Rights to manufacture, have manufactured by the
Partnership, sell and service Licensed Products (i) for use in Case Equipment,
and (ii) for sale to Cummins, its Affiliates and the Partnership, and for no
other use.
SECTION 2.02 SALES TO AUTHORIZED CASE DEALERS. Notwithstanding the
--------------------------------
limitations set forth in Section 2.01, Case and its Affiliates may sell Licensed
------------
Products in the normal course of business
Ex. B-1
<PAGE>
to their authorized dealers; provided, however, that Case uses reasonable
-----------------
efforts to ensure that its authorized dealers (i) use Licensed Engines purchased
from Case and its Affiliates solely for the purpose of re-powering Case
Equipment, and (ii) do not market or sell Case Equipment incorporating Licensed
Products for use in an application inconsistent with the definition of "Case
Equipment" contained in Exhibit G to the Sponsors' Agreement. Within a
---------
reasonable period after Cummins discovers any sales by Case's dealers in
violation of the above restrictions, Cummins shall give Case notice of such
violation. If, as a result of Case's failure to use reasonable efforts, an
authorized dealer of Case or any of its Affiliates uses a Licensed Engine
contrary to the limitations specified in clauses (i) and (ii) of this
Section 2.02, then Case shall pay to Cummins as liquidated damages for each such
- ------------
Licensed Engine a sum equal to [CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION] of the
net price charged by Cummins, at the time of such misuse, to original equipment
manufacturers for the same or equivalent Licensed Engine.
SECTION 2.03 SUBLICENSE. Notwithstanding the limitations set forth in
----------
Section 2.01, Case may grant a sublicense under this License Agreement to its
- ------------
Manufacturing Affiliate to manufacture, sell and service Licensed Products (i)
for use in Case Equipment, and (ii) for sale to Cummins, its Affiliates and the
Partnership and to Case (with respect to Case Products), and for no other use.
ARTICLE III
CONFIDENTIALITY
SECTION 3.01 SPONSORS' AGREEMENT. The provisions of Section 6.04 of the
------------------- ------------
Sponsors' Agreement shall apply to this License Agreement.
ARTICLE IV
RIGHTS AND ROYALTIES
SECTION 4.01 DURING EXISTENCE OF THE PARTNERSHIP. So long as the
-----------------------------------
Partnership continues in existence, the license and right granted under Section
-------
2.01 shall be royalty free and shall extend solely to:
- ----
(a) Licensed Products (i) produced by the Partnership for use by Case and
its Affiliates or (ii) transferred pursuant to the Engine Transfer Agreement;
(b) Licensed Products produced in a plant established by Case in North
America pursuant to Section 2.06(a) of the Sponsors' Agreement for use by Case
---------------
and its Affiliates; and
(c) Licensed Products that are produced by Case's Manufacturing Affiliate
pursuant to Section 2.06(b) of the Sponsors' Agreement for use by Case and its
---------------
Affiliates, the Partnership, Cummins and its Affiliates as provided herein so
long as such Licensed Products are not shipped from Western Europe to any Person
in North America, other than the Partnership, for incorporation into products
manufactured or assembled by Case or its Affiliates at a time when the Plant is
Ex. B-2
<PAGE>
reasonably expected to assemble less than [CONFIDENTIAL INFORMATION CONTAINED
HERE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION] Licensed Engines per year, unless the Plant has not been able to
produce sufficient Licensed Engines to fill the firm orders of Case and its
Affiliates for three or more consecutive months and the Licensed Engines shipped
from Western Europe are intended to cover the firm orders the Partnership has
not been able to fill.
SECTION 4.02 RIGHTS AND ROYALTIES UPON DISSOLUTION OF PARTNERSHIP.
----------------------------------------------------
(a) If the Partnership terminates pursuant to the provisions of Section
-------
10.01(a) of the Partnership Agreement, the license and right granted under
- --------
Section 2.01 shall be perpetual, royalty free and free of the limitations set
- ------------
forth in Section 4.01.
------------
(b) If the Partnership is dissolved pursuant to Sections 10.01(b)(i), (ii)
-------------------- ----
or (iii) of the Partnership Agreement and Cummins Holding is the Electing Party,
-----
the license and right granted under Section 2.01 shall be perpetual, subject to
------------
the payment of a royalty fee during the period specified in Section 4.02(g)
---------------
equal to the lesser of (i) [CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION] of the
costs to Case and its Affiliates to produce Licensed Products, excluding the
cost of any Purchased Components sold as Service Parts, or (ii) [CONFIDENTIAL
INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION] of the selling price to their dealers for
such Licensed Products, but in no event less than [CONFIDENTIAL INFORMATION
CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION] per calendar year. For purposes of this Section 4.02(b),
---------------
the cost to Case and its Affiliates to produce Licensed Products means the sum
of direct material, direct labor and indirect production overhead charges
(including, without limitation, depreciation), as such charges are classified by
Case's standard cost accounting systems and procedures, plus an amount equal to
[CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION] of such sum.
(c) If the Partnership is dissolved pursuant to Section 10.01(b) of the
----------------
Partnership Agreement and Case Holding is the Electing Party, then the license
and right granted under Section 2.01 shall be perpetual, [CONFIDENTIAL
------------
INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION] and free of the limitations set forth in
Section 4.01. The use limitation contained in Section 2.01 shall not apply if
- ------------ ------------
Case and/or its Affiliates acquire the Plant or the interest of Cummins Holding
in the Partnership.
(d) If Case Holding and Cummins Holding dissolve the Partnership by mutual
agreement and Case and/or any of its Affiliates acquire the Plant or the
interest of Cummins Holding in the Partnership, then the license and right
granted in Section 2.01 shall be perpetual, [CONFIDENTIAL INFORMATION CONTAINED
------------
HERE HAS BEEN OMITTED AND
Ex. B-3
<PAGE>
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION] and free of the
application use limitations set forth in Section 2.01 and the limitations set
forth in Section 4.01.
------------
(e) If Case Holding and Cummins Holding dissolve the Partnership by mutual
agreement and Cummins and its Affiliates acquire the interest of Case Holding in
the Partnership or if the Plant is sold to Cummins and/or its Affiliates or to
another purchaser other than Case and/or its Affiliates, the license and right
granted in Section 2.01 shall be perpetual and [CONFIDENTIAL INFORMATION
------------
CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION].
(f) If the Partnership is dissolved pursuant to Section 10.01(c) of the
----------------
Partnership Agreement, then the license and right granted under Section 2.01
------------
shall be [CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION] until Case and its
Affiliates are no longer entitled to purchase Licensed Engines pursuant to the
terms of the Purchase Agreement or any assignment thereof. At the end of such
period, this License Agreement shall terminate except for the continuing
obligations of Section 3.01, and Case shall have no further license or right to
------------
use the Industrial Property Rights for any purpose whatsoever.
(g) Any royalty payment provided for in this Article IV shall be payable
----------
quarterly for a period of nine calendar years commencing in the year in which
Case or any of its Affiliates first produces a Licensed Product following the
dissolution of the Partnership.
SECTION 4.03 PAYMENTS AND REPORTS.
--------------------
(a) Case and its Affiliates will keep or cause to be kept, in accordance
with generally accepted accounting principles, books, records, and accounts
containing all information necessary for the accurate determination of amounts
payable hereunder.
(b) Case and its Affiliates shall deliver to Cummins, within 45 days after
the termination of each calendar quarter, any part of which is within the term
of this License Agreement, a report in writing setting forth the information
necessary for the determination of amounts payable hereunder during such
calendar quarter. Such report need be made only during the quarters in which
such Licensed Products subject to the payment of a royalty are produced. Case
shall pay the royalty due to Cummins hereunder during the period for which such
report is made at the time such report is delivered to Cummins. Cummins shall
have the right to verify independently the amounts payable hereunder.
SECTION 4.04 TECHNICAL ASSISTANCE. If the Partnership is dissolved and
--------------------
the provisions of Sections 4.02(a), (b), (c), (d) or (e) apply, Cummins shall
---------------- --- --- --- ---
provide technical assistance reasonably necessary and appropriate to transfer to
Case and its Affiliates the Technical Information then being used, and all
Technical Information developed thereafter during the term of the Purchase
Agreement. Case and its Affiliates shall pay Cummins, on a monthly basis, an
amount equal to all costs incurred
Ex. B-4
<PAGE>
by Cummins in fulfilling its obligations under this Section 4.04, plus
------------
[CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION] of such costs. Case shall have the
right to verify independently the amounts payable hereunder.
ARTICLE V
INDUSTRIAL PROPERTY RIGHTS
SECTION 5.01 CUMMINS OWNERSHIP. Case acknowledges that the Industrial
-----------------
Property Rights, including, without limitation, rights under any patents and the
Technical Information, are the sole and exclusive property of Cummins, and that
this License Agreement and any other agreement between Case and Cummins and/or
their respective Affiliates does not vest Case or its Affiliates with any
ownership rights thereto.
SECTION 5.02 LITIGATION AND DEFENSE.
----------------------
(a) Cummins shall at all times have the sole right to take whatever steps
it deems necessary or desirable to enforce the patents, patent applications and
any other Industrial Property Right, including the filing and prosecution of
patent litigation. Cummins at its own expense shall have the right to include
Case as a party in such litigation where necessary for the conduct thereof. If
the parties desire and agree to joint participation in any infringement suit or
other enforcement action with respect to any of the patents or patent
applications licensed hereunder, the respective responsibilities of the parties,
and their contributions to the costs and participation in any recoveries, shall
be as agreed in writing prior to undertaking the enforcement action.
(b) If any actual or threatened infringement suit against Case or its
Affiliates which would affect the manufacture, use or sale of Licensed Products,
Case shall promptly give written notice thereof to Cummins, and Cummins will
make available to Case, free of charge, any information in its possession which
will assist Case significantly in defending or otherwise dealing with such suit.
SECTION 5.03 NO WARRANTIES. Cummins does not make any representations,
-------------
warranties or guarantees to Case regarding the scope or enforceability of the
patents or patent applications licensed hereunder, does not make any
representations, warranties or guarantees of any kind or nature with regard to
the Industrial Property Rights, Technical Information or the design of Licensed
Products, and does not represent, warrant or guarantee that the Licensed
Products licensed under this License Agreement will not infringe patents of
others.
ARTICLE VI
INDUSTRIAL PROPERTY RIGHTS
SECTION 6.01 TRADEMARKS. Case shall place and cause its Affiliates to
----------
place trademarks of Case or its Affiliates in a legible and prominent way on all
Licensed Products, and to permit no other trademark to be placed thereon. In
addition, as a part of a Cummins quality assurance
Ex. B-5
<PAGE>
program, Case and its Affiliates shall comply with all reasonable requirements
of Cummins for the placement of a nondescript trademark on all Purchased Parts
and Components used in Licensed Products.
SECTION 6.02 FORCE MAJEURE. If either Case or Cummins is rendered
-------------
unable, wholly or in part, by Force Majeure, to fulfill any obligation or
condition of this License Agreement, then upon giving notice and reasonably full
particulars to the other party, such obligation or condition, other than the
obligation to pay money when due, shall be suspended, to the extent that
fulfillment is impeded, from the date of such notice until such Force Majeure
ceases or abates sufficiently to permit full or partial performance, and such
party shall be relieved of liability and shall suffer no prejudice under this
License Agreement for failure to perform the same during such period.
SECTION 6.03 SEVERABILITY. If any part of this License Agreement, for
------------
any reason, shall be finally adjudged by a court of competent jurisdiction to be
invalid, such judgment shall not affect, impair or invalidate the remainder of
this License Agreement, and there shall be deemed substituted for the part at
issue a valid, legal and enforceable provision as similar as possible to the
part at issue. The invalidity of any part or parts of this License Agreement
shall not relieve the parties from their other duties and obligations hereunder.
SECTION 6.04 WAIVER. The failure of Case or Cummins to enforce any
------
provision of this License Agreement or exercise any right granted hereby shall
not be construed to be a waiver of such provision or right, nor shall it affect
the validity of this License Agreement or any part hereof, or limit in any way
the right of either party subsequently to enforce any such provision or exercise
such right in accordance with its terms.
SECTION 6.05 NOTICES. Any notice, report or consent required or
-------
permitted by this License Agreement to be given or delivered shall be in writing
and shall be delivered by hand, sent by confirmed facsimile transmission or
mailed, postage prepaid, by certified or registered mail, return receipt
requested, as follows:
If to Cummins:
Cummins Engine Company, Inc.
Box 3005
Columbus, Indiana 47202
Attention: General Counsel
Facsimile: (812) 377-3272
Ex. B-6
<PAGE>
If to Case:
Case Corporation
700 State Street
Racine, Wisconsin 53404
Attention: General Counsel
Facsimile: (414) 636-5631
Any such notice, report or consent shall be effective upon receipt. Either Case
or Cummins may change its address for receipt of any notice, report or consent
by giving the other party 30 days' notice of such change as above provided.
SECTION 6.06 CHANGE IN CONTROL. Neither Cummins nor Case shall effect a
-----------------
Change in Control, except as permitted under Section 6.10 of the Sponsors'
------------
Agreement.
SECTION 6.07 VERBAL MODIFICATIONS OR WAIVERS. No modification or waiver
-------------------------------
of any provision hereof shall be effective unless in writing and signed by an
authorized representative of the party or parties bound thereby.
SECTION 6.08 TITLES AND HEADINGS. The titles and headings included in
-------------------
this License Agreement are inserted for convenience only and shall not be
considered in construing this License Agreement.
SECTION 6.09 Applicable Law. This License Agreement shall be construed
--------------
in accordance with the laws of the State of Indiana.
Ex. B-7
<PAGE>
IN WITNESS WHEREOF, the parties have caused this License Agreement to be
executed by its officers thereunto duly authorized as of the day and year first
above written.
CUMMINS ENGINE COMPANY, INC.
By: / F. Joseph Loughrey /
----------------------------------------------
Name: F. Joseph Loughrey
Title: Executive Vice President
Group President - Industrial
CASE CORPORATION
By: / Steven G. Lamb /
---------------------------------------------
Name: Steven G. Lamb
Title: President and Chief Operating Officer
<PAGE>
EXHIBIT C TO THE
SPONSORS' AGREEMENT
AMENDED AND RESTATED PARTNERSHIP AGREEMENT
THIS AMENDED AND RESTATED PARTNERSHIP AGREEMENT, dated as of April 21,
1998, between CASE CDC HOLDINGS, INC., a Delaware corporation ("Case Holding"),
------------
a subsidiary of Case Corporation, a Delaware corporation ("Case"), and CUMMINS
----
ENGINE HOLDING COMPANY, INC., an Indiana corporation ("Cummins Holding"), a
---------------
subsidiary of Cummins Engine Company, Inc., an Indiana corporation ("Cummins"),
-------
amends and restates the Partnership Agreement, dated as of October 16, 1980, as
amended, between Case Engine Holding Company, Inc., a Delaware corporation, and
Cummins Holding.
ARTICLE I
DEFINITIONS
SECTION 1.01 DEFINITIONS. The capitalized terms which are defined in
-----------
Exhibit G to the Amended and Restated Sponsors' Agreement, dated as of the date
- ---------
hereof (the "Sponsors' Agreement"), between Case, Cummins, Case Holding and
-------------------
Cummins Holding shall have the same meanings herein as set forth in Exhibit G to
---------
the Sponsors' Agreement unless otherwise defined herein.
ARTICLE II
FORMATION OF GENERAL PARTNERSHIP
SECTION 2.01 FORMATION; NAME. On October 16, 1980, the Partners formed a
---------------
general partnership named "Consolidated Diesel Company" (the "Partnership") for
-----------
the limited purpose and scope set forth herein. Except as provided to the
contrary herein, the rights and obligations of the Partners shall be governed by
the provisions of the North Carolina Uniform Partnership Act. The Partners
shall execute and deliver such documents and perform such acts consistent with
the terms of this Agreement as may be necessary to comply with the requirements
of the assumed or fictitious name statutes and other applicable laws for the
qualification and operation of a general partnership in each jurisdiction in
which the Partnership shall conduct business.
SECTION 2.02 PLACE OF BUSINESS. The principal place of business of the
-----------------
Partnership shall be U. S. Highway 301, Box 670, Whitakers, North Carolina
27891. The Partnership may change its place of business to such other place as
the Partnership Committee may from time to time select.
SECTION 2.03 PURPOSE AND CHARACTER OF BUSINESS. The purpose of the
---------------------------------
Partnership is to manufacture, assemble, test and sell to Cummins and Case and
their Affiliates Licensed Engines, Components, Cummins Products, Case Products
and Service Parts. [CONFIDENTIAL
Ex. C-1
<PAGE>
INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION].
ARTICLE III
MANAGEMENT OF THE PARTNERSHIP
SECTION 3.01 PARTNERSHIP COMMITTEE. Except as otherwise provided in this
---------------------
Partnership Agreement, the business and affairs of the Partnership shall be
under the direction of the Partnership Committee.
(a) Composition. The Partnership Committee shall consist of six voting
-----------
members, three of whom shall be appointed by Case Holding and three of whom
shall be appointed by Cummins Holding. Each member of the Partnership Committee
shall hold office until death, resignation or removal by the Partner which
appointed such member. If a vacancy shall occur in the Partnership Committee,
the Partner which appointed such vacating member may appoint a successor by
giving written notice thereof to the other Partner. Similarly, if the
appointing Partner desires to replace any of its appointees, such Partner may
remove and replace such appointee at any time by giving written notice thereof
to the other Partner.
(b) Nonvoting Participants. The General Manager shall not be a member of
----------------------
the Partnership Committee; provided, however, that the General Manager may
-------- -------
attend all Partnership Committee meetings as a nonvoting participant. Other
employees of the Sponsors or the Partnership may, upon invitation by a member of
the Partnership Committee, attend meetings of the Partnership Committee as
nonvoting participants.
(c) Actions. The Partnership Committee shall, subject to the provisions
-------
of this Partnership Agreement, determine the policies, procedures and methods by
which it shall conduct its business. Any action required to be taken by the
Partnership Committee shall require the concurrence of not less than four
members.
(d) Meetings. The Partnership Committee shall provide for the holding of
--------
regular meetings and shall fix the times and places at which such meetings shall
be held. Any action required or permitted to be taken by the Partnership
Committee may be taken without a meeting if all members consent thereto in
writing.
(e) Notice of Meetings. The secretary of the Partnership Committee shall
------------------
prepare the agenda for each regular meeting of the Partnership Committee and
shall give notice of each such meeting, stating the time, place and purposes
thereof to each member of the Partnership Committee.
(f) Special Meetings. The General Manager or any member of the
----------------
Partnership Committee may call a special meeting of the Partnership Committee.
The person calling such meeting shall prepare the agenda and give reasonable
notice thereof, stating the time, place and purposes to each member of the
Partnership Committee.
Ex. C-2
<PAGE>
(g) Quorum. The presence, by proxy or in person, at any meeting of a
------
majority of all the members of the Partnership Committee shall be necessary to
constitute a quorum. A majority of the members of the Partnership Committee
present at the meeting may adjourn such meeting from time to time until a quorum
is present. Any member of the Partnership Committee may authorize in writing
his vote by proxy provided his appointee is present to vote his proxy.
(h) Minutes. The Controller shall act as secretary of the Partnership
-------
Committee and shall keep the minutes of each Partnership Committee meeting
unless the members designate another individual for that purpose. Within 30
days after any Partnership Committee meeting, the secretary shall circulate a
draft copy of the meeting minutes among all members. At the next meeting, the
Partnership Committee shall review, amend as necessary, and approve the minutes
of the last meeting. Such approved minutes shall be preserved in books kept for
that purpose by the secretary.
SECTION 3.02 PROJECT MANAGER. The Partners hereby delegate to the Project
---------------
Manager, and pursuant to Section 4.01 of the Sponsors' Agreement the Project
----
Manager accepts, responsibility for: (i) the normal and customary day-to-day
management of the operations of the Plant, in accordance with the Annual
Operating Plan, as well as any emergency management not provided for in the
Annual Operating Plan, including, without limitation, production, planning,
scheduling, manufacturing, maintenance, finance and administration; (ii)
determining reasonable compensation and employment policies of the Partnership;
(iii) determining the number, skill, mix and compensation levels of employees
best suited for the expected level and mix of Plant output; (iv) management of
the Partnership supply base; and (v) such other matters as are expressly
provided in this Partnership Agreement or the Sponsors' Agreement.
SECTION 3.03 PARTNER REPRESENTATIVES.
-----------------------
(a) Appointment. Each Partner shall appoint an individual to act as a
-----------
Partner Representative until death, resignation or removal by the Partner which
appointed the individual. Such Partner Representative shall be a member of the
Partnership Committee. If a vacancy shall occur, the Partner which appointed
such vacating Partner Representative may appoint a successor by giving written
notice thereof to the other Partner. Similarly, if the appointing Partner
desires to replace its Partner Representative, such Partner may remove and
replace its appointee at any time by giving written notice thereof to the other
Partner.
(b) Authority. The Partnership Committee shall meet from time to time, to
---------
determine the scope of authority and the reporting requirements of the Partner
Representatives. Such authority shall not, however, encompass any duties
expressly delegated herein to the Project Manager or the other managers of the
Partnership, or final approval of any proposed operating plan.
(c) Actions. When in agreement on how to resolve an issue, the Partner
-------
Representatives shall inform the Project Manager of their decision, and the
Project Manager shall implement that decision if it is within the scope of the
Partner Representatives' authority.
Ex. C-3
<PAGE>
SECTION 3.04 MANAGEMENT POSITIONS. The Project Manager shall appoint the
--------------------
General Manager, subject to the approval of the Partners, which approval shall
not be unreasonably withheld. The Project Manager shall appoint individuals to
fill the positions of Controller and other management positions within the
Partnership. All individuals holding management positions with the Partnership
shall be employees of the Partnership. Any employee of the Partnership may be a
former employee of either Sponsor or any of their respective Affiliates, and
there shall be no restriction upon employees of the Partnership becoming
employees of either Sponsor or one of their respective Affiliates upon
termination of their employment with the Partnership.
(a) General Manager.
---------------
(1) The General Manager shall be under the direct supervision of the
Project Manager and shall: (i) manage the Plant in a manner consistent
with the objectives set forth in the applicable Annual Operating Plan; (ii)
have charge of the general day-to-day operations of the Partnership; (iii)
be the medium of communication to the Partner Representatives and the
Partnership Committee; (iv) provide and evaluate information regarding the
general affairs of the Partnership, its business results, sourcing,
forecasts, expenditures, transfer costs, capital and any other matters
which may be reasonably requested, except ordinary commercial
communications such as those regarding the quality and delivery of
products; (v) be responsible for implementing all orders and resolutions of
the Partnership Committee; and (vi) prepare and submit a proposed annual
operating plan each year in accordance with Section 3.06(a).
---------------
(2) The General Manager shall serve until death, resignation,
retirement or removal.
(b) Controller. The Controller shall report to the General Manager. The
----------
Controller shall: (i) establish and maintain the Partnership's accounting system
and shall be responsible for keeping correct and adequate records of the assets,
liabilities, business and transactions of the Partnership; (ii) prepare and file
all reports, forecasts, planning documents and tax returns; (iii) be the medium
of communication from the Partnership as to policy or evaluation of business
results, sourcing, forecasts, expenditures, transfer costs, capital and all
other matters except ordinary commercial communications such as those regarding
the quality and delivery of products; (iv) be secretary for the Partnership
Committee pursuant to Section 3.01(h); (v) prepare financial reports in
---------------
accordance with generally accepted accounting principles; and (vi) perform such
other duties incident to such office or as may be assigned by the General
Manager. The Controller shall have general supervision of the funds,
securities, notes, drafts, acceptances and other evidences of indebtedness of
the Partnership and shall determine that funds belonging to the Partnership are
kept on deposit in such banking institutions as the Partnership Committee from
time to time may direct.
(c) Other Management Positions. The Project Manager may designate such
--------------------------
other management positions and appoint such individuals to them as it may
determine from time to time to be necessary to carry out the purposes of the
Partnership.
Ex. C-4
<PAGE>
(d) Removal. At the request of the Project Manager or the Partnership
-------
Committee, the Partnership shall remove any individual appointed pursuant to
this Section 3.04. Upon the request of either Partner, for cause shown, the
General Manager shall be removed.
(e) Surety Bonds. If the Partnership Committee shall so require, any
------------
employee or agent of the Partnership shall execute and deliver to the
Partnership Committee a bond in such sum and with such surety or sureties as the
Partnership Committee may direct, conditioned upon the faithful performance of
such person's duties to the Partnership.
SECTION 3.05 AUTHORITY OF EMPLOYEES. The General Manager, individuals
-----------------------
reporting to him, and other Partnership employees and agents shall have no
authority to do the following without the prior written approval of the
Partnership Committee unless the relevant item or transaction is part of the
Annual Operating Plan or has been presented in detail to, and approved by, the
Partnership Committee:
(a) Expend, lease or otherwise obligate the Partnership for any amount in
excess of $200,000 per year for an item which would be capitalized on the
accounting records of the Partnership.
(b) Sell, transfer, lease or otherwise dispose of any capital asset of the
Partnership at a price of or having a fair market value in excess of $200,000.
(c) Enter into any lease for an item which would not be capitalized on the
accounting records of the Partnership, having a lease rate in excess of $50,000
per year.
(d) Borrow, commit to borrow, or guarantee any amount, directly or
indirectly, excluding trade payables incurred in the ordinary course of
business.
(e) Enter into or modify any contract or contracts with a single vendor
for the purchase of direct materials used in the manufacturing operations of the
Partnership at an aggregate cost in excess of $5,000,000 or 5% of direct
material purchases, whichever is higher.
(f) Enter into or modify any contract for the purchase of goods and
services, other than direct material, used in the manufacturing operations of
the Partnership in excess of $200,000.
(g) Enter into any contract for goods or services with a Partner or an
Affiliate of a Partner at a cost in excess of $100,000.
(h) Alter the design objectives or the performance specifications of the
Licensed Engines, Cummins Products or Case Products to be manufactured by the
Partnership.
(i) Operate the Plant in a manner substantially at variance with the
current Annual Operating Plan or the Interim Plan in effect according to Section
-------
3.06(e).
- -------
(j) Modify the accounting system(s) previously approved by Cummins and
Case.
Ex. C-5
<PAGE>
(k) Assign or otherwise dispose of the property of the Partnership in
trust for creditors or on the assignee's promise to pay the debts of the
Partnership, confess a judgment against the Partnership or mortgage, pledge or
grant a security interest in, or otherwise encumber all or any part of any asset
of the Partnership.
(l) Approve or file any federal and state Partnership income tax returns,
including any election made thereunder.
(m) Perform any other act or make any other decision that is not within
the ordinary course of business of the Partnership.
SECTION 3.06 ANNUAL OPERATING PLAN. The Partnership shall be operated in
---------------------
accordance with the latest Annual Operating Plan, except as provided under any
applicable Interim Plan (as defined in Section 3.06(e)).
---------------
(a) Preparation. Each year, subject to the terms and conditions of the
-----------
Sponsors' Agreement, the Purchase Agreement and this Partnership Agreement, the
General Manager shall prepare, under the direct supervision of the Project
Manager, a proposed operating plan for the following calendar year. Among other
things, the proposed plan shall include (i) agreed upon production demand
volumes for Cummins and Case and their respective Affiliates, which shall
reflect their respective best estimates and which shall not be considered firm
orders, (ii) the Theoretical Current Capacity of each of the Capacity Products
for such year, (iii) the Upfit Center Capacity for such year and (iv) the best
estimate of the Take, and where applicable, the Worldwide Take for each of Case
and Cummins for such year (the "Planned Take Percentage") and such other cost
-----------------------
allocation estimates as may be required under the Related Agreements. The
General Manager shall provide information necessary to support each Partner's
planning process promptly upon request from such Partner. In addition, the
proposed operating plan shall itemize Base Capital Expenditures project by
project, and each project shall describe cash requirements for the year of the
plan and for the life of the project and the proposed Unilateral Investments of
each Partner's Parent. The proposed operating plan shall also provide an
analysis of expected Working Capital levels for each month-end and cash
requirements for each month of the applicable calendar year. Upon completion,
the proposed operating plan shall be submitted to the Partner Representatives
for review.
(b) Review. The Partner Representatives shall discuss and try to approve
------
the proposed operating plan as soon as possible. A Partner Representative shall
not reject a proposed operating plan on the basis of a proposed Unilateral
Investment contained therein unless such Partner Representative reasonably
believes that such proposed Unilateral Investment will adversely affect the
Partnership or the Theoretical Current Capacity of any Capacity Products. If
the proposal is acceptable to both Partner Representatives, they shall submit
it, along with any recommended modifications, to the Partnership Committee for
review and approval. If the Partner Representatives are unable to agree within
two weeks after the proposed operating plan is presented to them by the General
Manager, or such additional time as they may determine, the proposed operating
plan, along with any recommended modifications and points of disagreement, shall
be submitted to the officers at Cummins and Case, acting as executive vice
presidents or the equivalent, who are generally
Ex. C-6
<PAGE>
responsible for Partnership matters. Such officers shall discuss and try to
approve the proposed operating plan. If they agree, they shall submit the
proposed operating plan, along with any recommended modifications, to the
Partnership Committee for review and approval. If such officers are unable to
agree after two weeks, or such additional time as they may determine, the
proposed operating plan, along with any recommended modifications and the points
of disagreement, shall be submitted to the chief executive officer of Cummins
and the chief executive officer of Case. The chief executive officers shall
discuss and try to approve the proposed operating plan. If they agree, they
shall submit the proposed operating plan, along with any recommended
modifications, to the Partnership Committee for review and approval. If the
chairman and the chief executive officer are unable to agree after two weeks, or
such additional time as they may determine, the matter shall be resolved in a
manner to be determined by the Partners.
(c) Capital Projects. Base Capital Expenditures included in any proposed
----------------
annual operating plan in accordance with Section 3.06(a) shall be approved to
---------------
the extent they (i) are consistent with stated Partnership objectives, (ii) are
reasonably required for the efficient operation of the Partnership and (iii) do
not exceed a reasonable level, either as to individual projects or as to all
capital projects taken together. Unless the Partnership Committee otherwise
expressly agrees, with respect to any capital project included in a proposed
plan, the following provisions shall apply:
(1) Approval of the project shall extend to approval of the total
spending level specified in the plan for the life of the project.
(2) Approval of the project shall extend to approval of the spending
level specified in the plan for the applicable year; provided, however,
-------- -------
that as actually implemented such spending level may deviate, without
further approval, by 10% or $200,000, whichever is greater, so long as:
(A) the deviation is reasonably necessary as a result of
unforeseen circumstances; and
(B) overall capital spending during the applicable year does not
exceed the total specified in the corresponding Annual Operating Plan.
(3) Notwithstanding anything to the contrary contained in this Section
-------
3.06, capital projects costing over $100,000 that were not included in the
----
approved Annual Operating Plan, and are subsequently determined to be
reasonably necessary for the operation of the Plant, shall require the
approval of both Sponsors prior to implementation of any such capital
project.
(4) Separate approval shall be required under subsequent operating
plans for annual spending levels on approved capital projects in the
corresponding years; provided, however, that approval shall not be withheld
-------- -------
if the spending level reasonably approximates the spending level projected
for such year when the project was initially approved and if the
Ex. C-7
<PAGE>
Project Manager reaffirms that such spending level is still reasonable
under the circumstances.
(d) Approval. Any proposed operating plan shall become effective
--------
according to its terms, including any deviation permitted under Section
-------
3.06(c)(2), upon approval by the Partnership Committee, which approval shall not
- ----------
be unreasonably withheld or delayed. If the Partnership Committee does not
approve an annual operating plan in its entirety, the Partnership Committee
shall submit the portion of such plan (a "Partially Approved Plan") agreed upon
-----------------------
to the Project Manager for implementation.
(e) Interim Plan. If, by December 15 of any year, the Partnership
------------
Committee has not approved an operating plan for the following calendar year,
the Project Manager shall implement, and both Partners shall cooperate in a
timely fashion to implement and abide by the most recent version of the proposed
operating plan offered by the Project Manager (the "Interim Plan") , excluding
------------
items specifically not agreed by the Partners. Such Interim Plan shall remain
in effect until the earlier of (i) the end of the year in which it is intended
to apply or (ii) when the Partnership Committee approves an operating plan for
the year, subject to any adjustments in Plant operation that may be necessary
after plan approval. An Interim Plan shall be superseded by a Partially
Approved Plan to the extent of the provisions in the Partially Approved Plan.
SECTION 3.07 DISPUTES. If the Partnership Committee becomes deadlocked on
--------
any matter requiring its approval, or any dispute arises between the Partners,
the matter shall be submitted to the Partner Representatives and the dispute
resolution procedures set forth in Section 6.02 (other than the first sentence
------------
of Section 6.02) of the Sponsors' Agreement shall be followed. Except as
------------
provided in Section 3.06(e), the General Manager, and other employees of the
---------------
Partnership, shall have no authority to act regarding any matter which requires
and has not received the approval of the Partnership Committee until such
approval has been given.
ARTICLE IV
TRANSACTIONS BETWEEN THE PARTNERSHIP AND THE PARTNERS OR AFFILIATES
SECTION 4.01 OTHER ACTIVITIES. Each Partner understands that the other
----------------
Partner and its Affiliates are, or may become, interested, directly or
indirectly, by ownership, contract, agency or otherwise, in various other
business entities and undertakings and that the Partnership may have business
dealings or be in competition with such other business entities or undertakings.
The formation of the Partnership by the Partners shall be without prejudice to
the rights of the Partners and their respective Affiliates to receive and enjoy
profits or compensation from such other business entities and undertakings.
SECTION 4.02 ALTERNATIVE SOURCES. In the acquisition of materials,
-------------------
equipment or services, the Partnership may find it to be in the best interest of
the Partnership to deal with the Partners or their respective Affiliates, but
the Partnership shall not be required to do so and shall always be free to deal
with alternative sources of supply.
Ex. C-8
<PAGE>
SECTION 4.03 ADDITIONAL USE OF PARTNERSHIP RESOURCES. The Partner
---------------------------------------
Representatives may agree from time to time that the Partnership may use its
resources to engage in certain activities for the benefit of one or both of the
Partners. Such activities may include, without limitation, warehousing,
retesting and dressing of Licensed Engines, Cummins Products and Case Products
owned or purchased by a Partner. The Partner for whom any activity pursuant to
this Section 4.03 is performed shall pay to the Partnership a fee to be agreed
------------
upon by the Partner Representatives. Such fee shall cover the Partnership's
additional costs resulting from the activity and shall include a reasonable
return to the Partnership.
SECTION 4.04 SALES TO THE PARTNERSHIP.
------------------------
(a) Terms. Any sale to the Partnership by either Partner or its Affiliate
-----
(a "Selling Party") of materials, equipment or services, regularly sold by the
-------------
Selling Party in the competitive open market, shall be made on a firm price
basis for a stated period of time or variable prices consistent with commercial
practices for that product or service as negotiated between the Partnership and
the Selling Party under an appropriate supply agreement.
(b) Limitations. The terms and conditions for any sale to the Partnership
-----------
under this Section 4.04 of materials, equipment or services shall (i) be
------------
competitive with terms and conditions of other qualified vendors of such
equivalent materials, equipment or services and (ii) not be less favorable than
those given by the Selling Party to similarly situated best-user non-affiliated
customers for equivalent materials, equipment or services.
(c) Verification. At the request of either Partner, for any sale described
------------
in Section 4.04(a), the Selling Party shall provide to the independent public
---------------
accountants of the Partnership, at the initiation or renewal of the supply
agreement governing such sale, any invoices, vouchers and other documents and
records reasonably requested by such accountants in order to verify compliance
with the standards set forth in this Section 4.04. If no request for review is
------------
made within 60 days following the issuance of the audit report of the
Partnership for the fiscal year during which a supply agreement with Selling
Party was initiated or renewed, such supply agreement shall be deemed to comply
with this Section 4.04, and neither Partner shall have a right thereafter to
------------
claim that the transaction covered by such supply agreement was not in
compliance with this Section 4.04.
------------
(d) Excess Payments. If the price paid by the Partnership for any
---------------
materials, equipment or services exceeds that allowed in Section 4.04(b), the
---------------
Selling Party shall refund any excess paid to the Selling Party by the
Partnership as promptly as practicable (but in no event later than 30 days)
thereafter. The Partnership shall have the right to set off any unrefunded
excess against any fees or other sums due or to become due to the Selling Party
under this Agreement.
(e) Other Sales. The Partnership may purchase from a Selling Party
-----------
services which are not regularly sold by such Selling Party in the competitive
open market. The terms and conditions of sale to the Partnership for such
services shall be as negotiated by the Partnership and the Selling Party and
shall be reasonable under the circumstances.
Ex. C-9
<PAGE>
ARTICLE V
CAPITAL OF THE PARTNERSHIP
SECTION 5.01 BASE CAPITAL EXPENDITURES. The Partners shall each
-------------------------
contribute 50% of the Base Capital Expenditures authorized under any applicable
Annual Operating Plan, including any deviations permitted under Section
-------
3.06(c)(2), or under the Interim Plan pursuant to Section 3.06(e), subject to
- ---------- ---------------
adjustment after an Annual Operating Plan is approved.
SECTION 5.02 WORKING CAPITAL CONTRIBUTIONS.
-----------------------------
(a) Base Level Contributions. The Partners shall each contribute 50% of
------------------------
the Working Capital requirements of the Partnership, up to a combined total (the
"Base Level") during any calendar year equal to [CONFIDENTIAL INFORMATION
----------
CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION] multiplied by a ratio, the numerator of which is the Price
Index as of January 1 of the applicable calendar year, and the denominator of
which is the Price Index as of January 1, 1990. Whenever the Partnership's
Working Capital requirements exceed its actual Working Capital, but are less
than the Base Level, each Partner shall contribute to the Partnership cash equal
to 50% of the difference between the Working Capital requirement and actual
Working Capital upon ten days written notice from the Partnership.
(b) Excess Contributions. On or prior to the 15th day prior to the first
--------------------
day of each fiscal quarter of the Partnership, the Controller shall submit to
each Partner a written notice containing a forecast of the amount (the "Forecast
--------
Working Capital Amount") of (i) the maximum daily Working Capital requirements
- ----------------------
for such fiscal quarter, less (ii) any amount by which the Working Capital
requirements of the Partnership estimated by the Controller pursuant to clause
------
(i) in the prior fiscal quarter exceeded the amount of Working Capital actually
- ---
required by the Partnership in the prior fiscal quarter. On the first day of
each fiscal quarter, either (x) the Partnership shall distribute to each Partner
cash in an amount equal to any positive difference between the actual Working
Capital available to the Partnership for such fiscal quarter and the Forecast
Working Capital Amount for such fiscal quarter, or (y) each Partner shall
contribute to the Partnership cash equal to 50% of any positive difference
between the Forecast Working Capital Amount for such fiscal quarter and the
actual Working Capital available to the Partnership for such fiscal quarter.
During each fiscal quarter, the Partnership shall retain and invest all funds
representing any excess Working Capital until the first day of the next fiscal
quarter. Interest earned on any excess Working Capital shall be allocable on a
50/50 basis to each Partner by the Partnership as of the first day of each
month. In any fiscal quarter, the Partners may agree to use any excess Working
Capital in a manner different from that set forth in this Section 5.02(b).
---------------
(c) Additional Requirements. If the Working Capital requirements of the
-----------------------
Partnership exceed the Base Level in any calendar year, the Partnership shall
borrow the necessary funds either from a financial institution or from Cummins.
In either event, Cummins shall be responsible for paying 100% of the interest
and other costs attributable to such debt.
Ex. C-10
<PAGE>
SECTION 5.03 INTERESTS OF THE PARTNERS. Unless otherwise specified in
-------------------------
this Partnership Agreement or the Partners otherwise agree in writing, capital
contributions shall be made by the Partners in cash and in equal shares. The
interests of the Partners in the Partnership and in the assets thereof shall be
equal.
ARTICLE VI
CAPITAL ACCOUNTS: ALLOCATIONS
SECTION 6.01 CAPITAL ACCOUNTS. A Partnership capital account shall be
----------------
established for each Partner. The capital account of each Partner shall be (i)
credited with the amount of cash and the fair market value as determined by the
Partners, in writing, of any property contributed to the Partnership by such
Partner and with any income and gain allocated to such Partner pursuant to this
Partnership Agreement, and (ii) debited with the amount of cash and the fair
market value as determined by the Partnership Committee of any property
distributed to such Partner by the Partnership and with any deductions and
losses allocated to such Partner pursuant to this Partnership Agreement. To the
extent that required payments by a Partner's Parent are different from the
purchase price due under the Purchase Agreement, and an equal amount of
difference is experienced by each Partner's Parent, such difference shall
constitute a capital contribution by each Partner or a capital distribution to
each Partner.
SECTION 6.02 ALLOCATIONS. Except as specifically provided to the contrary
------------
in this Partnership Agreement, all income, gain, loss, deduction or credit (or
any item thereof) and any tax credits of the Partnership shall be allocated as
follows:
Case Holding 50%
Cummins Holding 50%
SECTION 6.03 PARTNERSHIP INCOME AND EXPENSE. Expenses incurred by a
------------------------------
Partner as to which such Partner is reimbursed by the Partnership shall be
treated as Partnership expenses. Payments received by a Partner that it is
obligated to pay to the Partnership shall be treated as Partnership receipts.
SECTION 6.04 INTEREST. Neither Partner shall be entitled to be paid
--------
interest with respect to its capital account or any capital contributions made
by it to the Partnership.
SECTION 6.05 RETURN OF CONTRIBUTIONS. Except as provided in Section 5.02,
----------------------- ------------
neither Partner shall be entitled to a return of any cash or property that it
has contributed to the capital of the Partnership, but shall look solely to
distributions from the Partnership. Except as provided in Sections 10.05,
--------------
10.06(b) and 10.06(c), neither Partner shall be required to contribute any cash
- -------- --------
or property to the Partnership to enable the Partnership to return any Partner's
capital contribution or to effect the repayment of the credit balances, if any,
in the Partners' respective capital accounts on dissolution of the Partnership
or to enable the Partnership to make any other distributions of any kind
whatsoever to either Partner.
Ex. C-11
<PAGE>
SECTION 6.06 SECTION 704(c) ALLOCATIONS.
--------------------------
(a) Statement of Principle. The transfers of interest in the Partnership
----------------------
pursuant to Case's reorganization resulted in terminations for federal income
tax purposes under Internal Revenue Code Section 708, and deemed contributions
of appreciated property by Cummins Holding subject to Code Section 704(c) and
Treasury Regulations Section 1.704-3 (the "704(c) Regulations"). The 704(c)
------------------
Regulations allow the Partners to agree to a reasonable method of reflecting the
difference between the tax basis and value of property deemed contributed by
Cummins Holding on the date of the tax termination. The intent of the Partners
is, to the extent permitted by applicable tax law, to allocate to Cummins
Holding the same depreciation it would have been allocated if there had been no
tax termination of the Partnership.
(b) Treatment of Undivided Interests. For purposes of applying the 704(c)
--------------------------------
Regulations, each Partnership asset (or group of assets permitted to be
aggregated under the 704(c) Regulations) existing on the date of the tax
termination shall be treated as giving rise to two items of Property: the 50%
undivided interest deemed contributed by Cummins Holding (the "Cummins 708
Property") and the 50% undivided interest deemed contributed by Case Holding
(the "Case 708 Property").
(c) Choice of 704(c) Method. The Partnership shall use the traditional
-----------------------
method with curative allocations provided in (S) 1.704-3(c) of the 704(c)
Regulations with respect to the Cummins 708 Property and Case 708 Property, as
further provided in this Section 6.06.
------------
(d) Regular Depreciation.
--------------------
(1) Depreciation and cost recovery deductions and gains and losses
with respect to Cummins 708 Property taken into account for regular tax
purposes shall first be allocated to Case Holding until Case Holding is
allocated 50% of the amount that would have been allocated if the Cummins
708 Property had a tax basis equal to fair market value. Any remaining
depreciation and cost recovery deductions and gains and losses with respect
to the Cummins 708 Property shall be allocated to Cummins Holding.
(2) Depreciation and cost recovery deductions and gains and losses
with respect to the Case 708 Property taken into account for regular tax
purposes shall be allocated 50% to each Partner, except that the
Partnership shall make curative allocations to Case Holding of a portion of
the amounts otherwise allocable to Cummins Holding. The amount of the
curative allocation shall be the lesser of (A) the amount needed to reduce
Cummins Holding's allocation of depreciation and cost recovery deductions
and gains and losses with respect to Cummins 708 Property and Case 708
Property to the amount Cummins Holding would have been allocated if there
had been no tax termination of the Partnership, and (B) the amount needed
to increase Case Holding's allocation of such amounts to the amount Case
Holding would have been allocated if the Cummins 708 Property had had a tax
basis equal to fair market value on the date of the tax termination. The
amount in clause (A) of the preceding sentence shall be determined on a
cumulative basis from July 15, 1994.
Ex. C-12
<PAGE>
(e) AMT Depreciation.
----------------
(1) Depreciation and cost recovery deductions and gains and losses
with respect to Cummins 708 Property taken into account for alternative
minimum tax purposes shall first be allocated to Case Holding until Case
Holding is allocated 50% of the amount that would have been allocated if
the Cummins 708 Property had a tax basis equal to fair market value. Any
remaining depreciation and cost recovery deductions and gains and losses
with respect to the Cummins 708 Property shall be allocated to Cummins
Holding.
(2) Depreciation and cost recovery deductions and gains and losses
with respect to the Case 708 Property taken into account for alternative
minimum tax purposes shall be allocated 50% to each Partner, except that
the Partnership shall make curative allocations to Case Holding of a
portion of the amounts otherwise allocable to Cummins Holding. The amount
of the curative allocation shall be the lesser of (A) the amount needed to
reduce Cummins Holding's allocation of depreciation and cost recovery
deductions and gains and losses with respect to Cummins 708 Property and
Case 708 Property to the amount Cummins Holding would have been allocated
if there had been no tax termination of the Partnership, and (B) the amount
needed to increase Case Holding's allocation of such amounts to the amount
Case Holding would have been allocated if the Cummins 708 Property had had
a tax basis equal to fair market value on the date of the tax termination.
The amount in clause (A) of the preceding sentence shall be determined on a
cumulative basis from the date of this Amendment.
(f) Variation by Agreement. The Partners may vary the tax allocations
----------------------
resulting from the preceding paragraphs of this Section 6.06 if the Partners
------------
agree that a different allocation would be fairer or would more closely comply
with the requirements of the Internal Revenue Code and regulations.
ARTICLE VII
DISTRIBUTIONS
SECTION 7.01 AMOUNT AND CHARACTER OF DISTRIBUTIONS. All distributions
-------------------------------------
shall be in cash unless otherwise agreed in writing by the Partners. Except as
otherwise provided in Section 5.02(b), the amount of cash available for
---------------
distribution, and the distribution thereof, shall from time to time be
determined by the Partnership Committee.
SECTION 7.02 DISTRIBUTIONS. Distributions by the Partnership to the
-------------
Partners shall be in equal shares; provided, however, that the amount of any
-------- -------
capital contribution required to be made by a Partner which has not been made
may be deducted from the amount of any distribution to which such Partner would
otherwise be entitled. Except as otherwise provided in Section 5.02(b), the
---------------
Partnership Committee shall determine the minimum cash requirements of the
Partnership, and, unless otherwise determined by the Partnership Committee, all
cash in excess of such requirements shall be distributed monthly to the Partners
as set forth above.
Ex. C-13
<PAGE>
ARTICLE VIII
ACCOUNTING AND TAX MATTERS
SECTION 8.01 FISCAL YEAR AND METHOD OF ACCOUNTING. The calendar year
------------------------------------
shall be the fiscal year of the Partnership. The Partnership shall keep its
books and records on the accrual method of accounting and in accordance with
generally accepted accounting principles, consistently applied from year to
year.
SECTION 8.02 AUDIT. As soon as practicable after the end of each fiscal
-----
year, an audit shall be made by Arthur Anderson & Co., or another firm of
independent public accountants designated by the Partnership Committee, covering
the financial statements of the Partnership, for the preceding fiscal year, in
accordance with generally accepted auditing standards. A report shall be
furnished to the Partnership Committee by such firm of accountants.
SECTION 8.03 INTERNAL AUDIT. Each fiscal year, an audit shall be made by
--------------
an internal audit team composed of representatives of each Partner. The team
shall audit the financial controls of the Partnership and each Partner's
payments and obligations to the Partnership, as well as other matters
customarily included in such audits. The team shall furnish a written report to
the Partnership Committee at the end of each audit. The Partners'
representatives shall alternate leadership and report responsibilities each
year.
SECTION 8.04 INSPECTION. Each Partner, at its own expense, shall have the
----------
right to inspect, or cause to be inspected, at any reasonable time, the books,
records and accounts of the Partnership and any tax returns prepared for the
Partnership prior to the filing thereof.
SECTION 8.05 TAX MATTERS. This Partnership Agreement is intended to and
-----------
shall constitute a partnership agreement for all purposes. The taxable income
of the Partnership, for federal income tax purposes, shall be determined under
the provisions of Subchapter K of Chapter 1 of Subtitle A of the United States
Internal Revenue Code of 1986, as amended, or superseding legislation enacted in
lieu thereof. Unless otherwise agreed in writing by the Partners, for the first
taxable year and any other taxable year where applicable, there shall be duly
and timely filed a partnership tax return in which the following elections shall
be made:
(a) Election of the calendar year as the taxable year of the Partnership;
(b) Election of the accrual method of accounting;
(c) Election of the accelerated methods for the computation of
depreciation;
(d) Election to expense research and experimental expenditures;
(e) Election of FIFO method for valuation of inventories; and
(f) Such other elections as may be agreed upon by the Partnership
Committee.
A similar determination of taxable income of the Partnership and similar
elections for state income tax purposes shall be made, as appropriate.
Ex. C-14
<PAGE>
ARTICLE IX
TRANSFER OF INTEREST
SECTION 9.01 CONSENT. Neither Partner shall sell, assign, transfer or
-------
encumber any part of its interest in the Partnership without the prior written
consent of the other.
SECTION 9.02 ASSIGNEES. If either Partner sells, assigns, transfers or
---------
encumbers its interest in the Partnership in accordance with Section 9.01, such
------------
Partner's assignee shall be entitled to all of the rights and privileges of the
assigning Partner hereunder, including the right to appoint members to the
Partnership Committee pursuant to Section 3.01, and such assignee shall be
------------
responsible for all obligations, whether accrued or prospective, of the
assigning Partner hereunder.
ARTICLE X
DISSOLUTION AND LIQUIDATION
SECTION 10.01 DISSOLUTION. The Partnership shall be dissolved upon the
-----------
occurrence of any of the following:
(a) [CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION]
(b) At the election of either Partner (the "Electing Party") by giving
--------------
written notice thereof to the other Partner:
(i) If the other Partner or its Parent shall (A) voluntarily file
with a Bankruptcy Court a petition seeking an order for relief under the
Bankruptcy Code, (B) seek or consent to the appointment of a receiver,
custodian or trustee for itself or for all or any significant part of its
property, (C) file a petition seeking relief under the bankruptcy,
arrangement, reorganization or other debtor relief laws of the United
States or any state thereof or any other competent jurisdiction, (D) make a
general assignment for the benefit of its creditors, or (E) admit in
writing its inability to pay its debts as they mature;
(ii) If (A) a petition is filed against the other Partner or its
parent seeking relief under the bankruptcy, arrangement, reorganization or
other debtor relief laws of the United States or any state thereof or any
other competent jurisdiction and such petition remains pending 60 days
after it was filed, or (B) a period of 60 days shall have elapsed after a
court of competent jurisdiction enters an order, judgment or decree
appointing, without the consent of said Partner or its Parent, a receiver,
custodian or trustee for such Partner or its Parent, or for all or any part
of its property, and such order, judgment or decree shall not be discharged
or stayed;
(iii) If the other Partner (the "Defaulting Party") defaults in the
----------------
performance of any of its obligations under (A) Article V or IX, and such
--------- --
failure continues for a period of 120 days after receipt by the Defaulting
Party of notice thereof from the Electing Party, or for
Ex. C-15
<PAGE>
such reasonable period of time after such notice as may be required to
perform such obligations hereunder if such failure by its nature cannot,
with due diligence and in good faith, be cured within the 120 day period,
or (B) Section 6.10 of the Sponsors' Agreement, and in the case of either
------------
clause (A) or (B) the Electing Party thereafter gives notice to the
--------- -
Defaulting Party of its election to dissolve the Partnership.
(c) At the election of Cummins Holding by giving written notice thereof to
Case Holding if in any calendar year Case and/or any of its Affiliates sell more
than [CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION] engines, which contain
therein Licensed Products, in breach of Case's obligations under the License
Agreement, and if Cummins Holding gives such notice to Case Holding within 12
months after the calendar year in which such sales took place, or within 12
months after discovering such sales if Case and/or its Affiliates intentionally
or fraudulently concealed them. Failure to give such notice in any one calendar
year shall not preclude Cummins Holding from giving notice in any subsequent
calendar year in which Case and its Affiliates sell more than [CONFIDENTIAL
INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION] such engines.
SECTION 10.02 DAMAGES. If the Partnership is dissolved as provided in
--------
Section 10.01(b)(iii), the Defaulting Party shall be in breach of this
- ---------------------
Partnership Agreement and shall be liable to the other Partner for all damages
such other Partner incurs as a result of such breach.
SECTION 10.03 DATE OF DISSOLUTION. The dissolution shall be effective on
-------------------
the day specified in Section 10.01(a) or the day on which notice of dissolution
----------------
is given, whichever occurs first, but the Partnership shall not terminate until
its affairs have been wound up and its assets distributed as provided in Section
-------
10.06 or the Electing Party (in the case of Section 10.01(b)) or Cummins Holding
- -----
(in the case of Section 10.01(c)) acquires the other Partner's interest in the
Partnership as provided in Section 10.07.
-------------
SECTION 10.04 CONTROL AFTER DISSOLUTION. If the Partnership is dissolved
-------------------------
under Section 10.01(b) or 10.01(c), the Electing Party (in the case of Section
---------------- -------- -------
10.01(b)) or Cummins Holding (in the case of Section 10.01(c)) shall have the
- -------- ----------------
option either to:
(a) proceed with winding up and liquidation as provided in Sections 10.05
--------------
and 10.06; or
-----
(b) acquire the other Partner's interest in the Partnership as provided in
Section 10.07.
- -------------
In any event, from the date of dissolution to the date of termination, the
Electing Party (in the case of Section 10.01(b)) or Cummins Holding (in the case
----------------
of Section 10.01(c)) shall have sole control of the operations and assets of the
----------------
Partnership.
SECTION 10.05 DISSOLUTION AND WINDING UP. After the date of dissolution
--------------------------
and if the Electing Party (in the case of Section 10.01(b)) or Cummins Holding
(in the case of Section
Ex. C-16
<PAGE>
10.01(c)) elects to proceed with the winding up and liquidation of the
Partnership as provided in Section 10.04(a), the Partnership shall not enter
----------------
into any contract or undertake any business not then subject to contract or
which is not related to the winding up of the Partnership. Upon dissolution and
subsequent winding up, a proper accounting shall be made of the Partnership's
assets, liabilities and operations from the date of the last previous accounting
to the date of dissolution. The profits and losses realized after the date of
dissolution shall be allocated in accordance with Article VI and proper
----------
adjustments made to the capital account of each Partner. Any amounts owed by
either Partner to the Partnership shall be charged against such Partner's
capital account. Profits and losses realized on the sale of any Partnership
asset in the process of winding up shall be allocated as provided in
Article VI. Unless otherwise agreed in writing by the Partners, all of the
- ----------
assets of the Partnership shall be sold or otherwise converted into cash.
Assets not sold shall be valued at their fair market value and gain or loss
allocated as provided in Article VI as if they had been sold at their fair
----------
market value. Either Partner which has a deficit in its capital account upon
dissolution of the Partnership shall be required to contribute funds to
eliminate such deficit upon written demand of the other Partner.
SECTION 10.06 LIQUIDATION. As soon as the actions contemplated by the
-----------
preceding sections of this Article X have been completed, the cash and other
---------
assets of the Partnership shall be applied or distributed in the following order
of priorities:
(a) In payment of all liabilities of the Partnership to creditors other
than the Partners and their Parents. If any liability is contingent, or
uncertain in amount, a reserve equal to the maximum amount to which the
Partnership could reasonably be held liable will be established. Upon the
satisfaction or other discharge of such contingency, the amount of the reserve
not needed, if any, shall be distributed in accordance with this Section 10.06.
-------------
(b) In payment of liabilities to the Partners and their Parents, as
vendors to the Partnership.
(c) In payment of loans to the Partnership by either Partner or Parent.
(d) In payment of the capital accounts of the Partners.
(e) All remaining funds to the Partners equally.
SECTION 10.07 PURCHASE RIGHT UPON DISSOLUTION. If an Electing Party (in
-------------------------------
the case of Section 10.01(b)) or Cummins Holding (in the case of Section
10.01(c)) elects to acquire the other Partner's interest in the Partnership
pursuant to Section 10.04(b), the Electing Party (in the case of Section
----------------
10.01(b)) or Cummins Holding (in the case of Section 10.01(c)) shall give
written notice of such election to the other Partner within 60 days after the
date of dissolution. If the capital accounts of the Partners are equal, the
purchase price for such interest shall be the agreed upon fair market value of
the Partnership assets less the Partnership liabilities multiplied by 50%. If
the capital accounts of the Partners are unequal, the price shall be the agreed
upon fair market value of the Partnership assets less the Partnership
liabilities multiplied by a fraction, the numerator of which is the capital
account of the non-electing Partner (in the case of Section 10.01(b)) or Case
Holding
Ex. C-17
<PAGE>
(in the case of an election by Cummins Holding under Section 10.01(c)) and the
denominator of which is the sum of the capital accounts of both Partners. The
Electing Party (in the case of Section 10.01(b)) or Cummins Holding (in the case
of Section 10.01(c)) shall continue the business of the Partnership until the
purchase price has been determined. As of the date of agreement on such price
and terms of payment, such other Partner causing the dissolution shall
immediately cease to be a Partner in the Partnership and shall have no interest
in the assets of the Partnership, either as a Partner or otherwise, except to
receive payment of such price and, unless the other Partner is a Defaulting
Party under Section 10.01(b)(iii), the Electing Party (in the case of Section
---------------------
10.01(b)) or Cummins Holding (in the case of Section 10.01(c)) shall continue
the business of the Partnership to manufacture, assemble, test and sell Licensed
Engines, Components and Service Parts to such other Partner and its Affiliates
to the extent required under any then existing purchase contracts between the
Partnership and such other Partner or its Affiliates. If there is no agreement
on such price and terms of payment within 12 months from the date of notice
given pursuant to this Section 10.07 after good faith negotiations, the Electing
-------------
Party (in the case of Section 10.01(b)) or Cummins Holding (in the case of
Section 10.01(c)) shall proceed with winding up and liquidation in accordance
- ----------------
with the terms of Sections 10.05 and 10.06.
-------------- -----
ARTICLE XI
NONDELEGATION
SECTION 11.01 NONDELEGATION. No Partner may, without the prior approval
-------------
of the Partnership Committee:
(a) borrow money in the Partnership name or utilize Partnership property
as security for any loans, obligate the Partnership as guarantor, endorser,
surety or accommodation party, or otherwise pledge the credit of the Partnership
in any way;
(b) mortgage or lease or agree to mortgage or lease any Partnership
property or any interest therein, or sell, transfer, convey, exchange or agree
to sell, transfer, convey or exchange any Partnership property;
(c) assign, transfer, pledge, compromise or release any of the claims of
or debts due the Partnership except on payment in full;
(d) arbitrate or consent to the arbitration of any of the disputes or
controversies of the Partnership;
(e) change or agree to change the terms of any contract to which the
Partnership is a Partner; or
(f) engage in any other transaction on behalf of the other Partner or the
Partnership.
Ex. C-18
<PAGE>
ARTICLE XII
GENERAL PROVISIONS
SECTION 12.01 EXECUTION OF INSTRUMENTS. All instruments requiring
------------------------
execution by the Partnership shall be executed in its name and on its behalf by
the Project Manager, the General Manager, their designees, or by any other
individual authorized by the Partnership Committee.
SECTION 12.02 WAIVER. The failure of either Partner to enforce any
------
provision of this Partnership Agreement or exercise any right granted hereby
shall not in any way be construed to be a waiver of such provision or right, nor
shall it affect the validity of this Partnership Agreement or any part thereof,
or limit, prevent or impair in any way the right of either Partner subsequently
to enforce such provision or exercise such right in accordance with its terms.
SECTION 12.03 NOTICES. Any notice, report or consent required or
-------
permitted by this Partnership Agreement shall be in writing and shall be either
delivered by hand or overnight courier or sent by confirmed facsimile
transmission or mailed certified or registered mail, return receipt requested,
postage and certification fee prepaid, to the Partners as follows:
Case CDC Holdings, Inc.
c/o Case Corporation
700 State Street
Racine, Wisconsin 53404
Attention: General Counsel
Telephone: (414) 636-5631
Cummins Engine Holding Company, Inc.
c/o Cummins Engine Company, Inc.
Box 3005
Columbus, Indiana 47202
Attention: General Counsel
Telephone: (812) 377-3272
A notice shall be deemed to have been given if it is so mailed and the
sender has received the return receipt with notation thereon of its delivery. A
Partner may designate that notices be sent to such different addresses as such
Partner may designate by written notice to the other Partner.
SECTION 12.04 VERBAL MODIFICATION OR WAIVERS. No modification or waiver
------------------------------
of any provision hereof shall be effective unless in writing and signed by an
authorized representative of the Partner.
SECTION 12.05 TITLE HEADINGS. The title headings of the respective
--------------
Articles and Sections of this Partnership Agreement are inserted for convenience
only and shall not be deemed to be a part of this Partnership Agreement, or
considered in construing this Partnership Agreement.
Ex. C-19
<PAGE>
SECTION 12.06 APPLICABLE LAW. This Agreement shall be construed in
--------------
accordance with the laws of the State of North Carolina.
Ex. C-20
<PAGE>
IN WITNESS WHEREOF, the Partners have executed this Partnership
Agreement as of the day and year first written above.
CUMMINS ENGINE HOLDING COMPANY, INC.
By: / F. Joseph Loughrey /
----------------------------------------------
Name: F. Joseph Loughrey
Title: Executive Vice President
Group President - Industrial
CASE CDC HOLDINGS, INC.
By: / Steven G. Lamb /
---------------------------------------------
Name: Steven G. Lamb
Title: Attorney in Fact
Ex. C-21
<PAGE>
EXHIBIT D TO THE
SPONSORS' AGREEMENT
THEORETICAL CURRENT CAPACITY
Concurrent with the preparation of the Annual Operating Plan for each
calendar year, the Sponsors shall also determine the Theoretical Current
Capacity of the Plant for such year for Licensed Engines, Head Sub-Assembly,
Cummins Products, Case Products, each of the Components (each, a "Unit" and,
----
collectively, the "Capacity Products") in accordance with the provisions of this
-----------------
Exhibit D. The "Theoretical Current Capacity" for each Unit shall equal the
- --------- ----------------------------
number determined by application of the following formula:
[CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION].
1. In determining Theoretical Current Capacity for a Unit in any year,
the Sponsors shall maintain the operation of the Plant in a practical and
efficient manner. In determining what is practical and efficient in operating
the Plant, the Sponsors shall consider existing policies and procedures of, and
past practices for, the operation of the Plant and the impact of any changes to
such policies and procedures and past practices. Each Sponsor may also consider
its various economic alternatives (e.g., deciding whether to incur operating
----
expenses or capital expenditures) to achieve the goals of each Sponsor with
respect to Theoretical Current Capacity levels for a Unit.
2. At the time of determination of Theoretical Current Capacity for a
Unit, the Sponsors shall provide five-year estimates of their demand for such
Unit from the Plant. Each estimate provided by Case shall estimate Case's
entire worldwide requirements for Capacity Products. Each estimate provided by
Cummins shall estimate Cummins requirements for Capacity Products at the Plant.
For each calendar year, the sum of the estimated demand of Case and Cummins of
Capacity Products shall equal the "Aggregate Demand." The Sponsors shall make
----------------
the determinations in this Exhibit D in a manner that both (i) is consistent
---------
with the requirements of paragraph 1 above and (ii) endeavors to avoid the
payment of any fees described in paragraph 4 below by either Sponsor.
3. Each Sponsor shall also estimate the number of its purchases of
Capacity Products from the Partnership for such year in the Annual Operating
Plan.
4. In any year a Sponsor shall pay a Utilization Fee to the other Sponsor
if the first Sponsor purchases a number of engines included in Capacity Products
that exceeds the sum of (i) 50% of the Theoretical Current Capacity for such
year for such engines, plus (ii) Underutilized Capacity for such engines of the
other Sponsor at the Plant plus (iii) with respect to Cummins (in order to
consider the impact of Transferred Engines actually purchased by Case in the
Theoretical Current Capacity available to Cummins), the positive amount (if any)
by which the number of Transferred Engines actually purchased by Case and its
Affiliates exceeds Case's Underutilized Capacity. [CONFIDENTIAL INFORMATION
CONTAINED HERE HAS BEEN OMITTED
Ex. D-1
<PAGE>
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION].
"Underutilized Capacity" with respect to a Sponsor in any year shall mean the
- -----------------------
positive amount, if any, by which (x) 50% of Theoretical Current Capacity for
such year for engines included in Capacity Products exceeds (y) the number of
such engines purchased by such Sponsor in such year from the Plant. For purposes
of calculating the Utilization Fee, in no event shall the Theoretical Current
Capacity available to Cummins in a calendar year be less than the sum of (x) 50%
of Theoretical Current Capacity for such year and (y) the number of Transferred
Engines actually purchased by Case in such year.
5. If actual production with respect to any Unit exceeds Theoretical
Current Capacity with respect to such Unit in any calendar year, actual
production for such Unit shall become Theoretical Current Capacity for such Unit
for the same calendar year. Theoretical Current Capacity with respect to any
Unit shall also be increased by the Sponsors in any year as a result of any
Jointly Funded Investment or if a Sponsor jointly funds the other Sponsor's
Unilateral Investment in accordance with Section 2.08(c) of the Sponsors'
---------------
Agreement. If a Sponsor makes a Unilateral Investment, the capacity created by
such Unilateral Investment shall not be included in the calculation of
Theoretical Current Capacity and such Unilateral Investment shall reduce the
number of Capacity Products subject to the Utilization Fee by the amount by
which capacity is increased by such Unilateral Investment.
6. Any Utilization Fee accrued for a calendar year shall be paid by the
relevant Sponsor, net of any Utilization Fee owing to it, on or before January
31 of the calendar year immediately after such year.
Ex. D-2
<PAGE>
EXHIBIT 1 TO EXHIBIT D
TO THE SPONSORS' AGREEMENT
[CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION]
Ex. D-3
<PAGE>
EXHIBIT E TO THE
SPONSORS' AGREEMENT
AMENDED AND RESTATED PURCHASE AGREEMENT
THIS AMENDED AND RESTATED PURCHASE AGREEMENT ("Purchase Agreement"),
------------------
dated as of April 21, 1998, between CASE CORPORATION, a Delaware corporation
("Case"), CUMMINS ENGINE COMPANY, INC., an Indiana corporation ("Cummins" and,
- ------ -------
collectively with Case, the "Buyers"), and CONSOLIDATED DIESEL COMPANY, a
------
general partnership existing under the laws of the State of North Carolina
("Seller" or the "Partnership") amends and restates (i) the Purchase Agreement,
------ -----------
dated as of October 16, 1980 and amended and restated as of December 7, 1990,
between Case and Seller and (ii) the Purchase Agreement, dated as of October 16,
1980 and amended and restated as of December 7, 1990, between Cummins and
Seller.
WHEREAS, Cummins and Case and their respective Affiliates desire to
purchase from Seller, and Seller desires to sell to Cummins, Case and their
respective Affiliates, engines, components and parts on the terms and subject to
the conditions set forth herein;
WHEREAS, Case and Cummins entered into a License Agreement that has been
amended and restated as of the date hereof, pursuant to which Cummins has
granted a license to Case to use Industrial Property Rights under certain
circumstances; and
WHEREAS, Case, Cummins and Seller entered into a technical assistance
agreement that has been restated as of the date hereof, pursuant to which
Cummins will provide technical assistance to Seller.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 DEFINITIONS. The capitalized terms used in this Purchase
-----------
Agreement shall have the meanings given to them in Exhibit G to the Amended and
---------
Restated Sponsors' Agreement, dated as of the date hereof (the "Sponsors'
---------
Agreement"), between Case, Cummins, Case Holding and Cummins Holdings, unless
- ---------
otherwise defined herein. References in this Purchase Agreement to Case shall
be deemed to refer to both Case Corporation and its Affiliates. References in
this Purchase Agreement to Cummins shall be deemed to refer to both Cummins
Engine Company, Inc. and its Affiliates.
ARTICLE II
Ex. E-1
<PAGE>
SALE AND PURCHASE
SECTION 2.01 PURCHASE RIGHTS AND OBLIGATIONS. Each Buyer shall have the
-------------------------------
right to purchase from Seller, and Seller shall have the obligation to sell to
each Buyer, Licensed Engines, Components and Service Parts on the terms and
subject to the conditions set forth herein and in the other Related Agreements.
Case shall also have the right to purchase from Seller, and Seller shall have
the obligation to sell to Case, on the terms and subject to the conditions of
this Purchase Agreement, Case Products that the Partnership produces for Case
in accordance with Article III of the Sponsors' Agreement. Cummins shall also
-----------
have the right to purchase from Seller, and Seller shall have the obligation to
sell to Cummins, on the terms and subject to the conditions of this Purchase
Agreement, Cummins Products that the Partnership produces for Cummins in
accordance with Article III of the Sponsors' Agreement. The terms and
-----------
conditions of this Purchase Agreement shall not apply to the provision of
engines by Cummins under the Engine Transfer Agreement, except as expressly
provided in the Engine Transfer Agreement.
SECTION 2.02 SALE AND PURCHASE IN GENERAL.
----------------------------
(a) Subject to Section 2.06, each Buyer shall have the right, but shall
------------
not be obligated, to purchase from Seller in any calendar year (i) up to one-
half of the Plant's actual production or Theoretical Current Capacity, whichever
is higher, for such year of Licensed Engines, (ii) up to one-half of the Plant's
actual production for such year of each of the Components, (iii) if Case invests
in the Upfit Center in accordance with Section 2.09(c) of the Sponsors'
---------------
Agreement, up to one-half of the actual production or Theoretical Current
Capacity, whichever is higher, of the Upfit Center for such year (or portion of
such remaining year in which Case invests) and (iv) all necessary and
appropriate Service Parts which are Manufactured Components; provided, however,
-------- -------
that each Buyer shall be obligated to purchase and Seller shall be obligated to
sell to each Buyer at least one Licensed Engine in each calendar year during the
term of this Purchase Agreement. In addition, a Buyer shall have the right, but
shall not be obligated, to purchase from Seller in any calendar year Licensed
Engines and Components to the extent of any capacity created by a Unilateral
Investment of such Buyer. Pursuant to Section 2.08(b) of the Sponsors'
---------------
Agreement and subject to Section 2.04, (i) Case shall also have the right, but
------------
not the obligation, to purchase Case Products and Licensed Engines, to the
extent of any capacity created by a Unilateral Investment made by Case and (ii)
Cummins shall also have the right, but not the obligation, to purchase Cummins
Products and Licensed Engines to the extent of any capacity created by a
Unilateral Investment made by Cummins.
(b) Consistent with Case's right to purchase up to one-half of the
Plant's actual production as set forth in Section 2.02(a) (and subject to
---------------
Section 2.06) or Theoretical Current Capacity, whichever is higher, Cummins
- ------------
shall not have the right to purchase Components from Seller or otherwise utilize
for any purpose Components which are required for the production of Licensed
Engines and Case Products which Case is entitled to purchase.
(c) Consistent with Cummins' right to purchase up to one-half of the
Plant's actual production as set forth in Section 2.02(a) (and subject to
---------------
Section 2.06) or Theoretical Current
- ------------
Ex. E-2
<PAGE>
Capacity, whichever is higher, Case shall not have the right to purchase
Component from a Seller or otherwise utilize for any purpose Components
which are required for the production of Licensed Engines and Cummins
Products which Cummins is entitled to purchase.
(d) If Case, Cummins or Seller believes that the production of Case
Products or Cummins Products at the Plant is reasonably likely to materially
adversely affect the Theoretical Current Capacity of the Plant, then upon notice
from the concerned party, the Sponsors shall promptly meet to establish a
mutually agreeable resolution of such capacity issue. Any disputes resulting
from such meeting shall be resolved in accordance with Section 6.02 of the
------------
Sponsors' Agreement.
SECTION 2.03 SALE AND PURCHASE AFTER TRANSFER DATE. After the date of
-------------------------------------
an assignment described in Section 8.01, the maximum number of Licensed Engines
------------
and Components which either Buyer shall have the right, but not be obligated, to
purchase in any 12-month period shall be the lesser of (i) such Buyer's
requirements for Licensed Engines and Components for use in its products, and
(ii) the maximum number of Licensed Engines and Components otherwise available
for sale to such Buyer pursuant to this Purchase Agreement.
SECTION 2.04 PRODUCTION SHORTFALLS. The Annual Operating Plan shall
---------------------
include agreed upon best estimates for production demand volumes for Cummins and
Case, and their Affiliates, pursuant to Section 3.06(a) of the Partnership
---------------
Agreement. Seller shall avoid shortfalls by employing reasonable efforts to
keep production on schedule. The Buyers shall cooperate to manage demand placed
on the Plant to avoid a shortfall of production of Capacity Products for a Buyer
if the other Buyer is taking more than 50% of the Plant's production of such
Capacity Products.
Notwithstanding anything to the contrary in this Section 2.04, (i) any
------------
production made possible by a Unilateral Investment shall only be available to
the Buyer that funded such Unilateral Investment unless the other Buyer has
invested in such Unilateral Investment in accordance with Section 2.08(c) of the
---------------
Sponsors' Agreement; and (ii) if a Buyer does not take the entire amount to
which it is entitled during a period of a production shortfall, the other Buyer
shall have the right to take such products not taken by the first Buyer. In the
event of repeated shortfall situations, or major differences between order
demand and production capacity, the Partner Representatives shall review the
matter and attempt in good faith to resolve such matter, failing which, such
matter shall be resolved in accordance with Section 6.02 of the Sponsors'
------------
Agreement.
SECTION 2.05 PURCHASE PRICE. The actual purchase price (the "Purchase
-------------- --------
Price") to each Buyer for products purchased from Seller in a specified period
- -----
shall equal [CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION]. Capital expenditures of
the Partnership shall be funded by the Sponsors in accordance with Section 2.08
------------
of the Sponsors' Agreement.
Ex. E-3
<PAGE>
(a) Transfer Price. The "Transfer Price" for each Buyer during a
-------------- --------------
specified period shall equal [CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION].
(b) Ownership Items. The following items ("Ownership Items") shall be
--------------- ---------------
allocated to each Buyer using the following methodology. [CONFIDENTIAL
INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION]
(i) Depreciation and Amortization: Each Buyer shall be allocated
-----------------------------
[CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION].
Except to the extent required under the Product Offtake
Agreement, dated as of January 15, 1996 (the "Product Offtake
---------------
Agreement"), between Case, Cummins and Seller, or as otherwise
---------
agreed upon by the parties, neither Buyer shall pay to Seller
any amount with respect to such allocation.
(ii) Interest Income and Expense: Unless otherwise specified, and
---------------------------
subject to the following sentence, the interest income or
expense incurred by the Partnership shall be allocated
[CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION].
With respect to interest expense, [CONFIDENTIAL INFORMATION
CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION].
(iii) Other Income and Expense: From time to time the Partnership may
------------------------
recognize other income and expense items related to the
disposal or sale of Partnership assets during the normal course
of business, which shall be allocated to Buyers as follows:
[CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION].
(iv) Benefits: Expenses relating to FASB 106 and FASB 112, post-
--------
retirement and long term disability benefits [CONFIDENTIAL
INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION].
Ex. E-4
<PAGE>
(v) Other Long Term Benefits/Obligations: Other long term benefits or
------------------------------------
obligations incurred by the Partnership shall be jointly reviewed by
the Buyers and allocated between the Buyers as agreed to by the
Sponsors.
SECTION 2.06 ADDITIONAL PURCHASE RIGHTS. If one Buyer does not exercise
--------------------------
its right to purchase Licensed Engines, Case Products, Cummins Products and
Components in the maximum quantities to which it is entitled hereunder in any
calendar year, then the other Buyer shall have the additional right to purchase
the Licensed Engines, Case Products, Cummins Products and Components to which it
is entitled hereunder that are not so purchased by such first Buyer.
SECTION 2.07 TERMS OF PAYMENT. Seller shall invoice each Buyer for all
----------------
products delivered hereunder at the Cash Transfer Amount (as defined in Section
-------
B.1 of Exhibit A to this Purchase Agreement) of such products determined in
- --- ---------
accordance with Exhibit A to this Purchase Agreement plus any applicable Upfit
---------
Materials Costs. Such invoices shall be payable within [CONFIDENTIAL
INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION] of the date thereof. Any past due amounts
shall be payable with interest at a rate equal to the prime rate published in
The Wall Street Journal as of the due date plus [CONFIDENTIAL INFORMATION
CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION], or the maximum interest rate permitted by law, whichever
is less.
SECTION 2.08 INSPECTION OF BOOKS AND RECORDS. Seller shall keep or
-------------------------------
cause to be kept, in accordance with generally accepted accounting principles,
books, records and accounts containing all information necessary for the
accurate determination of the purchase prices and transfer prices to be paid
under this Article II. Each Buyer, at its own expense, shall have the right and
power to examine and inspect, or cause to be examined and inspected, at any and
all reasonable times, such books, records and accounts of Seller.
ARTICLE III
ASSIGNMENT TO AFFILIATES OF BUYER
SECTION 3.01 ASSIGNMENTS TO AFFILIATES OF BUYERS. Each Buyer shall
-----------------------------------
have the right to assign, from time to time, to one or more of its respective
Affiliates the right to purchase all or any portion of the products which such
Buyer is entitled to purchase hereunder, but such assignment shall not relieve
such Buyer of its obligation to comply with the provisions of Article IV and
----------
its obligation to pay, if such Affiliate fails to pay, for such products on the
terms hereof. Such Buyer shall notify Seller promptly of any such assignment
and shall provide Seller with a copy of such assignment. Upon receipt of any
such notice, the Affiliate of such Buyer specified therein shall be entitled to
purchase the products specified therein in the same manner, and on such terms
and conditions, provided herein for the sale of products to such Buyer.
Purchases by such Affiliates shall be attributable to such Buyer for all
purposes of this Purchase Agreement.
Ex. E-5
<PAGE>
SECTION 3.02 INVOICES TO AFFILIATES. If either Buyer assigns to any of
----------------------
its Affiliates the right to purchase products hereunder as provided in Section
-------
3.01, Seller shall invoice such Affiliates separately for products purchased by
- ----
them.
ARTICLE IV
ORDER AND DELIVERY
SECTION 4.01 ORDER ENTRY SYSTEM. Except as provided in Section 2.07 of
------------------ ------------
the Sponsors' Agreement, each Buyer shall place its orders with Seller for
Licensed Engines, Cummins Products, Case Products and Components as follows. On
or before the first day of each month, each Buyer shall provide to Seller an
estimate, by calendar month, for at least the next six-month period, of the
number of Licensed Engines, Cummins Products, Case Products, Components and
Service Parts which it estimates such Buyer and its Affiliates will purchase
during such period. The estimate of Service Parts shall include Service Parts to
be purchased from Seller and other vendors approved by Seller. From time to
time as agreed upon by Seller and a Buyer, such Buyer shall designate and order
in writing, or in an electronic format acceptable to Seller, the number of
Licensed Engines (including factory option parts), Cummins Products, Case
Products, Components and Service Parts for delivery to such Buyer or its
Affiliates. The lead time and method of ordering Licensed Engines, Cummins
Products, Case Products, Components and Service Parts shall be as determined by
agreement between the Partner Representatives from time to time.
SECTION 4.02 TRADEMARKS. Seller shall place a nondescript trademark on
----------
all parts and components of Licensed Engines, Case Products, Cummins Products,
Components and Service Parts as required by Cummins in accordance with Section
-------
6.01 of the License Agreement. Each Licensed Engine and Case Product purchased
- ----
by Case or one of its Affiliates shall be marked with a trademark and dataplate
of Case or one of its Affiliates, as specified by Case, to which Case has
assigned any of its purchase rights hereunder as provided in Section 3.01.
------------
SECTION 4.03 DELIVERY. The point of delivery of Licensed Engines,
--------
Cummins Products, Case Products, Components and Service Parts purchased from
Seller shall be the loading dock of the Plant. All such products shall be
shipped in accordance with instructions provided by the applicable Buyer. Title
to and risk of loss with respect to all products delivered hereunder shall pass
from Seller to such Buyer at the point of delivery. All shipping charges,
costs, expenses, duties, tariffs, and fees with regard thereto shall be paid
directly or indirectly by such Buyer.
ARTICLE V
WARRANTY
SECTION 5.01 WARRANTY PROVIDED. Seller hereby warrants the products sold
-----------------
pursuant to this Purchase Agreement to each Buyer upon the terms and conditions
set forth in Exhibit B to this Purchase Agreement.
---------
Ex. E-6
<PAGE>
SECTION 5.02 NO OTHER REPRESENTATIONS AND WARRANTIES. Seller makes no
---------------------------------------
representations, warranties or guarantees, either direct or indirect, express or
implied, of any kind or nature whatsoever, other than as set forth in Section
--------
5.01.
- ----
SECTION 5.03 SUPPLIER IDENTIFICATION. Seller shall establish for
-----------------------
warranty claim purposes a system which will permit the identification, by
vendor, of Purchase Parts and Components which are provided by vendors to Seller
for incorporation into Licensed Engines, Cummins Products, Case Products and
parts and components which are provided by vendors to Buyers as Service Parts.
SECTION 5.04 WARRANTY INDEMNITY. If Seller is required to pay any
------------------
warranty claim, other than claims permitted under the warranty set forth in
Exhibit B to this Purchase Agreement, each Buyer, with respect to purchases by
- ---------
such Buyer from Seller, agrees to indemnify and hold Seller harmless from the
amount of such expense, together with all cost and expenses incurred in
connection therewith, including, but not limited to, reasonable attorneys' fees.
SECTION 5.05 PRODUCT LIABILITY INDEMNITY.
---------------------------
(a) Each Buyer (the "Indemnifying Party") shall indemnify and hold
------------------
harmless Seller, the other Buyer, the other Buyer's Affiliates, and the
officers, directors, shareholders, employees and agents, of Seller, the other
Buyer and the other Buyer's Affiliates (collectively, the "Indemnified Parties")
-------------------
from and against any and all losses, damages, liabilities, obligations,
judgments, settlements, costs and other expenses, in an amount not to exceed
$2,000,000 per occurrence, incurred or suffered by the Indemnified Parties by
reason of the assertion of any claim or the institution of any litigation
against them which is directly or indirectly based upon or related to any
assertion or finding that any of the products supplied by Seller to the
Indemnifying Party has caused or contributed to any damage to property or to the
death, illness or injury of any person, regardless of when the claim is asserted
or the litigation is instituted.
(b) Seller or the other Buyer, as appropriate, shall notify the
Indemnifying Party promptly if any claim is made against any of the Indemnified
Parties with respect to which the Indemnifying Party shall have agreed to
indemnify such Indemnified Parties as set forth in Section 5.05(a), whereupon
---------------
the Indemnifying Party shall undertake to defend and hold the affected
Indemnified Parties harmless therefrom.
(c) The Indemnifying Party, at its sole expense, shall assume the defense
of any claim as to which it has an indemnification obligation hereunder, or
shall cause its insurer to assume such defense. If the defense is not so
assumed on a timely basis, the Indemnified Parties shall have the right to
assume their own defense, and shall be entitled to reimbursement by the
Indemnifying Party for any and all reasonable expenses (including, but not
limited to, attorneys' fees) incurred in such defense (subject to the
limitations described in Section 5.05(a)).
---------------
ARTICLE VI
Ex. E-7
<PAGE>
USE OF PRODUCTS PURCHASED
SECTION 6.01 RESTRICTION ON CASE'S USE. Products purchased by Case and
-------------------------
its Affiliates hereunder shall be used solely in accordance with the provisions
of the License Agreement. Case covenants that it shall, and shall cause its
Affiliates to, accept and comply with such restrictions.
ARTICLE VII
FORCE MAJEURE
SECTION 7.01 FORCE MAJEURE. If either party to this Purchase Agreement
-------------
is rendered unable, wholly or in part, by Force Majeure, to fulfill any
obligation or condition of this Purchase Agreement, then upon giving notice and
reasonably full particulars to the other party, such obligation or condition,
other than the obligation to pay money when due, shall be suspended, to the
extent fulfillment is impeded, from the date of such notice until Force Majeure
ceases or abates sufficiently to permit full or partial performance, and such
party shall be relieved of liability and shall suffer no prejudice under this
Purchase Agreement for failure to perform the same during such period.
ARTICLE VII
OTHER PROVISIONS
SECTION 8.01 TERM OF AGREEMENT. This Purchase Agreement shall continue
-----------------
in full force and effect until [CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION], or
until the Partnership is dissolved pursuant to Article X of the Partnership
---------
Agreement, whichever is the earlier; provided, however, that if the Partnership
-------- -------
is dissolved and the Partnership interest of one Partner is acquired by the
other Partner (the "Survivor") or, in connection with such a dissolution or
--------
acquisition, the Plant is sold to the Survivor, its Affiliates or any other
Person, then this Purchase Agreement shall be assigned by Seller to, and the
obligations of Seller hereunder shall be assumed by, the Survivor, its
Affiliates or such other Person, as the case may be, at the time of such
acquisition or sale, and this Purchase Agreement shall continue in full force
and effect for a period of six years from the date of such assignment.
Notwithstanding the foregoing, if such acquisition or sale occurs as a part of
the winding up and liquidation of the Partnership under Sections 10.05 and 10.06
-------------- -----
of the Partnership Agreement and Licensed Engines are no longer produced in the
Plant, this Purchase Agreement shall thereupon terminate.
SECTION 8.02 NO ASSIGNMENT. Except as provided in Sections 3.01 or
------------- -------------
8.01, neither Seller nor either Buyer shall sell, assign, transfer or encumber
- ----
all or part of its interest in this Purchase Agreement without the prior written
consent of the other parties to this Purchase Agreement. This Purchase
Agreement shall inure to the benefit of and be binding upon the parties and
their respective assignees pursuant to any assignments permitted hereby.
Ex. E-8
<PAGE>
SECTION 8.03 SEVERABILITY. If any part of this Purchase Agreement, for
------------
any reason, shall be finally adjudged by any court of competent jurisdiction to
be invalid, such judgment shall not affect, impair or invalidate the remainder
of this Purchase Agreement and there shall be deemed substituted for the part at
issue a valid, legal and enforceable provision as similar as possible to the
part at issue. The invalidity of any part or parts of this Purchase Agreement
shall not relieve the parties, their successors or assigns from their other
duties and obligations under this Purchase Agreement.
SECTION 8.04 WAIVER. The failure of Seller or either Buyer to enforce
------
any provision of this Purchase Agreement or exercise any right granted hereby
shall not be construed to be a waiver of such provision or right, nor shall it
affect the validity of this Purchase Agreement or any part hereof, or limit in
any way the right of either such party subsequently to enforce any such
provision or exercise any such right in accordance with its terms.
SECTION 8.05 NOTICES. Any notice, report or consent required or
-------
permitted by this Purchase Agreement to be given or delivered shall be in
writing and shall be either delivered by hand or overnight courier or sent by
facsimile transmission (with receipt confirmed) or mailed, postage prepaid, by
certified or registered mail, return receipt requested, as follows:
If to Seller:
Consolidated Diesel Company
U.S. Highway 301
Box 670
Whitakers, North Carolina 27891
Attention: General Manager
Facsimile: (252) 437-9641
If to Case:
Case Corporation
700 State Street
Racine, Wisconsin 53404
Attention: General Counsel
Facsimile: (414) 636-5651
If to Cummins:
Cummins Engine Company
Box 3005
Columbus, Indiana 47202
Attention: General Counsel
Facsimile: (812) 377-3272
Ex. E-9
<PAGE>
Any such notice, report or consent shall be effective upon receipt. Case,
Cummins or Seller may change the address for receipt by it of any notice, report
or consent hereunder by giving prior written notice of such change to the other
parties as above provided.
SECTION 8.06 VERBAL MODIFICATIONS OR WAIVERS. No modifications or
-------------------------------
waiver of any provision hereof shall be effective unless in writing and signed
by authorized representatives of Seller and each Buyer.
SECTION 8.07 EXCISE TAXES. Any federal excise taxes imposed on the use
------------
or sale of the products sold hereunder shall be paid by the Buyer that purchased
such products from Seller.
SECTION 8.08 TITLES AND HEADINGS. The titles and headings included in
-------------------
this Purchase Agreement are inserted for convenience only and shall not be
deemed to be a part of this Purchase Agreement, or considered in construing this
Purchase Agreement.
SECTION 8.09 EXHIBITS. All Exhibits attached hereto are incorporated
--------
herein by reference.
SECTION 8.10 APPLICABLE LAW. This Purchase Agreement shall be construed
--------------
in accordance with the laws of the State of North Carolina.
Ex. E-10
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Purchase Agreement to be
executed by their officers thereunto duly authorized as of the day and year
first above written.
CONSOLIDATED DIESEL COMPANY,
a General Partnership,
By: CUMMINS ENGINE HOLDING COMPANY, INC.,
as General Partner
By: / F. Joseph Loughrey /
----------------------------------------------
Name: F. Joseph Loughrey
Title: President
CASE CDC HOLDINGS, INC., as General Partner
By: / Steven G. Lamb /
---------------------------------------------
Name: Steven G. Lamb
Title: Attorney in Fact
CASE CORPORATION
By: / Steven G. Lamb /
---------------------------------------------
Name: Steven G. Lamb
Title: President and Chief Operating Officer
CUMMINS ENGINE COMPANY, INC.
By: / F. Joseph Loughrey /
---------------------------------------------
Name: F. Joseph Loughrey
Title: Executive Vice President
Group President - Industrial
<PAGE>
SCHEDULE 1
ALLOCATION OF WARRANTY COSTS AND EXPENSES
-----------------------------------------
[CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION]
Ex. E-12
<PAGE>
EXHIBIT A TO THE
PURCHASE AGREEMENT
PRICING
[CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION]
Ex. E-13
<PAGE>
EXHIBIT B TO THE
PURCHASE AGREEMENT
GENERAL WARRANTY
[CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION].
Ex. E-14
<PAGE>
EXHIBIT F
TO THE SPONSORS' AGREEMENT
AMENDED AND RESTATED TECHNICAL ASSISTANCE AGREEMENT
THIS AMENDED AND RESTATED TECHNICAL ASSISTANCE AGREEMENT, dated as of
April 21, 1998, between CUMMINS ENGINE COMPANY, INC., an Indiana corporation
("Cummins"), CASE CORPORATION, a Delaware corporation ("Case"), and CONSOLIDATED
----
DIESEL COMPANY, a general partnership existing under the laws of the State of
North Carolina (the "Partnership"), amends and restates the Amended and Restated
-----------
Technical Assistance Agreement, dated as of December 7, 1990, between Cummins,
Case and the Partnership (the "Prior TAA").
---------
WHEREAS, Cummins has designed and developed a line of Diesel Engines for
the benefit of Cummins and Case, and Cummins is and will be the exclusive owner
of the Industrial Property Rights therein; and
WHEREAS, Cummins and Case have entered into the License Agreement
pursuant to which Case has a limited right to manufacture certain engines,
components and parts; and
WHEREAS, the Partnership has agreed to manufacture such engines and
components and to sell the same pursuant to the Purchase Agreement between the
Partnership, Case and Cummins; and
WHEREAS, in order for the Partnership, Case's Manufacturing Affiliate and
Case's North American plant, if any, to produce such engines, components and
parts, the Partnership and Case require technical assistance from Cummins; and
WHEREAS, the parties hereto desire to amend and restate the Prior TAA.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 DEFINITIONS INCORPORATED BY REFERENCE. The capitalized
-------------------------------------
terms which are defined in Exhibit G to the Amended and Restated Sponsors'
---------
Agreement, dated as of the date hereof (the "Sponsors' Agreement"), between
-------------------
Case, Cummins, Case Holding and Cummins Holding shall have the same meanings
herein as set forth in the Sponsors' Agreement, unless otherwise defined herein.
ARTICLE II
INFORMATION AND SERVICES PROVIDED
Ex. F-1
<PAGE>
SECTION 2.01 PURPOSE AND SCOPE. Cummins shall provide the
-----------------
Partnership, Case and Case Affiliates with Technical Information and support
services regarding Licensed Engines (including the electronically controlled
engines that constitute Licensed Engines) which use direct injection compression
ignition (diesel cycle). For purposes of this Technical Assistance Agreement,
such Technical Information and support services shall cover only Licensed
Engines which use diesel derivative fuels or other fuels that can be readily
burned in a direct injection compression ignition engine without major revision
to the component systems design, but shall not cover spark ignition (Otto Cycle)
engines or engines employing fuels which require major component system redesign
or major change to the engine component materials. Cummins shall allow Case to
reasonably participate in Cummins' internal long range engine planning process
(product preceding technology), and Cummins shall use reasonable efforts to
accommodate the reasonable interests of Case and the Partnership in such
planning process as expressed through Case's participation in such process.
SECTION 2.02 TECHNICAL INFORMATION. Cummins shall provide the
---------------------
Partnership, Case and Case's Affiliates with all of the Technical Information
regarding those Licensed Engines described in Section 2.01 as covered by this
------------
Technical Assistance Agreement that is within Cummins' capability to provide and
is, in the judgment of Cummins, reasonably useful and necessary for (i)
producing such Licensed Engines and Components at the Partnership, Case's
Manufacturing Affiliate and Case's North American plant, if such plants are
established pursuant to Sections 2.06(a) and (b) of the Sponsors' Agreement,
---------------- ---
(ii) keeping such Licensed Engines technologically current, (iii) adapting such
Licensed Engines to changing requirements, with regard to applications or uses
of Licensed Engines or as may be required by any applicable governmental
regulations, (iv) keeping such Licensed Engines competitive with regard to cost
and performance, and (v) providing information on Cummins' Licensed Engine
advanced engine technology.
SECTION 2.03 SUPPORT SERVICES. Cummins shall provide such assistance
----------------
to the Partnership, Case and Case's Affiliates as may be reasonably necessary
for them to use the Technical Information regarding those Licensed Engines
described in Section 2.01 as being covered by this Technical Assistance
------------
Agreement, and shall provide reasonable on-going engineering and technical
assistance in connection with design and product development regarding such
Licensed Engines including, without limitation, the following:
(a) providing worldwide design control;
(b) keeping designs competitive;
(c) providing specifications to meet government regulations;
(d) supplying technical information and alternate approaches on options and
ratings and approving new product manufacturing processes, including. without
limitation, preproduction parts approval and emissions pre-certification;
(e) approving sources;
(f) approving manufacturing or process changes;
(g) supporting Plant quality problem resolution;
(h) supporting Plant and customer needs for supplier technical assistance;
(i) supporting Plant cost reduction efforts;
(j) resolving product problems; and
Ex. F-2
<PAGE>
(k) advanced design activities.
The Partnership recognizes the benefit of limiting form, fit and function
design changes. When such changes are required, Cummins shall advise Case as
early as possible in the design process to understand impacts on Case products.
Cummins shall use reasonable efforts to accommodate any concerns of Case prior
to issuance of any engineering release directing the implementation of such
engineering changes. Any disagreements between Case and Cummins concerning
engineering changes shall be resolved by the Product Family Chief Engineer
(specified within Cummins Engineering Std 99043). Cummins shall notify the
Partnership, Case and Case Affiliates promptly of any corrections to the
Technical Information furnished hereunder.
Notwithstanding anything to the contrary in the preceding paragraph,
Cummins and the Partnership shall not implement any engineering change that
would: (i) increase the Materials Costs of Licensed Engines or Components to be
sold to Case or its Affiliates by more than [CONFIDENTIAL INFORMATION CONTAINED
HERE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION] without the prior approval of Case; or (ii) require Case to modify a
product in order to install a Licensed Engine in such product without giving
Case 20 days prior written notice of such engineering change. If Case gives the
Partnership written notice, before such change is implemented, that such change
is unacceptable, and if thereafter Case and Cummins are unable to resolve such
engineering change dispute, the matter shall be referred to the Partnership
Committee and resolved in accordance with the procedures set forth in Section
6.02 of the Sponsors' Agreement (excluding the first sentence thereof).
SECTION 2.04 PLAN. In the fourth quarter of every year during the
----
term of this Technical Assistance Agreement, Cummins and Case shall agree upon a
conceptual ten-year product and project technical plan under which Cummins will
perform the support services described in Section 2.03. Such plan shall include
------------
an overall strategy and prioritize the services to be performed. The first two
years covered by any such plan shall be reasonably detailed with only the first
year considered firm as approved within Cummins' annual operating plan. The
parties shall make available adequate resources to meet and manage the agreed
upon product and project technical plan.
In support of such technical planning, Case and Cummins agree to
participate together in a periodic planning process known as the "Case/Cummins
Midrange Technical Steering Committee." The Case/Cummins Midrange Technical
Steering Committee, comprised of Case and Cummins technical leaders, shall
regularly review product and project technical plans and adjust such plans as
necessary on a short-term and long-term basis to meet the business needs of
Case, Cummins and the Partnership. If the members of the Case/Cummins Midrange
Technical Steering Committee do not agree on any such product plans, such
disagreement shall be presented to the Technical Committee for resolution.
SECTION 2.05 MANUFACTURING LICENSED PRODUCTS. The Partnership, Case's
-------------------------------
Manufacturing Affiliate and Case's North American plant, if such plants are
established pursuant to Sections 2.06(a) and (b) of the Sponsors' Agreement,
---------------- ---
shall manufacture Licensed Engines and Components solely in accordance with the
Technical Information supplied by Cummins and, subject to Section 2.03, shall
------------
implement all appropriate engineering changes upon receipt of engineering
Ex. F-3
<PAGE>
releases from Cummins specifying that such engineering changes are to be
implemented. Case shall cause its Manufacturing Affiliate to implement any such
engineering changes.
SECTION 2.06 CONFIDENTIAL INFORMATION. The parties acknowledge that
------------------------
they are bound by Section 6.04 of the Sponsors' Agreement concerning the
------------
confidentiality of certain information (including, without limitation, Technical
Information).
ARTICLE III
TECHNICAL FEE
SECTION 3.01 PURPOSE AND SCOPE. In consideration for the services
-----------------
provided by Cummins pursuant to Article II, Case shall pay an annual Technical
----------
Fee to Cummins.
SECTION 3.02 AMOUNT. The amount of the Technical Fee shall be
-------
determined according to the attached Appendix 1 and this Section 3.02. As
---------- ------------
promptly as practicable following each October 15, Case and Cummins shall
cooperate to calculate (in accordance with Appendix 1) the Technical Fee that
----------
shall initially be applicable for the next year (the "Planned Technical Fee").
---------------------
In each of the first six months of the applicable year, Case shall pay to
Cummins an amount equal to [CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION] of the
Planned Technical Fee applicable to such year. As promptly as practicable
following each June 30, Case and Cummins shall cooperate to recalculate the
Technical Fee applicable to that year (the "Revised Technical Fee"), such
---------------------
calculation to be made in accordance with Appendix 1, except that references to
----------
planned amounts in such Appendix 1 shall mean (i) actual amounts for the first
----------
six months of the applicable year plus (ii) forecasted amounts (as of June 30 of
the applicable year) for the last six months of the applicable year. If the
Revised Technical Fee exceeds the Planned Technical Fee for the applicable year,
Case shall promptly pay to Cummins an amount equal to [CONFIDENTIAL INFORMATION
CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION] of such excess. If the Planned Technical Fee exceeds the
Revised Technical Fee for the applicable year, Cummins shall promptly pay to
Case an amount equal to [CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION] of
such excess. In each of the last six months of the applicable year, Case shall
pay to Cummins an amount equal to [CONFIDENTIAL INFORMATION CONTAINED HERE HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION]
of the Revised Technical Fee applicable to such year. Upon request, Case shall
permit Cummins to inspect its books and records relating to the amount described
as "C" in Appendix 1.
----------
SECTION 3.03 LIMITATIONS. Apart from the Technical Fee, Case shall
-----------
not be obligated to pay any costs associated with the Technical Information and
support services Cummins provides pursuant to Article II. Cummins shall be
----------
entitled to retain the entire Technical Fee each year, regardless of its costs
in providing such Technical Information and support services, and Case shall not
be entitled to a refund or credit of any portion of the Technical Fee.
Ex. F-4
<PAGE>
ARTICLE IV
TERMINATION
SECTION 4.01 TERMINATION. This Technical Assistance Agreement shall
-----------
terminate when the Partnership is dissolved in accordance with the provisions of
Article X of the Partnership Agreement.
- ---------
SECTION 4.02 RETURN OF TECHNICAL INFORMATION. Upon termination of
-------------------------------
this Technical Assistance Agreement, the Partnership and Case shall promptly
return to Cummins, and Case shall cause its Affiliates to promptly return to
Cummins, all plans, drawings, blueprints and other written technical data that
constitutes Technical Information provided to the Partnership, Case, Case's
Affiliates and their suppliers hereunder, including all copies thereof, and the
Partnership and Case shall cease using such information and Case shall cause its
Affiliates to cease using such information. The provisions of Section 2.06
------------
shall survive and continue in full force notwithstanding the termination of this
Technical Assistance Agreement.
ARTICLE V
GENERAL PROVISIONS
SECTION 5.01 CUMMINS OWNERSHIP. The Partnership and Case, on behalf
-----------------
of itself and its Affiliates, acknowledge that the Industrial Property Rights,
including, without limitation, rights under any patents and the Technical
Information, are the sole and exclusive property of Cummins and that this
Technical Assistance Agreement does not vest the Partnership, Case or Case's
Affiliates with any ownership rights thereto.
SECTION 5.02 TRADEMARK. As a part of a Cummins quality assurance
---------
program, the Partnership and Case shall comply, and Case shall cause its
Affiliates to comply, with all reasonable requirements of Cummins for the
placement of a nondescript trademark on all items in Licensed Engines,
Components and Purchased Parts.
SECTION 5.03 NO WARRANTIES. Cummins has not made and does not make
-------------
any representations or warranties or guarantees, express or implied, of any kind
or nature with regard to the Technical Information or support services to be
provided in accordance with Article II.
----------
SECTION 5.04 FORCE MAJEURE. If the Partnership, Case, or Cummins is
-------------
rendered unable, wholly or in part, by Force Majeure, to fulfill any obligation
or condition of this Technical Assistance Agreement, then upon giving notice and
reasonably full particulars to the other parties, such obligation or condition,
other than the obligation to pay money when due, shall be suspended, to the
extent fulfillment is impeded, from the date of such notice until such Force
Majeure ceases or abates sufficiently to permit full or partial performance, and
such party shall be relieved of liability and shall suffer no prejudice under
this Technical Assistance Agreement for failure to perform the same during such
period.
SECTION 5.05 WAIVER. The failure of the Partnership, Case, or Cummins
------
to enforce any provisions of this Technical Assistance Agreement, or exercise
any right granted hereby shall not be construed to be a waiver of such provision
or right, nor shall it affect the validity of this Technical
Ex. F-5
<PAGE>
Assistance Agreement or any part hereof, or limit in any way the right of any
party subsequently to enforce such provisions or exercise such right in
accordance with its terms.
SECTION 5.06 NOTICES. Any notice, report or consent required or
-------
permitted by this Technical Assistance Agreement to be given or delivered shall
be in writing and shall be delivered by hand, sent by confirmed facsimile
transmission or mailed, postage prepaid, by certified or registered mail, return
receipt requested as follows:
Cummins Engine Company, Inc.
Box 3005
Columbus, Indiana 47202
Attention: General Counsel
Facsimile: 812-377-3272
Consolidated Diesel Company
U.S. Highway 301
P.O. Box 670
Whitakers, North Carolina 27891
Attention: General Manager
Facsimile: 252-437-9641
Case Corporation
700 State Street
Racine, Wisconsin 53404
Attention: General Counsel
Facsimile: 414-636-5651
Any such notice, report, or consent shall be effective upon receipt. The
Partnership, Case or Cummins may change its address for receipt of any notice,
report or consent by giving the other parties 30 days' notice of such change as
above provided.
SECTION 5.07 ENTIRE AGREEMENT. This Technical Assistance Agreement
----------------
constitutes the entire understanding of the parties relating to the subject
matter hereof and supersedes all prior agreements of the parties with respect
thereto.
SECTION 5.08 VERBAL MODIFICATIONS AND WAIVERS. No modification or
--------------------------------
waiver of any provision hereof shall be effective unless in writing and signed
by an authorized representative of the party, or parties bound thereby.
SECTION 5.09 TITLES AND HEADINGS. The titles and headings included in
-------------------
this Technical Assistance Agreement are inserted for convenience only and shall
not be considered in construing this Technical Assistance Agreement.
SECTION 5.10 SEVERABILITY. If any part of this Technical Assistance
------------
Agreement, for any reason, shall be finally adjudged by any court of competent
jurisdiction to be invalid, such judgment shall not affect, impair or invalidate
the remainder of this Technical Assistance
Ex. F-6
<PAGE>
Agreement and there shall be deemed substituted for the part at issue a valid,
legal and enforceable part as similar as possible to the part at issue. The
invalidity of any part or parts of this Agreement shall not relieve the parties
from their other duties and obligations under this Technical Assistance
Agreement.
SECTION 5.11 NON-ASSIGNABILITY. No party hereto shall directly or
-----------------
indirectly assign or purport to assign this Technical Assistance Agreement or
any of its rights and obligations in whole or in part to any party without the
written consent of the other parties hereto.
SECTION 5.12 APPLICABLE LAW. This Technical Assistance Agreement
--------------
shall be construed in accordance with the laws of the State of Indiana.
Ex. F-7
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Technical Assistance
Agreement to be executed by its officers thereunto duly authorized as of the day
and year first above written.
CONSOLIDATED DIESEL COMPANY, a General Partnership
By: CUMMINS ENGINE HOLDING COMPANY, INC., as
General Partner
By: / F. Joseph Loughrey /
-------------------------------
Name: F. Joseph Loughrey
---------------------------
Title: President
---------------------------
By: CASE CDC HOLDINGS, INC., as General
Partner
By: / Steven G. Lamb /
---------------------------
Name: Steven G. Lamb
Title: Attorney in Fact
CUMMINS ENGINE COMPANY, INC.
By: / F. Joseph Loughrey /
-------------------------------
Name: F. Joseph Loughrey
Title: Executive Vice President
Group President - Industrial
CASE CORPORATION
By: / Steven G. Lamb /
---------------------------
Name: Steven G. Lamb
---------------
Title: President and Chief Operating Officer
Ex. F-8
<PAGE>
APPENDIX 1 TO EXHIBIT F
TO SPONSORS' AGREEMENT
TECHNICAL FEE FORMULA
[CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION].
Ex. F-9
<PAGE>
EXHIBIT G
TO THE SPONSORS' AGREEMENT
DEFINITIONS
As used in the Sponsors' Agreement and the other Related Agreements, the
following capitalized terms shall have the following meanings:
"Actual Cash Amount of Products" shall have the meaning given to it in
------------------------------
Section B.8 of Exhibit A of the Purchase Agreement.
- ----------- ---------
"Actual Variable Amount" shall have the meaning given to it in Section 7(d)
---------------------- ------------
of the Engine Transfer Agreement.
"Affiliate" shall mean, with respect to any Person, a second Person
---------
directly or indirectly, through one or more intermediaries, controlling,
controlled by, or under common control with, such first Person, except that the
Partnership shall not be deemed an Affiliate of Case or Cummins hereunder. The
term "control", as used in the preceding sentence means: (i) with respect to a
Person that is a corporation, the right to exercise, directly or indirectly,
more than 50% of the voting rights attributable to the shares of capital stock
of the controlled corporation, and (ii) with respect to a Person that is not a
corporation, the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of the controlled Person.
"Aggregate Demand" shall have the meaning given to it in Section 2 of
---------------- ---------
Exhibit D to the Sponsor's Agreement.
- ---------
"Aggregate Materials Cost" shall mean, for any specified period, the
------------------------
aggregate Materials Costs of all Licensed Engines, Case Products, Cummins
Products, Components (or combination thereof which is not a Licensed Engine or a
Case Product or Cummins Product Engine) and Purchased Parts which are produced
at or purchased for use at the Plant and purchased by both Buyers pursuant to
the Purchase Agreement, for such period.
"Allocated Capital Expenditures" shall have the meaning given to it in
------------------------------
Section B.4 of Exhibit A to the Purchase Agreement.
- ----------- ---------
"Allocated Fixed Costs" shall have the meaning given to it in Section 3.7
--------------------- -----------
of Exhibit A to the Purchase Agreement.
---------
"Allocated Interest Expense" shall mean, with respect to each of Case and
--------------------------
Cummins, for any specified period, [CONFIDENTIAL INFORMATION CONTAINED HERE HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION]
of the aggregate interest expense of the Partnership (excluding any interest
expense of the Partnership which is included in the Partner Only Expenses of
either Buyer), except
Ex. G-1
<PAGE>
that (i) in all years in which the Notes are outstanding, an amount equal to the
product of (x) [CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION] and (y) the then
outstanding principal balance of the Notes, shall be added to Case's Allocated
Interest Expense and subtracted from Cummins' Allocated Interest Expense, and
(ii) in the years 1998 and 1999, [CONFIDENTIAL INFORMATION CONTAINED HERE HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION]
shall be added to Cummins' Allocated Interest Expense and subtracted from Case's
Allocated Interest Expense.
"Allocated Materials Costs" shall mean, with respect to each of Case and
-------------------------
Cummins, for any specified period, the aggregate Materials Costs of such
Buyer's purchases of Licensed Engines, Case Products, Cummins Products,
Components (or combinations thereof which are not Licensed Engines or Case
Products or Cummins Products) and Purchased Parts which are produced at or
purchased for use at the Plant, for such period.
"Allocated Variable Costs" shall have the meaning given to it in Section
------------------------ -------
B.3 of Exhibit A to the Purchase Agreement.
- --- ---------
"Allocated Warranty Expense" shall mean, with respect to each of Case and
--------------------------
Cummins, for any specified period, all warranty costs and expenses incurred by
the Partnership that relate solely to specific Licensed Engines, Components and
Service Parts purchased by such Buyer from the Partnership pursuant to the
Purchase Agreement plus the warranty costs and expenses allocated to such Buyer
as provided in the following two sentences. [CONFIDENTIAL INFORMATION CONTAINED
HERE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION].
"Allocated Warranty Percentage" shall mean, with respect to each of Case
-----------------------------
and Cummins, for any specified period, the number obtained by dividing
[CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION].
"Annual Operating Plan" shall mean any annual operating plan approved by
---------------------
the Partnership Committee in accordance with Section 3.06 of the Partnership
------------
Agreement.
"Asset Utilization Adjustment" shall have the meaning given to it in
----------------------------
Section B.6 of Exhibit A to the Purchase Agreement.
- ----------- ---------
"Asset Utilization Adjustment Factor" shall have the meaning given to it in
-----------------------------------
Section B.6 of Exhibit A to the Purchase Agreement.
- ----------- ---------
"Base Capital Expenditures" shall mean capital expenditures generally
-------------------------
required for the ongoing maintenance and operation of the Plant, including,
without limitation, capital expenditures for replacing equipment, cost
reductions and quality improvements. Base Capital Expenditures shall not
include: (i) expenditures for product changes determined by the requirements of
only one
Ex. G-2
<PAGE>
Sponsor or any of its Affiliates or emissions-related changes to the
extent that both parties do not participate equally in such expenditures; or
(ii) any expenditures relating to Supplier Tooling.
"Base Engine" shall mean a Cummins engine including the items set forth on
-----------
Schedule 1 of the Engine Supply Agreement. Options not included in the Base
- ----------
Engine are those engine features that the customer can select.
"Base Level" shall have the meaning given to it in Section 5.02(a) of the
---------- ---------------
Partnership Agreement.
"Budgeted Variable Cost" shall have the meaning given to it in Section 7(b)
---------------------- ------------
of the Engine Transfer Agreement.
"Campaign Costs and Expenses" shall mean warranty costs and expenses
---------------------------
incurred by the Partnership involving a "campaign" to repair or replace a
particular defect and/or block of Licensed Engines, Components or Service Parts
that affects a significant number of Licensed Engines, Components or Service
Parts.
"Capacity Products" shall have the meaning given to it in Exhibit D to the
----------------- ---------
Sponsors' Agreement.
"Capital Expenditures" shall have the meaning given to it in Section B.4 of
-------------------- -----------
Exhibit A to the Purchase Agreement.
- ---------
"Capital Expenditures Factor" shall have the meaning given to it in Section
--------------------------- -------
B.4 of Exhibit A to the Purchase Agreement.
- --- ---------
"Case Dealer" shall mean any purchaser of Case/Cummins equipment from Case
-----------
or any Affiliate of Case for resale at retail, and any Case-owned or Case
Affiliate-owned retail outlet for such equipment.
"Case Equipment" shall mean (i) self-propelled mobile wheeled and tracked
--------------
vehicles for agricultural, construction and related applications such as
logging, mining, trenching and landscaping which are sold by Case or its
Affiliates under their respective trademarks; and (ii) irrigation pump models
designed and sold for use only in agricultural irrigation which include both an
assembled clutch and radiator as a functional system and which are sold by Case
or its Affiliates under their respective trademarks.
"Case Holding" shall mean Case CDC Holdings, Inc., a Delaware corporation,
------------
wholly-owned by Case.
"Case Partner" shall mean, without regard to the ownership or control of
------------
such party, an entity that manufactures with Case certain equipment which is
sold under the Case trademark.
"Case's Partner Only Expenses" shall have the meaning given to it in the
----------------------------
definition of "Partner Only Expenses."
Ex. G-3
<PAGE>
"Case Product" shall have the meaning given to it in Section 3.01 of the
------------ ------------
Sponsors' Agreement.
"Cash Transfer Amount" shall have the meaning given to it in Section B.1 of
-------------------- -----------
Exhibit A to the Purchase Agreement.
- ---------
"Cash Transfer Amount Factor" shall have the meaning given to it in Section
--------------------------- -------
B.1 of Exhibit A to the Purchase Agreement.
- --- ---------
"CDC" shall mean the Partnership.
---
"Change in Control" shall have the meaning given to it in Section
----------------- -------
6.10(b)(ii) of the Sponsors' Agreement.
- -----------
"Competitor" shall have the meaning given to it in Section 6.10(b) of the
---------- ---------------
Sponsors' Agreement.
"Component" shall mean a cylinder head, a cylinder block or a connecting
---------
rod for assembly into a Licensed Engine.
"Component Equivalent" shall mean a combination of Components not exceeding
--------------------
a maximum of one cylinder head, one cylinder block, and (i) in the case of
Family I Engines, the average number of connecting rods in Family I Engines
purchased from the Partnership during the most recent calendar quarter, or (ii)
in the case of Family II Engines and Family III Engines, six connecting rods.
When determining a quantity of Component Equivalents, the minimum number of
Component Equivalents possible shall be the correct number of Component
Equivalents. For example, if a Sponsor purchased 500 Family II Engine cylinder
heads, 400 Family II Engine cylinder blocks and 300 Family II Engine connecting
rods, that Sponsor would have purchased 500 Component Equivalents: 50 full
Component Equivalent sets, 350 Component Equivalent sets containing only
cylinder heads and cylinder blocks and 100 Component Equivalent sets containing
only cylinder heads.
"Controller" shall have the meaning given to it in Section 3.04(b) of the
---------- ---------------
Partnership Agreement.
"CSL" shall mean Cummins' Customer Specification Language database.
---
"Cummins Holding" shall mean Cummins Engine Holding Company, Inc., an
---------------
Indiana corporation, wholly-owned by Cummins.
"Cummins' Partner Only Expenses" shall have the meaning given to it in the
------------------------------
definition of Partner Only Expenses.
"Cummins Product" shall have the meaning given to it in Section 3.02(b) of
--------------- ---------------
the Sponsors' Agreement.
Ex. G-4
<PAGE>
"Customized Assurance Plans" or "CAP" shall have the meaning given to it in
-------------------------- ---
Section 5.5(b) of the Engine Supply Agreement.
- --------------
"Defaulting Party" shall have the meaning given to it in Section
---------------- -------
10.01(b)(iii) of the Partnership Agreement.
- -------------
"Delivery Date" shall have the meaning given to it in Section 4.2 of the
------------- -----------
Engine Supply Agreement.
"Depreciation Base" shall mean the aggregate depreciation and amortization
-----------------
expense for a specified period of the Partnership.
"Diesel Engines" shall mean engines using a direct injection compression
--------------
ignition (diesel cycle), and shall include engines which use diesel derivative
fuels or other fuels that can be readily burned in a direct injection
compression ignition engine without major revision to the component systems
design. Engines not within this definition include spark ignition (Otto Cycle)
engines or engines employing fuels which require major component system redesign
or major change to the engine component materials.
"Electing Party" shall have the meaning given to it in Section 10.01(b) of
-------------- ----------------
the Partnership Agreement.
"Engine Supply Agreement" shall mean the Amended and Restated Engine Supply
-----------------------
Agreement, dated as of the date hereof, between Case and Cummins, as it may be
amended pursuant to the terms thereof.
"Engine Transfer Agreement" shall mean the Engine Transfer Agreement, dated
-------------------------
as of the date hereof, between Case, Cummins and the Partnership, a copy of
which is attached as Exhibit H to the Sponsors' Agreement, as it may be amended
---------
pursuant to the terms thereof.
"European Tooled Vendor" shall mean any Tooled Vendor which supports the
----------------------
manufacture of Licensed Engines in Europe.
"Existing Case-Unique Option" shall mean a New Case-Unique Option that has
---------------------------
been in existence for more than two years and has not been sold by Cummins to
any Cummins customer other than Case.
"Existing Common Option" shall mean those engine options available to
----------------------
Cummins' customers that exist in the CSL database as of or prior to the date of
the relevant order and are not part of the Base Engine.
"Family I Engine" shall mean any model of engine identified as a Family I
---------------
Engine in Exhibit A to the Sponsors' Agreement and any other model of engine
---------
added thereto and identified as a Family I Engine in accordance with the
provisions of Article III of the Sponsors' Agreement.
-----------
Ex. G-5
<PAGE>
"Family II Engine" shall mean any model of engine identified as a Family II
----------------
Engine in Exhibit A to the Sponsors' Agreement and any other model of engine
---------
added thereto and identified as a Family II Engine in accordance with the
provisions of Article III of the Sponsors' Agreement.
-----------
"Family III Engine" shall mean any model of engine identified as a Family
-----------------
III Engine in Exhibit A to the Sponsors' Agreement and any other model of engine
---------
added thereto and identified as a Family III Engine in accordance with the
provisions of Article III of the Sponsors' Agreement.
-----------
"Fixed Costs per Worldwide Engine" shall have the meaning given to it in
--------------------------------
Section 7(c) of the Engine Transfer Agreement.
- ------------
"Fixed Costs" shall mean those costs of the Partnership identified as
-----------
"Fixed Costs" in Appendix 1 to Exhibit A to the Purchase Agreement.
---------- ---------
"Fixed Costs Factor" shall have the meaning given to it in Section B.2 of
------------------ -----------
Exhibit A to the Purchase Agreement.
- ---------
"Fixed Tooling Fee" shall have the meaning given to it in Section 2.1 of
----------------- -----------
the Supplier Tooling Agreement.
"Forecast Working Capital Amount" shall have the meaning given to it in
-------------------------------
Section 5.02(b) of the Partnership Agreement.
- ---------------
"Force Majeure" shall mean a cause of any kind not reasonably within the
-------------
control of the party by whom an obligation or a condition must be fulfilled, and
which could not have been prevented through the exercise of ordinary care by
such party, including, without limitation, the following: acts of God, severe
weather, fire, strikes and any other industrial, civil or public disturbance,
and any laws, orders, rules, regulations, acts or restraints of any government
or governmental body or authority, civil or military.
"4B Engine" shall have the meaning given to it in Section 3.02 of the
--------- ------------
Sponsor's Agreement.
"Funded Kit Discount Amount" shall have the meaning given to it in Section
-------------------------- -------
B.7(b) of Exhibit A to the Purchase Agreement.
- ------ ---------
"General Manager" shall have the meaning given to it in Section 3.04(a) of
--------------- ---------------
the Partnership Agreement.
"Gross Hourly Throughput" shall have the meaning given to it in Exhibit D
----------------------- ---------
to the Sponsors' Agreement.
"Indemnified Parties" shall have the meaning given to it in Section 5.05(a)
------------------- ---------------
of the Purchase Agreement.
Ex. G-6
<PAGE>
"Indemnifying Party" shall have the meaning given to it in Section 5.05(a)
------------------ ---------------
of the Purchase Agreement.
"Industrial Property Rights" shall mean those inventions, patents,
--------------------------
technical information and know-how now owned or hereafter acquired by Cummins
relating to the design, manufacture and production of Licensed Products and
Purchased Parts.
"Installed Target Cost" shall have the meaning given to it in Section 2.3
--------------------- -----------
of the Engine Supply Agreement.
"Interim Plan" shall have the meaning given to it in Section 3.06(e) of the
------------ ---------------
Partnership Agreement.
"Jointly Funded Investment" shall have the meaning given to it in Section
------------------------- -------
2.08(b) of the Sponsors' Agreement.
- -------
"Kit Discount" shall have the meaning given to it in Section B.7(a) of
------------ --------------
Exhibit A to the Purchase Agreement.
- ---------
"Kit Discount Factor" shall have the meaning given to it in Section B.7(c)
------------------- --------------
of Exhibit A to the Purchase Agreement.
---------
"License Agreement" shall mean the Amended and Restated License Agreement,
-----------------
dated as of the date hereof, between Case and Cummins, a copy of which is
attached as Exhibit B to the Sponsors' Agreement, as it may be amended pursuant
---------
to the terms thereof.
"Licensed Engine" shall mean any model of engines identified in Exhibit A
--------------- ---------
to the Sponsors' Agreement and any other model of engines added thereto in
accordance with the provisions of Article III of the Sponsors' Agreement.
-----------
"Licensed Products" shall mean (i) Licensed Engines, Case Products and
-----------------
Components as the same may be modified or improved in the normal course of
product development conducted by Cummins with respect to Licensed Engines and
Case Products and scaled versions of such Licensed Engine and Case Products, and
(ii) engines and components for engines produced by or for Case and its
Affiliates, which engines have cylinder heads and/or cylinder blocks which are
functionally interchangeable with a Licensed Engine or an engine included in a
Case Product, or a scaled version of a Licensed Engine or an engine included in
a Case Product.
"Licensee" shall mean an entity licensed by Cummins to use any Industrial
--------
Property Rights owned by Cummins.
"Logistics Cost" shall have the meaning given to it in Section 7(e) of the
-------------- ------------
Engine Transfer Agreement.
"Lowest Commercial Price " shall have the meaning given to it in Section
----------------------- -------
2.3(b) of the Engine Supply Agreement.
- ------
Ex. G-7
<PAGE>
"MCP" shall mean the Midrange Central Purchasing Organization established
---
pursuant to the MCP Agreement.
"MCP Agreement" shall mean the amended and restated Midrange Central
-------------
Purchasing Organization Agreement, dated as of the date hereof, between Case,
Cummins and the Partnership, a copy of which is attached as Schedule 2.10 to the
-------------
Sponsors' Agreement, as it may be amended pursuant to the terms thereof.
. "Manufactured Component" shall mean any Component manufactured by the
----------------------
Partnership and any other item manufactured by the Partnership in accordance
with Section 2.04(d) of the Sponsors' Agreement.
---------------
"Manufacturing Affiliate" shall mean the Case Affiliate or the Cummins
-----------------------
Affiliate, or both, as the context requires, designated to manufacture
Components and assemble Licensed Engines in Western Europe.
"Materials Costs" shall mean, with respect to any product, the direct
---------------
material costs of such product as determined by the cost accounting systems of
the Partnership (excluding any Upfit Materials Costs).
"Net Kit Discount Amount" shall have the meaning given to it in Section
----------------------- -------
B.7(b) of Exhibit A to the Purchase Agreement.
- ------ ---------
"New Case-Unique Option" shall mean any new engine option specifically
----------------------
designed, developed and intended for Case's unique use on engines where the
option did not exist in the CSL database at the time of Case's request for such
option and is not part of the Base Engine. A New Option shall become an
Existing Case-Unique Option upon the date that is two years after the date Case
first purchases such New Case-Unique Option. A New Case-Unique Option shall
become an Existing Common Option at such time as Cummins first sells such option
to another Cummins customer.
"Notes" shall mean the 6.60% Secured Notes, Series A, due 2004, in the
-----
initial aggregate principal amount of $75,000,000 and/or the 6.92% Secured
Notes, Series B, due 2008, in the initial aggregate principal amount of
$85,000,000.
"Outside Facilities" shall have the meaning given to it in Section 3 of the
------------------ ---------
Engine Transfer Agreement.
"Overtime Percentage" shall have the meaning given to it in Exhibit D to
------------------- ---------
the Sponsors' Agreement.
"Ownership Items" shall have the meaning given to it in Section 2.05(b) of
--------------- ---------------
the Purchase Agreement.
"Parent" shall mean Case or Cummins, as the context requires.
------
Ex. G-8
<PAGE>
"Partially Approved Plan" shall have the meaning given to it in Section
----------------------- -------
3.06(d) of the Partnership Agreement.
- -------
"Partner" shall mean Case Holding or Cummins Holding, as the case may be.
-------
"Partner Only Expenses" shall mean, for a specified period, those costs
---------------------
and expenses of the Partnership relating to activities that only one Sponsor
(and such Sponsor's Affiliates) contributes to the Partnership.
[CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION]
"Partner Only Expenses Factor" shall have the meaning given to it in
----------------------------
Section B.5 of Exhibit A to the Purchase Agreement.
- ----------- ---------
"Partnership" shall mean Consolidated Diesel Company, the partnership
-----------
described in Article II of the Partnership Agreement.
----------
"Partnership Agreement" shall mean the Amended and Restated Partnership
---------------------
Agreement, dated as of the date hereof, between Case Holding and Cummins
Holding, a copy of which is attached as Exhibit C to the Sponsors' Agreement, as
---------
it may be amended pursuant to the terms thereof.
"Partnership Committee" shall mean the Partnership Committee established by
---------------------
Section 3.01 of the Partnership Agreement.
- ------------
"Partner Representative" shall have the meaning given to it in Section 3.03
---------------------- ------------
of the Partnership Agreement.
"Person" shall mean an individual, partnership, corporation, limited
------
liability company, trust, unincorporated association or other entity or
association.
"Planned Take Percentage" shall have the meaning given to it in Section
----------------------- -------
3.06 of the Partnership Agreement.
- ----
"Planned Technical Fee" shall have the meaning given to it in Section 3.02
--------------------- ------------
of the Technical Assistance Agreement.
"Plant" shall mean the facility that the Partnership operates to assemble
-----
Licensed Engines, Cummins Products and Case Products and to manufacture
Components.
"Price Index" shall mean the Series P113 published by the Bureau of Labor
-----------
Statistics in Producer Prices and Price Indexes or such other price index as may
be agreed upon by the Sponsors.
"Pricing Review" shall have the meaning given to it in Section 2.3(c) of
-------------- --------------
the Engine Supply Agreement.
Ex. G-9
<PAGE>
"Product Family Chief Engineer" shall have the meaning given to it in
-----------------------------
Section 3.02 of the Technical Assistance Agreement.
- ------------
"Product Offtake Agreement" shall have the meaning given to it in Section
------------------------- -------
2.05(b)(i) of the Purchase Agreement.
- ----------
"Product Profile" shall mean, in Case's discretion, all relevant criteria
---------------
pertaining to engines of the applicable Case equipment in the applicable region,
including, without limitation, the following criteria: (i) engine performance
criteria, (ii) availability of the engine, (iii) delivery of the engine, (iv)
local content needs, (v) finance terms, and (vi) if a Cummins engine model meets
one of the conditions set forth in clause (i) or (ii) of Section 2.3(a) of the
---------- ---- --------------
Engine Supply Agreement, Installed Target Cost.
"Project Manager" shall mean Cummins in the role described in Section 4.01
--------------- ------------
of the Sponsors' Agreement and Section 3.02 of the Partnership Agreement.
------------
"Purchase Agreement" shall mean the Amended and Restated Purchase
------------------
Agreement, dated as of the date hereof, between Case, Cummins and the
Partnership, a copy of which is attached as Exhibit E, to the Sponsors'
---------
Agreement, as it may be amended pursuant to the terms thereof.
"Purchase Price" shall have the meaning given to it in Section 2.05 of the
-------------- ------------
Purchase Agreement.
"Purchased Part" shall mean any item which the Partnership purchases for
--------------
incorporation into a Licensed Engine, Cummins Product or Case Product or for use
as a Service Part.
"Related Agreements" shall mean, collectively, the Sponsors' Agreement, the
------------------
Purchase Agreement, the Partnership Agreement, the Supplier Tooling Agreement,
the License Agreement, the Technical Assistance Agreement, the Engine Transfer
Agreement, the Engine Supply Agreement, the Worldwide Industrial Licensed
Engines Emission Certification Agreement, dated as of the date hereof, between
Case and Cummins, and the Emission Certification Exemption Agreement for Testing
of Cummins Engines, dated June 5, 1996, between Case and Cummins.
"Revised Technical Fee" shall have the meaning given to it in Section 3.02
--------------------- ------------
of the Technical Assistance Agreement.
"Selling Party" shall have the meaning given to it in Section 4.04(a) of
------------- ---------------
the Partnership Agreement.
"Service Part" shall mean any item intended for use as a replacement part
------------
for a Licensed Engine, Cummins Product or Case Product.
"Shared Tooled Vendors" shall mean Tooled Vendors supplying parts to the
---------------------
Partnership for use on both Case and Cummins engines.
Ex. G-10
<PAGE>
"Specification Changes" shall mean any changes in Cummins engines that
---------------------
affect form, fit or function.
"Sponsor" shall mean Cummins or Case, as the case may be.
-------
"Sponsors' Agreement" shall mean the Amended and Restated Sponsors'
-------------------
Agreement, dated as of the date hereof, between Case, Cummins, Case Holding and
Cummins Holding, as it may be amended pursuant to the terms thereof, but without
reference to the Related Agreements that are Exhibits or Schedules to such
agreement.
"Supplier Tooling" shall mean all tooling, equipment or machinery that is
----------------
owned by a Sponsor and used by a Tooled Vendor for the production of Purchased
Parts.
"Supplier Tooling Agreement" shall mean the Amended and Restated Supplier
--------------------------
Tooling Agreement, dated as of the date hereof, between Case and Cummins, a
copy of which is attached as Schedule 2.10 to the Sponsors' Agreement, as it may
-------------
be amended pursuant to the terms thereof.
"Survivor" shall have the meaning given to it in Section 8.01 of the
-------- ------------
Purchase Agreement.
"Take" shall mean, with respect to each of Case and Cummins, for any
----
specified period, the number obtained by dividing (i) such Buyer's Allocated
Materials Costs for such period by (ii) the Aggregate Material Costs for such
period.
"Technical Assistance Agreement" shall mean the Amended and Restated
------------------------------
Technical Assistance Agreement, dated as of the date hereof, between Case,
Cummins and the Partnership, a copy of which is attached as Exhibit F to the
---------
Sponsors' Agreement, as it may be amended pursuant to the terms thereof.
"Technical Fee" shall mean the fee determined in accordance with Article
------------- -------
III of the Technical Assistance Agreement.
- ---
"Technical Information" shall mean all technical data, know-how, shop
---------------------
practices, plans, drawings, blueprints, specifications, methods of manufacture,
and other information or assistance pertaining to the Licensed Engines, Cummins
Products, Case Products, Components and Purchased Parts, now owned or hereafter
acquired by Cummins during the term of this Agreement, which Cummins has the
right to divulge or transfer and which is reasonably necessary for Case and its
Affiliates to utilize fully the Industrial Property Rights which are subject to
the license granted in the License Agreement.
"Theoretical Current Capacity" shall mean, with respect to any Unit for any
----------------------------
calendar year, the theoretical capacity of the Plant to produce in such year the
number of Licensed Engines, Head Sub-Assembly, Cummins Products, Case Products
and Components determined in accordance with Exhibit D to the Sponsors'
---------
Agreement but shall not include any capacity created at the Plant by a
Unilateral Investment of either Sponsor.
Ex. G-11
<PAGE>
"Tier II Compliance" shall have the meaning given to it in Section 3.02(e)
------------------ ---------------
of the Sponsors' Agreement.
"Tooled Vendor" shall mean a vendor that uses tooling, equipment or
-------------
machinery owned by a Sponsor, and shall describe that vendor only to the extent
such tooling, equipment or machinery is employed for producing the item in
question. For example, in making items A and B, vendor uses tooling owned by
Case for item A, and uses only tooling owned by the vendor for item B. Such
vendor is a Case Tooled Vendor with regard to item A, but is not a Tooled Vendor
with regard to item B.
"Total Acquisition Costs" shall have the meaning given to it in Section 2.4
----------------------- -----------
of the Engine Supply Agreement.
"Transfer Price" shall have the meaning given to it in Section 2.05(a) of
-------------- ---------------
the Purchase Agreement.
"Transferred Engines" shall have the meaning given to it in Section 3 of
------------------- ---------
the Engine Transfer Agreement.
"Unilateral Investment" shall have the meaning given to it in Section
--------------------- -------
2.08(b) of the Sponsors' Agreement.
- -------
"Unit" shall have the meaning given to it in the Preamble to Exhibit D to
---- ---------
the Sponsors' Agreement.
"Upfit Center" shall have the meaning given to it in Section 2.09 to the
------------ ------------
Sponsors' Agreement.
"Upfit Center Capacity" shall mean, with respect to any calendar year, the
---------------------
capacity of the Upfit Center.
"Upfit Materials Costs" shall mean any direct materials costs (as
---------------------
determined by the cost accounting system of the Partnership) relating to the
operation of the Upfit Center.
"Utilization Fee" shall have the meaning given to it in Section 4 of
--------------- ---------
Exhibit D to the Sponsors' Agreement.
- ---------
"Variable Costs" shall mean those costs of the Partnership identified as
--------------
"Variable Costs" in Appendix 1 of Exhibit A to the Purchase Agreement.
---------- ---------
"Variable Costs Factor" shall have the meaning given to it in Section B.3
--------------------- -----------
of Exhibit A to the Purchase Agreement.
---------
"Western Europe" shall include the following countries: Austria, Belgium,
--------------
Denmark, Germany, Finland, France, Greece, Iceland, Ireland, Italy, Luxembourg,
Norway, Portugal, Spain, Switzerland, the Netherlands and the United Kingdom.
Ex. G-12
<PAGE>
"Working Capital" shall mean the sum of cash, accounts receivable
---------------
(including both trade and non-trade accounts, but excluding returnable skid
deposits) and net inventory, less the sum of accounts payable and accrued
expense, and excludes the notes receivable from the Partners relating to
Partnership debt.
"Worldwide Take" shall have the meaning given to it in Exhibit A to the
-------------- ---------
Engine Transfer Agreement.
Ex. G-13
<PAGE>
EXHIBIT H
TO THE SPONSORS' AGREEMENT
ENGINE TRANSFER AGREEMENT
THIS ENGINE TRANSFER AGREEMENT, dated as of April 21, 1998 ("Engine
------
Transfer Agreement"), between CONSOLIDATED DIESEL COMPANY, a North Carolina
- ------------------
partnership (the "Partnership"), CASE CORPORATION, a Delaware corporation
-----------
("Case"), and CUMMINS ENGINE COMPANY, INC., an Indiana corporation ("Cummins").
---- -------
WHEREAS, Case and Cummins agree that Cummins or Cummins' Affiliates should
have the right to produce and sell to Case engines demanded by Case from the
Partnership; and
WHEREAS, Case and its Affiliates desire to purchase engines from facilities
of Cummins and its Affiliates other than the Plant to reduce time differentials
and improve communication, at commercial prices that are identical to those Case
would have been charged had the Partnership produced the engines and sold them
to Case.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereby agree as follows:
ARTICLE I
1. Definitions. Unless otherwise defined herein, all capitalized terms
-----------
shall have the meanings set forth in Exhibit G to the Amended and Restated
---------
Sponsors' Agreement, dated as of the date hereof (the "Sponsors' Agreement"),
-------------------
between Case, Cummins, Case Holding and Cummins Holding.
2. Purchase Agreement. Except as otherwise provided herein, the Purchase
------------------
Agreement shall govern the rights and obligations of the parties with respect to
the purchases by Case of Licensed Engines.
3. Right to Delegate. Upon request by either Case or Cummins to the
-----------------
other parties hereto and in accordance with Section 4, the parties shall jointly
---------
have the right to permit and cause the Partnership to delegate to Cummins the
Partnership's obligations to sell to Case and its Affiliates Licensed Engines,
as required under Section 2.02(a)(i) of the Purchase Agreement, such performance
------------------
of the Partnership's obligations to sell to be performed by Cummins at plants
and facilities of Cummins and Cummins' Affiliates other than the Plant (the
"Outside Facilities"). Such engines that the parties agree that Cummins shall
- -------------------
produce at an Outside Facility and sell to Case hereunder shall be referred to
herein as "Transferred Engines." If the parties agree to such a delegation,
-------------------
Case and its Affiliates shall purchase from Cummins, and Cummins shall sell to
Case and its Affiliates, Transferred Engines, subject to the terms and
conditions of this Engine Transfer Agreement.
Ex. H-1
<PAGE>
4. Procedure for Delegation. Concurrent with the preparation of the
------------------------
Annual Operating Plan for each calendar year, Case shall provide to Cummins and
the Partnership an estimate for such year of the entire worldwide requirements
of Licensed Engines of Case and its Affiliates. The parties shall agree in
writing with respect to such year, upon (i) the estimated number of such engines
and products to be produced and sold by the Partnership, (ii) the estimated
number of Transferred Engines, (iii) the particular Outside Facilities that will
produce such Transferred Engines and (iv) the manner and timing of the transfer
of production from the Plant to the Outside Facilities. Case and its Affiliates
shall use their reasonable best efforts to purchase Transferred Engines in
accordance with such estimated volumes from the specified Outside Facilities.
If, at any time during such calendar year, Case or Cummins desires to materially
change the amount of, and/or Outside Facilities with respect to, Transferred
Engines, such party shall so notify the other party and the parties shall agree
upon the appropriate action to take. All disputes relating to Transferred
Engines and the performance of the parties hereunder shall be resolved in
accordance with Section 6.02 of the Sponsors' Agreement.
------------
5. Duties upon Delegation. If the parties agree in accordance with
----------------------
Section 3 that Cummins shall provide Transferred Engines, then:
- ---------
(a) The parties shall cooperate to enable an efficient transfer of
production of engines from the Plant to the applicable Outside Facilities.
(b) Cummins, as Project Manager, shall manage the process of any transfer
of production and shall review such forecasts and other prospective information
relating to the operation of the Plant as necessary or desirable to maintain the
efficient operation of the Plant. If, in Cummins' discretion, the transfer of
production of the Transferred Engines to Outside Facilities adversely affects
the operation of the Plant, Cummins shall so notify Case. Cummins and Case
shall jointly negotiate a solution to such issue and shall take such action as
then mutually agreed upon, including, without limitation, transferring
production of the Transferred Engines from the Outside Facilities back to the
Plant. If the Parties are unable to negotiate a solution, such issue shall be
resolved in accordance with Section 6.02 of the Sponsors' Agreement.
------------
(c) Cummins shall perform engine performance tests on the Transferred
Engines and shall demonstrate to Case's reasonable satisfaction prior to each
delegation of performance in accordance with Section 3 and as often as Case
---------
reasonably deems necessary after such delegation that Case's specified engine
performance characteristics are met by 100% of the Transferred Engines.
(d) Except as otherwise provided herein, to the extent of any delegation
described in Section 3, Cummins shall have all of the rights and perform all of
---------
the obligations of the Partnership pursuant to the Purchase Agreement with
respect to Cummins' provision of Transferred Engines to Case and its Affiliates.
The Partnership shall indemnify and hold Cummins harmless for any liability
Cummins may have under Article V of the Purchase Agreement as a result of
---------
Cummins' provision of Transferred Engines to Case and its Affiliates under this
Agreement.
(e) Unless the parties shall agree otherwise, Case and its Affiliates shall
order Transferred Engine(s) from the Outside Facility that shall produce such
Transferred Engine(s)
Ex. H-2
<PAGE>
substantially in accordance with the procedures for placing orders specified in
the Purchase Agreement. The Outside Facility producing Transferred Engines shall
provide to the Partnership each month information concerning the volume of
engines invoiced to Case and its Affiliates pursuant to this Agreement by shop
order and delivery date. Such Outside Facility shall also provide to the
Partnership each month any forecast information provided to such Outside
Facility by Case relating to such Transferred Engines. Such Outside Facility
shall also provide to the Partnership any product changes (and related effective
dates) requested by Case and its Affiliates with respect to Transferred Engines.
The Partnership shall maintain the Transferred Engine shop orders to the same
build level and design status as the respective shop orders at the Outside
Facility producing the Transferred Engines.
(f) For all Transferred Engines sold by Cummins hereunder, Cummins shall
invoice the facility of Case or its Affiliate to which, or on behalf of which,
such product was delivered. Such invoices shall be payable within 30 days of
the date thereof. All payments made by Case and its Affiliates hereunder shall
be in United States dollars.
6. Additional Capacity at the Plant. Cummins, in its sole discretion,
--------------------------------
shall have the right to purchase additional products from the Partnership
pursuant to the Purchase Agreement, utilizing capacity created at the Plant as a
result of the production of the Transferred Engines at the Outside Facilities
rather than at the Plant.
7. Price.
-----
(a) Transferred Engine Price. The price payable by Case and its Affiliates
------------------------
to Cummins for each Transferred Engine purchased by Case and its Affiliates
hereunder shall equal [CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION].
(b) [CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION]
(c) [CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION]
(d) [CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION]
(e) [CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION]
(f) Additional Terms and Conditions. In any calendar year where Cummins
-------------------------------
sells any Transferred Engines to Case, the allocation of [CONFIDENTIAL
INFORMATION
Ex. H-3
<PAGE>
CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION] and the [CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION]
between Case and Cummins pursuant to the Purchase Agreement with respect to such
year shall be determined pursuant to the terms and conditions of Exhibit A to
---------
this Engine Transfer Agreement.
8. Delivery. Cummins shall deliver Transferred Engines to the applicable
--------
destination point specified by Case (the "F.O.B. Point"). Cummins shall bear
------------
all costs, including, without limitation, costs to obtain all export and import
licenses and other government approvals, duties, brokerage fees, container break
facility charges and engine storage charges, incurred in connection with the
delivery of Transferred Engines to the F.O.B. Point.
9. Miscellaneous Provisions.
------------------------
(a) Term of Agreement. This Engine Transfer Agreement shall continue in
-----------------
full force and effect until [CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION] or
until the Partnership is dissolved, whichever is the earlier.
(b) Assignment. This Engine Transfer Agreement shall inure to the benefit
----------
of and be binding upon the parties and their respective assignees pursuant to
any assignments permitted hereby.
(c) Severability. If any part of this Engine Transfer Agreement, for any
------------
reason, shall be finally adjudged by any court of competent jurisdiction to be
invalid, such judgment shall not affect, impair or invalidate the remainder of
this Engine Transfer Agreement and there shall be deemed substituted for the
part at issue a valid, legal and enforceable provision as similar as possible to
the part at issue. The invalidity of any part or parts of this Engine Transfer
Agreement shall not relieve the parties, their successors or assigns from their
other duties and obligations under this Engine Transfer Agreement.
(d) Waiver. The failure of Seller or either Buyer to enforce any provision
------
of this Engine Transfer Agreement or exercise any right granted hereby shall not
be construed to be a waiver of such provision or right, nor shall it affect the
validity of this Engine Transfer Agreement or any part hereof, or limit in any
way the right of either such party subsequently to enforce any such provision or
exercise any such right in accordance with its terms.
(e) Notices. Any notice, report or consent required or permitted by this
-------
Engine Transfer Agreement to be given or delivered shall be in writing and shall
be either delivered by hand or overnight courier or sent by facsimile
transmission (with receipt confirmed) or mailed, postage prepaid, by certified
or registered mail, return receipt requested, as follows:
Ex. H-4
<PAGE>
If to the Partnership:
Consolidated Diesel Company
U.S. Highway 301
Box 670
Whitakers, North Carolina 27891
Attention: General Manager
Facsimile: (252) 437-9641
If to Case:
Case Corporation
700 State Street
Racine, Wisconsin 53404
Attention: General Counsel
Facsimile: (414) 636-5651
If to Cummins:
Cummins Engine Company
Box 3005
Columbus, Indiana 47202
Attention: General Counsel
Facsimile: (812) 377-3272
Any such notice, report or consent shall be effective upon receipt. Case,
Cummins or the Partnership may change the address for receipt by it of any
notice, report or consent hereunder by giving prior written notice of such
change to the other party as above provided.
(f) Verbal Modifications or Waivers. No modifications or waiver of any
-------------------------------
provision hereof shall be effective unless in writing and signed by authorized
representatives of Seller and each Buyer.
(g) Titles and Headings. The titles and headings included in this Engine
-------------------
Transfer Agreement are inserted for convenience only and shall not be deemed to
be a part of this Purchase Agreement, or considered in construing this Engine
Transfer Agreement.
(h) Applicable Law. This Engine Transfer Agreement shall be construed in
--------------
accordance with the laws of the State of Indiana.
Ex. H-5
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Engine Transfer Agreement
to be executed by their officers thereunto duly authorized as of the day and
year first written above.
CONSOLIDATED DIESEL COMPANY
By: CUMMINS ENGINE HOLDING COMPANY,
INC., as General Partner
By: / F. Joseph Loughrey /
-------------------------------
Name: F. Joseph Loughrey
Title: President
By: CASE CDC HOLDINGS, INC.,
as General Partner
By: / Steven G. Lamb /
------------------------------
Name: Steven G. Lamb
Title: Attorney in Fact
CASE CORPORATION
By: / Steven G. Lamb /
------------------------------
Name: Steven G. Lamb
Title: President and Chief Operating Officer
CUMMINS ENGINE COMPANY, INC.
By: / F. Joseph Loughrey /
------------------------------
Name: F. Joseph Loughrey
Title: Executive Vice President
Group President - Industrial
<PAGE>
EXHIBIT A TO THE ENGINE TRANSFER AGREEMENT
PRICING
[CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION].
<PAGE>
Exhibit B to
------------
Engine Transfer Agreement
- -------------------------------------------------------------------------------
[CONFIDENTIAL INFORMATION CONTAINED HERE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION].
<PAGE>
EXHIBIT 11
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
(in millions, except share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
-------- --------
1998 1997 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Computations for Statements of Income
Basic earnings per share:
Net income........................................................... $ 126 $ 138 $ 195 $ 202
Preferred stock dividends............................................ (1) (1) (3) (3)
----- ----- ----- -----
Net income to common................................................. $ 125 $ 137 $ 192 $ 199
===== ===== ===== =====
Average shares of common stock outstanding........................... 73.9 73.7 73.9 73.6
Basic earnings per share............................................. $1.68 $1.86 $2.59 $2.70
===== ===== ===== =====
Diluted earnings per share:
Average shares of common stock outstanding........................... 73.9 73.7 73.9 73.6
Incremental common shares applicable to restricted
common stock based on the average market price
during the period.................................................. 0.2 0.3 0.2 0.2
Incremental common shares applicable to common stock
options based on the average market price
during the period.................................................. 0.8 1.4 0.9 1.4
Average common shares issuable assuming conversion of
the Series A Cumulative Convertible Preferred Stock
and the Cumulative Convertible Second Preferred Stock.............. 3.5 3.5 3.5 3.5
----- ----- ----- -----
Average common shares assuming full dilution......................... 78.4 78.9 78.5 78.7
Diluted earnings per share........................................... $1.61 $1.75 $2.48 $2.57
===== ===== ===== =====
</TABLE>
22
<PAGE>
EXHIBIT 12
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS
(dollars in millions)
<TABLE>
<CAPTION>
Six Months
Ended
June 30,
--------
1998 1997
---- ----
<S> <C> <C>
Net Income....................................................... $195 $202
Add:
Interest....................................................... 104 79
Amortization of capitalized debt expense....................... 1 1
Portion of rentals representative of interest factor........... 5 5
Income tax expense and other taxes on income................... 89 95
Fixed charges of unconsolidated subsidiaries................... 2 1
---- ----
Earnings as defined.......................................... $396 $383
==== ====
Interest......................................................... $104 $ 79
Amortization of capitalized debt expense......................... 1 1
Portion of rentals representative of interest factor............. 5 5
Fixed charges of unconsolidated subsidiaries..................... 2 1
---- ----
Fixed charges as defined..................................... $112 $ 86
==== ====
Preferred Dividends:
Amount declared................................................ $ 3 $ 3
Gross-up to pre-tax based on effective rates of 31% and
32%, respectively............................................. $ 4 $ 4
Ratio of earnings to fixed charges and preferred dividends....... 3.41x 4.26x
</TABLE>
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the Company's 10-Q and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 115
<SECURITIES> 0
<RECEIVABLES> 2,532
<ALLOWANCES> 0
<INVENTORY> 1,363
<CURRENT-ASSETS> 4,234
<PP&E> 2,028
<DEPRECIATION> 1,007
<TOTAL-ASSETS> 8,111
<CURRENT-LIABILITIES> 3,522
<BONDS> 1,679
77
0
<COMMON> 1
<OTHER-SE> 2,342
<TOTAL-LIABILITY-AND-EQUITY> 8,111
<SALES> 2,984
<TOTAL-REVENUES> 3,115
<CGS> 2,293
<TOTAL-COSTS> 2,703
<OTHER-EXPENSES> 24
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 104
<INCOME-PRETAX> 284
<INCOME-TAX> 89
<INCOME-CONTINUING> 195
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 195
<EPS-PRIMARY> 2.59
<EPS-DILUTED> 2.48
</TABLE>
