SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
F O R M 10 - Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 1-10702
Terex Corporation
(Exact name of registrant as specified in its charter)
Delaware 34-1531521
(State of Incorporation) (IRS Employer Identification No.)
500 Post Road East, Suite 320, Westport, Connecticut 06880
(Address of principal executive offices)
(203) 222-7170
(Registrant's telephone number)
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, and (2) has been subject to such filing
requirements for the past 90 days.
YES ( ) NO (X)
Number of outstanding shares of common stock: 10,303,067 as of March 31, 1994.
The Exhibit Index appears on page 29.
INDEX
TEREX CORPORATION AND SUBSIDIARIES
Page No.
PART I FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements
Terex Corporation (the "Company") has not yet filed its Annual Report on Form
10-K for the year ended December 31, 1993. The Company's auditors, Price
Waterhouse, and former auditors, Deloitte & Touche, have advised the Company
that they are unable to issue accountant's reports on the Company's financial
statements for 1991, 1992 and 1993, which are required to be included in the
Company's Annual Report on Form 10-K, until consideration has been completed of
certain items which may affect the financial statements of Fruehauf Trailer
Corporation ("Fruehauf"), the Company's former subsidiary, and, as a result,
may also affect the financial statements of the Company. The accompanying
condensed consolidated financial statements of Terex Corporation and
Subsidiaries as of March 31, 1994 and for the three months ended March 31, 1994
and and December 31, 1993 have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles. However, the accompanying condensed
consolidated financial statements include certain additional disclosures as of
December 31, 1993 which management believes to be useful for a complete
understanding of the financial statements.
Condensed Consolidated Statement of Operations --
Three months ended March 31, 1994 and 1993 3
Condensed Consolidated Balance Sheet --
March 31, 1994 and December 31, 1993 4
Condensed Consolidated Statement of Cash Flows --
Three months ended March 31, 1994 and 1993 5
Notes to Condensed Consolidated Financial Statements --
March 31, 1994 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
PART II OTHER INFORMATION
Item 1 Legal Proceedings 27
Item 6 Exhibits and Reports on Form 8-K 27
SIGNATURE 28
PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
For the Three Months
Ended March 31,
1994 1993
Net sales $ 168,038 $ 183,197
Cost of goods sold 153,953 165,598
Gross profit 14,085 17,599
Engineering, selling and
administrative expenses:
Third parties 19,110 19,941
Related parties 2,245 875
Total engineering, selling and
administrative expenses 21,355 20,816
Loss from operations (7,270) (3,217)
Other income (expense):
Interest income 191 410
Interest expense (7,551) (7,625)
Equity in net loss of Fruehauf --- (496)
Gain on sale of Fruehauf stock 4,620 ---
Gain (loss) on sale of property,
plant and equipment (60) 214
Amortization of debt issuance costs (620) (908)
Amortization of goodwill and
other intangibles (189) (963)
Other income (expense) 73 406
Loss before income taxes (10,806) (12,179)
Provision for income taxes (18) (220)
Net loss $ (10,824) $ (12,399)
Net loss per common and common
equivalent share $ (1.05) $ (1.25)
Weighted average common shares outstanding
including dilutive options and warrants
(See Exhibit 11.1) 10,303 9,950
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
March 31, December 31,
1994 1993
ASSETS
Current assets
Cash and cash equivalents $ 3,882 $ 9,183
Restricted cash 4,087 6,263
Trade receivables (less allowance of
$6,722 in 1994 and $7,478 in 1993) 78,948 74,326
Net inventories 159,225 164,343
Other current assets 4,080 4,016
Total current assets 250,222 258,131
Property, plant and equipment - net 100,709 97,537
Debt issuance costs and intangible assets 11,884 12,645
Investment in Fruehauf (Note B) 39,053 ---
Other assets 22,831 23,192
Total assets $ 424,699 $ 391,505
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities
Notes payable $ 1,506 $ 2,909
Current portion of long-term debt 24,327 19,799
Trade accounts payable 81,328 82,270
Accrued compensation and benefits 8,087 8,162
Accrued warranties and product liability 27,258 27,226
Accrued interest 5,005 10,698
Accrued income taxes 1,537 1,415
Accrued costs to consolidate operations 7,441 8,384
Other current liabilities 26,701 23,837
Total current liabilities 183,190 184,700
Long-term debt less current portion 198,709 195,331
Accrued warranties and product
liability - long-term 34,811 33,959
Accrued pension 21,207 20,270
Other long-term liabilities 5,174 5,217
Redeemable convertible preferred stock 11,860 10,480
Commitments and contingencies (Note K)
Stockholders' investment
Warrants to purchase common stock 16,851 16,851
Common stock, $.01 par value -
authorized 30,000,000 shares;
issued and outstanding
10,303 at March 31, 1994 and
10,303 at December 31, 1993 103 103
Additional paid-in capital 40,127 40,127
Accumulated deficit (111,248) (99,044)
Pension liability adjustment (4,173) (4,173)
Unrealized holding gain
on equity securities 39,053 ---
Cumulative translation adjustment (10,965) (12,316)
Total stockholders' investment (30,252) (58,452)
Total liabilities and
stockholders' investment $ 424,699 $ 391,505
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
For the Three Months
Ended March 31,
1994 1993
OPERATING ACTIVITIES
Net loss $ (10,824) $ (12,399)
Adjustments to reconcile net loss to
cash flows from operating activities:
Depreciation 3,839 3,782
Amortization 944 1,946
(Gain) loss on sale of property,
plant and equipment 60 (214)
Equity in net loss of Fruehauf --- 496
Gain on sale of Fruehauf stock (4,620) ---
Other (48) 18
Changes in operating assets
and liabilities:
Restricted cash 2,176 3,022
Trade receivables (4,620) 1,640
Net inventories 5,694 11,463
Trade accounts payable (201) 117
Accrued compensation
and benefits (170) 1,674
Accrued warranties and
product liability 1,164 (509)
Accrued interest (5,693) (6,591)
Accrued income taxes 132 (412)
Accrued costs to consolidate
operations (998) (7,615)
Other 496 1,059
Net cash used in operating
activities (12,669) (2,523)
INVESTING ACTIVITIES
Capital expenditures, net of dispositions (5,117) (3,302)
Proceeds from sale of property,
plant and equipment 106 340
Proceeds from refinancing note receivable 1,000 ---
Advances to Fruehauf --- (436)
Proceeds from sale of Fruehauf stock 5,175 ---
Other 25 (100)
Net cash from (used in)
investing activities 1,189 (3,498)
FINANCING ACTIVITIES
Net borrowings under revolving line
of credit agreements 5,764 303
Other 354 817
Net cash from financing activities 6,118 1,120
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 61 (97)
NET DECREASE IN CASH AND CASH EQUIVALENTS (5,301) (4,998)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 9,183 25,671
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,882 $ 20,673
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, unless otherwise denoted)
March 31, 1994
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The accompanying condensed consolidated financial
statements of Terex Corporation and Subsidiaries as of March 31, 1994 and
December 31, 1993 and for the three months ended March 31, 1994 and 1993 have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles.
However, the accompanying condensed consolidated financial statements include
certain additional disclosures as of December 31, 1993, which have been derived
from the unaudited consolidated financial statements as of that date, which
management believes to be useful for a complete understanding of the financial
statements. In the opinion of management, all adjustments considered necessary
for a fair presentation have been made. Such adjustments consist only of those
of a normal recurring nature, except for the impact of the accounting changes
discussed in Note B -- "Accounting Changes." Operating results for the three
months ended March 31, 1994 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1994.
Principles of Consolidation. The Consolidated Financial Statements include the
accounts of Terex Corporation and its majority owned subsidiaries ("Terex" or
the "Company"). All intercompany balances, transactions and profits have been
eliminated. The equity method is used to account for investments in affiliates
in which the Company has an ownership interest between 20% and 50%. The cost
method or fair value method as discussed in Note B -- "Accounting Changes" is
used to account for investments in affiliates in which the Company has an
ownership interest of less than 20%.
Business Segment Information. The Company operates in two industry segments:
Heavy Equipment and Material Handling. Through its Material Handling Segment,
the Company is engaged in designing, manufacturing and marketing a complete
line of internal combustion and electric lift trucks, electric walkies,
automated pallet trucks, industrial tow tractors and related replacement parts.
Material Handling Segment products are used in material handling applications
in a broad array of manufacturing, distribution and transportation industries.
Through its Heavy Equipment Segment, the Company designs, manufactures and
markets heavy-duty, off-highway earthmoving, construction, lifting, material
handling and aerial lift equipment, and related components and replacement
parts. Products include haulers, scrapers, loaders, crawlers, cranes,
excavators, draglines and aerial lifts. Such products are used primarily by
construction, mining, logging, industrial and government customers in the
building of roads, dams and commercial and residential buildings; supplying
coal, minerals, sand and gravel; and the handling of materials in the scrap,
refuse and lumber industries.
Cash and Cash Equivalents. Cash equivalents consist of highly liquid
investments with original maturities of three months or less. The carrying
amount of cash and cash equivalents approximates their fair value.
Restricted Cash. The Company has classified as restricted certain cash and
cash equivalents that are not fully available for use in its operations. The
Company deposits funds in cash collateral accounts to collateralize certain
letters of credit issued by banks for use in the ordinary course of the
Company's business or to guarantee the Company's performance under certain
contracts. The restricted cash balances will be made available to the Company
as the underlying letters of credit expire.
Inventories. Inventories are stated at the lower of cost or market value.
Cost is determined by the last-in, first-out ("LIFO") method for certain
domestic inventories and by the first-in, first-out ("FIFO") method for
inventories of international subsidiaries and certain domestic inventories.
Approximately 50% of consolidated inventories are accounted for under the LIFO
method.
Debt Issuance Costs. Debt issuance costs represent costs associated with
securing the Company's financing arrangements which are capitalized and
amortized over the life of the respective debt agreement. Capitalized debt
issuance costs related to debt that is retired are charged to expense at the
time of retirement.
Intangible Assets. Intangible assets include the excess of purchase price over
the fair value of identifiable net assets of acquired companies, which is being
amortized on a straight-line basis over 15 years, and costs allocated to
patents, trademarks and other specifically identifiable assets arising from
business combinations, which are amortized on a straight-line basis over the
respective estimated useful lives not exceeding seven years.
Property, Plant and Equipment. Property, plant and equipment are stated at
cost. Expenditures for major renewals and improvements are capitalized while
expenditures for maintenance and repairs not expected to extend the life of an
asset beyond its normal useful life are charged to expense when incurred.
Plant and equipment are depreciated over the estimated useful lives of the
assets under the straight-line method of depreciation for financial reporting
purposes and both straight-line and other methods for tax purposes.
Accrued Warranties and Product Liability. The Company records accruals for
potential warranty and product liability claims based on the Company's claim
experience. Warranty costs are accrued at the time revenue is recognized. The
Company provides self-insurance reserves for estimated product liability
experience costs for known claims and for claims anticipated to have been
incurred which have not yet been reported. Certain of the Company's product
liability accruals, principally related to the forklift business acquired
during 1992, are presented on a discounted basis. The related discount,
computed using an 8.0% discount rate, is recorded as a direct reduction of
gross product liability claims and is amortized using the effective interest
rate method. The remainder of the Company's product liability accruals are
presented on a gross settlement basis.
Non Pension Postretirement Benefits. The Company records an accrual of the
obligation to provide future benefits to employees during the years that the
employees provide service, pursuant to the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 106, "Employers Accounting for Postretirement
Benefits Other than Pensions." The Company provides postretirement benefits to
certain former salaried and hourly employees and certain hourly employees
covered by bargaining unit contracts that provide such benefits. The Company
has elected the delayed recognition method for the obligation measured as of
the date of adoption of SFAS No. 106.
Revenue Recognition. Revenue and costs are generally recorded when products
are shipped and invoiced to either independently owned and operated dealers or
to customers. Certain new units may be invoiced prior to the time customers
take physical possession. Revenue is recognized in such cases only when the
customer has a fixed commitment to purchase the units, the units have been
completed, tested and made available to the customer for pickup or delivery,
and the customer has requested that the Company hold the units for pickup or
delivery at a time (generally within two weeks) specified by the customer at
the time the customer is notified that the unit is completed or specified in
the sales agreement. In such cases, the units are invoiced under the Company's
customary billing terms, title to the units and risks of ownership pass to the
customer upon invoicing, the units are segregated from the Company's inventory
and identified as belonging to the customer and the Company has no further
obligations under the order.
Foreign Currency Translation. Assets and liabilities of the Company's
international operations are translated at period-end exchange rates. Income
and expenses are translated at average exchange rates prevailing during the
period. For operations whose functional currency is the local currency,
translation adjustments are accumulated in the Cumulative Translation
Adjustment component of Stockholders' Investment. Gains or losses resulting
from foreign currency transactions are included in Other income (expense) --
net.
Environmental Policies. Environmental expenditures that relate to current
operations are either expensed or capitalized depending on the nature of the
expenditure. Expenditures relating to conditions caused by past operations
that do not contribute to current or future revenue generation are expensed.
Liabilities are recorded when environmental assessments and/or remedial actions
are probable, and the costs can be reasonably estimated.
Research and Development Costs. Research and development costs are expensed as
incurred. Such costs incurred in the development of new products or
significant improvements to existing products are included in Engineering,
Selling and Administrative Expenses.
Income Taxes. The Company follows the liability method of accounting for
income taxes which provides that deferred tax assets and liabilities be
recorded based upon the difference between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes,
pursuant to the provisions of SFAS No. 109, "Accounting for Income Taxes."
SFAS No. 109 further requires that the Company record a valuation allowance for
deferred tax assets if realization of such assets is dependent on future
taxable income.
Issuance of Stock by a Subsidiary. The Company accounts for increases and
decreases in its proportionate share of a subsidiary's equity arising from the
issuance of stock by the subsidiary and related transactions as gains and
losses in the Consolidated Statement of Operations.
Net Income (Loss) Per Share. Net income (loss) per share is based on the
weighted average number of common and common equivalent shares outstanding
during the period. The dilutive effect of common stock equivalents (if
applicable) is calculated assuming the conversion of convertible securities at
the beginning of the period and using the treasury stock method for options and
warrants.
NOTE B -- ACCOUNTING CHANGES
Employers' Accounting for Postemployment Benefits
The Company adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," on January 1, 1994. This statement establishes accounting and
reporting for the estimated cost of benefits provided by an employer to former
or inactive employees after employment but before retirement. The Company
already accounts for substantially all of such benefits on an accrual basis and
the effect of adoption of the new standard was not material to the Company's
financial statements.
Accounting for Certain Investments in Debt and Equity Securities
The Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," on January 1, 1994. This statement requires the use of
fair value accounting for investments in certain debt and equity securities,
with changes in fair value recorded in income or as a separate component of
stockholders' investment depending on whether the securities are considered
trading securities or securities available for sale. The statement does not
apply to investments in equity securities accounted for under the equity method
of accounting.
During 1993, the Company accounted for its investment in Fruehauf Trailer
Corporation ("Fruehauf") using the equity method. Subsequent to the Company's
February 1994 sale of 1,000,000 shares of Fruehauf common stock, the Company's
remaining ownership interest in Fruehauf was 19.1% and management concluded,
after consultation with the Company's auditors, that use of the equity method
was no longer appropriate for the Company's investment in Fruehauf. All of the
shares of Fruehauf common stock held by the Company, which had a carrying value
of zero as of December 31, 1993, are classified as securities available for
sale under SFAS No. 115. Accordingly, as of February 28, 1994, the Company
recorded an initial increase in stockholders' investment of approximately
$36,360 to adjust the carrying value of such shares of Fruehauf common stock to
fair value upon initial application of SFAS No. 115. Subsequent unrealized
holding gains and losses are recorded as adjustments to stockholders'
investment.
NOTE C -- INVENTORIES
Net inventories consist of the following:
March 31, December 31,
1994 1993
New machines $ 23,979 $ 26,317
Used machines 1,209 1,345
Replacement parts 64,348 62,150
Work-in-process 12,303 14,351
Raw materials and supplies 61,660 65,165
163,499 169,328
Less: Excess of FIFO inventory
value over LIFO cost (4,274) (4,985)
Net inventories $ 159,225 $ 164,343
NOTE D -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
March 31, December 31,
1994 1993
Property $ 12,515 $ 12,157
Plant 45,596 43,749
Equipment 76,479 71,705
134,590 127,611
Less: Accumulated depreciation (33,881) (30,074)
Net property, plant and equipment $ 100,709 $ 97,537
NOTE E -- LONG-TERM OBLIGATIONS
Long-term debt is summarized as follows:
March 31, December 31,
1994 1993
Senior Secured Notes bearing interest
at 13%, due August 1, 1996
("Senior Secured Notes") $ 154,240 $ 154,173
Secured Senior Subordinated Notes
bearing interest at 13.5%,
due July 1, 1997 ("Subordinated Notes") 32,772 32,702
Secured promissory note bearing interest
at prime rate, due July 31, 1994 6,090 6,090
Lending Facility maturing August 24, 1995 17,344 10,165
Secured term note bearing interest
at 9.0% payable in equal semiannual
installments from August 1994
to February 1998 742 740
Capital lease obligations and other 11,848 11,260
Total long-term debt 223,036 215,130
Current portion of long-term debt 24,327 19,799
Long-term debt, less current portion $ 198,709 $ 195,331
Senior Secured Notes and Subordinated Notes
The Senior Secured Notes were issued in July 1992 for a total of $160,000 in
conjunction with the acquisition of Clark Material Handling Company and certain
affiliated companies (the "Clark Acquisition") and a refinancing of the
Company's bank debt. Proceeds from the issuance of the Senior Secured Notes
were used for the cash portion of the Clark Acquisition purchase price
($85,000), for the settlement of all amounts outstanding under its previous
credit facility ($58,000), and for working capital and transaction costs.
Interest on the Senior Secured Notes is due semiannually on February 1 and
August 1. In December 1993, the Company repurchased in the open market $5,000
principal amount of Senior Secured Notes. Senior Secured Notes totalling
$155,000 principal amount were outstanding at March 31, 1994 and December 31,
1993.
As a result of the sale of 1,000,000 shares of Fruehauf common stock in
December 1993, the Company has made an offer to repurchase $3,000 principal
amount of Senior Secured Notes in May 1994 in accordance with the terms of the
indentures for the Senior Secured Notes and Subordinated Notes. As a result of
the sale of 1,000,000 shares of Fruehauf common stock in February 1994, the
Company will make a similar offer to repurchase $4,620 principal amount of the
Senior Secured Notes in the third quarter of 1994. Accordingly, $7,620 is
classified as current portion of long-term debt in the March 31, 1994
Consolidated Balance Sheet.
The provisions of the Senior Secured Notes registration rights agreement
required that the Company file a registration statement to register the Senior
Secured Notes, or to effect an exchange offer of registered notes for such
notes, with the Securities and Exchange Commission by November 30, 1992, which
registration was to become effective no later than March 1, 1993. The
registration has not become effective and, as a result, Terex is incurring
liquidated damages of $16 per week until such registration becomes effective.
The Subordinated Notes totalling $33,333 principal amount at March 31, 1994 and
December 31, 1993 were initially issued as unsecured subordinated notes for a
total amount of $50,000. Interest on the Subordinated Notes is due
semiannually on January 2 and July 1. The Subordinated Notes have annual
sinking fund requirements of $8,333 due July 1 which commenced in 1992 and
mature in 1997. The Company has notified the trustee for the Subordinated
Notes that it intends to satisfy the July 1, 1994 sinking fund payment by
delivering $8,333 principal amount of the Subordinated Notes which the Company
has made arrangements to purchase in the marketplace.
The Senior Secured Notes are secured by substantially all of the Company's
inventory and property, plant and equipment, as well as the Company's
investment in Fruehauf common stock. The Subordinated Notes are secured by a
secondary secured position in substantially the same assets. Certain
non-financial covenants of the indentures governing the Senior Secured Notes
and Subordinated Notes (together, the "Notes") limit, among other things,
Terex's ability to incur additional indebtedness, consummate mergers and
acquisitions, pay dividends, sell business segments and enter into transactions
with affiliates, and also place limitations on change of control.
The financial covenants of the indentures require, among other things, that the
Company maintain certain levels of tangible net worth (the "Net Worth
Covenants") and collateral coverage (the "Collateral Covenant"). In the event
that the Company's net worth is not in excess of the amount required under the
Net Worth Covenants for any two consecutive quarters, the Company must offer to
repurchase, at par plus accrued interest, 20% of the outstanding principal
amount of the Notes. In the event the Company is not in compliance with the
Collateral Covenant at the end of any calendar quarter, the Company must offer
to repurchase, at par plus accrued interest, $16,000 principal amount of the
Senior Secured Notes or such greater amount as would be necessary to bring the
Company into compliance with the Collateral Covenant.
The Company was in compliance with the Net Worth Covenants and the
Collateral Covenant at December 31, 1993. The Company continued to sustain
losses from operations during the first quarter of 1994 and the Company's
tangible net worth at March 31, 1994 was less than the $15,000 required under
the Net Worth Covenants. In addition, unless the Company returns to
profitability, realizes additional gains from sales of assets and/or raises
additional equity during the second quarter of 1994, it will have a tangible
net worth at June 30, 1994 of less than the $15,000 required under the Net
Worth Covenants. If any offer to repurchase Notes were required to be made as
a result of noncompliance with the Net Worth Covenants at June 30, 1994 or
otherwise, it is likely that the Company would require additional funding to
complete the offer, and if such funding were unavailable to it, the Company
would be unable to comply with the terms of the Notes and the maturity of the
Notes might be accelerated. Such circumstances could result in a material
adverse impact on the Company and its financial position. As described in Note
M -- "Liquidity and Refinancing Plans," the Company has taken, and plans to
take, actions to maintain compliance with the Net Worth Covenants and
Collateral Covenant, including the sale of its Drexel subsidiary, shares of
Fruehauf common stock and other assets.
Lending Facility
In 1993, Terex entered into an agreement with a lender which provides for up to
$20,000 of cash advances and guarantees of bank letters of credit and is
secured by substantially all the Company's domestic receivables and proceeds
thereof (the "Lending Facility"). Interest on the Lending Facility is payable
monthly at 2.75% above the Reference Rate, as such term is defined in such
agreement. Borrowings under the Lending Facility mature in two years from the
August 24, 1993 effective date. Accordingly, all such borrowings are
classified as Long Term Debt in the accompanying Balance Sheet.
TEL Facility
In 1993, the Company's subsidiary, Terex Equipment Limited ("TEL") located in
Motherwell, Scotland, entered into a bank facility (the "TEL Facility") which
provides up to pd28,000 ($42,000) including up to pd13,000 $(19,500) non-
recourse discounting of account receivable which meet certain credit criteria,
plus additional facilities for tender and performance bonds and foreign exchange
contracts. Interest rates vary between 1.0% - 1.5% above the financial
institution's Published Base Rate or LIBOR. The TEL Facility is collateralized
by the related accounts receivable and currency exchange contracts. The TEL
Facility requires no performance covenants although payments of cash dividends
are restricted. Proceeds from the TEL Facility will primarily be used for
working capital purposes.
Secured Term Note
A portion of the Clark Acquisition was financed through a note to the seller in
the amount of $6,090 due July 31, 1994. Interest accrues at prime rate and is
payable quarterly. The seller note is secured by certain property, plant and
equipment.
Schedule of Debt Maturities
Scheduled annual maturities of long-term debt outstanding at December 31, 1993
in the successive five-year period are summarized below. Amounts shown are
exclusive of minimum lease payments disclosed in Note F -- "Lease Commitments":
1994 $ 17,528
1995 18,687
1996 160,513
1997 8,523
1998 78
Thereafter 130
Total $205,459
NOTE F -- LEASE COMMITMENTS
The Company leases certain facilities, machinery and equipment, and vehicles
with varying terms. Under most leasing arrangements, the Company pays the
property taxes, insurance, maintenance and expenses related to the leased
property. Certain of the equipment leases are classified as capital leases and
the related assets have been included in Property, Plant and Equipment. Net
assets under capital leases were $5,011 at December 31, 1993, net of
accumulated amortization of $3,352.
Future minimum capital and noncancelable operating lease payments and the
related present value of capital lease payments at December 31, 1993 are as
follows:
Capital Operating
Leases Leases
1994 $ 3,414 $ 5,249
1995 2,871 4,239
1996 2,401 3,669
1997 2,220 2,891
1998 1,623 1,784
Thereafter 897 1,128
Total minimum obligations 13,426 $ 18,960
Less amount representing interest 2,296
Present value of net minimum obligations 11,130
Less current portion 2,366
Long-term obligations $ 8,764
Most of the Company's operating leases provide the Company with the option to
renew the leases for varying periods after the initial lease terms. These
renewal options enable the Company to renew the leases based upon the fair
rental values at the date of expiration of the initial lease.
The Company's Material Handling Segment also routinely enters into
sale-leaseback arrangements for certain equipment, which is later sold to
third-party customers under sales-type lease agreements. The Company maintains
a net investment in these leases, represented by the present value of payments
due under the leases of $6,930 of which $1,295 is current at December 31, 1993.
In connection with the original sale-leaseback arrangements underlying the
customer leasing program, the Company has an outstanding rental installment
obligation which is recorded based on the present value of minimum payments due
under the leases.
NOTE G -- INCOME TAXES
At December 31, 1993, the Company had domestic federal tax basis net operating
loss and tax credit carryforwards of $244,012 and $300, respectively.
Approximately $93,000 of the remaining net operating loss carryforwards and all
of the tax credit carryforwards are subject to special limitations under the
Internal Revenue Code.
The tax basis net operating loss and tax credit carryforwards expire as
follows:
Tax Basis Net
Operating Loss Tax
Carryforwards Credits
1994 $ --- $ 140
1995 24,041 63
1996 45,231 29
1997 8,004 38
1998 11,908 17
1999 --- 13
2000 4,581 ---
2006 20,689 ---
2007 35,661 ---
2008 93,897 ---
Total $ 244,012 $ 300
The Company has an alternative minimum tax credit carryforward of $580
available to offset future regular income taxes. This credit has no expiration
date.
The Company also has various state net operating loss and tax credit
carryforwards expiring at various dates through 2008 available to reduce future
state taxable income and income taxes. In addition, the Company's foreign
subsidiaries have approximately $56,275 of tax basis loss carryforwards which
may be available to offset future foreign taxable income, $3,507 expiring in
the years 1994 through 1998, and the remainder generally remaining available
without expiration dates.
Deferred tax assets and liabilities result from differences in the basis of
assets and liabilities for tax and financial statement purposes. In accordance
with SFAS No. 109, a valuation allowance has been recognized to the extent that
realization of deferred tax assets is dependent on future taxable income. The
tax effects of the basis differences and net operating loss carryforwards as of
December 31, 1993 are summarized below for major balance sheet captions:
Net inventories $ (4,343)
Fixed assets (9,933)
Total deferred tax liabilities (14,276)
Receivables 2,136
Intangibles 2,008
Warranties and product liability 20,709
Pension 3,174
All other items 4,914
Benefit of net operating loss carryforward 114,109
Total deferred tax assets 147,050
Deferred tax assets valuation allowance (132,774)
Net deferred tax liabilities $ 0
NOTE H -- PREFERRED STOCK
The Company's certificate of incorporation was amended in October 1993 to
authorize 10,000,000 shares of preferred stock, $.01 par value per share. As
of March 31, 1994 and December 31, 1993, 1,200,000 shares of preferred stock
are issued and outstanding as described below under "Series A Cumulative
Redeemable Convertible Preferred Stock." None of the remaining 8,800,000
shares of authorized preferred stock are issued or outstanding.
Series A Cumulative Redeemable Convertible Preferred Stock
The Company has 1,200,000 issued and outstanding shares of Series A Cumulative
Redeemable Convertible Preferred Stock (the "Series A Preferred Stock"). These
shares were issued as part of a private placement on December 20, 1993 which
also included the issuance of 1,300,000 Common Stock Purchase Warrants (the
"Warrants," see Note I -- "Stockholders' Investment"). The Series A Preferred
Stock has a par value of $.01 per share and an initial liquidation preference
of $25.00 per share (the "Liquidation Preference"). During the period from the
issue date and ending at the Accretion Termination Date (as defined below), the
Liquidation Preference will accrete at the rate of 13% per year until December
20, 1998, and 18% per year thereafter. After the Accretion Termination Date,
the holders of the Series A Preferred Stock are entitled to cumulative
dividends, payable quarterly, as described below. Each share of Series A
Preferred Stock is convertible into 2.25 shares of the Company's common stock
(subject to adjustment in certain circumstances), and is redeemable at the
option of the Company on or after December 31, 1994 at a price equal to the
Liquidation Preference plus unpaid dividends provided that a concurrent
redemption of all outstanding Warrants is made. The Series A Preferred Stock
is subject to a mandatory redemption requirement on or before December 31, 2000
at a per share redemption price equal to the Liquidation Preference on the date
of redemption plus accrued but unpaid dividends. The Series A Preferred Stock
has no voting rights except when and if dividends are in arrears as described
below.
Commencing three months prior to the date the Company's current indentures and
loan agreements allow the Company to declare and pay cash dividends on the
Series A Preferred Stock ("the Accretion Termination Date"), dividends will
begin to accrue at the rate of 13% per year through December 20, 1998, and at
the rate of 18% per year thereafter. After the Accretion Termination Date the
holders of the Series A Preferred Stock will be entitled to elect one
additional director of the Company if the Company fails to declare and pay the
full amount of dividends payable on any two dividend payment dates. Such
holders will have a right to elect two additional directors of the Company if
the Company misses four dividend payment dates.
The provisions of a preferred stock registration rights agreement among the
Company and the initial purchasers of the Series A Preferred Stock require that
the Company file a registration statement to register the Series A Preferred
Stock and the common stock into which it is convertible by February 18, 1994,
which registration was to become effective no later than May 19, 1994. Such
registration statement was filed March 17, 1994 but has not yet become
effective. If the registration statement is not declared effective by May 19,
1994, the accretion rate and/or dividend rate on the Series A Preferred Stock
will be increased by 0.25% per annum for the period after May 19, 1994 until
such registration statement is declared effective.
The aggregate net proceeds to the Company for the Series A Preferred Stock and
the Warrants issued on December 20, 1993 were $27,179. The Company has
allocated $10,328 and $16,851 of this amount to the Series A Preferred Stock
and the Warrants, respectively, based on management's estimate of the relative
fair values of these securities at the time of their issuance, using
information provided by the Company's investment bankers. The difference
between the initially recorded amount and the redemption amount will be
accreted to the carrying value of the Series A Preferred Stock using the
interest method over the period from issuance to the mandatory redemption date,
December 31, 2000. In addition, the carrying value of the Series A Preferred
Stock will be further adjusted for increases in the Liquidation Preference
prior to the Accretion Termination Date as described above.
NOTE I -- STOCKHOLDERS' INVESTMENT
Common Stock. The Company's certificate of incorporation was amended in
October 1993 to increase the number of authorized shares of common stock, par
value $.01 (the "Common Stock"), to 30,000,000. As of March 31, 1994 and
December 31, 1993, there were 10,303,067 shares issued and outstanding. Of the
19,696,933 unissued shares at that date, 6,708,228 shares were reserved for
issuance as follows:
Conversion of Series A Preferred Stock (Note H) 2,700,000
Exercise of Warrants 3,900,000
Exercise of Stock Options 108,228
Total reserved for issuance 6,708,228
Warrants. In connection with the private placement of the Series A Preferred
Stock (see Note H -- "Preferred Stock"), the Company issued 1,300,000 Warrants.
Each Warrant may be exercised, in whole or in part, at the option of the
holder, commencing at the opening of business on the day following a date,
which must be before December 20, 1994, designated by the Board of Directors
or otherwise determined under the provisions of the Warrants (the "Warrant
Ratio Determination Date"), until 5:00 p.m. New York time on December 31, 2000
(the "Expiration Date"), and is redeemable by the Company under certain
circumstances. The exercise price for the Warrants is $.01 for each share of
Common Stock issuable as described below.
Upon the exercise or redemption of a Warrant, the holder thereof shall be
entitled to receive the number of shares of Common Stock (the "Warrant Ratio")
equal to (a) 3.0 shares of Common Stock if the average of the daily closing
prices with respect to the Common Stock for the 30 consecutive trading days
(the "Current Market Price") of a share of Common Stock on the Warrant Ratio
Determination Date is $5.00 or less; (b) a number of shares of Common Stock
which decreases from 3.0 shares to 1.0 share with the increase in such Current
Market Price per share from $5.00 to $18.00, if such Current Market Price per
share is greater than $5.00 but less than $18.00 on the Warrant Ratio
Determination Date; and (c) 1.0 share of Common Stock if such Current Market
Price per share is $18.00 or more on the Warrant Ration Determination Date.
The number of shares of Common Stock issuable upon exercise or redemption of
the Warrants is subject to adjustment in certain circumstances.
The provisions of the warrant agreement for the Warrants and a warrant
registration rights agreement among the Company and the initial purchasers of
the Warrants require that the Company file a registration statement to register
the Warrants and the Common Stock into which it is exchangeable by January 19,
1994, which registration was to become effective no later than March 20, 1994.
Such registration statement was filed February 17, 1994 but has not yet become
effective and, as a result, the Warrant Ratio, determined as described above,
will be increased by 0.5% for each 30 day period after March 20, 1994 until
such registration statement is declared effective.
Stock Options. The Company maintains a qualified incentive stock option ("ISO")
plan covering certain officers and key employees. The exercise price of the
ISO stock option is the fair market value of the shares at the date of grant.
The ISO allows the holder to purchase shares of common stock, commencing one
year after grant. ISO options expire after ten years. At March 31, 1994,
75,916 stock options were outstanding under the plan, of which 46,750 were
currently exercisable, and 32,312 stock options were available for grant under
the plan.
Stock Appreciation Rights. In connection with the sale of the Senior Secured
Notes and obtaining the consent of the holders of the Company's existing
Subordinated Notes to modify the Subordinated Notes, the Company issued 658,409
common stock appreciation rights ("SAR's"). As of March 31, 1994, there were
624,794 SAR's outstanding. Of the outstanding SAR's, 552,000 may be exercised
at the option of the holder thereof at any time through July 31, 1996. The
remaining 72,794 SAR's may be exercised through July 1, 1997. The SAR's
entitle the holder to receive the market appreciation in the Company's Common
Stock between $11.00 per share, subject to adjustment, and the average price
per share for the 30 consecutive trading days prior to the date of exercise.
At March 31, 1994, there was no reserve requirement necessary because the
Company's Common Stock price was below $11.00 per share.
Dividends. As discussed in Note E -- "Long-Term Obligations," certain of the
Company's debt agreements contain restrictions as to the payment of cash
dividends. Under the most restrictive of these agreements, no retained
earnings were available for dividends at March 31, 1994.
NOTE J -- RETIREMENT PLANS
Pension Plans
The Company maintains several defined benefit pension plans covering most
domestic employees. The benefits for the plans covering the salaried employees
are based primarily on years of service and employees' qualifying compensation
during the final years of employment. The benefits for the plans covering the
hourly employees are based primarily on years of service and a flat dollar
amount per year of service. It is the Company's policy generally to fund these
plans based on the minimum requirements of the Employee Retirement Income
Security Act of 1974 (ERISA). Plan assets consist primarily of common stocks,
bonds, and short-term cash equivalent funds.
The following table sets forth the plans' funded status and the amounts
recognized in the Company's financial statements at December 31, 1993:
Overfunded Underfunded
Plans Plans
Actuarial present value of:
Vested benefits $ 9,252 $ 22,450
Accumulated benefits $ 9,509 $ 22,657
Projected benefits $ 9,509 $ 22,657
Fair value of plan assets 9,711 14,641
Projected benefit obligation (in excess of)
less than plan assets 202 (8,016)
Unrecognized net loss from past
experience different than assumed 3,691 4,173
Unrecognized prior service cost 503 ---
Adjustment to recognize minimum liability --- (4,173)
Pension asset (liability) recognized
in the balance sheet $ 4,396 $ (8,016)
The expected long-term rate of return on plan assets was 9% and the discount
rate assumption was 7.0% for 1993. The assumption for the rate of compensation
increase, if applicable per plan provisions, was 5.5% until May 7, 1993.
Participation in the plan for salaried employees was frozen as of May 7, 1993,
and no participants will be credited with service following such date except
that participants not fully vested will be credited with service for purposes
of determining vesting only.
In accordance with the provisions of the SFAS No. 87, "Employers' Accounting
for Pensions," the Company has recorded an adjustment of $4,173 to recognize a
minimum pension liability at December 31, 1993. This liability is offset by a
direct reduction of stockholders' investment of $4,173.
TEL maintains a government-required defined benefit plan (which includes
certain defined contribution elements) covering substantially all of its
employees. This plan is fully funded.
The employees of the Company's German subsidiary, Clark Material Handling GmbH,
are also covered by a defined benefit pension plan as required by German law.
At December 31, 1993, the Company has accrued approximately $11,968 related to
the benefits earned by active and retired participants as of that date. The
plan is unfunded.
The Company sponsors various tax deferred savings plans into which eligible
employees may elect to contribute a portion of their compensation. The Company
can, but is not obligated to, contribute to certain of these plans.
Other Postretirement Benefits
The Company adopted SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions," on January 1, 1993. This statement requires
accrual of postretirement benefits (such as health care benefits) during the
years an employee provides service. The Company provides postretirement
benefits to certain former salaried and hourly employees.
Terex adopted the provisions of SFAS No. 106 using the delayed recognition
method, whereby the amount of the unrecognized transition obligation at January
1, 1993 is recognized prospectively as a component of future years' net
periodic postretirement benefit expense. The unrecognized transition
obligation at January 1, 1993 was $4,476. Terex is amortizing this transition
obligation over 12 years, the average remaining life expectancy of the
participants. The liability of the Company, as of December 31, 1993, was as
follows:
Actuarial present value of accumulated
postretirement benefit obligation:
Retirees $ 4,522
Active participants ---
Total accumulated postretirement benefit obligation 4,522
Unamortized transition obligation (4,103)
Liability recognized in the balance sheet $ 419
Health care trend rates used in the actuarial assumptions range from 12.3% to
13.5%. These rates decrease to 6.75% over a period of 9 to 11 years. The
effect of a one percentage-point change in the health care cost trend rates
would change the accumulated postretirement benefit obligation approximately
5%. The discount rate used in determining the accumulated postretirement
benefit obligation is 8.25%.
NOTE K -- LITIGATION AND CONTINGENCIES
General
In December 1992, a Class Action complaint was filed against Fruehauf, the
Company and certain of Fruehauf's present and former officers, directors and
investment bankers, in the United States District Court for the Eastern
District of Michigan, Southern Division, alleging, among other things,
violations of certain provisions of the federal securities laws, and seeking
unspecified compensatory and punitive damages. A motion to dismiss the action
filed by the defendants has been denied and discovery has begun. This action
is at a very early stage; however, the Company believes that meritorious
defenses exist to the claims made. The Company has not recorded any loss
provision for this litigation.
In the Company's lines of business, but primarily in the Material Handling
Segment, numerous suits have been filed alleging damages for injuries or deaths
from accidents involving the Company's products that have arisen in the normal
course of operations. As part of the acquisition of Clark Material Handling
Company and certain affiliated companies ("Clark"), the Company and Clark
assumed both the outstanding and future product liability exposures related to
such operations. As of December 31, 1993, Clark had approximately 120 lawsuits
outstanding alleging damages for injuries or deaths arising from accidents
involving Clark products. Most of the foregoing suits are in various stages of
pretrial completion, and certain plaintiffs are seeking punitive as well as
compensatory damages. In the aggregate, these claims could be material to the
Company. However, all pending cases do not reach final disposition in any one
year, and damages actually awarded, if any, are generally less than the amount
of damages sought. The Company is self-insured, up to certain limits, for
these product liability exposures, as well as for certain exposures related to
general, workers' compensation and automobile liability. Insurance coverage is
obtained for catastrophic losses as well as those risks required to be insured
by law or contract. The Company has recorded and maintains an estimated
liability, based in part upon actuarial determinations, in the amount of
management's estimate of the Company's aggregate exposure for such self-insured
risks.
The Company is involved in various other legal proceedings which have arisen
in the normal course of its operations. The Company has recorded provisions
for estimated losses in circumstances where a loss is probable and the amount
or range of possible amounts of the loss is estimable.
The Company is contingently liable as a guarantor for certain customers' floor
plan obligations with financial institutions. As a guarantor, the Company is
obligated to purchase equipment which has been repossessed by the financial
institution based upon the unamortized principal balance outstanding. The
Company records the repossessed inventory as used equipment at its estimated
net realizable value. Any resultant losses are charged against related
reserves. The guarantee under such floor plans aggregated $8,317 at December
31, 1993. The Company has recorded reserves based on management's estimates of
potential losses arising from these guarantees. Losses under these
arrangements have not been material in the past.
Clark has also given guarantees to financial institutions relating to capital
loans, residual guarantees and other dealer and customer obligations arising
out of the ordinary conduct of its business. Such guarantees approximated
$22,900 at December 31, 1993. Potential losses on such guarantees are accrued
as a component of the Allowance for Doubtful Accounts.
To enhance its marketing effort and ensure continuity of its dealer network,
Clark has also agreed as part of its dealer sales agreements to repurchase
certain new and unused products and parts inventory and certain products used
as dealer rental assets in the event of a dealer termination. Repurchase
agreements included in operating agreements with an independent financial
institution have been patterned after those included in the dealer sales
agreements. Dealer inventory and rental asset financing of approximately
$206,100 at December 31, 1993 are covered by those operating agreements. Under
these agreements, when dealer terminations do occur, a newly selected dealer
generally assumes the assets of the prior dealer and any related financial
obligations. Historically, Clark has incurred only immaterial losses relating
to these arrangements. During 1993, one dealer was terminated and the related
losses were not material.
Terex's outstanding letters of credit totaled $6,466 at December 31, 1993, a
substantial portion of which are cash collateralized (see Note A --
"Significant Accounting Policies - Restricted Cash"). The letters of credit
serve as collateral for certain liabilities included in the Consolidated
Balance Sheet or guaranteeing the Company's performance under certain
contracts.
The Internal Revenue Service is currently in various stages of examination of
the Company's federal tax returns for the years 1987 through 1989. Liability,
if any, resulting from the examinations cannot be determined at present. The
Company believes that its positions for issues raised in these audits are
correct and that it would prevail if the taxing authorities were to propose
adjustments. In any event, management believes that the outcome of these
examinations will not have a material impact on the consolidated financial
statements because the Company has significant net operating loss carryovers.
No accruals have been made for any taxes which might result from these
examinations.
Terex has agreed to indemnify certain outside parties for losses related to
Fruehauf's worker compensation obligations. Some of the claims for which Terex
is contingently obligated are also covered by bonds issued by an insurance
company. Terex has recognized liabilities for these contingent obligations in
the aggregate amount of $3,000, representing management's estimate of the
maximum potential losses which the Company might incur.
The Company generates hazardous and nonhazardous wastes in the normal course of
its operations. As a result, the Company is subject to a wide range of
federal, state, local and foreign environmental laws and regulations that (i)
govern activities or operations that may have adverse environmental effects,
such as discharges to air and water, as well as handling and disposal practices
for hazardous and nonhazardous wastes, and (ii) impose liability for the costs
of cleaning up, and certain damages resulting from, sites of past spills,
disposals or other releases of hazardous substances. Compliance with such laws
and regulations has, and will, require expenditures by the Company on a
continuing basis.
Fruehauf is contingently liable for portions of remedial costs at numerous
off-site waste disposal sites including those previously used by operations of
Fruehauf's predecessor. Fruehauf has received notice that it is considered a
"Potentially Responsible Party" under the Comprehensive Environmental Response,
Compensation, and Liability Act or other similar state laws at approximately 23
Superfund sites and has also identified environmental exposures at
approximately 36 other sites not designated as Superfund sites. The Company
believes that it could have contingent responsibility for certain of Fruehauf's
liabilities with respect to Fruehauf's environmental matters if Fruehauf fails
to discharge its obligations, to the extent that such liabilities arose during
the time period during which Terex was the controlling stockholder of Fruehauf.
The Company believes that Fruehauf's significant environmental liabilities
predate Terex's acquisition of Fruehauf, and therefore any contingent
responsibility of the Company is not expected to have a material adverse effect
on the Company.
NOTE L -- RELATED PARTY TRANSACTIONS
Under a contract dated July 1, 1987, as amended, KCS Industries, L.P., a
Connecticut limited partnership ("KCS"), principally owned by Randolph W. Lenz,
Chairman of the Board and Chief Executive Officer of the Company, provided
administrative, financial, marketing, technical, real estate and legal services
to the Company and its subsidiaries until December 31, 1993. KCS also provided
assistance in the evaluation, negotiation and consummation of potential
acquisitions of other companies, products and processes, as well as the
development of new areas of business for the Company. For the services of KCS,
the Company paid KCS an annual fee plus the reimbursement for all out-of-pocket
expenses incurred by KCS in fulfilling the contract, including travel and
similar expenses and fees for professional and other services provided by third
parties. Each year the contract was in effect, the annual fee increased by the
greater of 10% or the increase in the Consumer Price Index, subject to
limitations imposed by the Company's debt agreements.
During 1993, the Board of Directors of the Company concluded that it would be
in the Company's best interest to terminate the Company's contract with KCS and
integrate the management services of KCS directly into the Company. Pursuant
to an agreement between the Company and KCS, the contract between the Company
and KCS was suspended as of the close of business on December 31, 1993, with
the contract to be terminated upon the consent of the Company's stockholders to
a proposed issuance of securities to certain executives of KCS, as discussed
below. David J. Langevin and Marvin B. Rosenberg, employees of KCS, became
salaried employees of the Company effective January 1, 1994, with the titles of
Executive Vice President and Senior Vice President, respectively. In addition,
in consideration of the proposed termination of the contract, the Company has
agreed, subject to the approval of the stockholders of the Company, to issue
89,800 shares of the Company's Series B Cumulative Redeemable Convertible
Preferred Stock ("Series B Preferred Stock") and 89,800 common stock purchase
warrants to certain executives of KCS, the terms of which will be substantially
similar to the terms of the Series A Preferred Stock and the Warrants,
respectively. Of such amounts, Messrs. Langevin and Rosenberg would each
receive 25,500 shares of preferred stock and warrants and Mr. Lenz would
receive 38,800 shares of preferred stock and warrants. Upon stockholder
approval, the contract will terminate and such securities will be issued to
Messrs. Langevin, Rosenberg and Lenz. Absent such stockholder approval, the
suspension will terminate and the contract will be restored in full force and
effect, although the Company will continue to endeavor to achieve an alternate
agreement with KCS to terminate the contract at a date prior to the date it
would be cancellable under its terms. In recognition of the termination
agreement, the Company recorded a charge of $2,245 in the first quarter of 1994
for the value, at $25 per "unit" of one share of Series B Preferred Stock and
one Warrant, of the securities to be so issued.
The Company, certain directors and executives of the Company, and KCS are named
parties in various legal proceedings. The Company pays legal fees and expenses
on behalf of the Company, directors and executives of the Company, and KCS
named in the lawsuits.
At the time of the Fruehauf restructuring and refinancing in August 1993, the
Company entered into an agreement with IBJ Schroder Bank & Trust Company ("IBJ
Schroder"), on behalf of a group of commercial bank lenders, pursuant to which
the Company is obligated to pay a fee of $1,000 on or before December 31, 1994
in consideration of the assistance of the banks in evaluating the feasibility
of Fruehauf's proposed Turnaround Plan and to induce the banks to consent to
certain requests by the Company. Mr. Lenz pledged certain of his shares of
Common Stock to IBJ Schroder, as agent for such lenders, as security for the
payment of such amount by the Company.
David A. Sachs, a director of the Company, is affiliated with The Airlie Group
L.P. ("Airlie"), a limited partnership which owns approximately 9.29% of the
Company's Common Stock (including Common Stock issuable upon conversion of
Series A Preferred Stock) and 40,000 Warrants. Mr. Sachs is an employee of
TMT-FW, Inc. which is one of two general partners of the general partner of
Airlie. Airlie receives all director fees to which Mr. Sachs is entitled by
reason of his service as a director of the Company. On December 20, 1993,
Airlie purchased 40,000 Warrants and 40,000 shares of Series A Preferred Stock
from the Company as part of the Company's private placement.
Bruce I. Raben, a director of the Company, is an employee and officer of
Jefferies & Company, Inc. ("Jefferies"), the investment banking firm which
acted as placement agent for the Company's December 1993 sale of the Series A
Preferred Stock and Warrants. Jefferies was also the agent for the Company for
certain sales by the Company of its common stock of Fruehauf in 1993.
Jefferies purchased 250,000 Warrants and 180,000 shares of Series A Preferred
Stock from the Company in connection with the Company's private placement on
December 20, 1993.
G. Chris Andersen, a director of the Company, is an executive with PaineWebber
Incorporated ("PaineWebber"). During 1993, Fruehauf retained PaineWebber as a
financial advisor to explore opportunities to maximize stockholder value in
Fruehauf.
The Company requires that all transactions with affiliates be on terms no less
favorable to the Company than could be obtained in comparable transactions with
an unrelated person. The Board is advised in advance of any such proposed
transaction or agreement and utilizes such procedures in evaluating their terms
and provisions as are appropriate in light of the Board's fiduciary duties
under Delaware law. In addition, the Company has an Audit Committee consisting
solely of outside directors. One of the responsibilities of the Audit
Committee is to review related party transactions.
NOTE M - LIQUIDITY AND REFINANCING PLANS
As a result of significant operating losses, which have continued into the
first quarter of 1994, and cash flow constraints, the Company has taken
significant actions to reduce its overall cost structure and improve liquidity.
During 1993, the Company experienced liquidity constraints, primarily because
of continuing operating losses. Payables to a significant number of vendors
were aged 60 days or more and certain vendors required COD or advance cash
payments before shipping materials. As a result, the Company's manufacturing
facilities operated at less than optimal levels, and the availability of
inventory for parts sales, on which the Company generally realizes higher gross
margins, was adversely affected.
In May 1993, Terex entered into the Lending Facility, which presently provides
for up to $20,000 of cash advances and guarantees of bank letters of credit and
is secured by substantially all of the Company's domestic cash and receivables.
In addition to the Lending Facility, the Company has arranged similar financing
for TEL, in the form of the pd28,000 ($42,000) TEL Facility, including up to
pd13,000 ($19,500) nonrecourse discounting of TEL accounts receivable which meet
certain credit criteria plus additional facilities for tender and performance
bonds and foreign exchange contracts.
In December 1993, in order to provide additional liquidity to the Company, the
Company completed the private placement of 1,200,000 shares of the Series A
Preferred Stock and 1,300,000 Warrants for aggregate net proceeds to the
Company of $27,179. The proceeds of such private placement are being used by
the Company for additional working capital. Concurrent with the infusion of
working capital from the private placement, Clark entered into agreements with
approximately 225 of its vendors to freeze the balances due such vendors as of
November 1993 (totalling approximately $13,900) and establish normal credit
terms for new purchases. Clark will pay the frozen balances in twelve monthly
installments of approximately $1,150 each from December 1993 through November
1994, but may prepay the remaining balance to any or all of the vendors at any
time. In December 1994, Clark will make an additional payment to each vendor
equivalent to 1/12 of the frozen balance, but only to such vendors as are not
prepaid.
The Company is also generating cash by reducing receivables and inventories,
selling certain real estate and other assets including the sale of its Drexel
subsidiary and the sale of Fruehauf common stock as described below, and
continuing corporate wide cost containment efforts. Management believes that
the Lending Facility together with these additional financing and cash
generating activities will allow the Company to meet its operating payment
obligations, including payments to vendors, on a timely basis which will
improve the Company's ability to take advantage of improved market conditions,
especially in the Material Handling Segment.
In December 1993, the Company repurchased $5,000 principal amount of the
Secured Notes for $4,544 including accrued interest. In addition, the Company
sold 1,000,000 shares of Fruehauf common stock for aggregate proceeds of $3,009
in December 1993 and 1,000,000 shares of Fruehauf common stock for aggregate
proceeds of $4,620 in February 1994. The Company has offered to repurchase
$3,000 of the Senior Secured Notes in May 1994 and will offer to repurchase
$4,620 of the Senior Secured Notes in the third quarter of 1994, pursuant to
the indenture for the Senior Secured Notes. In addition to such offers to
repurchase, the Company's principal repayment requirements for 1994 include
approximately $8,333 in July 1994 for a required sinking fund payment on the
Subordinated Notes and $6,090 in July 1994 for the maturity of the note issued
to the seller in connection with the Clark Acquisition. The Company has
notified the trustee for the Subordinated Notes that it intends to satisfy the
July 1, 1994 sinking fund payment by delivering $8,333 principal amount of the
Subordinated Notes which the Company has made arrangements to purchase in the
marketplace. The Company's interest payment requirements in 1994 include
approximately $27,600 of interest on the Senior Secured Notes, Subordinated
Notes and the Lending Facility, of which amount approximately $13,500 has been
paid as of May 1, 1994. Management believes that selling certain excess real
estate and other non-strategic assets (including Drexel, see Note N --
"Subsequent Events") and other cash generating activities discussed above will
allow the Company to meet its scheduled interest and principal repayment
requirements as they come due.
The Company was in compliance with the Net Worth Covenants and the
Collateral Covenant at December 31, 1993. The Company continued to sustain
losses from operations during the first quarter of 1994 and, the Company's
tangible net worth at March 31, 1994 was less than the $15,000 required under
the Net Worth Covenants. In addition, unless the Company returns to
profitability, realizes additional gains from sales of assets and/or raises
additional equity during the second quarter of 1994, it will have a tangible
net worth at June 30, 1994 of less than the $15,000 required under the Net
Worth Covenants. If any offer to repurchase Notes were required to be made as
a result of noncompliance with the Net Worth Covenant at June 30, 1994 or
otherwise, it is likely that the Company would require additional funding to
complete the offer, and if such funding were unavailable to it, the Company
would be unable to comply with the terms of the Notes and the maturity of the
Notes might be accelerated. Such circumstances could result in a material
adverse impact on the Company and its financial position. Management believes
that the Company will be able to maintain compliance with the Net Worth
Covenants and Collateral Covenant until the Company returns to profitability by
selling certain non-strategic assets, including without limitation the
Company's investment in Fruehauf common stock. In February 1994, the Company
sold 1,000,000 shares of Fruehauf common stock for aggregate proceeds of
approximately $4,600 and recognized a gain for that amount. At March 31, 1994
the Company continued to hold 5,386,622 shares of Fruehauf common stock.
Subsequent to March 31, 1994 the Company sold additional assets as described
below in Note N -- "Subsequent Events."
NOTE N - SUBSEQUENT EVENTS
On April 15, 1994, the Company completed the sale of 100% of the stock of
Drexel Industries, Inc. ("Drexel"), pursuant to an agreement to sell entered
into in March 1994, for total proceeds of $12,521, of which $12,197 was in cash
and $324 was in the form of a note due December 15, 1994 and bearing interest
at 6%. The Company retained certain past-due receivables and certain
obligations of Drexel, including environmental cleanup costs at Drexel's
facility in Horsham, Pennsylvania and state and federal income taxes related to
the sale, and will recognize a gain of approximately $4,000 as a result of the
sale. Pursuant to the terms of the indentures for the Company's Senior Secured
Notes, the Company is required to reinvest the net proceeds of the sale,
estimated to be approximately $10,900, in certain categories of assets within
180 days, and will be required to make an offer to repurchase Senior Secured
Notes after such 180 day period in the principal amount equivalent to the
amount of net proceeds not so reinvested. Drexel operated in the Material
Handling Segment and manufactures very narrow-aisle lift trucks. Drexel's net
sales and income from operations totaled $4,325 and $35, respectively, in the
first quarter of 1994.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarter Ended March 31, 1994
The table below is a comparison of net sales, gross profit, selling, general
and administrative expenses and income (loss) from operations, by segment, for
the three months ended March 31, 1994 and 1993.
Three Months Ended March 31, Increase
1994 1993 (Decrease)
(in millions of dollars)
NET SALES
Material Handling $ 90.8 $ 118.7 $ (27.9)
Heavy Equipment 78.0 64.5 13.5
Eliminations (0.8) --- (0.8)
Total $ 168.0 $ 183.2 $ (15.2)
GROSS PROFIT
Material Handling $ 3.3 $ 10.8 $ (7.5)
Heavy Equipment 10.8 6.8 4.0
Total $ 14.1 $ 17.6 $ (3.5)
ENGINEERING, SELLING AND
ADMINISTRATIVE EXPENSES
Material Handling $ 12.3 $ 12.4 $ (0.1)
Heavy Equipment 7.0 8.2 (1.2)
General/Corporate 2.1 0.2 1.9
Total $ 21.4 $ 20.8 $ 0.6
INCOME (LOSS) FROM OPERATIONS
Material Handling $ (9.0) $ (1.6) $ (7.4)
Heavy Equipment 3.8 (1.4) 5.2
General/Corporate (2.1) (.2) (1.9)
Total $ (7.3) $ (3.2) $ (4.1)
Net Sales
Sales decreased $15.2 million, or approximately 8%, for the three months ended
March 31, 1994 over the comparable 1993 period.
Material Handling Segment sales were $90.8 million for the three months ended
March 31, 1994, a decrease of $27.9 million from $118.7 million in the year
earlier period. Machine sales decreased $20.0 million and parts sales
decreased $7.9 million. Machine sales were adversely affected by lack of
supplies and materials necessary to restore full production and meet increased
industry demand. The lack of production supplies and materials resulted from a
deterioration in supplier relations that occurred during the last half on 1993
because of liquidity constraints, as well as from capacity shortages at several
suppliers due to increased industry demand for their products. As a result of
the working capital infusion in December 1993 discussed below under "Liquidity
and Capital Resources," management was able to normalize relations and schedule
payment terms with its key suppliers. Management is negotiating with critical
suppliers to move production of Material Handling Segment parts and supplies to
a higher priority and is developing alternate suppliers where necessary to keep
up with production demands. Parts sales were affected by difficulties in
assimilating the Material Handling Segments parts business into the Terex Parts
Distribution Center and by decreased parts availability compared to the quarter
ended March 31, 1993.
Material Handling Segment bookings for the three months ended March 31, 1994
were $106.6 million, an increase of $11.2 million, or 12%, from the year
earlier period, as customer demand, especially in North America, increased.
Bookings for parts sales for the three months ended March 31, 1994, from which
the Company generally realized higher margins than machine sales, decreased
$4.4 million or 16% from the year earlier period. Machine order bookings for
the three months ended March 31, 1994 increased $15.6 million or 23% from the
year earlier period. Material Handling Segment backlog was $168.3 million at
March 31, 1994 compared to $152.7 million at December 31, 1993 and $59.9
million at March 31, 1993. This increase reflects the increased customer
demand as well as reduced first quarter sales resulting from the lack of
production supplies and materials and decreased parts availability levels
discussed above. Management expects that the backlog of both machines orders
and parts orders will be reduced during the remainder of 1994 as the Company
restores full production in the Material Handling Segment U. S. operations and
as parts availability is restored to historical levels.
Heavy Equipment Segment sales increased $13.5 million for the three months
ended March 31, 1994 from the three months ended March 31, 1993. Machines and
contract sales increased $15.6 million, partially offset by a parts sales
decrease of $2.1 million. The sales mix changed from approximately 39% parts
for the three months ended March 31, 1993 to 30% parts for the three months
ended March 31, 1994. Machine sales increased at all of the Heavy Equipment
Segment divisions, but primarily in the Terex Business, which consists of the
Company's Terex Division and TEL and which serves the heavy construction
industry, reflecting general improvement in the economy, industry demand and
the favorable effects of low interest rates. The Terex Business experienced an
increase in machine sales of $11.2 million to $29.4 million for the three
months ended March 31, 1994 compared to the comparable period in 1993. Heavy
Equipment Segment parts sales decreased $2.1 million for the three months ended
March 31, 1994 versus the year earlier period. Sales have been adversely
impacted by lower parts availability and the assimilation of the Material
Handling Segment's parts business into the Company's Southaven, Mississippi
Parts Distribution Center.
Heavy Equipment Segment bookings for the three months ended March 31, 1994 were
$64.2 million, a decrease of $21.8 million, or 25%, from the year earlier
period, but consistent with the bookings levels for the last two quarters of
1993. Bookings for parts sales, from which the Company realizes higher margins
than machine sales, decreased $1.0 million or 4.0% from the three months ended
March 31, 1993. Machine and contract bookings for the three months ended March
31, 1994 decreased $20.8 million or 35% from the prior year period, reflecting
decreases due to consolidation of model offerings at the Company's Koehring
Cranes & Excavators Division ("Koehring") and decreases at the Company's Unit
Rig Division due to continued softness in the mining industry, as well as more
aggressive pricing and financing by the Company's competitors. The slow
recovery in the construction industry has also made the Koehring and Terex
Business distributor networks more cautious in their acquisition of new
equipment, especially for machines to be used in the rental market. Heavy
Equipment Segment backlog was $67.0 million at March 31, 1994 compared to $80.9
million at December 31, 1993 and $106.9 million at March 31, 1993, reflecting
the decrease in bookings and increases in first quarter 1994 sales. Parts
backlog was $11.2 million at March 31, 1994 compared to $10.4 million at
December 31, 1993 and $7.0 million at March 31, 1993. This increase resulted
from decreased parts availability due to liquidity constraints experienced
during 1993. As a result of the working capital infusion discussed below under
"Liquidity and Capital Resources," the inventory availability for parts sales
trended upwards during the quarter and management expects that the backlog of
parts orders will be reduced as working capital continues to be applied towards
purchase of parts inventory.
Gross Profit
Gross profit for the three months ended March 31, 1994 decreased $3.5 million
compared to the three months ended March 31, 1993.
The Material Handling Segment's gross profit decreased $7.5 million to $3.3
million for the three months ended March 31, 1994 compared to $10.8 million for
the prior year's period. The gross profit percentage in the Material Handling
Segment decreased to 4.0% for the three months ended March 31, 1994 from 9.0%
for the the prior year's period. The decrease in gross profit percentage
reflects comparatively lower sales and decreased manufacturing efficiency due
to shortages in manufacturing supplies and materials, somewhat offset by cost
reduction initiatives.
The Heavy Equipment Segment's gross profit increased $4.0 million to $10.8
million for the three months ended March 31, 1994 compared to $6.8 million for
the prior year's period. Improved gross profit from machines and contract
sales accounted for substantially all of the increase, reflecting the increase
in sales and continuing effects of cost reduction initiatives implemented
during 1992 and 1993. The gross profit percentage in the Heavy Equipment
Segment increased to 13.8% for the three months ended March 31, 1994 from 10.6%
for the three months ended March 31, 1993, reflecting improved manufacturing
efficiency and increased absorption of fixed costs due to higher levels of
production.
Engineering, Selling and Administrative Expenses
Engineering, selling and administrative expenses increased to $21.4 million for
the three months ended March 31, 1994 from $20.8 million for the three months
ended March 31, 1994. Material Handling Segment engineering, selling and
administrative expenses totaled $12.3 million for for the three months ended
March 31, 1994 compared to $12.4 million for the prior year's period. Heavy
Equipment Segment engineering, selling and administrative expenses decreased to
$7.0 million for the three months ended March 31, 1994 from $8.2 million for
the prior year's period as a result of cost reduction initiatives. Corporate
administrative expense includes a charge of $2.2 million in connection with the
proposed termination of the Company's management contract with KCS.
Income (Loss) from Operations
The Material Handling Segment incurred a loss from operations of $9.0 million
for the three months ended March 31, 1994, compared to a loss of $1.6 million
for the three months ending March 31, 1993. As discussed above, the decreases
in sales and gross profit in 1994 reflect the difficulties in restoring full
production due to supplier problems. Management expects that the Material
Handling Segment will continue to make improvements in the level of production
during the second quarter of 1994.
Heavy Equipment Segment income (loss) from operations improved by $5.2 million
to $3.8 million of net income for the three months ended March 31, 1994 from a
$1.4 million loss in the prior year's period. This improvement resulted from
the increase in gross profit and the decrease in engineering, selling and
administrative expenses. All of the businesses comprising the Heavy Equipment
Segment reported income from operations for the three months ended March 31,
1994. The losses at Koehring have been reversed as a result of continuing cost
reductions, improvements in inventory management and consolidation of model
offerings, and the Company continues to consider additional actions necessary
to maintain consistent profitability, including a continuing evaluation of
facilities, products and inventories.
On a consolidated basis, the Company experienced an operating loss of $7.3
million for the three months ended March 31, 1993, compared to an operating
loss of $3.2 million for the prior year's period.
Other Income (Expense)
The Company recognized equity in the net loss of Fruehauf of $0.5 million for
the three months ended March 31, 1993. As described in Note B -- "Accounting
Changes" in the Notes to the Condensed Consolidated Financial Statements, the
Company presently accounts for its investment in Fruehauf in accordance with
the provisions of SFAS 115 and the Company does not expect to recognize any
significant additional gains or losses with respect to its investment in
Fruehauf except as realized on transactions in Fruehauf common stock. In
February 1994, the Company sold 1,000,000 shares of Fruehauf common stock and
realized a gain of $4.6 million.
The provision for income taxes generally represents taxes withheld on foreign
royalties and dividends, and the fluctuation in the provision for income tax is
due to fluctuations in these items.
LIQUIDITY AND CAPITAL RESOURCES
Net cash of $12.7 million was used in operating activities during the three
months ended March 31, 1994, principally to fund operating losses and interest
payments.
Net cash provided by investing activities of $1.2 million during the three
months ended March 31, 1994 principally resulted from the sale of Fruehauf
common stock, offset by cash used to finance capital expenditures. Proceeds
from the sale of Fruehauf common stock were approximately $5.2 million
including the sale of 1,000,000 shares in February 1994 for approximately $4.6
million, and the settlement of a December 1993 trade in January 1994 for
approximately $0.6 million. Proceeds from refinancing a note receivable were
$1.0 million. Capital expenditures in the three months ended March 31, 1994
were $5.1 million.
Net cash provided by financing activities during the three months ended March
31, 1994 was $6.1 million. As described below, the Company entered into new
lending facilities during 1993. The balances outstanding under these
facilities were approximately $17.3 million as of March 31, 1994.
Actions taken to address liquidity constraints
During 1993, the Company experienced liquidity constraints, primarily because
of continuing operating losses. During this period, payables to a significant
number of vendors were aged 60 days or more and certain vendors required COD or
advance cash payments before shipping materials. As a result, the Company's
manufacturing facilities operated at less than optimal levels, and the
availability of inventory for parts sales, on which the Company generally
realizes higher gross margins, was adversely affected. During 1993, the
Company took a number of steps to address these liquidity constraints, as
discussed below.
In May 1993, Terex entered into the Lending Facility, which presently provides
for up to $20.0 million of cash advances and guarantees of bank letters of
credit and is secured by substantially all of the Company's domestic
receivables and proceeds thereof. The balance outstanding under the Lending
Facility was $17.3 million as of March 31, 1994, and the additional amount the
Company could have borrowed was $2.4 million as of that date.
The Company arranged similar financing for TEL during 1993, in the form of a
pd28.0 million ($42.0 million) credit facility, including up to pd13.0 million
($19.5 million) nonrecourse discounting of TEL accounts receivable which meet
certain credit criteria plus additional facilities for tender and performance
bonds and foreign exchange contracts. The balance discounted under the credit
facility was $1.5 million at March 31, 1994, and the additional amount the
Company could have discounted was $0.3 million as of that date.
In September 1993, the Company sold certain excess real estate in Germany for
net proceeds of approximately $9.7 million.
In December 1993, the Company completed the private placement of 1,200,000
shares of the Series A Preferred Stock and 1,300,000 Warrants for aggregate net
proceeds to the Company of $27.2 million. The proceeds of such private
placement are being used by the Company for additional working capital.
Debt covenants and other liquidity restrictions
The indentures governing the Senior Secured Notes and Subordinated Notes
require, among other things, that the Company comply with the Net Worth
Covenants and the Collateral Covenant. In the event that the Company's net
worth is not in excess of the amount required under the Net Worth Covenants for
any two consecutive quarters, the Company must offer to repurchase, at par plus
accrued interest, 20% of the outstanding principal amount of the Notes. In
the event the Company is not in compliance with the Collateral Covenant at the
end of any calendar quarter, the Company must offer to repurchase, at par plus
accrued interest, $16.0 million principal amount of the Senior Secured Notes or
such greater amount as would be necessary to bring the Company into compliance
with the Collateral Covenant.
The Company was in compliance with the Net Worth Covenants and the
Collateral Covenant at December 31, 1993. The Company continued to sustain
losses from operations during the first quarter of 1994 and the Company's
tangible net worth at March 31, 1994 was less than the $15.0 million required
under the Net Worth Covenants. In addition, unless the Company returns to
profitability, realizes additional gains from sales of assets and/or raises
additional equity during the second quarter of 1994, it will have a tangible
net worth at June 30, 1994 of less than the $15.0 million required under the
Net Worth Covenants. If any offer to repurchase Notes were required to be made
as a result of noncompliance with the Net Worth Covenant at June 30, 1994 or
otherwise, it is likely that the Company would require additional funding to
complete the offer, and if such funding were unavailable to it, the Company
would be unable to comply with the terms of the Notes and the maturity of the
Notes might be accelerated. Such circumstances could result in a material
adverse impact on the Company and its financial position. As explained below,
the Company has taken, and plans to take, actions to maintain compliance with
the Net Worth Covenant and Collateral Covenant, including the sale of its
Drexel subsidiary, shares of Fruehauf common stock and other assets.
In addition to the financial covenants discussed above, the indentures
governing the Notes limit, among other things, Terex's ability to incur
additional indebtedness, consummate mergers and acquisitions, pay dividends,
sell business segments and enter into transactions with affiliates, and place
limitations on change in control of Terex.
As of March 31, 1994, the Company was in compliance with the tangible net worth
covenant under the Lending Facility. The Company believes, based on
management's current estimates, that it will be in compliance with the covenant
over the next twelve months.
Terex currently owns approximately 19.1% of the outstanding common stock of
Fruehauf. By the terms of debt agreements of both companies, neither company
may participate in the debt service of the other. Generally, funds cannot be
transferred between the companies.
Cash and cash equivalents totaled $3.9 million and $9.2 million at March 31,
1994 and December 31, 1993, respectively. Restricted cash represents amount
required to cash collateralize letters of credit issued for various business
purposes. At March 31, 1994 and December 31, 1993 the unexpired letters of
credit were cash collateralized by a total of $4.1 million and $6.3 million in
cash collateral accounts. These cash balances will be made available to the
Company as the underlying letters of credit expire.
Liquidity requirements and actions to be taken in 1994
Concurrent with the infusion of working capital from the Company's private
placement in December 1993, Clark entered into agreements with approximately
225 of its vendors to freeze the balances due such vendors as of November 1993
(totaling approximately $13.9 million) and to reestablish normal credit terms
for new purchases. Clark is paying the frozen balances in twelve monthly
installments of approximately $1.2 million each from December 1993 through
November 1994, but may prepay the remaining balance to any or all of the
vendors at any time. In December 1994, Clark will make an additional payment
to each vendor equivalent to 1/12 of the frozen balance, but only to such
vendors as are not prepaid.
The Company's interest payment requirements for 1994 total approximately $27.6
million on the Senior Secured Notes, the Subordinated Notes and the Lending
Facility, of which amount approximately $13.5 million has been paid as of May
1, 1994. The Company's principal repayment requirements for 1994 include
approximately $8.3 million in July 1994 for a required sinking fund payment on
the Subordinated Notes and $6.1 million in July 1994 for the maturity of a note
issued to the seller in connection with the Clark Acquisition. The Company has
notified the trustee for the Subordinated Notes that it intends to satisfy the
July 1, 1994 sinking fund payment by delivering $8.3 million principal amount
of the Subordinated Notes which the Company has made arrangements to purchase
in the marketplace. The Company also has offered to repurchase $3.0 million of
the Senior Secured Notes in May 1994 and will offer to repurchase approximately
$4.6 million of the Senior Secured Notes in the third quarter of 1994, pursuant
to the indenture for the Senior Secured Notes, as a result of the sale of
1,000,000 shares of Fruehauf common stock in December 1993 and the sale of
1,000,000 shares of Fruehauf common stock in February 1994, respectively.
Management believes that the Lending Facility, together with other financing
and cash generating activities, will allow the Company to meet its operating
payment obligations, including payments to vendors, on a timely basis, which
will improve the Company's ability to take advantage of improved market
conditions, especially in the Material Handling Segment. Management expects to
continue the Company's efforts to reduce receivables and inventory during 1994.
In particular, management believes that required inventory levels in the
Material Handling Segment have been reduced as a result of transfer of certain
production to the United States and Germany from Korea during 1993 because the
Company will no longer experience the significant lead times associated with
the shipping of product from Korea.
Additionally, management believes that selling certain excess real estate and
other non-strategic assets and other cash generating activities discussed above
will allow the Company to meet its scheduled interest and principal repayment
requirements as they come due and to maintain compliance with the Net Worth
Covenants and the Collateral Covenant until the Company returns to
profitability. In February 1994, as noted above, the Company sold 1,000,000
shares of Fruehauf common stock for aggregate proceeds of approximately $4.6
million. In April 1994, the Company sold 100% of the stock of Drexel, a
subsidiary in the Material Handling Segment which manufactures very
narrow-aisle lift trucks, for net proceeds of approximately $10.9 million.
CONTINGENCIES AND UNCERTAINTIES
The Company has not yet filed its Annual Report on Form 10-K for the year ended
December 31, 1993. The Company's auditors, Price Waterhouse, and former
auditors, Deloitte & Touche, have advised the Company that they are unable to
issue accountant's reports on the Company's financial statements for 1991, 1992
and 1993, which are required to be included in the Company's Annual Report on
Form 10-K, until consideration has been completed of certain items which may
affect the financial statements of Fruehauf and, as a result, may also affect
the financial statements of the Company. In their opinion on the Company's
Consolidated Financial Statements for December 31, 1992, Price Waterhouse, the
Company's independent accountants, indicated that there are matters, including
recurring losses from operations and a net capital deficiency, which raise
substantial doubt about the Company's ability to continue as a going concern.
As of this date, Price Waterhouse has not issued an opinion on the Company's
1993 Financial Statements. As described above under "Liquidity and Capital
Resources," the Company has entered into the Lending Facility which provides up
to $20.0 million in revolving credit loans and guarantees of letters of credit,
and has arranged similar financing for TEL. The Company also completed the
private placement of Series A Preferred Stock and Warrants, which provided
aggregate net proceeds to the Company of $27.2 million for working capital.
The Company is also generating cash by reducing receivables and inventories,
selling certain real estate and other assets and continuing corporate wide cost
containment efforts. In April 1994, the Company sold Drexel for net proceeds
of approximately $10.9 million. Management believes that the Lending Facility
and other financing and cash generating activities will allow the Company to
meet its obligations on a timely basis.
The Company generates hazardous and nonhazardous wastes in the normal course of
its operations. As a result, the Company is subject to a wide range of
federal, state, local and foreign environmental laws and regulations that (i)
govern activities or operations that may have adverse environmental effects,
such as discharges to air and water, as well as handling and disposal practices
for hazardous and nonhazardous wastes, and (ii) impose liability for the costs
of cleaning up, and certain damages resulting from, sites of past spills,
disposals or other releases of hazardous substances. Compliance with such laws
and regulations has, and will, require expenditures by the Company on a
continuing basis.
Fruehauf is contingently liable for portions of remedial costs at numerous
off-site waste disposal sites including those previously used by operations of
Fruehauf's predecessor. Fruehauf has received notice that it is considered a
"Potentially Responsible Party" under the Comprehensive Environmental Response,
Compensation, and Liability Act or other similar state laws at approximately 23
Superfund sites and has also identified environmental exposures at
approximately 36 other sites not designated as Superfund sites. The Company
believes that it could have contingent responsibility for certain of Fruehauf's
liabilities with respect to Fruehauf's environmental matters if Fruehauf fails
to discharge its obligations, to the extent that such liabilities arose during
the time period during which Terex was the controlling stockholder of Fruehauf.
The Company believes that Fruehauf's significant environmental liabilities
predate Terex's acquisition of Fruehauf, and therefore any contingent
responsibility of the Company is not expected to have a material adverse effect
on the Company.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
In October 1992, a Class Action complaint was filed, purportedly on behalf of
all persons who purchased Terex Common Stock during the period from January 2,
1990 through October 5, 1992, against the Company and its Chairman. This suit
sought unspecified compensatory and punitive damages. A motion to dismiss the
action filed by the Company was granted in September 1993. The plaintiff was
granted an extension of time to file an amended complaint; however, the
plaintiff did not do so. As a result, this action has been dismissed.
In December 1992, a Class Action complaint was filed, purportedly on behalf of
all persons who purchased Fruehauf common stock during the period from June 28,
1991 through December 4, 1992, against Fruehauf, the Company, certain of
Fruehauf's present and former officers and directors, namely, Randolph W.
Lenz, Marvin B. Rosenberg, Arthur E. Rowe, G. Chris Andersen and Raymond J.
Dempsey, and certain of the underwriters of the Fruehauf IPO, namely,
PaineWebber Incorporated, Alex. Brown & Sons, Incorporated and Wertheim
Schroeder & Co., Incorporated, in the United States District Court for the
Eastern District of Michigan, Southern Division, seeking unspecified
compensatory and punitive damages. The complaint alleges, among other things,
that, in connection with and following the Fruehauf IPO, the defendants
misrepresented Fruehauf's liquidity situation, the status of compliance with
Fruehauf's credit facilities at the time of the Fruehauf IPO, and the nature
and extent of Fruehauf's ongoing participation in the high-margin retail parts
and service business. A motion to dismiss the action filed by the defendants
has been denied and discovery in this case has begun. This action is at a very
early stage, however the Company believes that meritorious defenses exist to
the claims made. The Company has not recorded any loss provision for this
litigation.
As described in Note K -- "Litigation and Contingencies" in the Notes to the
Condensed Consolidated Financial Statements, the Company is involved in other
various legal proceedings, including product liability and workers'
compensation liability matters, which have arisen in the normal course of its
operations. Management believes that the final outcome of such matters will
not have a material adverse effect on the Company's consolidated financial
position.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits have been filed as part of this Form 10-Q:
Exhibit No.
10.1 Amended and Restated Stock Purchase Agreement by and
between CMH Acquisition Corp. and DAC Acquisition Corp.
with respect to the sale of the outstanding stock of Drexel
Industries, Inc., dated as of April 15, 1994
11.1 Computation of earnings per share
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
March 31, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEREX CORPORATION
(Registrant)
Date May 16, 1994 /s/ RALPH T. BRANDIFINO
Ralph T. Brandifino,
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date May 16, 1994 /s/ RICHARD L. EVANS
Richard L. Evans, Controller
(Principal Accounting Officer)
EXHIBIT INDEX
Exhibit No.
10.1 Amended and Restated Stock Purchase Agreement by and
between CMH Acquisition Corp. and DAC Acquisition Corp.
with respect to the sale of the outstanding stock of Drexel
Industries, Inc. dated as of April 15, 1994
11.1 Computation of earnings per share
EXHIBIT 10.1
AMENDED AND RESTATED
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
CMH ACQUISITION CORP.
AND
DAC ACQUISITION CORP.
WITH RESPECT TO THE
SALE OF THE OUTSTANDING STOCK
OF DREXEL INDUSTRIES, INC.
DATED AS OF APRIL 15, 1994
TABLE OF CONTENTS
Section Page
1. Sale and Purchase of Shares. 1
2. Purchase Price. 2
2.1 The Purchase Price. 2
2.2 Payment of Purchase Price 2
2.3 Closing Statement of Net Worth;
Adjustment to Purchase Price 2
2.4 Royalty Payments 8
2.5 Clark Payments 9
3. Closing. 10
3.1 Date of Closing. 10
3.2 Termination. 10
4. Representations and Warranties of Seller. 11
4.1 Organization, Standing and Authority of Seller. 11
4.2 Authorization of Agreement. 11
4.3 Organization, Standing and Qualification
of Drexel; Subsidiaries. 11
4.4 Corporate Records. 12
4.5 Consents of Third Parties. 12
4.6 Capitalization. 12
4.7 Ownership of Shares. 13
4.8 Financial Statements. 13
4.9 Absence of Certain Liabilities and Changes. 14
4.10 Inventory. 16
4.11 Receivables. 16
4.12 Taxes. 17
4.13 List of Material Contracts, etc. 18
4.14 Absence of Defaults. 19
4.15 Agreements Regarding Employees. 19
4.16 Employee Benefit Plans. 20
4.17 Litigation; Compliance with Laws. 23
4.18 Real Property. 24
4.19 Tangible Personal Property; Necessary Assets; Insurance. 25
4.20 Intellectual Property. 26
4.21 Environmental Matters. 27
4.22 Permits and Licenses. 31
4.23 Intercompany Transactions 31
4.24 Other Information 32
4.25 Terex's and Seller's Financial Condition 32
4.26 Sale Process 32
4.27 Powers of Attorney 33
4.28 Government Contracts 33
5. Representations and Warranties of Buyer. 35
5.1 Buyer's Organization. 35
5.2 Authorization of Agreement 35
5.3 Consents of Third Parties. 35
5.4 Litigation. 35
5.5 Investment. 36
5.6 Financing. 36
6. Further Agreements of the Parties. 36
6.1 Access to Information. 36
6.2 Conduct of the Business Pending the Closing. 36
6.3 [Intentionally Omitted]. 38
6.4 Other Action. 38
6.5. Notice by Buyer. 38
6.6 Expenses. 39
6.7 Publicity. 39
6.8 Transfer Taxes. 39
6.9 Supplements of Disclosure. 39
6.10 Preservation of Records. 39
6.11 Certain Post-Closing Assistance by Drexel. 40
6.12 Covenant not to Compete 40
6.13 Continuing Intercompany Agreements; Supply of
Proprietary Parts; Termination of Drexel Production
for Terex; Other Intercompany Arrangements 42
6.14 Access to Dealer Network and Purchase
of Proprietary Parts 43
6.15 Intercompany Accounts 44
6.16 Buyer Floor Plan Financing 44
6.17 Environmental Matters 44
6.18 Lockboxes 46
6.19 Indentures 46
6.20 Drexel's Shipping Schedule 46
6.21 Enforcement of Rights 46
7. Conditions of Closing. 47
7.1 Conditions Precedent to Obligations of Buyer. 47
7.2. Conditions Precedent to Obligations of Seller. 47
8. Documents to be Delivered at the Closing. 50
8.1 Documents to be Delivered by Seller. 50
8.2 Documents to be Delivered by Buyer. 51
9. Indemnification and Related Matters. 51
9.1 Indemnification for Breaches of Representations
and Convenants, etc.. 51
9.2 Determination of Damages and Related Matters. 53
9.3 Other Indemnification by Terex and Seller. 53
9.4 Time and Manner of Certain Claims. 55
9.5 Defense of Claims by Third Parties. 56
9.6 Buyer's Knowledge 57
10. Tax Matters. 57
10.1 Tax Returns. 57
10.2 Section 338 Elections and Forms. 61
10.3 Liability for Taxes. 63
10.4 Certain Tax Payment Responsibility. 63
10.5 Tax Contests. 64
10.6 Refunds, Tax Credits. 65
10.7 Tax Sharing Agreements. 66
11. Miscellaneous. 66
11.1 Finders. 66
11.2 Entire Agreement. 66
11.3 Governing Law. 67
11.4 Schedules; Tables of Contents and Headings. 67
11.5 Notices. 67
11.6 Separability. 68
11.7 Waiver. 68
11.8 Binding Effect; Assignment. 68
11.9 Best Knowledge. 69
11.10 Counterparts. 69
11.11 Waiver of Jury Trial. 69
11.12 Set-Off. 69
SCHEDULES TO AGREEMENT
Schedule and
Section Number Description
2.3(a) Amount of Receivables to reduce Net Worth
2.3(f) Certain Drexel Receivables
4.5 Consents and Approvals
4.6 Subsidiaries
4.8 Balance Sheet of Drexel
as of October 31, 1993
4.9 Exceptions to Warranty on Operation of
Business in Ordinary Course since the date
of the Balance Sheet
4.12 Exceptions to Tax Warranty
4.15 Agreements Regarding Employees;
Labor Disputes
4.17 Litigation
4.18 Part 1 Real Property Owned or Leased
4.18 Part 2 Permitted Liens
4.20 Patents and Trademarks
4.21 Environmental Citations
4.22 Exceptions to Permits and Licenses
4.23 Exceptions to Intercompany Transactions
4.27 Exceptions to Powers of Attorney
4.28 Government Contracts
6.2 Exceptions to Conduct of the
Business Pending the Closing
6.14(b) Clark Proprietary Parts
7.1(f) Employment Agreements
EXHIBITS TO AGREEMENT
Exhibit Description Section Reference
A Balance Sheet of Drexel as of
October 31, 1993, as adjusted 4.8
B License Agreement
AMENDED AND RESTATED
STOCK PURCHASE AGREEMENT
The parties to this Amended and Restated Stock Purchase Agreement (this
"Agreement"), dated as of this 15th day of April, 1994, are CMH ACQUISITION
CORP., a Delaware corporation ("Seller"), and DAC ACQUISITION CORP., a Delaware
corporation ("Buyer").
Drexel Industries, Inc. ("Drexel"), a Pennsylvania corporation and a
wholly-owned subsidiary of Seller, is engaged in the development, manufacture,
marketing and distribution of industrial forklift trucks.
Seller wishes to sell, and Buyer wishes to purchase, all the outstanding
capital stock of Drexel (the "Shares").
On March 10, 1994 the parties hereto entered into a Stock Purchase
Agreement (the "Original Agreement") pursuant to which Seller agreed to sell,
and Buyer agreed to purchase, the Shares subject to the terms and conditions
set forth therein.
The parties hereto desire to amend and restate the Original Agreement in
its entirety.
As used in this Agreement, the term "Business" shall mean all of the
businesses and operations conducted by Drexel taken as a whole.
It is therefore agreed that the Original Agreement be amended and restated
as follows:
1. Sale and Purchase of Shares. Subject to the terms and conditions of
this Agreement, at the closing referred to in Section 3 (the "Closing"), Seller
shall sell and transfer to Buyer, and Buyer shall purchase from Seller, the
Shares.
2. Purchase Price.
2.1 The Purchase Price. Subject to adjustment as provided for in
Section 2.3 below, the aggregate purchase price for the Shares shall be eleven
million six hundred twenty-six thousand nine hundred forty-five dollars
($11,626,945) (the "Purchase Price"). The Purchase Price shall be payable as
provided in Section 2.2.
2.2 Payment of Purchase Price. At the Closing, Buyer shall pay to
Seller the cash portion of the Purchase Price by wire transfer of immediately
available funds to an account designated by Seller.
2.3 Closing Statement of Net Worth; Adjustment to Purchase Price.
(a) No later than one (1) week prior to the Closing Date,
Seller shall cause to be prepared and delivered to Buyer an estimated balance
sheet for Drexel as of the close of business on the day immediately preceding
the Closing Date (the "Closing Balance Sheet") and a computation of Drexel's
estimated net worth as of the Closing Date (the "Closing Net Worth"). The
Closing Balance Sheet shall present fairly the expected financial position of
the Business as of the close of business on the day immediately preceding the
Closing Date, in conformity with generally accepted accounting principles
("GAAP") applied on a basis consistent with the Balance Sheet, except that the
Closing Balance Sheet will not contain footnotes or normal year-end adjustments
and shall be calculated after giving effect to the cancellation of accounts
contemplated by Section 6.14 hereof. The term "Closing Net Worth" shall mean
the difference between (i) the book value of the assets, set forth on the
Closing Balance Sheet, and (ii) the book value of the liabilities set forth on
the Closing Balance Sheet, as such values are determined in accordance with
GAAP. In calculating the Closing Balance Sheet, (a) the reserve for doubtful
accounts on the Closing Balance Sheet shall equal $138,707, and (b) the reserve
for environmental matters on the Closing Balance Sheet shall be reduced by the
amount paid or payable by Seller or Drexel to Dames & Moore in connection with
the measures to be performed by them pursuant to Section 6.16 hereof, up to a
maximum of $75,000. Buyer shall have the right to review all work papers and
procedures used to prepare the Closing Balance Sheet and the computation of
Closing Net Worth as of the Closing Date. The Closing Balance Sheet and the
computation of Closing Net Worth shall be computed in a manner consistent with
the Balance Sheet (as defined in Section 4.8 below). The Drexel receivables
set forth on Schedule 2.3(a) shall be assigned by Drexel to Seller, without
recourse, on the Closing Date and shall be excluded from the Closing Balance
Sheet.
(b) The computation of Closing Net Worth as of the Closing Date
delivered by Seller to Buyer shall be the Final Statement of Net Worth and
shall be conclusive and binding on the parties unless Buyer, prior to the
Closing Date, determines in good faith and notifies Seller in writing that
Buyer disputes any of the amounts set forth therein, specifying the nature of
each dispute and the basis therefor (the "Dispute Notice"). The parties shall
attempt in good faith to reach agreement resolving all of the disputes set
forth in the Dispute Notice prior to the Closing Date, in which event the
Closing Balance Sheet, as amended to the extent necessary to reflect the
resolution of all such disputes, shall be the definitive Closing Balance Sheet
and the computation of Net Worth shall be the Final Statement of Net Worth and
shall be conclusive and binding on the parties. If the parties are unable to
resolve any or all of such disputes prior to the Closing Date, however, then
for purposes of the Closing, the parties shall (i) use the lesser of $4,995,002
or the amount set forth as Closing Net Worth on the computation delivered by
Seller, (ii) make the appropriate adjustment to the Purchase Price on such
basis and the Closing shall then take place. Thereafter, either party may,
promptly after the Closing Date, submit all unresolved disputes to a nationally
recognized independent accounting firm mutually agreeable to the parties, which
firm shall not have had a material relationship with either Buyer, Terex
Corporation ("Terex") or Seller or their respective affiliates within the two
years preceding the appointment (the "Arbiter"), for resolution. If the
parties cannot agree on the selection of the independent accounting firm to act
as Arbiter, either party may request the American Arbitration Association to
appoint such a firm, and such appointment shall be conclusive and binding on
the parties. Promptly, but no later than 30 days after its acceptance of its
appointment as Arbiter, the Arbiter shall determine, based solely on
presentations by Buyer and Seller, and not by independent review, those items
in dispute and shall render a written report as to the resolution of each
dispute and the resulting calculation of the Closing Statement of Net Worth and
the Closing Balance Sheet. In resolving any disputed item, the Arbiter may not
assign a value to such item greater than the greatest value for such item
claimed by either party or less than the smallest value for such item claimed
by either party. The Arbiter shall have exclusive jurisdiction over, and
resort to the Arbiter as provided in this paragraph (b) shall be the sole
recourse and remedy of the parties against one another or any other person
(including the auditors) with respect to, any disputes arising out of or
relating to the Closing Balance Sheet and/or the Final Statement of Net Worth;
and the Arbiter's determination shall be conclusive and binding on the parties
and shall be enforceable in a court of law.
(c) The fees and expenses of Buyer and its representatives
shall be paid by Buyer. The fees and expenses of Seller and its
representatives shall be paid by Seller. The fees and expenses of the Arbiter
incurred in connection with the calculation of Closing Net Worth, if any, shall
be borne by the party whose calculation of Closing Net Worth is farthest from
that of the Arbiter, or, if the resolution does not substantially favor either
party, such costs shall be borne equally by Buyer and Seller.
(d) As used herein, the term "Final Statement of Net Worth"
shall mean (i) the computation of Closing Net Worth delivered with the Closing
Balance Sheet if no Dispute Notice is given by Buyer within the time period set
forth in paragraph (b) of this Section 2.3 or (ii) if the Dispute Notice is
timely given and all of the disputed items are resolved by mutual agreement of
the parties, the computation of Closing Net Worth, as amended, if necessary, to
reflect such resolution of all disputes, or (iii) if any or all of the disputed
items are submitted to the Arbiter for resolution, the computation of Closing
Net Worth, as amended, if necessary, to reflect any resolution of any disputes
by mutual agreement of the parties and the resolution of all other disputes by
the Arbiter.
(e) The parties hereby acknowledge that $4,995,002 is the
amount shown as Net Worth on the Balance Sheet (as hereinafter defined). If,
however, the Final Statement of Net Worth exceeds $4,995,002, the Purchase
Price shall be increased by the amount of such excess either at the Closing or
otherwise and Buyer shall pay Seller the amount of such excess in cash;
provided, however, that if the Final Statement of Net Worth exceeds $5,565,191,
Buyer shall pay to Seller an additional $570,189 in cash and shall pay the
remainder with a note (the "Buyer Note") which shall bear interest at a rate of
6% per annum and shall be payable on December 15, 1994; provided, further that
the cash portion of the purchase price to be paid by Buyer at the Closing will
be reduced by the Tax Amount and the amount of the Contingent Note (as such
terms are defined below) pursuant to Sections 2.3(g) and (h) (the "Adjusted
Cash Purchase Price"), and Buyer shall pay to Seller in cash the Adjusted Cash
Purchase Price and shall deliver the Buyer Note and the Contingent Note. If
the Final Statement of Net Worth is less than $4,995,002, the Purchase Price
shall be decreased by the amount of such shortfall at the Closing or otherwise
and, if subsequent to Closing, Seller shall pay Buyer the amount of such
shortfall. If the determination of Closing Net Worth is finally resolved after
the Closing Date, any payment made pursuant to this Section 2.3(e) shall be
made together with interest thereon from the Closing Date to the date of
payment at an interest rate equal to 6% per annum. Such payment shall be made
within two business days of the date on which the Final Statement of Net Worth
is determined by wire transfer of immediately available funds to an account
designated by the payee.
(f) In addition to the foregoing adjustments to the Purchase
Price, Seller hereby agrees that in connection with the receivables set forth
on Schedule 2.3(f), if any of such receivables are not collected in full by
Buyer by December 15, 1994, such amounts, to the extent not collected in full,
shall be deducted from amounts due under the Buyer Note, if any. If any amount
is deducted from the Buyer Note pursuant to this Section 2.3(f), Drexel shall
assign to Seller, without recourse, any remaining receivables listed on
Schedule 2.3(f) to the extent of the deduction from the Buyer Note with respect
to the receivables.
(g) A portion of the Purchase Price which would have otherwise
been paid in cash at the Closing shall not be paid at the Closing, but shall be
deferred (the "Tax Amount") by Buyer in order to pay certain Pennsylvania Taxes
for which Seller is obligated hereunder. No later than one (1) week prior to
the Closing Date, Seller shall deliver to Buyer Seller's best estimate of the
Section 338 Taxes (as hereinafter defined) based on Seller's calculation of the
Closing Balance Sheet together with reasonable detail explaining such
calculation of the Section 338 Taxes. Section 338 Taxes shall mean the amount
of Taxes payable by Drexel to Pennsylvania as a result of Buyer making a
Section 338(g) Election or a Section 338(h)(10) Election (as defined in Section
10.2 hereof) for which Taxes Seller has agreed to be liable pursuant to Section
10.3 hereunder. If Buyer reasonably disputes Seller's calculation, the parties
shall attempt in good faith to reach agreement on the amount of the Section 338
Taxes. If the parties are unable to resolve any or all disputes prior to three
days before the Closing Date, the parties shall appoint the Arbiter to resolve
the dispute. The Arbiter shall be given two days to make its determination of
the amount of the Section 338 Taxes. For purposes of resolving any such
dispute, the Arbiter will not take any position with respect to the calculation
of the Section 338 Taxes which the Arbiter believes is not more likely than not
to be sustained on the merits. The Tax Amount shall be equal to the amount of
the Section 338 Taxes as so agreed or as determined by the Arbiter (the
"Estimated Section 338 Taxes"). The Arbiter's determination shall be
conclusive and binding on the parties for the purpose of determining the
Estimated Section 338 Taxes.
At least 7 business days prior to the due date (determined
without regard to extensions) of Drexel's Pennsylvania Tax return (the "Due
Date") for its taxable period ending on the Closing Date, Seller shall deliver
to Buyer, for Buyer's review, an updated calculation of the Section 338 Taxes
(the "Revised Section 338 Taxes"), based on the Final Statement of Net Worth,
and prepared in a manner consistent with the calculation of the Estimated
Section 338 Taxes. Any disputes with respect to the calculation of the Revised
Section 338 Taxes which are unable to be resolved by the parties shall be
referred to the Arbiter. Notwithstanding anything to the contrary in Section
10.1(a), all returns prepared by Seller shall report income, gain, loss or
deduction with respect to transactions contemplated by this Agreement in a
manner consistent with the methodology used to calculate the Revised Section
338 Taxes.
On the Due Date Buyer shall (i) pay to Seller in cash the
excess, if any, of the Tax Amount over the amount of Revised Section 338 Taxes
and (ii) pay or cause to be paid to Pennsylvania an amount equal to the Revised
Section 338 Taxes which amount shall be credited against Seller's liability for
Taxes pursuant to Section 10.3 hereof (but nothing in this Section 2.3(g) shall
relieve Seller from liability under Section 10.3 for any additional Taxes
arising from Section 338 Elections and if the Revised Section 338 Taxes exceed
the amount of the Tax Amount, Seller shall pay Buyer the amount of such excess
in accordance with the provisions of Section 10 hereof). In addition, Buyer
shall pay to Seller interest on the Tax Amount at an interest rate of 10% per
annum, from the Closing Date until two and one half months after the Closing
Date. Interest on the Tax Amount shall be payable monthly on the last day of
each calendar month or, if such day is not a business day, the next succeeding
business day, and on the Due Date.
The fees and expenses of the Arbiter incurred in connection with
the calculation of the Estimated Section 338 Taxes and the Revised Section 338
Taxes, if any, shall be borne by the party whose calculation of the Estimated
Section 338 Taxes or Revised Section 338 Taxes, as the case may be, is farthest
from that of the Arbiter, or, if the resolution does not substantially favor
either party, such costs shall be borne equally by Buyer and Seller.
(h) The parties agree that $750,000 of the Purchase Price which
would have otherwise been paid in cash at the Closing shall not be paid in
cash, but shall be paid pursuant to a note (the "Contingent Note") from Buyer
to Seller in the principal amount of $750,000. The principal amount due under
the Contingent Note shall be subject to reduction as provided therein. Seller
shall have 90 days from the Closing Date to replace the Contingent Note with
substitute collateral reasonably acceptable to Buyer in its sole discretion;
provided, however, that the parties acknowledge and agree that either (i) an
irrevocable letter of credit for the direct benefit of Buyer drawn on a
commercial bank organized under the laws of the United States or any state
thereof reasonably acceptable to Buyer, containing terms for drawdown pursuant
to a certificate of Buyer stating that Buyer has complied with and is
authorized pursuant to the terms of the Contingent Note to expend such funds or
(ii) a surety bond issued by a nationally recognized bonding company reasonably
acceptable to Buyer, providing for payment of all Tank Environmental Costs (as
defined in the Contingent Note) payable by Buyer pursuant to the terms of the
Contingent Note, shall be deemed to be reasonably acceptable. Buyer agrees
that insurance from a nationally recognized insurance company reasonably
acceptable to Buyer which Buyer, in its sole reasonable discretion, determines
protects Buyer and Drexel against any possible exposure, liability and/or Tank
Environmental Costs to the same extent Buyer is protected under the terms of
the Contingent Note will be acceptable.
2.4 Royalty Payments. After the Closing Date, pursuant to the terms
of a separate License Agreement, a copy of which is attached hereto as Exhibit
B, Buyer agrees to cause Drexel to pay to Terex or its designee, a series of
annual royalty payments ("Royalty Payments") for the period commencing from the
Closing Date until December 31, 1994 and for each of calendar years 1995 and
1996 based upon the number of units sold annually by Drexel for each of such
periods to (i) commercial buyers ("Commercial Units") and (ii) federal, state
and local government buyers ("U.S. Government Units") of "sit-down rider"
models and "turret truck" models which are currently in production or in
development at Drexel. In particular and without limitation, no Royalty
Payments shall be made by Drexel in respect of any (i) "walking" units sold by
Drexel, whether or not currently in production or development at Drexel and
(ii) units sold by Drexel to which Drexel acquires the manufacturing rights
after the Closing Date. Drexel will make a Royalty Payment to Seller in an
amount equal to $1,000 per U. S. Government Unit sold, and $4,000 per
Commercial Unit sold, above the following thresholds (which shall not be
cumulative), if any, in each calendar year (commencing from the Closing Date in
the case of 1994):
1994 1995 1996
U.S. Government Units N/A 60 50
Commercial Units 250 225 250
; provided, however, that for the period from the Closing Date until December
31, 1994, the threshold of 250 Commercial Units shall be reduced by the number
of trucks actually shipped by Drexel in 1994 prior to the Closing Date. Drexel
will make such Royalty Payments within 30 days after the completion of each of
such calendar years.
2.5 Clark Payments. In consideration for the rights granted to
Drexel pursuant to Section 6.14 hereof, Buyer agrees to pay or cause Drexel to
pay to Clark Material Handling Company ("Clark") or its designee Four Hundred
Thousand ($400,000) dollars at any time, in Buyer's sole discretion, on or
before the date which is sixty (60) days after the Closing Date. Drexel shall
have the option, in its sole discretion, of paying such amount either in cash
or by the cancellation of an intercompany receivable owed by Clark to Drexel in
like amount.
3. Closing.
3.1 Date of Closing. The closing of the sale and purchase of the
Shares provided for in Section 1 shall take place at the offices of Fried,
Frank, Harris, Shriver & Jacobson, One New York Plaza, New York, New York 10004
(or at such other place as the parties may agree in writing) on a date mutually
designated by Seller and Buyer, but in no event later than (a) March 25, 1994,
(b) five (5) business days after the date when each of the conditions specified
in Article 7 has been fulfilled (or waived by the party entitled to waive that
condition) or (c) such later date specified by Seller prior to April 15, 1994.
The date on which the Closing is held is referred to in this Agreement as the
"Closing Date". At the Closing, the parties shall execute and deliver the
documents referred to in Section 8.
3.2 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written agreement executed by Seller and Buyer;
(b) by Buyer in writing, without liability to Buyer on account
of such termination (provided Buyer is not otherwise in default or in breach of
this Agreement), if the Closing shall not have occurred on or before April 15,
1994;
(c) by Seller in writing, without liability to Seller on
account of such termination (provided Seller is not otherwise in default or in
breach of this Agreement), if the Closing shall not have occurred on or before
April 15, 1994; or
(d) by either Buyer or Seller, in writing, without liability to
the terminating party on account of such termination (provided the terminating
party is not otherwise in default or breach of this Agreement), if (i) there
shall have been a material breach by the other party of any of its
representations, warranties, covenants or agreements contained herein and (ii)
such breach cannot be remedied prior to Closing and if unremedied would result
in a failure to satisfy a condition to the terminating party's obligation to
consummate the transactions provided herein.
Upon such termination pursuant to this Section 3.2 neither of
the parties shall have any liability or further obligation arising out of this
Agreement except for any liability resulting from its breach of this Agreement.
Buyer's obligations under Section 6.1 shall survive the termination of this
Agreement.
4. Representations and Warranties of Seller. Seller represents and
warrants to Buyer that:
4.1 Organization, Standing and Authority of Seller. Seller is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has full corporate power and authority to
enter into and perform this Agreement. Terex is the record and beneficial
owner of all of the issued and outstanding shares of capital stock of Seller.
4.2 Authorization of Agreement. The execution, delivery and
performance of this Agreement by Seller and the consummation by Seller of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Seller and this Agreement constitutes the valid
and binding obligation of Seller, enforceable against Seller in accordance with
its terms, except to the extent enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights in general and subject to general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
4.3 Organization, Standing and Qualification of Drexel;
Subsidiaries.
(a) Drexel is a corporation duly organized, validly existing
and in good standing under the laws of the Commonwealth of Pennsylvania and has
full corporate power and authority to carry on its business as now conducted
and to own, lease and operate its properties as now done. Drexel is qualified
to do business and is in good standing in each jurisdiction in which the nature
of its business or the properties owned or leased by it requires qualification,
except where the failure to be so qualified or in good standing would not have
a Material Adverse Effect. For purposes of this Agreement, "Material Adverse
Effect" shall mean a material adverse effect upon the assets, results of
operations or financial condition of Drexel.
(b) Drexel does not have any subsidiaries.
4.4 Corporate Records. The copies of the articles of incorporation
and by-laws of Drexel that have been delivered to Buyer are complete and
correct as of the date of this Agreement, and the minute books of Drexel that
have been exhibited to Buyer are complete and correct in all material respects
as of the date of this Agreement.
4.5 Consents of Third Parties. Subject to receipt of the releases,
consents and approvals referred to in Schedule 4.5 which will be obtained prior
to Closing, the execution, delivery and performance of this Agreement by Seller
will not (i) violate or conflict with the articles of incorporation or by-laws
of either of Seller or Drexel; (ii) conflict with, or result in the breach of,
termination of, or constitute a default under, any lease, agreement, commitment
or other instrument to which any of Terex, Seller or Drexel is a party or by
which any of Terex, Seller or Drexel or any of their respective properties is
bound; (iii) constitute a violation of any law, regulation, order, writ,
judgment, injunction or decree applicable to any of Terex, Seller or Drexel; or
(iv) result in the creation of any lien, charge or encumbrance upon the capital
stock, properties or assets of Drexel, other than violations, conflicts,
breaches, terminations, accelerations, defaults and creations specified in the
foregoing clauses (ii) through (iv) which do not have a Material Adverse Effect
or prevent consummation of the transactions contemplated hereby. No consent,
approval or authorization of any governmental authority is required on the part
of Terex or Seller in connection with the execution, delivery and performance
of this Agreement.
4.6 Capitalization. The authorized capital stock of Drexel consists
of 1,000 shares of Common Stock, par value one cent ($.01) per share, of which
100 shares are issued and outstanding. All of the outstanding shares of
capital stock of Drexel were duly authorized for issuance and are validly
issued, fully paid and non-assessable, free of preemptive rights and none of
such shares are held in treasury. There are no outstanding options or rights
of any kind to acquire any shares of any class of securities or any securities
convertible into any shares of any class of securities of Drexel, nor are there
any obligations to issue any such options, rights or securities. There are no
restrictions of any kind on the transfer of the Shares, except (i) as may be
imposed by applicable federal and state securities laws and (ii) as are
disclosed on Schedule 4.5 (which shall be discharged at the Closing). Drexel
does not own any capital stock or other interest in any other corporation or
business entity (except as set forth on Schedule 4.6), nor is Drexel subject to
any obligations or requirements to make any investment in any entity.
4.7 Ownership of Shares. Seller is, and at the Closing will be, the
record and beneficial owner of the Shares free and clear of any claim, lien,
security interest or other encumbrance ("Lien") except as disclosed on Schedule
4.5 which shall be discharged at Closing. At the Closing, Seller will transfer
and deliver to Buyer legal and valid title to all Shares, free and clear of any
Lien.
4.8 Financial Statements. Buyer has been furnished the unaudited
balance sheet of Drexel as of October 31, 1993 and December 31, 1992 (the
October 31, 1993 balance sheet is attached hereto as Schedule 4.8), and the
related unaudited statements of operations, income statements and changes in
financial position of Drexel for the interim 10 month period and fiscal year
then ended. The foregoing financial statements have been prepared in the
ordinary course, consistent with past practice in accordance with GAAP, except
that they do not contain footnotes, the interim financial statements do not
contain normal year-end adjustments, and the October 31, 1993 balance sheet
does not include any reserves for the matters set forth on Schedule 4.12 for
which Seller is responsible, and are true, complete and correct in all material
respects and fairly present the financial position and results of operations of
Drexel as of said dates and for the periods indicated. The October 31, 1993
balance sheet, as adjusted, is herein referred to as the "Balance Sheet" and is
attached hereto as Exhibit A.
4.9 Absence of Certain Liabilities and Changes. Except to the
extent reflected or reserved for in the Balance Sheet, there are no liabilities
or obligations, known or unknown, contingent or otherwise, material to Drexel
or the Business, except (i) liabilities or obligations incurred in the ordinary
course of business since the date of the Balance Sheet, (ii) any material
liabilities and obligations set forth on Schedule 4.9, and (iii) liabilities
and obligations which are being retained by Seller. Since the date of the
Balance Sheet, Drexel has operated the Business in the ordinary course and,
except as set forth on Schedule 4.9 or contemplated by Schedule 6.2, there has
not been:
(a) any change in the assets, business, financial condition or
results of operations of the Business that has had, or could reasonably be
expected to have, a Material Adverse Effect;
(b) any change in any of the assets, licenses, permits or
franchises of Drexel, or any change in the manner of conducting the Business,
that has had, or could reasonably be expected to have, a Material Adverse
Effect;
(c) any material damage, destruction or loss (whether or not
covered by insurance) to its physical properties that has had, or could
reasonably be expected to have, a Material Adverse Effect;
(d) any material change in the accounting methods or principles
of Drexel;
(e) any product failure of Drexel's products in connection with
the testing of any of such products under Drexel's Government Contracts (as
defined in Section 4.28) which failure could cause a material delay in Drexel's
delivery schedule under such agreements;
(f) any declaration, setting aside or payment of any dividend
on, or any other distribution with respect to, any capital stock of Drexel or
repurchase, redemption or other acquisition of any capital stock of Drexel;
(g) any payment by Drexel to Seller, or any charges by Seller
to Drexel, or any other transaction between the Seller and Drexel, except in
the ordinary course of business of Drexel consistent with past practice or set
forth on Schedule 4.9;
(h) any option to purchase, or other right to acquire, capital
stock or any security or other instrument convertible into capital stock of any
class of Drexel granted to any person;
(i) any issuance of shares of capital stock (including treasury
shares) of Drexel;
(j) any material transaction made by Drexel relating to its
assets or business (including the acquisition or disposition of assets) other
than in the ordinary course of business consistent with past practice;
(k) any incurrence, assumption or guarantee by Drexel of any
indebtedness or liability for or in respect of borrowed money or any commitment
to do the same other than borrowings in the ordinary course of business
consistent with past practice and set forth on Schedule 4.9 (other than
borrowings pursuant to its intercompany account with Seller or its affiliates);
(l) any Lien created or assumed by Drexel on any of its assets
other than a Permitted Lien (as such term is defined in Section 4.18);
(m) any grant of any severance or termination pay to any
executive officer or director of Drexel or any increase in compensation or
benefits payable by Drexel under existing employment agreements or severance or
termination pay policies to any of their employees other than (i) normal merit
increases for salaried employees, (ii) increases or grants required by
contracts disclosed pursuant hereto or by applicable law, or (iii) increases,
agreements and bonuses disclosed in Schedule 4.15;
(n) any employment, bonus or deferred compensation agreement
entered into between Drexel and any of its directors, officers or other
employees, other than as disclosed in Schedule 4.15;
(o) any amendment of the articles of incorporation or by-laws
of Drexel, except for amendments which are necessary to revise the number of
directors on the Board of Directors of Drexel;
(p) any entering into, amendment or termination of any material
contract, agreement, lease, franchise, security instrument, permit, or license
that has had, or could reasonably be expected to have, a Material Adverse
Effect;
(q) any change in its relationship with its suppliers,
customers, or distributors having material business dealings with it which
would, or could be reasonably likely to, have a Material Adverse Effect;
(r) any failure by Drexel to meet its current shipping schedule
which has had, or could reasonably be expected to have, a Material Adverse
Effect; or
(s) any existing agreement or arrangement made by Drexel to
take any action that would cause any representation or warranty in this Section
4 to be untrue or incorrect.
4.10 Inventory. The inventory of Drexel, including that shown on the
Balance Sheet, is of a quality and quantity usable in the ordinary course of
business of Drexel in all material respects, except for obsolete items or items
below standard quality as to which an adequate provision has been made on the
Balance Sheet. The value of all inventory items, including finished goods,
work-in-process and raw materials, has been recorded on the Balance Sheet at
the lower of cost (determined in accordance with the accounting inventory
valuation methods of Drexel) or fair market value.
4.11 Receivables. All receivables of Drexel which either are
reflected on the Balance Sheet or were created subsequent to the date of the
Balance Sheet have arisen from bona fide transactions in the ordinary course of
business and have been collected in full or are current, and Seller has no
reason to believe such receivables will not be collected in full or will be
fully collectible at their face amounts (less any applicable reserves reflected
on the Balance Sheet or thereafter established on a basis consistent with the
reserves reflected on the Balance Sheet).
4.12 Taxes. Except as set forth on Schedule 4.12, (a) all Tax
Returns (as defined in Section 10.1) which are required to be filed with
respect to any member of the Federal consolidated group, or any combined group
or unitary group of which Seller and Drexel are members (the "Drexel Group")
have been timely filed (giving effect to any extensions) and all Taxes (as
defined in Section 10.1) shown as due on such Tax Returns have been paid,
except for those Taxes the nonpayment of which would not have a Material
Adverse Effect; (b) all Tax Returns filed with respect to any member of the
Drexel Group with respect to Taxes are true and correct in all material
respects; (c) there are no tax rulings or pending requests for rulings from any
taxing authority with respect to the Drexel Group; (d) none of Drexel or any
member of the Drexel Group on behalf of Drexel (i) is required to make any
adjustment pursuant to Section 481(a) of the Code by reason of a change in
accounting method initiated by Drexel, or (ii) has knowledge that the Internal
Revenue Service has proposed any such adjustment or change in accounting
method; (e) there are no agreements (and no requests for any such agreements
are pending) in effect to extend (i) the time to file any Tax Return covering
any material Tax for which any member of the Drexel Group would be liable, or
(ii) the period of limitations for the assessment or collection of the Taxes
for which any member of the Drexel Group would be liable; (f) there is no
action, suit, proceeding, investigation, audit, claim or assessment pending or
proposed with respect to any Tax liability for which any member of the Drexel
Group could be liable which if adversely determined would have a Material
Adverse Effect; (g) all amounts required to be withheld or collected by any
member of the Drexel Group with respect to Taxes have been duly collected or
withheld and any such withheld amounts have either been duly and timely paid to
the proper governmental agencies or authorities or set aside in accounts for
such purposes except to the extent such amounts would not have a Material
Adverse Effect; (h) Drexel is and will be on the Closing Date a member of the
"selling consolidated group" within the meaning of the first sentence of
Section 338(h)(10)(B) of the Code; (i) except for the group of which Drexel is
presently a member and the group of which Clark Equipment Company was the
common parent, Drexel has not been a member of any affiliated group of
corporations within the meaning of Section 1504 of the Code; (j) no power of
attorney has been granted with respect to any matter relating to Taxes of any
member of the Drexel Group; (k) the accruals and reserves for Taxes and
deferred taxes with respect to the members of the Drexel Group on the Balance
Sheet and on the books and records of the members of the Drexel Group are
adequate in all material respects to cover all liabilities of the members of
the Drexel Group for Taxes and deferred taxes for periods through the date
thereof.
4.13 List of Material Contracts, etc. (a) Buyer has been provided
with, or has been provided access to, copies of (i) all commitments and
agreements for the purchase of any materials or supplies that involve an
expenditure by Drexel of more than $50,000 for any one contract; (ii) all
personal property leases under which Drexel is either lessor or lessee that
involve annual payments or receipts of $50,000 or more; (iii) all other orders,
leases, commitments, agreements and instruments (including, but not limited to,
mortgages, indentures and other agreements and instruments relating to
indebtedness for borrowed money) to which Drexel is a party or by which it or
its properties are bound that require annual payments by Drexel of more than
$50,000; (iv) all government contracts and all other agreements with customers
that involve an annual payment to Drexel of more than $50,000 for any one
contract; (v) all contracts or agreements which guarantee the performance,
liabilities or obligations of any other entity; (vi) all contracts or
agreements which restrict Drexel from competing in any line of business; (vii)
all fire, liability and other insurance carried by Drexel; and (viii) any other
contract or agreement which is material to the Business.
(b) Drexel has no agreements for the sale of multiple forklift
trucks at fixed prices which are unfavorable to Drexel which would have, or
could be reasonably likely to have, a Material Adverse Effect.
4.14 Absence of Defaults. Drexel is not in default under the terms
of any commitment or agreement, which default has had, or reasonably could be
expected to have, a Material Adverse Effect. Each of the plans, contracts,
arrangements, instruments or other agreements (collectively, "Contracts")
covered by Section 4.13 is valid and in full force and effect with respect to
Drexel, and to the best of Seller's knowledge, with respect to the other
parties thereto, and neither Seller nor Drexel has any reason to believe any
such Contracts are invalid with respect to such third parties. No party has
notified Terex, Seller or Drexel orally or in writing of its intention to cease
to perform any material services required to be performed by it or withhold any
material payment required to be made by it thereunder.
4.15 Agreements Regarding Employees. Drexel is not a party to or
bound by any employment agreement, arrangement or understanding or any
collective bargaining or other labor agreement, or any pension, retirement,
stock option, stock purchase, savings, profit sharing, deferred compensation,
retainer, consultant, bonus, group insurance or other incentive or welfare
contract, plan or arrangement except as set forth on Schedule 4.15. Set forth
on Schedule 4.15 is a complete list of all employees of Drexel with an annual
salary of $60,000 or more and the rates of such salary. There are no existing
or, to the best of Terex's and Seller's knowledge, threatened material labor
disputes, grievances, safety or discrimination matters, or charges of unfair
labor practices involving the employees of Drexel except as set forth on
Schedule 4.15 and Drexel has not engaged in any unfair labor practices. Drexel
(i) is in compliance in all material respects with all applicable federal,
state and local laws, rules and regulations (domestic and foreign) respecting
employment, employment practices, terms and conditions of employment and wages
and hours; (ii) has withheld all amounts required by law or by agreement to be
withheld from the wages, salaries and other payments to employees except for
immaterial amounts; (iii) is not liable for any material arrears of wages or
any material taxes or any material penalty for failure to comply with any of
the foregoing; and (iv) other than routine payments to be made in the normal
course of business and consistent with past practices, is not liable for any
material payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation benefits,
social security or other benefits.
4.16 Employee Benefit Plans. Schedule 4.15 lists all Employee
Benefit Plans and all Benefit Arrangements (each as defined in Section 6.3(a)).
With respect to each of such Employee Benefit Plans and Benefit Arrangements,
Seller has delivered to Buyer, as applicable, true and complete copies of any:
(a) plans and related trust documents and amendments thereto; (b) the most
recent summary plan descriptions, including all summaries of material
modifications relating thereto as required under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") and the two most recent annual
reports; (c) the two most recent actuarial valuations; and (d) the most recent
determination letter received from the Internal Revenue Service. With respect
to each Employee Benefit Plan and Benefit Arrangement: (i) Drexel is in
compliance in all material respects with the terms of such Employee Benefit
Plan or Benefit Arrangement and with the requirements prescribed by all
applicable statutes, orders or governmental rules or regulations including,
without limitation, ERISA and the Code; (ii) Drexel does not maintain or
contribute to and has not maintained or contributed to any "employee pension
benefit plan" (as that term is defined in ERISA) other than the Drexel
Industries, Inc. Retirement Plan and Trust (the "401(k) Plan"); (iii) by letter
dated September 4, 1991, the Internal Revenue Service has determined that the
401(k) Plan is a qualified plan and that its related trust is exempt from
taxation under Section 501(a) of the Code and nothing has occurred since such
date that would adversely affect such qualification or exemption or impair the
ability of the plan sponsor of the 401(k) Plan timely to amend the 401(k) Plan
so as to preserve such qualification or exemption. The 401(k) Plan is and has
been operated and administered in compliance with Section 401(a), (k) and (m)
of the Code; (iv) and set forth on Schedule 4.18, Part 2 there are no material
actions or proceedings (other than routine claims for benefits) pending or
threatened, with respect to any Employee Benefit Plan or Benefit Arrangement;
and (v) no "prohibited transaction" within the meaning of Section 4975 of the
Code or Section 406 of ERISA, has occurred with respect to any Employee Benefit
Plan. No ERISA Affiliate (as defined herein) maintains or contributes to or
has maintained or contributed to an employee benefit plan that is or was
subject to Title IV of ERISA and Drexel can not be held jointly and severally
liable with an ERISA Affiliate for any losses, damages, costs and expenses,
excise taxes or penalties arising out of the funding, operation,
administration, withdrawal or partial withdrawal from, or termination of, an
employee benefit plan maintained or contributed to by an ERISA Affiliate.
ERISA Affiliate shall mean any business or entity which is a member of a
"controlled group of corporations," under "common control" or an "affiliated
service group" with Drexel within the meaning of Sections 414(b), (c) or (m) of
the Code, or required to be aggregated with the Company under Section 414(o) of
the Code, or is under "common control" with Drexel, within the meaning of
Section 4001(a)(14) of ERISA, or any regulations promulgated or proposed under
any of the foregoing Sections. At no time since September 25, 1980 has Drexel
contributed to or been required to contribute to any multiemployer plan as
defined in Section 3(37) of ERISA (a "Multiemployer Plan"). No ERISA Affiliate
incurred any withdrawal liability (within the meaning of Section 4201 of ERISA)
to any Multiemployer Plan which has not been satisfied.
Drexel does not maintain or contribute to any Employee Benefit
Plan which provides, or has any liability to provide, life insurance, medical
or other employee welfare benefits to any Employee (as defined in
Section 6.3(a)) upon his retirement or termination of employment, except as may
be required by law, and Drexel has never represented, promised or contracted
(whether in oral or written form) to any Employee (either individually or to
Employees as a group) that such Employee(s) would be provided with life
insurance, medical or other employee welfare benefits upon their retirement or
termination of employment, except to the extent required by law.
The execution of, and performance of the transactions
contemplated in this Agreement will not (either alone or upon the occurrence of
any additional or subsequent events) constitute an event under any Employee
Benefit Plan, Benefit Arrangement, trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
In connection with the transactions contemplated by this
Agreement, no payment or benefit which will or may be made by Drexel with
respect to any Employee will be characterized as an "excess parachute payment,"
within the meaning of Section 280G(b)(1) of the Code.
For the purpose of this Section, the following terms shall have
the meanings indicated:
(i)
The term "Employees" shall mean all current employees (and all employees on
approved leaves of absence) of Drexel and the term "Employee" shall mean any of
the Employees.
(ii)
The term "Employee Benefit Plan" shall mean each and all "employee benefit
plans" as defined in Section 3(3) of ERISA, maintained or contributed to by
Drexel or any predecessor or in which Drexel or any predecessor participates or
participated and which covers Employees.
(iii)
The term "Benefit Arrangement" shall mean any life and health insurance,
hospitalization, holiday, vacation, sick pay, sick leave, disability, tuition
refund, service award, individual employment contracts of Drexel providing
employee or executive compensation or benefits to Employees, other than
Employee Benefit Plans.
4.17 Litigation; Compliance with Laws. (a) There are no judicial or
administrative actions, proceedings or investigations pending or, to the best
of Terex's or Seller's knowledge, threatened, that question the validity of
this Agreement or any action taken or to be taken by Terex or Seller in
connection with this Agreement. Except as set forth on Schedule 4.17, there is
no litigation, proceeding or governmental investigation pending, or to the best
of Terex's or Seller's knowledge, threatened, or any order, injunction or
decree outstanding, against Drexel or the Owned Property (as defined in Section
4.18) or Drexel's interest in the Leased Property (as defined in Section 4.18)
that, if adversely determined, could individually or in the aggregate, have a
Material Adverse Effect.
(b) Drexel, the Owned Property and Drexel's use of the Leased
Property and, to the best of Seller's knowledge, the owner's use of the Leased
Property, are in compliance in all material respects with all applicable laws,
regulations, ordinances, or any other applicable requirement of any
governmental body or court, except where the failure to comply therewith does
not and could not reasonably be expected to have a Material Adverse Effect, and
no notice has been received by Terex, Seller or Drexel alleging any such
violations, which violations in the aggregate would, or could be reasonably
likely to, have a Material Adverse Effect.
4.18 Real Property. (a) Schedule 4.18, Part 1 sets forth all of the
real property (x) owned in fee by Drexel (the "Owned Property"), and (y) leased
by Drexel (the "Leased Property"). Except as set forth on Schedule 4.18, Part
2, Drexel has good and marketable fee title to the Owned Property (including
all improvements and fixtures located thereon) free and clear of all Liens,
other than (i) those reflected or reserved against in the Balance Sheet, (ii)
those listed on Schedule 4.18, (iii) imperfections of title, easements,
pledges, charges, restrictions and encumbrances, including, without limitation,
survey matters, landlord's liens, mechanics' liens, repairmen's liens and other
similar liens, if any, that do not materially detract from the value of the
property subject thereto or materially interfere with the manner in which it is
currently being used in the Business, or materially impair the operations of
the Business, and (iv) taxes and general and special assessments not in default
and payable without penalty or interest, other than those being contested in
good faith (the liens referred to in clauses (i) through (iv) above and set
forth on Schedule 4.18, Part 2 being hereinafter referred to as "Permitted
Liens").
(b) There are no leases, subleases or other rights of occupancy
or use of any portion of the Owned Property or the Leased Property, other than
the lease creating Drexel's interest in the Leased Property (the "Lease"). The
Lease is valid and binding and in full force and effect. Neither Drexel, as
tenant under the Lease, nor, to the best of Seller's knowledge, the landlord
under the Lease, is in default of any material term, covenant or obligation
under the Lease. Drexel has not given or received any notice of default under
the Lease which remains uncured.
(c) No improvement located on the Owned Property or the Leased
Property nor the continued use and operation of any such improvement is in
violation of any zoning law, or statute, ordinance or regulation or restrictive
covenant applicable to the Owned Property or the Leased Property, as the case
may be, which violation would, or could be reasonably likely to, have a
Material Adverse Effect. No improvements located on the Owned Property or the
Leased Property depend on any variance, special exception or other special
municipal approval or any easement over property not included in the Owned
Property or the Leased Property, as the case may be, for their continuing
legality or use. None of the improvements located on the Owned Property or the
Leased Property encroaches in any material respect upon property of another
person and no improvement of any other person encroaches in any material
respect upon the Owned Property or the Leased Property.
(d) All water, sewer, gas, electricity, telephone, waste
disposal and other utilities required by law or necessary for the operation of
the Business are supplied to the Owned Property and the Leased Property, are
presently installed and operating, are not being supplied on a temporary or
limited basis, and are not being provided through immediately adjacent private
land except in accordance with valid permanent easements.
4.19 Tangible Personal Property; Necessary Assets; Insurance. (a)
All of the fixtures, machinery and equipment reflected in the Balance Sheet
(the "Tangible Personal Property") are in existence (except for dispositions
made since the date of the Balance Sheet in the ordinary course of business and
minor items not substantial in character) and are in generally usable condition
and repair (ordinary wear and tear which are not such as to materially
adversely affect the operation of the Business excepted) and are reasonably
suitable for the uses for which intended. Drexel has good title to, or holds
by valid and existing lease, all of the Tangible Personal Property, free and
clear of all Liens, other than (i) those reflected or reserved against in the
Balance Sheet, or (ii) Permitted Liens.
(b) Drexel's assets include all of the material assets (other
than those leased pursuant to leases which are presently in full force and
effect) which are currently being used in the conduct of the Business, and as
of the Closing Date such assets (including leased assets) will include all of
the assets necessary for the conduct of the Business as it is now being
conducted by Drexel.
(c) All physical properties and assets of Drexel are covered
by insurance policies against fire, casualty and other losses in reasonable
amounts and upon reasonable terms issued by companies believed by Drexel to be
responsible. Drexel carries, or is otherwise covered by, public liability
insurance, product liability insurance and workmen's compensation insurance in
reasonable amounts. Drexel has not failed to give any notice or present any
material claim under any insurance policy in due and timely fashion. There are
no material outstanding requirements by any insurance company that issued a
policy with respect to any of the assets of Drexel or by any Board of Fire
Underwriters or other body exercising similar functions or by any governmental
authority requiring any repairs to be done on or with respect to any of the
assets of Drexel or requiring any equipment or facilities to be installed on or
in connection with any of the properties or assets of Drexel, where failure to
comply would, or could reasonably be expected to, have a Material Adverse
Effect.
4.20 Intellectual Property. (a) Schedule 4.20 sets forth a list of
(x) all inventions which are the subject of issued letters patent or an
application therefor and all trademarks, trade names, service marks, copyrights
and designs which have been registered or for which an application for
registration is pending, and (y) all unregistered trademarks, trade names and
service marks which are material to the Business, in each case which are owned
and used or held for use by Drexel (the "Intellectual Property Right"),
specifying as to each, as applicable: (i) the nature of such Intellectual
Property Right; (ii) the owner of such Intellectual Property Right; (iii) the
jurisdictions by or in which such Intellectual Property Right has been issued
or registered or in which an application for such issuance or registration has
been filed, including the respective registration or application numbers; and
(iv) material licenses, sublicenses and other agreements to which Drexel is a
party and pursuant to which any person is authorized to use such Intellectual
Property Right or any programs, trade secrets or know-how, or pursuant to which
Drexel is authorized to use any Intellectual Property Right or any programs,
trade secrets or know-how of any person which is material to its business.
Except as set forth on Schedule 4.20, Drexel is the sole and exclusive owner
of, with all right, title and interest in and to (free and clear of any lien),
the Intellectual Property Rights described in such list and has sole and
exclusive rights to the use thereof of the material covered thereby in
connection with the services or products in respect of which they are being
used, except to the extent where the failure to have exclusive rights to the
use thereof would not have a Material Adverse Effect. Except as set forth on
Schedule 4.20, to the best of Seller's knowledge, (i) Drexel owns or possesses
licenses or other valid rights to use all rights required to manufacture
(A) all of the products currently sold by Drexel and (B) all developmental
products for which as of the date hereof there are concrete plans to sell such
products in the future.
(b) Except as set forth on Schedule 4.20, Drexel (i) is not a
party in or to any claim, suit, action or proceeding relating to the Business
which involves a claim that Drexel or any product, process or method of
manufacture used by Drexel infringes any rights of any third party, and, to the
best of Seller's knowledge no such claim, suit, action or proceeding is
threatened, and (ii) does not have any knowledge of any existing material
infringement by another person of any of the Intellectual Property Rights or
any proprietary computer programs, trade secrets or know-how belonging to
Drexel. Except as disclosed on Schedule 4.20, no Intellectual Property Right
is subject to any outstanding order, judgment, decree, stipulation or agreement
restricting the use thereof by Drexel or restricting the licensing thereof by
Drexel to any person.
4.21 Environmental Matters. (a) Except as set forth in Schedule
4.21, Drexel (which, for the purposes of this Section 4.21, expressly includes
transferred, disposed of or discontinued operations of Drexel) has at all times
been operated, and is, in compliance in all material respects with all
applicable federal, state or local laws, rules, regulations, codes, ordinances,
orders, decrees, directives, permits, licenses and judgments relating to
Environmental Matters (as defined below), including all limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in all applicable Environmental Laws (as
defined below), and has obtained and is in compliance in all material respects
with all permits, licenses, authorizations, registrations and all governmental
or other consents required by applicable Environmental Laws ("Environmental
Permits").
(b) Except as set forth in Schedule 4.21, there has been no
release or other dissemination at any time of any Hazardous Material (as
defined below) at, on, from, under or within any Real Property currently or
formerly owned, operated or leased by Drexel or any predecessor of Drexel,
other than pursuant to and in accordance with permits held by Drexel or any
such predecessor, which would have, or could reasonably be expected to have, a
Material Adverse Effect.
(c) Except as set forth in Schedule 4.21, neither Seller nor
its Affiliates (with respect to Drexel) nor Drexel has, directly through its
own personnel or facilities, transported, or permitted any person to transport,
for off-site disposal any Hazardous Material (i) in violation of any currently
or formerly applicable Environmental Permit or Environmental Law or (ii) to any
site listed or proposed for listing on the Comprehensive Environmental
Response, Compensation and Liability Information Systems ("CERLIS"), the
National Priorities List ("NPL"), or any similar list, pursuant to any
Environmental Law, in each case, which would have, or could reasonably be
expected to have, a Material Adverse Effect.
(d) Except as set forth in Schedule 4.21, there are no claims,
notices, civil, criminal or administrative actions, suits, hearings,
investigations, inquiries or proceedings pending or, to the best of Seller's
knowledge, threatened against Drexel or affecting Drexel that are based on or
related to any Environmental Matters or the failure to have any required
Environmental Permits.
(e) Except as set forth in Schedule 4.21, there are no past or
present conditions, events, circumstances, facts, activities, practices,
incidents, actions, omissions or plans that may: (i) interfere with or prevent
continued compliance by Drexel with Environmental Laws and the requirements of
Environmental Permits so as to have a Material Adverse Effect, or (ii) give
rise to any liability or other obligation under any Environmental Laws that may
require Drexel or Buyer to incur any actual or potential Environmental Costs
that would have a Material Adverse Effect, or (iii) to the best of Seller's
knowledge, be reasonably likely to form the basis of any claim, action, suit,
proceeding, hearing, investigation or inquiry against or involving Drexel based
on or related to any Environmental Matter.
(f) Except as set forth in Schedule 4.21, Drexel and, to the
extent relating to Drexel, Seller, have not received any notice or other
communication that any of them is or may be a potentially responsible person or
otherwise liable in connection with any waste disposal site allegedly
containing any Hazardous Materials, or other location used for the disposal of
any Hazardous Materials, or notice of any failure of Drexel or Seller to comply
in any material respect with any Environmental Law or the requirements of any
Environmental Permit.
(g) For the purposes of this Section, the following terms shall
have the meanings indicated:
"Environmental Costs" means, without limitation, any actual
cleanup costs, remediation, removal, or other response costs (which, without
limitation, shall include costs to cause Drexel to come into compliance with
Environmental Laws), investigation costs (including without limitation fees of
consultants, counsel, and other experts in connection with any environmental
investigation, testing, audits or studies), losses, liabilities or obligations
(including without limitation, liabilities or obligations under any lease or
other contract), payments, damages (including without limitation any actual,
punitive or consequential damages under any statutory laws, common law cause of
action or contractual obligations or otherwise, including without limitation
damages (i) of third parties for personal injury or property damage, or (ii) to
natural resources), civil or criminal fines or penalties, judgments, and
amounts paid in settlement arising out of or relating to or resulting from any
Environmental Matter.
"Environmental Laws" means, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
9601 et seq., the Emergency Planning and Community Right-to-Know Act of
1986, 42 U.S.C. 11001 et seq., the Resource Conservation and Recovery Act,
42 U.S.C. 6901 et seq., the Toxic Substances Control Act, 15 U.S.C. 2601
et seq., the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C.
136 et seq., the Clean Air Act, 42 U.S.C. 7401 et seq., the Clean Water
Act (Federal Water Pollution Control Act), 33 U.S.C. 1251 et seq., the Safe
Drinking Water Act, 42 U.S.C. 300f et seq., the Occupational Safety and
Health Act, 29 U.S.C. 641, et seq., the Hazardous Materials Transportation
Act, 49 U.S.C. 1801, et seq., as any of the above statutes have been or may
be amended from time to time, all rules, regulations, codes of practice and
guidance notes promulgated pursuant to any of the above statutes, and any other
federal, state or local law, statute, ordinance, rule or regulation governing
Environmental Matters, as the same have been or may be amended from time to
time, including any common law cause of action providing for any right or
remedy with respect to any Environmental Matter, and all applicable judicial or
administrative decisions, orders, or decrees.
"Environmental Matter" means any matter arising out of,
relating to, or resulting from pollution, contamination, protection of the
environment (including flora or fauna), human health or safety, health or
safety of employees, sanitation, noise and vibration and any matters relating
to emissions, discharges, disseminations, releases or threatened releases, of
Hazardous Materials into the air (indoor and outdoor), surface water,
groundwater, soil, land surface or sub-surface, buildings, facilities, real or
personal property or fixtures or otherwise arising out of, relating to, or
resulting from the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials.
"Hazardous Material" means any substance, including any
component thereof, and any matter that contains any such substance that is
regulated by, or may now or in the future form the basis of liability under,
any Environmental Laws, including, without limitation, any pollutants,
contaminants, toxic or hazardous or extremely hazardous substances, materials,
wastes, constituents or chemicals, petroleum or any by-products or fractions
thereof, any form of natural gas, U.S. Bevill Amendment materials, lead,
asbestos and asbestos-containing materials, polychlorinated biphenyl's ("PCBs")
and PCB-containing equipment, radon and other radioactive elements, infectious,
carcinogenic, mutagenic, or etiologic agents, pesticides, defoliants,
explosives, flammables, corrosives and urea formaldehyde foam insulation.
"Real Property" means any real property and improvements
owned, leased, used operated or occupied by Drexel or any of its predecessors
or present or former subsidiaries.
4.22 Permits and Licenses. Except as disclosed in Schedule 4.22,
Drexel has all material permits, licenses, franchises and other authorizations
necessary for the conduct of the Business as currently conducted, including,
without limitation, in connection with the use of the Owned Property and the
Leased Property, and all such permits, licenses, franchises and authorizations
are valid and in full force and effect, except where failure to obtain or
maintain in full force and effect such permits, licenses, franchises and
authorizations would not, or could not reasonably be expected to, have a
Material Adverse Effect.
4.23 Intercompany Transactions. Except as set forth on Schedule 4.23
or otherwise provided in this Agreement, Drexel is not a party to any contract,
lease, agreement or other arrangement with Seller or any of its affiliates
which will not terminate at the Closing Date.
4.24 Other Information. This Agreement and all certificates,
exhibits, schedules, lists and information furnished by or on behalf of Seller,
do not contain any untrue statement of a material fact or omit any material
fact necessary in order to make the statements contained herein or therein not
misleading.
4.25 Terex's and Seller's Financial Condition. As of the date of
this Agreement, the fair salable value of each of Terex's and Seller's assets,
respectively, exceeds the amount that will be required to pay each of such
party's probable liability on its existing debts as they become absolute and
matured. After the consummation of the sale of the Shares, each of Terex and
Seller will have sufficient capital to continue to conduct their respective
business and to meet their respective obligations as they mature.
4.26 Sale Process. Seller has retained S.G. Warburg & Co. Inc.
("Warburg") as its agent to conduct the process of the sale of the outstanding
stock of Drexel. After consultation with Warburg, Seller and Warburg
established a procedure which, Warburg advised Seller, was reasonably designed
to identify all of the parties Warburg reasonably believed would be the likely
purchasers of Drexel and who had the financial resources necessary to pay the
highest price for Drexel. Warburg advised Seller that it contacted all of
those parties and gave all of such parties a reasonable opportunity to
participate in the sale process. Terex, Seller and Warburg believe that the
Purchase Price is fair to Terex and Seller and their respective creditors and
equity security holders and that the aggregate consideration that Seller is
receiving pursuant to this Agreement is fair equivalent value for the Shares.
Seller received other proposals for the purchase of the Shares, none of which
would have permitted Seller to receive value which was materially better than
the consideration to be paid by Buyer, including the Royalty Payments, under
the terms of this Agreement, and Seller believes that Buyer's proposal is more
favorable to Seller than any other proposal because Seller believes that there
is a higher probability that Buyer will consummate the transaction and, if such
other parties could consummate the transaction, Buyer will do so on a more
timely basis than any other party which made a proposal to Seller.
4.27 Powers of Attorney. Except as set forth on Schedule 4.27, no
person has any power of attorney to act on behalf of Drexel in connection with
its properties or business affairs other than such powers to so act as normally
pertain to the officers thereof. All of the powers of attorney granted by
Drexel will be revoked as of the Closing Date.
4.28 Government Contracts. (a) Except as set forth on Schedule 4.28,
with respect to the agreements between Drexel and the federal government which
are set forth on Schedule 4.28 (the "Government Contracts"), there are no
material outstanding claims asserted in writing or, to the best of Seller's
knowledge, likely to be asserted by Drexel against the federal government or
another contractor under a Government Contract or subcontract. Except as set
forth on Schedule 4.28, there are no outstanding claims asserted in writing or
to the best of Seller's knowledge, likely to be asserted by the federal
government or another contractor against Drexel under a Government Contract or
subcontract. Except for the agreements set forth on Schedule 4.28 and except
for individual purchase orders for less than five (5) forklift trucks, Drexel
has no Government Contracts.
(b) Except as set forth on Schedule 4.28, Drexel has no:
(1) Government Contracts as to which it has failed to
comply with any term or condition in any material manner;
(2) Government Contracts under which work is being
performed, to the best of Seller's knowledge, without written contract
coverage;
(3) Government Contracts with funding ceilings which (i)
to the best of Seller's knowledge, have been exceeded or (ii) Drexel reasonably
anticipates will be exceeded; and
(4) fixed-price Government Contracts which Drexel
anticipates can only be or will be completed at a loss which would have a
Material Adverse Effect.
(c) Except as set forth on Schedule 4.28, since January 1,
1993, Drexel has not received any written governmental reports (or reports of
outside legal counsel which were submitted to any governmental authority)
arising from audits or other investigations of the contracts (past or present)
of Drexel that assert overcharging, defective pricing practices, CAS
noncompliance, or any other issues, except in each case for assertions, which,
if true, would not have a Material Adverse Effect.
(d) Except as set forth on Schedule 4.28, to the best of
Seller's knowledge, there are no pending or actual audits or investigations by
any Government agency or instrumentality concerning Government Contracts or
subcontracts of Drexel or any individual involved with such contracts. Except
as set forth on Schedule 4.28, there are no outstanding or anticipated claims
or obligations under any warranty provision of Drexel's Government Contracts
which would have a Material Adverse Effect. There are no pending debarment or
suspension proceedings involving Drexel, and Drexel is aware of no facts or
circumstances which could result in a debarment or suspension. The accounting
system of Drexel meets the requirements of the Federal Acquisition Regulation
and the Cost Accounting Standards in all material respects. Except as set
forth on Schedule 4.28, Drexel has title to, license or otherwise has the
lawful ability to use, all inventions, drawings, software, technical data,
know-how and the like necessary to perform its Government Contracts.
5. Representations and Warranties of Buyer. Buyer represents and
warrants to Seller as follows:
5.1 Buyer's Organization. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of Delaware and has the
full corporate power and authority to enter into and to perform this Agreement.
5.2 Authorization of Agreement. The execution, delivery and
performance of this Agreement by Buyer have been duly authorized by all
necessary corporate action of Buyer and this Agreement constitutes the valid
and binding obligation of Buyer enforceable against it in accordance with its
terms, except to the extent enforceability may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditor's rights
in general and subject to general principals of equity (regardless or whether
such enforceability is considered in a proceeding in equity or at law).
5.3 Consents of Third Parties. The execution, delivery and
performance of this Agreement by Buyer will not (i) violate or conflict with
the certificate of incorporation or by-laws of Buyer; (ii) conflict with, or
result in the breach or termination of, or constitute a default under, any
lease, agreement, commitment or other instrument to which Buyer is a party or
by which it or its properties are bound; or (iii) constitute a violation by
Buyer of any law, regulation, order, writ, judgment, injunction or decree
applicable to Buyer other than violations, conflicts, breaches, terminations,
and defaults specified in the foregoing clauses (ii) and (iii) which could not
reasonably be expected to have a material adverse effect on Buyer's ability to
perform its obligations under this Agreement. No consent, approval or
authorization of any governmental authority is required on the part of Buyer in
connection with the execution, delivery and performance of this Agreement.
5.4 Litigation. There are no judicial or administrative actions,
proceedings or investigations pending or, to the best of Buyer's knowledge,
threatened, that question the validity of this Agreement or any action taken or
to be taken by Buyer in connection with this Agreement. There is no
litigation, proceeding or governmental investigation pending or, to the best of
Buyer's knowledge, threatened, or any order, injunction or decree outstanding,
against Buyer that if adversely determined, would have a material adverse
effect upon Buyer's ability to perform its obligations under this Agreement.
5.5 Investment. Buyer is purchasing the Shares for investment
purposes and not with a view to the resale or distribution of the Shares, and
will not sell the Shares in violation of applicable federal or state securities
laws.
5.6 Financing. Buyer has received a commitment letter from General
Electric Capital Corporation ("GECC") pursuant to which GECC has committed to
provide Buyer with sufficient funds to enable Buyer to pay the Purchase Price
and related fees and expenses.
6. Further Agreements of the Parties.
6.1 Access to Information. Prior to the Closing, Buyer may make
such investigation of the business and properties of Drexel as Buyer may
desire, and upon reasonable notice Seller shall give to Buyer and its counsel,
accountants and other representatives reasonable access, during normal business
hours throughout the period prior to the Closing, to the property, books,
commitments, agreements, records, files and personnel of Drexel, and Seller
shall furnish to Buyer during that period all copies of documents and
information concerning Drexel as Buyer may reasonably request subject to
applicable law. Buyer shall hold, and shall cause its counsel, accountants and
other agents and representatives to hold, all such information and documents
confidential, except as required by law.
6.2 Conduct of the Business Pending the Closing. Until the Closing,
except as otherwise set forth in Schedule 6.2, each of Terex and Seller shall,
with respect to paragraphs (b), (h) and (l), comply with, and, with respect to
the remaining paragraphs of this Section, shall cause Drexel to comply with,
the provisions set forth below:
(a) Drexel shall operate the Business in the ordinary course
consistent with past practice and shall not make any material change in the
assets of the Business other than in the ordinary course consistent with past
practice;
(b) Terex and Seller shall notify Buyer of, and furnish to
Buyer, any information that Buyer may reasonably request with respect to the
occurrence of any event or the existence of any state of facts that would
result in any of Terex's or Seller's representations and warranties not being
true if they were made at any time prior to or as of the Closing Date;
(c) Drexel shall not (i) grant or agree to grant any severance
or termination pay to any executive officer or director, any bonuses to any
employee other than in the ordinary course of business consistent with past
practice, any general increase in the rates of salaries or compensation of its
employees or any specific increase to any employee except such as are in
accordance with regularly scheduled periodic increases, or (ii) provide for any
new pension, retirement or other employment benefits to any of its employees or
any increase in any existing benefits;
(d) Except for cash dividends and cash payments in respect of
intercompany accounts which are reflected on the Balance Sheet or the Closing
Balance Sheet, Drexel shall not declare, set aside or pay any dividends or
other distributions in respect of its capital stock or redeem, purchase or
otherwise acquire any of its capital stock or make any other payments to
Seller;
(e) Drexel shall not amend its articles of incorporation or
by-laws (other than to revise the number of members of its Board of Directors)
or enter into any merger or consolidation agreement;
(f) Drexel shall use reasonable efforts to maintain and
preserve the Business intact, to retain its present employees so that they will
be available to Buyer after the Closing and to maintain its relationships with
customers, suppliers and others so that those relationships will be preserved
after the Closing;
(g) Drexel shall not make any material change in its accounting
methods or principles;
(h) Neither Terex, Seller nor Drexel shall grant any option to
purchase, or other right to acquire, capital stock or any security or
instrument convertible into capital stock of any class of Drexel;
(i) Drexel shall not incur (other than through its intercompany
account with Seller or its affiliates), assume or guarantee any indebtedness or
liability for or in respect of borrowed money;
(j) Drexel shall not enter into, amend or terminate any
material contract, agreement, lease, franchise, security instrument, permit or
license;
(k) Drexel shall not sell, assign, voluntarily encumber, grant
a security interest in or license with respect to, or dispose of, any of its
material assets or properties, tangible or intangible, or incur any material
liabilities, except for sales and dispositions made in the ordinary course of
the Business; and
(l) Terex, Seller and Drexel shall maintain in full force and
effect all insurance specified in Schedule 4.13; it being understood that such
insurance will terminate after the Closing.
6.3 [Intentionally Omitted]
6.4 Other Action. Each of the parties shall use its best efforts to
cause the fulfillment at or prior to the Closing Date of all of the conditions
to their respective obligations to consummate the sale and purchase of the
Shares under this Agreement.
6.5. Notice by Buyer. Buyer shall promptly notify Seller and Terex
in writing of, and furnish to Seller and Terex any information that Seller or
Terex may reasonably request with respect to (i) the capitalization and
financing of Buyer and (ii) the occurrence of any event or the existence of any
state of facts that would result in any of Buyer's representations and
warranties not being true if they were made at any time prior to or as of the
Closing Date.
6.6 Expenses. Except as otherwise specifically provided in this
Agreement, Buyer, Seller and Terex shall bear their own respective expenses
incurred in connection with this Agreement and in connection with all
obligations required to be performed by each of them under this Agreement.
6.7 Publicity. Buyer, Seller and Terex shall consult with each
other before issuing any press release concerning the transactions contemplated
by this Agreement and, except as may be required by applicable law or any
listing agreement with or regulation or rule of any stock exchange on which the
securities of Terex or Buyer are listed or traded, will not issue any such
press release prior to such consultation. If Buyer, Seller or Terex is so
required to issue such press release it shall use reasonable efforts to inform
the other party hereto prior to issuing such press releases.
6.8 Transfer Taxes. Any sales, stock transfer taxes or other like
taxes or recording fees payable as a result of the sale of the Shares shall be
paid by Seller.
6.9 Supplements of Disclosure. For purposes of determining the
accuracy of the representations and warranties of Terex and Seller contained in
Article 4 and the fulfillment of the conditions precedent set forth in Section
7.1(a), the Schedules delivered by Terex and Seller shall be deemed to include
only that information contained therein on the date of this Agreement or as of
the date of such Schedule and as the same may be amended or supplemented by
Terex and Seller with Buyer's consent prior to the Closing Date.
6.10 Preservation of Records. Except as otherwise provided in
Section 10, Buyer agrees that it shall, at its own expense, preserve and keep
the records of Drexel acquired by it pursuant to this Agreement for a period of
five years from the Closing, or for any longer periods as may be required by
any government agency or ongoing litigation, and shall make such records
available to Terex and/or Seller as may be reasonably required by Terex and/or
Seller in connection with, among other things, any insurance claim, legal
proceeding, environmental matter or governmental investigation relating to
Seller or the Business. In the event Buyer wishes to destroy such records
after that time, it shall first give ninety days' prior written notice to Terex
and Seller and Terex and Seller shall have the right at their option and
expense, upon prior written notice given to Buyer within that ninety-day
period, to take possession of the records within one hundred twenty days after
the date of such notice to Buyer.
6.11 Certain Post-Closing Assistance by Drexel. Buyer agrees to
cause the appropriate personnel at Drexel, at no cost or expense to Seller, at
Seller's reasonable request, to prepare all accounting and related reports for
Drexel for periods up to the Closing Date, and to make available necessary
records, which are required by Seller in connection with the Seller's
preparation and/or filing of various financial, tax and accounting reports.
6.12 Covenant not to Compete. (a) For the period ending on the tenth
anniversary of the Closing Date, neither Terex nor Seller nor Clark Material
Handling Company, a Kentucky corporation ("Clark"), shall, and each of them
shall cause all of their affiliates not to, (i) engage (including through the
provision of management or advisory services or through a joint venture or
partnership) anywhere in the United States in the business of developing,
manufacturing, assembling, selling, marketing and/or distributing any type of
(X) dedicated "man-up" turret industrial forklift trucks, (Y) explosion-proof
("EX") industrial forklift trucks (as "EX" industrial forklift trucks are
defined in the Underwriters Laboratories Inc. "Standard for Safety Publication
UL 583" (1985)) or (Z) very narrow aisle industrial forklift trucks, other than
"man-down" turret forklift trucks, or (ii) utilize the trade secrets to be
transferred to the Buyer pursuant to this Agreement, to the extent not
currently used in Clark's business, or disclose to any affiliate or any other
person any such trade secrets not already in the possession of such person.
Clark shall not develop, manufacture, assemble, sell, market and/or distribute
a very narrow aisle combined stock picker/"man-up" turret industrial forklift
truck; provided, however, that Clark shall have the opportunity, commencing one
(1) year after the commercial introduction by Drexel of a very narrow aisle
combined stock picker/"man up" turret industrial forklift truck (the "Drexel
Combined Truck"), to purchase Drexel Combined Trucks from Drexel on terms and
conditions to be mutually agreed upon by Drexel and Clark. Clark shall have
the right to resell such Drexel Combined Trucks under the Clark name using the
Clark dealer network. Notwithstanding the foregoing, Drexel shall have no
obligation, express or implied, to sell Drexel Combined Trucks to Clark if
mutually agreeable terms cannot be arrived at.
(b) For the period ending on the tenth anniversary of the Closing
Date, neither Buyer nor Drexel shall engage (including through the provisions
of management or advisory services or through a joint venture or partnership)
anywhere in the United States in the business of developing, manufacturing,
assembling, selling, marketing and/or distributing any type of "general
purpose" industrial forklift trucks (assuming for the purposes of this
Agreement that "man-up" turret trucks, EX trucks or very narrow aisle trucks
are not "general purpose" industrial forklift trucks).
(c) The foregoing shall not preclude Terex or Clark, or their
respective affiliates, on the one hand, or Buyer or Drexel, on the other hand,
from acquiring an interest in any business, some of the operations of which
would otherwise violate the foregoing prohibitions (the "Competing Operations")
so long as (x) the annual revenues attributable to the Competing Operations do
not exceed 10 percent of the annual revenues of such business, and (y) the
acquiring entity divests itself of the Competing Operations as soon as
practicable, but in no event later than 12 months, after such acquisition. If
either Terex, Clark, or their respective affiliates, acquires an interest in
any business which includes Competing Operations, neither Terex, Clark nor
their respective affiliates shall use the Clark dealer network to sell or
distribute products of the Competing Operations.
(d) For the period ending on the fifth anniversary of the Closing
Date, neither Terex, Seller nor Clark nor any of their respective subsidiaries
shall induce or attempt to induce any employee of Drexel to leave the employ of
Drexel. In addition, for the same period, Drexel shall not induce or attempt
to induce any employee of Terex, Seller or Clark to leave the employ of any of
them.
(e) Without intending to limit the remedies available to the
parties, the parties hereby agree that damages at law would be an insufficient
remedy in the event of any breach by any party of this Section 6.12 and that
the non-breaching party shall be entitled to injunctive relief or other
equitable remedies in the event of any such breach (without the posting of a
bond or other security).
(f) If any of the provisions of this Section 6.12 are held to be
unenforceable because of the scope, term or area of their applicability, then
the court making such determination shall modify such scope, term or area or
all of them to the extent necessary to render this Section 6.12 enforceable
under applicable law, and such provisions shall then be enforced in such
modified form.
6.13 Continuing Intercompany Agreements; Supply of Proprietary Parts;
Termination of Drexel Production for Terex; Other Intercompany Arrangements.
(a) Buyer, Seller, Terex and Clark agree that for the period
ending on the fifth anniversary of the Closing Date, Terex shall cause Clark
to, and Clark shall, allow Buyer and Drexel reasonable access to, and an
unlimited right to use for its own business without restriction or payment
(except as otherwise provided herein), upon Buyer or Drexel's reasonable
request, Clark's source documentation material for all parts used by Drexel at
the time of the Closing Date in the conduct of the Business. In addition, for
the period ending on the fifth anniversary of the Closing Date, Terex shall
cause Clark to allow Buyer and Drexel reasonable access to, and an unlimited
right to use for its own business without restriction or payment, upon Buyer or
Drexel's reasonable request, Clark's parts numbering system for parts currently
being used by Drexel or currently planned to be used by Drexel.
(b) From the Closing Date until May 31, 1994, Drexel will
assemble model EC500S30 forklift trucks for Clark (up to a maximum of 36) that
Drexel is currently assembling in accordance with past practice, using parts
and inventory supplied to Drexel at its plant in Pennsylvania by Clark at
Clark's expense. During such period, Drexel will provide labor for the
assembly of such forklift trucks for a price equal to Drexel's fully-burdened
labor costs of producing such trucks (which is $31.60 per hour) plus 15%. To
the extent that Drexel is in the process of assembling a forklift truck for
Clark on May 31, 1994, which is not completed, Drexel shall complete such
truck; provided, that Clark has provided the necessary parts for such truck on
a timely basis consistent with past practice. Drexel shall bill Clark for each
truck and Clark shall pay such invoice within 30 days from the date of such
invoice. Terex shall use its best efforts to cause Clark to timely pay any
such invoices.
(c) For a period of not more than 6 months after the Closing
Date, at Buyer's reasonable request, Terex or its affiliates shall provide
certain administrative services to Drexel, including without limitation,
payroll and management information services. Terex or its affiliates, as the
case may be, shall provide such services to Drexel at its fully-burdened labor
cost plus 15% and shall bill Drexel on a monthly basis, and Drexel shall pay
such costs within 30 days from the date of such invoice.
6.14 Access to Dealer Network and Purchase of Proprietary Parts.
(a) Terex and Clark agree that they shall not, in any manner,
interfere with, or otherwise prevent, Drexel and Buyer from gaining access to,
or using, Clark's dealer network for the sale and distribution of Drexel's
products. Neither Terex nor Clark shall encourage or assist in network
discrimination against Drexel or Drexel's products in any manner which could
adversely effect Drexel's ability to sell its products through the Clark
network. After the Closing Date, representatives of Drexel shall have the
right to attend meetings of dealers held by Clark and Drexel shall have the
right to use Clark's computer "on-line" network to communicate with Drexel's
dealers.
(b) After the Closing Date, Drexel shall have the right to
continue purchasing those parts which are set forth on Schedule 6.14(b) which
are proprietary to Clark from Clark (for so long as Clark continues to
manufacture such parts) on a non-exclusive, royalty-free basis at prices which
are equal to Clark's standard manufacturing costs for such parts plus 15%.
Terex agrees to cause Clark to allow such purchases. Drexel shall also have
the right to purchase such parts from third parties on a non-exclusive,
royalty-free basis.
6.15 Intercompany Accounts. The intercompany accounts between
Drexel, on the one hand, and Terex, Seller or any of their affiliates, on the
other hand, shall be cancelled immediately prior to the Closing without
consideration, except that an intercompany account pursuant to which Clark owes
Drexel $400,000 shall remain outstanding (but shall not be included in the
Closing Net Worth). The remaining intercompany account between Drexel and
Clark of $400,000 shall be payable by Clark to Drexel within 90 days after the
Closing Date; provided, however, that in the event that Drexel shall not pay to
Clark the amount payable pursuant to Section 2.5 hereof within the time period
set forth therein, then the remaining intercompany account of $400,000 shall be
cancelled in full satisfaction of the amounts owed by Drexel to Clark pursuant
to Section 2.5 hereof.
6.16 Buyer Floor Plan Financing. Buyer shall use its best efforts to
enter into an agreement with Clark Credit Corporation ("Clark Credit") to
provide floor plan financing for Drexel after the Closing Date.
6.17 Environmental Matters. (a) Terex and Seller shall use their
best efforts to complete prior to the Closing Date each of the measures (other
than the removal of the 8,000 gallon fuel oil underground storage tank)
recommended by Dames & Moore in its letter addressed to GE Capital Corporate
Finance Group, Inc., dated February 17, 1994 (the "Dames & Moore Letter"). If
such measures are not completed by the Closing Date, the parties shall agree on
an amount to be placed in escrow in order to complete the necessary work only
to the extent the fees of Dames & Moore (or other environmental consultants, if
any) have not been prepaid and any amounts placed in escrow shall, to the
extent all funds paid to Dames & Moore are less than $75,000, be charged to the
reserve for environmental matters on the Closing Balance Sheet. The parties
acknowledge and agree that neither Terex nor Seller shall have an obligation to
remedy any matters discovered as a result of the completion of such measures in
order to satisfy the conditions to Closing and it being understood that Buyer
shall have no obligation to close if such conditions are not satisfied.
(b) Buyer may conduct, at its own expense, reasonable soil and
groundwater sampling at the Owned Property prior to the Closing Date. Buyer
shall not have or incur any obligations or liabilities of any kind whatsoever
(including, without limitation, any obligations or liabilities with respect to
any contamination or other condition which may exist on, under, or around the
Owned Property) in connection with or as a result of such sampling and
analysis. Within 10 days of the date hereof, Seller shall, and shall cause
Drexel to, provide Buyer and/or Buyer's representatives access to the Owned
Property in order to conduct such soil and groundwater sampling. The parties
acknowledge and agree that neither Terex nor Seller shall have an obligation to
undertake remedial or other actions to address any contamination or other
condition discovered as a result of such sampling and it being understood that
Buyer shall have no obligation to close in the event any such contamination or
other condition is not remediated or addressed by Seller and Terex prior to
Closing to the reasonable satisfaction of Buyer.
(c) Seller shall cause Drexel to use its reasonable efforts to
obtain the necessary permits to discharge waste from the Owned Property into
Horsham's municipal sewer system.
6.18 Lockboxes. Terex and Seller shall, and shall cause Drexel to,
make all necessary arrangements to provide that all payments for Drexel
forklift trucks to be received after the Closing Date shall be sent to Drexel
(and not to any lockboxes). Any funds received by Terex, Seller or any of
their affiliates after the Closing Date with respect to sales of Drexel
forklifts shall promptly be paid to Drexel.
6.19 Indentures. In connection with the consummation of the
transactions contemplated hereby, Terex shall comply in all material respects
with all of the provisions of (i) its Indenture (the "Senior Indenture"), dated
as of July 31, 1992, with United States Trust Company of New York, as Trustee,
including, without limitation, the provisions of Section 4.12 of the Senior
Indenture, and (ii) its Indenture (the "Junior Indenture"), dated as of June
30, 1987, as amended, with Continental Illinois National Bank and Trust Company
of Chicago, as Trustee, including, without limitation, the provisions of
Section 4.12 of the Junior Indenture.
6.20 Drexel's Shipping Schedule. Terex and Seller shall use their
best efforts, and shall cause Drexel to use its best efforts, to meet its
current shipping schedule for its forklift trucks.
6.21 Enforcement of Rights. Upon Buyer's request, Terex shall
enforce on Buyer's and Drexel's behalf, such indemnification rights with
respect to Drexel as are then available under the Tax Agreement dated as of
July 31, 1992 by and between Clark Equipment Company and Terex Corporation,
entered into pursuant to the Stock Purchase Agreement dated as of May 27, 1992,
by and between Clark Equipment Company and Terex Corporation and attached as
Exhibit 1.10(a) to such agreement, and shall pay over to Drexel any
indemnification amounts received under the Tax Agreement with respect to
Drexel.
7. Conditions of Closing.
7.1 Conditions Precedent to Obligations of Buyer. The obligation of
Buyer to consummate the purchase under this Agreement is subject to the
fulfillment, prior to or at the Closing, or each of the following conditions
(any or all of which may be waived by Buyer):
(a) all representations and warranties of Terex and Seller to
Buyer contained herein shall be true and correct in all material respects when
made and at and as of the time of the Closing with the same effect as though
made again at and as of that time;
(b) Terex and Seller shall have performed and complied in all
material respects with all obligations and covenants required by this Agreement
to be performed or complied with by Terex and Seller prior to or at the
Closing;
(c) Buyer shall have been furnished with a certificate (dated
the Closing Date) executed by an officer of Seller certifying to the
fulfillment of the conditions specified in Sections 7.1(a) and 7.1(b);
(d) Buyer shall have been furnished with the affidavit of
Seller required by Section 1445 (b) (2) of the Code;
(e) there shall not be in effect any injunction or restraining
order issued by a court of competent jurisdiction in any action or proceeding
against the consummation of sale and purchase of the Shares pursuant to this
Agreement;
(f) the employment agreement listed on Schedule 7.1 (f) shall
have been terminated in a manner reasonably satisfactory to Buyer with no
liability to Drexel;
(g) (i) Neither Terex nor Seller shall have commenced any case,
proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it bankrupt or insolvent,
or seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or
(B) seeking appointment of a receiver, trustee, custodian or other similar
official for it or for all or any substantial part of its assets, and neither
Terex nor Seller shall have made a general assignment for the benefit of its
creditors; or (ii) there shall not have been commenced against Terex or Seller
any case, proceeding or other action of a nature referred to in clause (i)
above which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of 60 days; or (iii) there shall not have been commenced
against Terex or Seller any case, proceeding or other action seeking issuance
of a warrant of attachment, execution, distraint or similar process against all
or any substantial part of its assets which results in the entry of an order
for any such relief which shall not have been vacated, discharged, or stayed or
bonded pending appeal within 60 days from the entry thereof; or (iv) neither
Terex nor Seller shall have taken any action in furtherance of, or indicating
its consent to, approval of, or acquiescence in, any of the acts set forth in
clause (i), (ii), or (iii) above;
(h) all consents, approvals, authorizations, assignments,
exemptions and waivers from third parties that shall be required in order to
enable Buyer to consummate the transactions contemplated hereby shall have been
obtained and/or assigned to Buyer without material condition (except for such
consents, approvals, authorizations, assignments, exemptions and waivers, the
absence of which would not prohibit consummation of such transactions or render
such consummation illegal or would have a Material Adverse Effect);
(i) all liens, charges, mortgages, encumbrances and other
security interests (other than Permitted Liens) on or affecting Drexel's assets
shall have been discharged in a manner satisfactory to Buyer in its sole
discretion and all agreements pursuant to which Drexel has pledged any of its
assets to secure its indebtedness or indebtedness of any of its affiliates,
including without limitation, the agreements set forth on Schedule 4.5, shall
have been terminated and Drexel and Buyer shall have no liability or obligation
with respect to any of such indebtedness, and evidence of such discharge and/or
termination and/or release of liability in a manner satisfactory to Buyer in
its sole discretion shall have been provided to Buyer;
(j) Buyer shall have been offered an agreement with Clark
Credit to provide floor plan financing to Buyer on terms and conditions
comparable to those currently provided to Drexel and Drexel's existing
agreement with Clark Credit shall have been terminated;
(k) Terex shall have delivered a letter to Buyer providing that
the Royalty Payments shall be subordinated to the payment of Buyer's senior
debt only if a party other than GECC and/or its affiliates acquires the senior
debt of Buyer and Buyer provides Seller with evidence reasonably satisfactory
to it that such subordination is required; and
(l) Terex and Seller shall have delivered to Buyer an opinion,
dated the Closing Date, of Robinson Silverman Pearce Aronsohn & Berman, to the
effect that (i) this Agreement has been duly and validly authorized by each of
Terex and Seller, (ii) Seller is the record owner of the Shares and has the
authority to transfer the Shares and upon transfer of the Shares based upon
review of the documents referred to in Schedule 4.5 and documents provided to
the Trustee in accordance with Terex's agreements, Buyer will acquire the
Shares free and clear of any of the Liens set forth on Schedule 4.5 and
Drexel's assets are free and clear of any of the Liens set forth on Schedule
4.5 and, (iii) the security agreements entered into by Drexel have been validly
terminated and, from and after the Closing Date, Drexel has no liability or
obligation thereunder.
7.2. Conditions Precedent to Obligations of Seller. The obligation
of Seller to consummate the sale under this Agreement is subject to the
fulfillment, prior to or at the Closing, of each of the following conditions
(any or all of which may be waived by Seller):
(a) all representations and warranties of Buyer to Seller
contained herein shall be true and correct in all material respects when made
and at and as of the time of the Closing with the same effect as though made
again at and as of that time;
(b) Buyer shall have performed and complied in all material
respects with all obligations and covenants required by this Agreement to be
performed or complied with by it prior to or at the Closing;
(c) Seller shall have been furnished with a certificate (dated
the Closing Date) executed by an officer of Buyer certifying to the fulfillment
of the conditions specified in Section 7.2(a) and 7.2(b); and
(d) there shall not be in effect any injunction or restraining
order issued by a court of competent jurisdiction in an action or proceeding
against the consummation of the sale and purchase of the Shares pursuant to
this Agreement.
8. Documents to be Delivered at the Closing.
8.1 Documents to be Delivered by Seller. At the Closing, Seller
shall deliver, or cause to be delivered, to Buyer the following:
(a) stock certificates representing the Shares, duly endorsed
in blank or accompanied by stock transfer powers and with all requisite stock
transfer tax stamps attached;
(b) a copy of resolutions of the board of directors of each of
Terex and Seller authorizing the execution, delivery and performance of this
Agreement by each of them and a certificate of the secretary or assistant
secretary of each of them, dated the Closing Date, that such resolutions were
duly adopted and are in full force and effect;
(c) the certificate referred to in Section 7.1(c);
(d) the affidavit referred to in Section 7.1(d);
(e) the written resignations of the directors of Drexel as
Buyer shall request prior to Closing;
(f) the documents referred to in Section 7.1 (i);
(g) the letter referred to in Section 7.1(k); and
(h) the letter referred to in Section 9.3(a)(iii).
8.2 Documents to be Delivered by Buyer. At the Closing, Buyer shall
deliver to Seller the following:
(a) payment and evidence of the wire transfer referred to in
Section 2.2;
(b) a copy of the resolutions of the board of directors of
Buyer authorizing the execution, delivery and performance of this Agreement by
Buyer, and a certificate of its secretary or assistant secretary, dated the
Closing Date, that such resolutions were duly adopted and are in full force and
effect; and
(c) the certificate referred to in Section 7.2(c).
9. Indemnification and Related Matters. 9.1
Indemnification for Breaches of Representations and Covenants, etc. (a) Subject
to the provisions of this Article 9, each of Terex and Seller jointly and
severally agree to indemnify and hold Buyer and its affiliates, including
Drexel after the Closing Date, and each of their officers, directors, employees
and agents (collectively, "Buyer Indemnified Parties"), harmless from and
against any and all liabilities, obligations, damages, losses, deficiencies,
Environmental Costs, costs and expenses (including, without limitation, court
costs and reasonable fees and disbursements of counsel) (collectively,
"Losses") relating to or resulting from any of the following: (i) any breach
of any of the representations or warranties made or given by Seller or Terex in
this Agreement; (ii) any failure by Terex or Seller to perform any of its
covenants or agreements contained in this Agreement, except for such
representations, warranties, covenants and agreements related to Taxes (as
defined in Section 10.1(a)), to the extent that Buyer receives indemnification
with respect thereto pursuant to Section 9.3 and Section 10 hereof; and (iii)
any Environmental Costs, other than Environmental Costs incurred by Drexel or
Buyer relating to or arising from the 8,000 gallon underground storage tank
(the "8,000 Gallon U.S.T.") formerly located at the Owned Property, or any
releases from the 8,000 gallon U.S.T., which are indemnified against pursuant
to the provisions of Section 9.3 hereof, or any claims, actions, suits,
proceedings or other allegations, whether contingent or absolute, matured or
unmatured, determined or undetermined, known or unknown prior to the Closing
Date, relating in any way to the presence of or exposure to Hazardous Materials
in any surface or subsurface soils, groundwater, surface water, air or
buildings, at, on, from, under or within any Real Property or any other
location, arising out of, relating to, resulting from or otherwise attributable
to activities, events, acts, omissions or conditions occurring or existing on
or prior to the Closing Date at any Real Property currently or formerly owned,
operated or leased by Drexel or any predecessor of Drexel. The foregoing
indemnity under clauses (ii)-(iii) above is in no way limited by the
information set forth on the Schedules to this Agreement.
(b) Subject to the provisions of this Article 9, Buyer agrees
to indemnify and hold each of Terex and Seller and their respective affiliates,
and each of their officers, directors, employees and agents (collectively,
"Seller Indemnified Parties"), harmless from and against any and all Losses
relating to or resulting from any of the following: (i) breach of any of the
representations, warranties made or given by Buyer in this Agreement, or (ii)
any failure by Buyer to perform any of its covenants or agreements contained in
this Agreement, except for such representations, warranties, covenants and
agreements related to Taxes, which matters are subject to Section 10.
9.2 Determination of Damages and Related Matters. In calculating
any amounts payable to any Buyer Indemnified Parties solely pursuant to Section
9.1(a) or payable to any Seller Indemnified Parties pursuant to Section 9.1(b),
Terex and Seller or Buyer, as the case may be, shall receive credit for (i) any
actual reduction in net tax liability as a result of the facts giving rise to
the claim for indemnification and any indemnification payments and insurance
payments, and (ii) any insurance recoveries. Terex and Seller, on the one
hand, and Buyer, on the other hand, shall have no liability for indemnification
under Section 9.1 unless the aggregate amount of the Losses to Buyer, on the
one hand, and Terex or Seller, on the other hand, from all claims finally
determined to arise under Section 9.1 exceeds $350,000 and, in such event,
Terex and Seller, on the one hand, and Buyer, on the other hand, shall be
required to pay only the amount by which such aggregate amount of claims
exceeds said amount in the aggregate but in no event in excess of $14,000,000.
For purposes of indemnification (and no other purpose) with respect to breaches
of representations and warranties contained herein, an event shall be deemed to
be "material" or to have a "Material Adverse Effect" if it results in a Loss
that exceeds $25,000. The indemnification provided for in this Section 9 and
in Section 10 shall, from and after the Closing, be the sole remedy for any of
the matters referred to herein and therein, respectively; it being expressly
understood and agreed that indemnification provided for in Sections 9.1 and 9.2
shall be without duplication for any matter for which indemnification is
provided for in Section 9.3 and in Section 10.
9.3 Other Indemnification by Terex and Seller. (a) Each of Terex
and Seller shall jointly and severally indemnify and hold harmless the Buyer
Indemnified Parties from and against any and all Losses incurred by any of
them, without regard as to time or the amount of such Losses, relating to or
arising from the following: (i) (a) any Taxes for which Terex or Seller is
liable pursuant to Paragraph 10.3, (b) any Taxes for or with respect to any
taxable period ending prior to or including the Closing Date by reason of
Drexel being severally liable for the taxes of Terex, Seller or any other
corporation that has been affiliated with Drexel or any of their respective
affiliates pursuant to Income Tax Regulation 1.1502-6 or any analogous state or
local tax provisions and (c) any breach of the representation and warranty
contained in Section 4.12(h); (ii) any claims, actions, suits, proceedings or
other allegations, by any person arising from or relating to any employee
benefit plan, program or arrangement of Terex, Seller or any of their
respective affiliates (other than Drexel) whether arising out of or relating to
any event or state of facts occurring or existing before, on or after the
Closing Date, and including, but not limited to, Losses arising under Title IV
of ERISA, Section 302 of ERISA and Sections 412 and 4971 of the Code; (iii) any
claims, actions, suits, proceedings or other allegations, whether contingent or
absolute, matured or unmatured, determined or undetermined, known or unknown
prior to the Closing Date, arising out of or relating to the matters referred
to in a letter to be delivered by Terex to Buyer at Closing pursuant to this
Section 9.3(a)(iii); and (iv) any Environmental costs incurred by Drexel or
Buyer relating to or arising from the 8,000 Gallon U.S.T. or any releases
therefrom, except that Terex and Seller shall not be obligated to indemnify the
Buyer Indemnified Parties to the extent of any reduction in the principal
amount of the Contingent Note (or in any collateral substituted for the
Contingent Note) due to Environmental Costs. The foregoing indemnity under
clauses (i)-(iv) above is in no way limited by the information set forth on the
Schedules to this Agreement.
(b) Buyer, Terex and Seller agree that with respect to each of
the actions set forth on Schedule 4.17 hereof, Terex and Seller shall jointly
and severally indemnify and hold harmless the Buyer Indemnified Parties for any
and all Losses incurred by any of the Buyer Indemnified Parties in excess of
$25,000 for each such action. Any Losses incurred by the Buyer Indemnified
Parties pursuant to this Section 9.3(b) which are not paid by Seller shall be
credited against the $350,000 amount referred to in Section 9.2 hereof.
9.4 Time and Manner of Certain Claims. (a) Except as otherwise
expressly provided herein, the representations and warranties set forth in this
Agreement shall survive until the first anniversary of the Closing Date and
Buyer, Terex and Seller shall be liable for damages under Sections 9.1(a) and
9.1(b) hereof arising from their respective breaches of their representations
or warranties only to the extent that notice of a claim therefor is asserted by
the other in writing and delivered prior to the expiration of one year from the
Closing Date. Any claim made prior to one year from the Closing Date shall
thereafter survive without limitation as to time and the party receiving such
claim shall remain liable with respect thereto. Any notice of a claim by
reason of any of the representations and warranties contained in this Agreement
shall state specifically the representations or warranties with respect to
which the claim is made, the general facts giving rise to the alleged basis for
the claim. Any claim made by any Buyer Indemnified Party pursuant to Section
9.3 hereof shall survive without limitation as to time.
(b) The covenants and agreements contained herein to be
performed or complied with at or after the Closing (other than the covenants
and agreements to indemnify pursuant to paragraph (a) above which shall expire
as set forth in paragraph (a) above) shall survive the Closing until the
expiration of the applicable statute of limitations.
9.5 Defense of Claims by Third Parties. (a) When a party seeking
indemnification hereunder (the "Indemnified Party") receives notice of any
claims made by third parties or has any other claim for indemnification
hereunder, the Indemnified Party shall give prompt written notice (a "Notice")
thereof to the other party (the "Indemnifying Party") stating the nature and
basis of such claim, provided, however, that failure of the Indemnified Party
to give the Indemnifying Party prompt notice as provided herein shall not
relieve the Indemnifying Party of any of its obligations hereunder, except to
the extent prejudiced thereby. Upon notice from the Indemnified Party, the
Indemnifying Party may, but shall not be required to, assume the defense of any
such claims brought by third parties ("Third Party Claims"), including its
compromise or settlement, and the Indemnifying Party shall pay all reasonable
costs and expenses thereof and shall be fully responsible for the outcome
thereof; provided, however, that in such case, the Indemnifying Party shall
have no obligation to pay any further costs or expenses of legal counsel of the
Indemnified Party thereafter incurred in connection with such defense. No
compromise or settlement in respect of any Third Party Claims may be effected
by the Indemnifying Party without the Indemnified Party's prior written consent
(which consent shall not be unreasonably withheld or delayed). The
Indemnifying Party shall give notice to the Indemnified Party as to its
intention to assume the defense of any such Third Party Claims within thirty
(30) days after the date of receipt of the Indemnified Party's notice in
respect of such Third Party Claims. If an Indemnifying Party does not, within
thirty (30) days after the Indemnified Party's notice is given, give notice to
the Indemnified Party of its assumption of the defense of the Third Party
Claims, the Indemnifying Party shall be deemed to have waived its rights to
control the defense thereof. If the Indemnified Party assumes the defense of
any Third Party Claims because of the failure of the Indemnifying Party to do
so in accordance with this Section 9.5, it may do so in such reasonable manner
as it may deem appropriate, and the Indemnifying Party shall pay all reasonable
costs and expenses of such defense. The Indemnifying Party shall have no
liability with respect to any compromise or settlement thereof effected without
its prior written consent (which consent shall not be unreasonably withheld or
delayed), unless the sole relief granted was equitable relief for which no
Indemnifying Party would have liability or to which no Indemnifying Party would
be subject.
(b) Notwithstanding the foregoing, with respect to any Third
Party Claim that the Indemnifying Party is defending, the Indemnified Party
shall have the right to retain separate counsel to represent it and the
Indemnifying Party shall pay the fees and expenses of such separate counsel if
there are conflicts that make it reasonably necessary for separate counsel to
represent the Indemnified Party and the Indemnifying Party.
9.6 Buyer's Knowledge. No investigation by Buyer or on its behalf
heretofore or hereafter conducted shall affect the representations, warranties
or indemnities of Seller under or pursuant to this Agreement.
10. Tax Matters.
10.1 Tax Returns. (a) Seller shall be responsible for the
preparation and timely filing of all "Tax Returns" (as hereinafter defined) of
Drexel relating to all "Pre-Closing Periods" (as hereinafter defined)
("Pre-Closing Tax Returns"). Such Tax Returns shall be prepared on a basis
consistent with those Tax Returns prepared for prior taxable periods, except as
otherwise required by law or regulation. If any of such Tax Returns cannot be
completed by Seller and filed until after the Closing Date, Buyer agrees to
cause the relevant officer(s) of Drexel to sign and file such Tax Returns after
they have been completed by Seller (and before the due date of such Tax
Returns), so long as such Tax Return(s) do not take any position for which
there is no "realistic possibility of being sustained on the merits" (as
defined for purposes of Section 6694 (a) (1) of the Code, or such equivalent
state or local standard) , and Seller agrees that such post-Closing execution
shall not detract from or otherwise affect Seller's liability for any Taxes
shown on such Tax Returns to the extent provided in Section 10.3 (a). "Tax
Return" shall mean any return, report, statement, estimate, declaration,
notice, form or other information or other document (including any related or
supporting information) supplied or required to be supplied to any taxing
authority in connection with the determination, assessment, collection,
administration or imposition of any Taxes. "Pre-Closing Periods" shall, with
respect to Drexel, mean and refer to any taxable period (or portion thereof)
ending at the close of the day of the Closing Date or at any time prior
thereto, and shall include for Federal, state, local or foreign Tax purposes,
any period which covers the deemed transfer of assets pursuant to a "Section
338(g) Election" or a "Section 338(h)(10) Election" (as such terms are
hereinafter defined) other than any period covered by a Straddling Return (as
hereinafter defined). "Taxes" shall mean all taxes, charges, fees, levies or
other assessments, including, without limitation, income, excise, employment,
property, sales, franchise, use and gross receipts, customs, estimated and
withholding taxes imposed by or payable to the United States or any state,
county, local or foreign government or subdivision or agency thereof, and shall
also include any interest, penalties or additions to tax attributable to such
assessments including penalties for the failure to file any Tax Return.
(b) Buyer shall be responsible for the preparation and timely
filing of all Tax Returns of Drexel for all taxable periods (or portions
thereof) other than Pre-Closing Periods of Drexel, including Straddling Returns
(as hereinafter defined) (such periods being hereinafter called "Post-Closing
Periods"). Buyer shall not permit Drexel to make any assertion or make any
election the effect of which would be to exclude Drexel from Seller's
consolidated federal Tax Return (or any consolidated or combined state, county
or local Tax Return of Seller's consolidated group) for any Pre-Closing Period
unless required by law or regulation.
(c) Buyer shall be responsible for the preparation and timely
filing of any Tax Returns of Drexel for taxable periods, if any, that begin
before the Closing Date and end after such Closing Date ("Straddling Returns").
Such Tax Returns shall be prepared on a basis consistent with those Tax Returns
prepared for prior taxable periods, except as otherwise required by law or
regulation, or, in the opinion (reasonably acceptable to Seller and its
counsel) of a reputable law firm (the "Law Firm"), by other applicable legal
authorities, and shall be subject to Seller's review and approval (which shall
not be unreasonably withheld or delayed) prior to being filed by Buyer. In the
event of a dispute with respect to any Straddling Return which is not resolved
prior to the due date of such Return, Buyer shall file the Return in the manner
it determines, provided that if any such dispute is resolved following the due
date of such Return in a manner inconsistent with the manner in which the
Return was filed, Buyer shall file an amended Return reflecting such
resolution. Seller shall provide Buyer with all necessary tax-related
information relating to the Pre-Closing Date Periods (as defined below) so that
Buyer can prepare such Straddling Returns. Seller shall pay to Buyer, as and
when required to do so under Section 10.4, so much of any Tax liability shown
on a Straddling Return as is properly allocable to the period ending on the
Closing Date (a "Pre-Closing Date Period"). The portion of Drexel's taxable
income, gain, loss and any resulting Tax shown on a Straddling Return which is
properly allocated to a PreClosing Date Period shall be determined by (i)
assuming that Drexel's taxable year ends as of the close of business on the
Closing Date, including within such Pre-Closing Date Period any income, gain or
loss resulting from any deemed transfer of assets pursuant to a Section 338(g)
Election, and (ii) except as otherwise provided by law or regulation or, in the
opinion (reasonably acceptable to Seller and its counsel) of the Law Firm, by
other applicable legal authorities, preparing Tax Returns based on the income,
gain and losses as so determined on a basis consistent with the methodology and
elections employed by Drexel in prior years as adjusted to reflect any
subsequent adjustments to such returns.
(d) Except as otherwise required by any then effective law or
regulation, or, in the opinion (reasonably acceptable to Seller and its
counsel) of the Law Firm by other applicable legal authorities, and except as
otherwise provided in Section 10.2, without the prior written consent of
Seller, Buyer shall not change or cause Drexel to change an annual accounting
period, adopt or change any accounting method, or amend any Pre-Closing Tax
Return if any such adoption, change or amendment would have the effect of
increasing the Tax liability of Drexel with respect to any Pre-Closing Period
or any Pre-Closing Date Period.
(e) Except for Tax Returns that cover the deemed transfer of
assets pursuant to a Section 338(g) Election and a Section 338(h)(10) Election
(each as defined in Section 10.2(a)), if, consistent with the provisions of
this Section 10, Seller desires to amend a Pre-Closing Tax Return, Buyer shall
cooperate in such matter to the extent reasonable. Seller shall indemnify and
hold Drexel and Buyer harmless against any increase in any Taxes, on an
after-tax basis, with respect to Post-Closing Periods resulting from any such
amendment.
(f) Seller shall retain all books, records, returns, schedules,
documents and all papers or relevant items of information relating to the
Federal, state, foreign or other Tax liability of Drexel for any Pre-Closing
Period, until the expiration of all statutes of limitations for claims to which
such documents may pertain. Thereafter, Seller shall have the right to dispose
of or destroy any of the items referred to in the preceding sentence, provided
that, as to any items identified by Buyer, Buyer shall have the right, at its
sole cost and expense, promptly to remove or obtain copies (or, if necessary,
originals) of such items and take whatever action Buyer may desire with respect
to such items. Notwithstanding the foregoing, Seller shall reasonably
cooperate with Buyer and furnish copies of any such items to Buyer, at Buyer's
sole cost and expense, upon written request.
10.2 Section 338 Elections and Forms. (a) With respect to Buyer's
acquisition of the Shares hereunder, Buyer may make an election under Section
338(g) of the Code, and the Treasury Regulations promulgated thereunder and
similar elections under applicable state, local and foreign laws (such election
being hereinafter called a "Section 338(g) Election"). With respect to
Seller's sale of the Shares hereunder, Seller agrees that if requested by
Buyer, Seller, together with Buyer, shall jointly make an election under
Section 338(h)(10) of the Code and the Treasury Regulations promulgated
thereunder and similar elections under applicable state, local and foreign laws
(such election being hereinafter called "Section 338(h)(10) Election"). Buyer
and Seller agree to report the transfers under this Agreement consistent with
any Section 338(g) Election and Section 338(h)(10) Election so made, and shall
take no position contrary thereto unless required by law to do so. For
purposes of this Agreement the terms Section 338(g) Election and Section
338(h)(10) Election shall include any deemed elections pursuant to Code
Sections 338(e) and 338(f).
(b) If Buyer makes a Section 338(h)(10) Election then (i) Buyer
shall be responsible (at its sole cost and expense) for the preparation and
timely filing of all statements and forms required under Section 338 of the
Code ("Section 338 Forms") in accordance with applicable tax laws and the terms
of this Agreement, (ii) Seller shall execute and deliver for filing a Form 8023
prepared by Buyer and execute and file, with its Federal Pre-Closing Tax Return
for the respective taxable year, a statement of election consistent with the
foregoing that is prepared and timely provided to Seller by Buyer (and Seller
shall file any similar statements required for state or other returns), and
(iii) Seller shall reasonably cooperate with Buyer in the preparation of Form
8023 or any appropriate state form. Seller shall pay all Taxes resulting from
any Section 338(g) Election or Section 338(h)(10) Election (except for Taxes
for which Buyer is liable pursuant to Section 10.3(b)) which payment shall be
made in accordance with Section 10.4.
(c) If Buyer makes a Section 338(h)(10) Election, the Purchase
Price shall be allocated in accordance with a schedule delivered by Buyer (the
"Section 338 Schedule"). The Section 338 Schedule shall be prepared by Buyer
and delivered to Seller within 180 days after the Closing Date. The allocation
of the Purchase Price in the Section 338 Schedule shall be as reasonably
determined by Buyer, shall be in accordance with the Treasury Regulations
prescribed under Code Section 338(b)(5) and shall be subject to Seller's review
and approval (which shall not be unreasonably withheld or delayed). For
purposes of this Section 10.2(c), Seller's withholding of approval shall not be
considered unreasonable if the allocation of the Purchase Price in the
Section 338 Schedule would result in a net capital loss being realized by
Seller as a result of the transactions contemplated by this Agreement (and, as
a consequence, Seller would suffer a Tax cost). If Seller reasonably withholds
its approval with respect to an allocation of the Purchase Price, the parties
shall attempt in good faith to resolve such dispute. If the parties are unable
to resolve such dispute, the parties shall appoint the Arbiter to resolve the
dispute. The Arbiter's determination shall be conclusive and binding on the
parties. The Purchase Price shall be adjusted for liabilities or any amounts
considered under applicable tax laws to be additional purchase price received
by Seller or a reduction thereof. All allocations contained in the Section 338
Schedule, as adjusted (as discussed above), shall be adhered to by the parties
in preparing the Section 338 Forms and all relevant Tax Returns, information
reports and the documents and forms; provided, however, that in determining the
adjusted basis of Buyer with respect to Drexel's assets, Buyer may increase the
amount of the Purchase Price for any additional costs and expenses as may be
required by applicable tax laws.
10.3 Liability for Taxes. Seller and Buyer hereby covenant and agree
that, as between Seller and Buyer, and except as otherwise provided in Section
10.4:
(a) Except as otherwise provided in Section 10.3(b), Seller
shall be liable for all Taxes (including, without limitation, all Taxes
attributable to any deferred intercompany amounts, excess loss accounts or
similar items triggered as a result of the transactions contemplated hereby and
any amounts owing pursuant to any tax sharing or similar agreements) payable by
or with respect to Drexel or Seller (i) with respect to Pre-Closing Periods,
(ii) with respect to Pre-Closing Date Periods as determined in accordance with
Section 10.1(c), and (iii) resulting from a Section 338(g) Election or a
Section 338(h)(10) Election (including, without limitation, all Pennsylvania
State Taxes payable as a result of any such Election).
(b) If (i) Drexel is liable for any Federal, state, local or
foreign income taxes resulting from a Section 338(g) Election, and (ii) Buyer
has failed to make any available Section 338(h)(10) Election with respect to
Drexel, then (iii) Buyer shall be liable for such resulting Federal, state,
local or foreign income taxes but only to the extent of any such income taxes
which would not have been payable by Drexel had Buyer made such available
Section 338(h)(10) Election.
(c) Buyer shall be liable for and shall pay, or shall cause
Drexel to pay, and Seller shall not be required to pay or reimburse Buyer or
Drexel for, all Taxes payable by Drexel for all Post-Closing Periods, other
than Taxes for which Seller is responsible pursuant to Sections 10.1(e) and
10.3(a) above.
10.4 Certain Tax Payment Responsibility. Notwithstanding anything in
this Section 10 to the contrary, if Seller is liable under Section 10.3(a) for
any Taxes that are required to be reported on a Tax Return prepared by Seller,
Seller shall be responsible for paying such Taxes to the relevant taxing
authorities on or before the date that such Taxes are due. The amount of the
Revised Section 338 Taxes retained by Buyer and payable to Pennsylvania shall
be credited, without duplication, against the amounts owed by Seller. If Buyer
is liable under Section 10.3(b) or Section 10.3(c) for any Taxes that are
required to be reported on a Tax Return prepared by Buyer, Buyer shall be
responsible for paying such Taxes to the relevant taxing authorities on or
before the date such Taxes are due. If one party (the "Payor") is liable for a
Tax pursuant to Section 10.3 and such tax is required to be reported on a Tax
Return to be filed by the other party (the "Preparer") under Section 10.1,
including any Tax imposed as a result of any subsequent adjustment, the Payor
shall pay such Tax to the Preparer on or before the later of (i) two business
days before the date the Preparer intends to pay the Tax, provided the
Preparer's request for payment is in writing, is signed by an officer of the
Preparer and is accompanied by a copy of the applicable Tax Return and, if
necessary, a statement reflecting the calculation of the amount of the Tax for
which the Payor is liable, and, where applicable, (ii) the date on which the
review and approval procedure described in Paragraph 10.1(c) has been completed
and (iii) the due date of such payment. The Preparer shall remit, or cause to
be remitted, any amount paid to the Preparer by the Payor to the appropriate
taxing authority within five days after the Preparer receives such payment (but
in no event after the due date), and, if the Preparer does not so remit the
funds, such Tax shall become a liability of the Preparer for purposes of this
Agreement, and the Payor shall have no further liability hereunder with respect
to such Tax.
10.5 Tax Contests. Each of the parties hereto shall promptly notify
the other in writing upon receipt by either of them or any of their respective
affiliates of notice of any pending or threatened Income Tax (as hereinafter
defined) audits or assessments which may affect the Income Tax liabilities of
Drexel and for which such other party would be liable under this Paragraph 10.
Seller shall have the right to represent Drexel's interests in any Income Tax
matter, including any audit or administrative or judicial proceeding or the
filing of any amended return, involving an Income Tax liability of Drexel for
any Pre-Closing Period and for which Seller would be liable under this Section
10 (a "Tax Matter") and to employ counsel of its choice at its expense. Buyer
agrees that it will cooperate fully with Seller and its counsel in the defense
or compromise of any such Tax Matter. With respect to (i) any Tax Matter that
could affect the amount or timing of any Income Tax for which Buyer or any of
its affiliates is or may be responsible, Seller shall consult with Buyer with
respect to the handling and resolution of such Tax Matter, and shall not settle
or take any other action with respect to such Tax Matter without Buyer's
consent, which shall not be unreasonably withheld, and (ii) any Income Tax
matter (including any audit or administrative or judicial proceeding or filing
of any amended return) involving an Income Tax liability of Drexel for any
Post-Closing Period and for which Buyer would be liable under this Section 10,
that could affect the amount or timing of any Income Tax for any Pre-Closing or
Pre-Closing Date Period for which Seller or any of its affiliates is
responsible, Buyer shall consult with Seller with respect to the handling and
resolution of such Income Tax matter, and shall not settle or take any other
action with respect to such Income Tax matter without Seller's consent, which
shall not be unreasonably withheld. "Income Tax" shall mean any Federal,
State, local or foreign income, franchise or similar tax and in each instance
any interest, penalties or additions to tax attributable to such tax.
10.6 Refunds, Tax Credits. To the extent that Buyer or Drexel
receives a refund of, or an offset with respect to, Taxes or a Tax credit
arising from or with respect to the Pre-Closing Periods or Pre-Closing Date
Periods, Buyer shall, and shall cause Drexel to, pay to or reimburse Seller for
the amount of any such Tax refund or credit received net of any Taxes payable
by Buyer or Drexel on such Tax refund or credit. To the extent that Seller
receives a refund of, or an offset with respect to, Taxes or a Tax credit
arising from or with respect to any of the Post-Closing Periods (excluding
Pre-Closing Date Periods), Seller shall reimburse Buyer for the amount of any
such Tax refund or credit received net of any Taxes payable by Seller on such
Tax refund or credit.
10.7 Tax Sharing Agreements. As of the Closing Date, all Tax sharing
agreements or arrangements, whether or not written, to which Drexel is a party
shall be terminated with respect to Drexel and Drexel shall have no further
obligations thereunder. No payments shall be made by Drexel (whether by cash
payment, accounting entry or otherwise) under any such Tax sharing agreements
or arrangements during the period beginning on the date of the signing of this
Agreement and ending on the Closing Date other than payments attributable to
the operations of Drexel in the ordinary course for that period, so that, in
particular, no payments may be made with respect to any liability for deferred
intercompany amounts, excess loss accounts or similar items triggered as a
result of the transactions contemplated hereby.
11. Miscellaneous.
11.1 Finders. Buyer, Terex and Seller respectively represent and
warrant that they have not employed or utilized the services of any broker or
finder in connection with this Agreement or the transactions contemplated by
it, except that Terex and Seller have utilized the services of Warburg and
Terex and Seller shall be liable for any compensation payable to Warburg in
connection with the transactions contemplated by this Agreement. Terex shall
indemnify and hold harmless the Buyer Indemnified Parties from and against any
claim by Warburg without regard to the amount of any such claim.
11.2 Entire Agreement. This Agreement (with its Schedules and
Exhibits) contains, and is intended as, a complete statement of all of the
terms of the arrangements between the parties with respect to the matters
provided for, supersedes any previous agreements and understandings between the
parties with respect to those matters (except as otherwise provided in Section
6.1), and cannot be changed or terminated orally.
11.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of New York without giving
effect to conflicts of law principles thereof.
11.4 Schedules; Tables of Contents and Headings. Any matter
disclosed on any Schedule to this Agreement shall be deemed to have been
disclosed on all other Schedules to this Agreement to the extent that it should
have been disclosed on such other Schedule. The table of contents and section
headings of this Agreement and titles given to Schedules to this Agreement are
for reference purposes only and are to be given no effect in the construction
or interpretation of this Agreement.
11.5 Notices. All notices and other communications under this
Agreement shall be in writing and shall be deemed given when delivered
personally or mailed by registered mail, return receipt requested, to the
parties at the following addresses (or to such address as a party may have
specified by notice given to the other party pursuant to this provision):
If to Seller to:
Terex Corporation
500 Post Road East
Westport, Connecticut 06880
Attention: General Counsel
With a copy to:
Robinson Silverman Pearce
Aronsohn & Berman
1290 Avenue of the Americas
New York, New York 10104
Attn: Stuart A. Gordon, Esquire
If to Buyer, to:
DAC Acquisition Corp.
c/o Drexel Industries, Inc.
P.O. Box 248
Horsham, Pennsylvania 19044
With a copy to:
General Electric Capital Corporation
260 Long Ridge Road
Stamford, Connecticut 06927
Attn: Corporate Finance Group - Equity
With a copy to:
Fried, Frank, Harris, Shriver and Jacobson
One New York Plaza
New York, New York 10004
Attn: Gary Cooperstein, Esq.
11.6 Separability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement which shall remain in full force and
effect.
11.7 Waiver. Any party may waive compliance by another with any of
the provisions of this Agreement. No waiver of any provision shall be
construed as a waiver of any other provision. Any waiver must be in writing.
11.8 Binding Effect; Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors
and permitted assigns. Nothing in this Agreement shall create or be deemed to
create any third-party beneficiary rights in any person or entity, including,
without limitation, Employees, not a party to this Agreement. No assignment of
this Agreement or of any rights or obligation hereunder may be made by either
party (by operation of law or otherwise) without the prior written consent of
the other and any attempted assignment without the required consent shall be
void; provided, however, that no such consent shall be required of Buyer,
Terex or Seller to assign part or all of its rights under this Agreement to one
or more of its subsidiaries or affiliates, but no such assignment by Buyer,
Terex or Seller of its rights or obligations hereunder shall relieve Buyer,
Terex or Seller of any of its obligations under this Agreement.
11.9 Best Knowledge. As used in this Agreement "to the best of
Seller's knowledge" shall mean either actual knowledge possessed by an officer
of Seller or Drexel or knowledge which should reasonably have been possessed by
an executive officer of Seller or Drexel, and "to the best of Buyer's
knowledge" shall mean actual knowledge possessed by an executive officer of
Buyer or knowledge which should reasonably have been possessed by an officer of
Buyer.
11.10 Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original, but all of which shall
constitute one and the same Agreement.
11.11 WAIVER OF JURY TRIAL. EACH PARTY HERETO UNCONDITIONALLY
WAIVES TRIAL BY JURY IN ANY LITIGATION ARISING OUT OF OR RELATING TO THIS
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY.
11.12 Set-Off. In connection with the additional payment
obligations of Buyer in connection with this Agreement, in addition to any
rights and remedies provided by law, Buyer shall have the right, without prior
notice to Terex or Seller, any such notice being expressly waived by Terex and
Seller to the extent permitted by law, to set-off and appropriate and apply
against such amount any and all amounts owed by Terex and/or Seller to Buyer,
whether matured or unmatured, in connection with this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf as of the date first above written.
CMH ACQUISITION CORP.
By:________________________________
DAC ACQUISITION CORP.
By:________________________________
Terex Corporation hereby agrees to be bound by the provisions of Articles 6, 9
and 10 hereof.
TEREX CORPORATION
By:_______________________________
Clark Material Handling Company hereby agrees to be bound by the provisions of
Sections 6.12, 6.13, 6.14 and 6.15 hereof.
CLARK MATERIAL HANDLING COMPANY
By:_______________________________
EXHIBIT 11.1
TEREX CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended
March 31,
1994 1993
PRIMARY:
Average shares outstanding 10,303,067 9,950,275
Net effect of common stock equivalents
based on the treasury stock method
using average market price (1) --- ---
Total 10,303,067 9,950,275
Net loss $ (10,824,000) $ (12,399,000)
Primary loss per share $ (1.05) $ (1.25)
FULLY DILUTED:
Average shares outstanding 10,303,067 9,950,275
Net effect of common stock equivalents
based on the treasury stock method using
period-end market price when it is greater
than average market price (1) --- ---
Total 10,303,067 9,950,275
Net loss $ (10,824,000) $ (12,399,000)
Primary loss per share $ (1.05) $ (1.25)
(1) Not applicable as inclusion is anti-dilutive.
