<PAGE>
424(b)(3)
TEREX
OFFER TO EXCHANGE
all outstanding
8-7/8% Senior Subordinated Notes due 2008
($150,000,000 principal amount outstanding)
for
8-7/8% Senior Subordinated Notes due 2008
Which Have Been Registered Under the Securities Act of 1933
of
TEREX CORPORATION
Payment of Principal and Interest Unconditionally Guaranteed by
Terex Cranes, Inc.
PPM Cranes, Inc.
Koehring Cranes, Inc.
Terex Telelect, Inc.
Terex Aerials, Inc
Terex-RO Corporation
Payhauler Corp.
Terex Mining Equipment, Inc.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON September 11, 1998, UNLESS EXTENDED
Terex Corporation, a Delaware corporation ("Terex" or the "Company"),
hereby offers (the "Exchange Offer"), upon the terms and subject to the
conditions set forth in this Prospectus (as same may be amended or supplemented
from time to time, the "Prospectus") and the accompanying Letter of Transmittal
(the "Letter of Transmittal"), to exchange up to an aggregate principal amount
of $150,000,000 of its 8-7/8% Senior Subordinated Notes due 2008 (the "New
Notes") , which have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), for a like principal amount of its issued and
outstanding Senior Subordinated Notes due 2008 (the "Old Notes," and together
with the New Notes, the "Notes") from the holders (the "Holders") thereof. The
form and terms of the New Notes will be the same as the form and terms of the
Old Notes in all material respects except that the New Notes will be registered
under the Securities Act, and will not bear legends restricting the transfer
thereof. The New Notes will be entitled to the benefits of the Indenture (the
"Indenture"), dated as of March 31, 1998, among the Company, the Guarantors and
United States Trust Company of New York, as trustee, governing the Old Notes,
and the New Notes and the Old Notes will constitute a single series of debt
securities under the Indenture.
(continued on next page)
---------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN
RISKS THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES
IN CONNECTION WITH THIS THE EXCHANGE OFFER.
---------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OF ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------------------
The date of this Prospectus is August 7, 1998
<PAGE>
The Old Notes are, and the New Notes will be, unsecured senior
subordinated obligations of the Company, subordinated in right of payment to all
existing and future Senior Indebtedness (as defined in the Indenture) of the
Company (including, but not limited to, indebtedness under the New Bank Credit
Facility (as defined herein)), pari passu in right of payment with all future
senior subordinated indebtedness of the Company and senior to any future
subordinated indebtedness of the Company. As of March 31, 1998, the Company had
approximately $413 million of Senior Indebtedness outstanding (excluding unused
commitments) and approximately $574 million of indebtedness outstanding. The Old
Notes are, and the New Notes will be, jointly and severally guaranteed on an
unsecured senior subordinated basis by the domestic subsidiaries and, under
certain circumstances, certain foreign subsidiaries of the Company (the
"Subsidiary Guarantors"), which guarantees will be subordinated in right of
payment to all existing and future Senior Indebtedness of the Subsidiary
Guarantors, including obligations under the New Bank Credit Facility. As of
March 31, 1998, the Subsidiary Guarantors had approximately $13 million of
Senior Indebtedness outstanding (excluding unused commitments) and approximately
$18 million of indebtedness outstanding.
The Company will accept for exchange any and all Old Notes which are
validly tendered in this Exchange Offer prior to 5:00 p.m, New York City time,
on September 11, 1998 (if, when and as extended, the "Expiration Date"). Tenders
of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City
time, on the Expiration Date, pursuant to the procedures described herein. The
Exchange Offer is not conditioned upon any minimum principal amount of Old Notes
being tendered for exchange. Old Notes may be tendered only in integral
multiples of $1,000. After consummation of the Exchange Offer, the Company may
offer to purchase any Notes at any price or prices which the Company deems
appropriate, although the Company is not obligated and has no present intention
to do so.
The New Notes will bear interest at 8-7/8% per annum from the date of
original issue. Interest on the New Notes will be payable semi-annually, in
arrears, on April 1 and October 1 of each year, commencing October 1, 1998.
Holders of Old Notes that are accepted for exchange will receive, in cash,
accrued interest on the Old Notes to, but not including, the date of issuance of
the New Notes. Such interest will be paid with and at the time of the first
interest payment on the New Notes. Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance of the New Notes being exchanged
therefor.
The New Notes will not be redeemable prior to April 1, 2003, except
that the Company may, at its option, redeem in the aggregate up to $50,000,000
of the original principal amount of the New Notes, with the net proceeds of
certain sales of common stock of the Company at a redemption price of 108.875%
of the principal amount so redeemed plus accrued interest through the date of
redemption. From and after April 1, 2003, the New Notes will be redeemable at
the option of the Company, in whole or in part, at the redemption prices set
forth in the Indenture plus accrued interest to the date of redemption. Upon a
Change of Control (as defined herein), the Company is required, subject to
certain conditions, to offer to purchase the New Notes at 101% of the principal
amount thereof together with accrued interest to the date of purchase. See
"Description of the Notes."
The Old Notes were originally issued and sold on March 31, 1998 in a
transaction not registered under the Securities Act in reliance upon an
exemption from the registration requirements thereof. The New Notes are being
offered hereunder in order to satisfy certain obligations of the Company and the
Subsidiary Guarantors, contained in the Registration Rights Agreement, dated as
of March 31, 1998 (the "Registration Rights Agreement"), among the Company and
the other signatories thereto. Based on existing interpretations by the staff of
the Securities and Exchange Commission (the "Commission") contained in several
no-action letters issued to third parties, the Company believes that the New
Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be
offered for resale, resold, or otherwise transferred by holders thereof (other
than any such holder which is broker-dealer or an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) without further
registration under the Securities Act; provided, however, that each Holder that
wishes to exchange its Old Notes for New Notes will be required to represent (i)
that any New Notes to be received by it will be acquired in the ordinary course
of its business, (ii) that at the time of the commencement of the Exchange Offer
it has no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the New Notes, (iii)
that it is not an "affiliate" (as defined in Rule 405 promulgated under the
Securities Act) of the Company, (iv) if such Holder is not a broker-dealer, that
<PAGE>
it is not engaged in, and does not intend to engage in, the distribution of New
Notes, and (v) if such Holder is a broker-dealer (a "Participating
Broker-Dealer") that will receive New Notes for its own account in exchange for
Old Notes that were acquired as a result of market-making or other trading
activities, that it will deliver a prospectus in connection with any resale of
such New Notes and that it acquired such Old Notes as a result of market-making
activities or other trading activities. However, the Company does not intend to
request the Commission to consider, and the Commission has not considered, the
Exchange Offer in the context of a no-action letter and there can be no
assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer as it has in such other circumstances. The
Company will agree to make available, during the period required by the
Securities Act, a prospectus meeting the requirements of the Securities Act for
use by Participating Broker-Dealers and other persons, if any, with similar
prospectus delivery requirements for use in connection with any resale of New
Notes. If any Holder is an affiliate of the Company or is engaged in, or intends
to engage in, or has any arrangement with any person to participate in, the
distribution of the New Notes to be acquired pursuant to the Exchange Offer,
such Holder (i) could not rely on the applicable interpretations of the staff of
the Commission and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction, including the delivery of a prospectus which contains the
information with respect to any selling holder required by the Securities Act.
The Letter of Transmittal states that by so representing and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, starting on
the Expiration Date (as defined herein) and ending on the close of business on
the 180th day following the Expiration Date, or, if earlier, when all New Notes
held by a participating broker-dealer have been disposed of, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
Neither the Company nor any Subsidiary Guarantor will receive any
proceeds from the Exchange Offer. The Company has agreed to pay the expenses of
the Exchange Offer. No underwriter is being used in connection with the Exchange
Offer. The Company has agreed to bear the expenses of this Exchange Offer. The
Registration Statement of which this Prospectus constitutes a part will remain
in effect until the consummation of the Exchange Offer which will occur promptly
after the Expiration Date. In the event the Company terminates the Exchange
Offer and does not accept for exchange any Old Notes, the Company will promptly
return the Old Notes to the Holders thereof. See "The Exchange Offer."
Prior to this Exchange Offer, there has been no public market for the
Old Notes and the Company does not intend to list the New Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. Although Credit Suisse First Boston Corporation, CIBC
Oppenheimer Corp., Salomon Brothers Inc, Morgan Stanley & Co. Incorporated, and
BancBoston Securities Inc. (the "Initial Purchasers") have advised the Company
that they currently intend to make a market in the New Notes, they are not
obligated to do so and may discontinue such market-making at any time without
notice. Accordingly, there can be no assurance as to the future development of
an active market for the New Notes. To the extent that a market for the New
Notes does develop, the market value of the New Notes will depend on market
conditions (such as yields on alternative investments), general economic
conditions, the Company's financial condition and other conditions. Such
conditions might cause the New Notes, to the extent that they are actively
traded, to trade at a significant discount from face value. See "Risk Factors --
Lack of Public Market."
<PAGE>
FORWARD-LOOKING STATEMENTS
When included in this Prospectus or in documents incorporated herein by
reference, the words "may," "expects," "intends," "anticipates," "plans,"
"projects," "estimates" and the negatives thereof and analogous or similar
expressions are intended to identify forward-looking statements. Such
statements, which include statements contained in "Prospectus Summary," "Risk
Factors," "Industry Overview and Outlook for Principal Products," "Business
Strategy," "The O&K Acquisition" and "Business" are inherently subject to a
variety of risks and uncertainties that could cause actual results to differ
materially from those reflected in such forward-looking statements. Such risks
and uncertainties, many of which are beyond the Company's control, include,
among others, the sensitivity of construction and mining activity to interest
rates, government spending and general economic conditions; the success of the
integration of acquired businesses; the retention of key management; foreign
currency fluctuations; pricing, product initiatives and other actions taken by
competitors; the effects of changes in laws and regulations; continued use of
net operating loss carryovers and other factors. Actual events or the actual
future results of the Company may differ materially from any forward looking
statement due to these and other risks, uncertainties and significant factors.
The forward-looking statements contained herein speak only as of the date of
this Prospectus and the forward-looking statements contained in documents
incorporated herein by reference speak only as of the date of the respective
documents. The Company expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any forward-looking statement
contained or incorporated by reference in this Prospectus to reflect any change
in the Company's expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based.
<PAGE>
1
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements and the
related notes thereto appearing elsewhere or incorporated by reference in this
Prospectus. As used herein, unless otherwise indicated or unless the context
otherwise requires, "Terex" or the "Company" refers to Terex Corporation and its
subsidiaries.
The Company
Terex is a global manufacturer of a broad range of construction and mining
related capital equipment. The Company strives to manufacture high quality
machines which are low cost, simple to use and easy to maintain. The Company's
principal products include telescopic mobile cranes, aerial work platforms,
utility aerial devices, telescopic material handlers, truck mounted mobile
cranes, rigid and articulated off-highway trucks, high capacity surface mining
trucks, large hydraulic mining shovels and related components and replacement
parts. Terex operates in two business segments: Terex Lifting (formerly known as
Terex Cranes) and Terex Earthmoving (formerly known as Terex Trucks). The
Company's products are manufactured at 16 plants in the United States and Europe
and are sold primarily through a worldwide network of dealers in over 750
locations to the global construction, infrastructure and surface mining markets.
Management believes that the Company is benefitting from several industry
trends, including the growing importance of rental fleet operators with respect
to Terex Lifting and an increasing level of global infrastructure development
with respect to Terex Earthmoving, particularly in North America and Europe.
Terex Lifting
Terex Lifting manufactures and sells telescopic mobile cranes (including
rough terrain, truck and all terrain mobile cranes), aerial work platforms
(including scissor, articulated boom and straight telescoping boom aerial work
platforms), utility aerial devices (including digger derricks and articulated
aerial devices), telescopic material handlers (including container stackers and
rough terrain lift trucks), truck mounted cranes (boom trucks) and related
components and replacement parts. These products are used by construction and
industrial customers, as well as utility companies. The Company believes that it
is the second largest manufacturer of rough terrain, truck and all terrain
telescopic mobile cranes in the United States (with an estimated 36% market
share) and the leading manufacturer in France and Italy (with an estimated 50%
market share in each of these countries).
Terex Earthmoving
Terex Earthmoving currently manufactures and sells articulated and rigid
off-highway trucks and high capacity surface mining trucks, and related
components and replacement parts. These products are used primarily by
construction, mining and government customers. On March 31, 1998, the Company,
through direct and indirect subsidiaries, acquired (the "O&K Acquisition") all
of the shares of O&K Mining Gmbh ("O&K Mining"). Since the O&K Acquisition, the
Terex Earthmoving segment has also included the business of O&K Mining, which
manufactures large hydraulic mining shovels and related parts primarily used to
load coal, copper ore, iron ore, other mineral-bearing materials or rocks into
trucks. The Company believes that O&K Mining has the leading market share for
large hydraulic mining shovel models having machine weights in excess of 200
tons.
Recent Developments
1998 Second Quarter and Year-To-Date Results
The company reported net income for the second quarter of 1998 of $20.6
million, up $13.3 million over the second quarter of 1997 (before extraordinary
charges in that period), and net sales of $333.5 million, up $101.3 million or
44% over the second quarter of 1997. For the six-month period year-to-date, the
Company reported income before extraordinary items of $35.0 million, up $23.4
million over income before extraordinary charges in 1997 of $11.6 million. The
net sales of the Company for the first six months of 1998 were $594.1 million,
up $185.6 million, or 45%, over the comparable period of 1997. During the second
<PAGE>
2
quarter of 1997 and the first quarter of 1998, the Company recorded
extraordinary charges of $2.6 million and $38.3 million, respectively, related
to the retirement of debt.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------------ --------------------------------------------
(unaudited) (unaudited)
1998 1997 1998 1997
-------------------- -------------------- ---------------------- --------------------
(dollars in millions, except per share amounts)
% of % of % of % of
sales sales sales sales
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales.....................$ 333.5 --- $ 232.2 --- $ 594.1 --- $ 408.5 ---
Gross profit.................. 60.6 18.2% 38.3 16.5% 105.4 17.7% 65.8 16.1%
Engineering, selling and
administrative expenses..... 27.4 8.2% 19.2 8.3% 48.4 8.1% 33.3 8.2%
Income from operations........ 33.2 10.0% 19.1 8.2% 57.0 9.6% 32.5 8.0%
Interest and other expense.... (12.2) 3.7% (11.2) 4.8% (21.4) 3.6% (20.5) 5.0%
</TABLE>
Acquisition of American Crane Corporation
On July 31, 1998, the Company purchased all of the outstanding capital stock
of The American Crane Corporation ("American Crane"), a manufacturer and
marketer of lattice boom cranes, based in Wilmington, North Carolina. The
purchase price of the capital stock was approximately $10.8 million, payable
$4.6 million in cash, $4.7 million in non-interest bearing deferred payments and
an amount not to exceed $1.5 million from the net proceeds from the subsequent
sale of excess real estate. Prior to the acquisition, American Crane had
approximately $9.1 million in outstanding debt, approximately $4.1 million of
which was repaid by American Crane at the closing with funds provided by the
Company.
American Crane is expected to generate worldwide annual sales of
approximately $40 million in 1998. American Crane's sales are conducted through
a network of dealers in the United States and through its 80% owned European
subsidiary. American Cranes has over 14,000 cranes in the field and derives over
30% of its revenues from the sale of higher margin parts. Its product line
includes lattice boom crawler cranes (60 tons to 450 tons of lifting capacity)
and lattice boom truck cranes (75 tons to 300 tons of lifting capacity).
Industry Overview and Outlook for Principal Products
Terex Lifting
Management believes that Terex Lifting's markets will benefit from the
developing replacement cycle for telescopic mobile cranes, the growing dominance
of rental fleet operators in the telescopic mobile crane and aerial work
platform markets, and the increasing importance of independent maintenance
contractors in the utility industry, the largest consumers of utility aerial
devices. The Company expects that a strong and sustained period of construction
activity and infrastructure development in most of the Company's primary
markets, the unusually high number of telescopic mobile cranes built in the late
1970s in North America beginning to reach the ends of their useful lives, and
higher rental fleet utilization rates will together generate a strong period of
demand for new telescopic mobile cranes. Rental fleets stocking a broad range of
products have become increasingly dominant as construction projects requiring
differing boom lengths and lifting capacities from telescopic mobile cranes and
varying platform heights from aerial work platforms have rendered impractical
the ownership of a full fleet of machines with assorted capabilities by end-user
contractors. Rental fleets are the primary consumers of telescopic mobile cranes
and aerial work platforms, representing an estimated 85% and 90%, respectively,
of the new market for such products in North America. This increasing importance
of rental fleet operators and their desire to maximize returns on product
investment has led Terex to focus on a best value strategy, which seeks to
<PAGE>
3
improve customer productivity by providing high quality products which are low
cost, simple to use and easy to maintain. This best value strategy, together
with the Company's existing dealer relationships and direct relationships with
major private contractors, is also expected to enable the Company to improve
sales of utility aerial devices by capitalizing on the increasing outsourcing of
maintenance functions to private contractors in an effort to reduce costs in the
utility industry.
Terex Earthmoving
The primary markets for the Company's articulated and rigid frame
off-highway trucks are the global large private construction project and public
infrastructure development markets. The Company's best value strategy for its
off-highway trucks appeals to rental fleet operators and contractors and large
construction companies for whom availability, reliability and hauling efficiency
at low cost are of critical concern. The largest market for the Company's high
capacity surface mining trucks and large hydraulic excavators is the global
surface mining market. The electric drive system included in the Company's high
capacity surface mining trucks and the patented tripower hydraulic shovel
technology used in the hydraulic mining shovels allow the Company to market cost
efficient machines offering greater reliability and productivity to the
Company's mining customers than that offered by competing technologies. Secular
trends in the surface mining industry toward smaller, shorter lived mines and
more selective mining practices favor the Company's hydraulic mining shovels
which offer high maneuverability and greater operating time at lower initial
capital investment than comparable sized alternatives. The around the clock
usage of the Company's mining products in intensive earthmoving operations also
generates a significant higher margin after-market parts and service business
that caters primarily to its increasing installed equipment base.
Business Strategy
Ronald M. DeFeo joined the Company in May 1992, was appointed President and
Chief Operating Officer in October 1993, was named Chief Executive Officer in
March 1995 and was appointed Chairman of the Board in March 1998. Since joining
the Company, Mr. DeFeo has recruited several new senior executives to Terex, and
under the direction of this new management team, Terex has implemented a series
of interrelated strategic initiatives designed to improve manufacturing
efficiency and offer its products at a lower cost than competitors, thereby
increasing sales, earnings and market share. The Company has also initiated a
strategy to improve significantly its financial flexibility, strengthen its
capital structure and enhance its liquidity to execute its growth initiatives.
Increase Sales Through Best Value Strategy -- The Company has focused its
product lines on products which it can manufacture at low cost relative to its
competitors. The Company has rationalized its product lines and simplified its
product designs, including increasing the number of interchangeable parts
between models. This strategy has enabled the Company to offer many of its
products at prices that it believes are often 10% to 15% below those offered by
its competitors with virtually the same utility and marketability as the
competition's products, thereby offering its customers a more attractive return
on their invested capital. The key targets of this strategy are rental
companies, Terex Lifting's primary customers, which are generally unable to
charge a premium rental rate for equipment that has sophisticated, but
nonessential features. The Company believes that by offering its customers a
simplified product design at a lower price, it can increase sales and gain
market share.
Focus on Core Businesses -- Over the past several years the Company has
focused on the growing and improving operations of its core lifting and
earthmoving businesses and has expanded the size and scope of those operations
through both acquisitions and new product development in order to increase the
Company's market share. Management believes that these initiatives have helped
insulate the Company from potential cyclical changes in any one market. In
addition, these initiatives have expanded the Company's product lines, added new
technology and improved the Company's distribution network.
Growth through Acquisitions -- During the past several years, the Company
has invested approximately $394.3 million to strengthen its core businesses
through seven strategic acquisitions. The Company expects that acquisitions and
new product development will continue to be important components of its growth
strategy and is continually reviewing acquisition opportunities. As with its
previous acquisitions, Terex will continue to pursue strategic acquisitions
<PAGE>
4
which complement the Company's core operations, offer cost reduction
opportunities as well as distribution and purchasing synergies and provide
product diversification.
Reduce Costs and Improve Manufacturing Efficiency -- Over the past few
years, the Company has initiated several programs to increase profitability
through cost reductions and improved manufacturing efficiency. As part of this
strategy, the Company evaluates every cost component of its existing and
acquired businesses and typically (i) consolidates manufacturing operations,
(ii) increases the efficiency of manufacturing processes through improved
material flow and outsourcing, (iii) reduces overhead and (iv) emphasizes those
products that yield the highest margins, including the replacement parts and
related business. Management believes it has established a philosophy of
continuous cost reduction in all of its operations. Some recent examples of cost
reduction initiatives are listed below.
o As a result of numerous cost reduction initiatives at PPM
(as defined below), the Company has reduced total headcount
at PPM from approximately 840 in May 1995 to approximately
590 at December 31, 1997 and reduced the number of employees
categorized as indirect at PPM from approximately 430 in May
1995 to approximately 226 at December 31, 1997. During that
same period, sales at PPM increased. In addition, by
outsourcing certain welding operations at PPM's Conway,
South Carolina telescopic mobile crane manufacturing
facility, the Company believes it has achieved over $2
million of annualized savings.
o Cost reductions at certain of the former subsidiaries of
Simon Engineering plc (the "Simon Access Companies")
acquired in April 1997 resulted in a reduction of headcount
by approximately 130 during the 90 days immediately
following the acquisition of the Simon Access Companies,
primarily in indirect personnel. The Company estimates those
initiatives reduced annual operating expenses by
approximately $7 million and the Company anticipates further
cost savings as the Simon Access Companies are more
completely integrated into the Terex family.
Summary of Terms of the Exchange Offer
Registration Rights.....The Old Notes were sold by the Company (i) to Qualified
Institutional Buyers (as defined in Rule 144A under the
Securities Act) and (ii) to certain persons in offshore
transactions in reliance transactions in reliance on
Regulation S under the Securities Act. Credit Suisse
First Boston Corporation, CIBC Oppenheimer Corp., Morgan
Stanley & Co., Incorporated, Salomon Brothers Inc and
BancBoston Securities Inc. were the initial purchasers
of the Old Notes (the "Initial Purchasers"). In
connection with the sale of the Old Notes, the Company
and the Initial Purchasers entered into a Registration
Rights Agreement, dated as of March 31, 1998 (the
"Registration Rights Agreement"), providing for, among
other things, the Exchange Offer.
The Exchange Offer......The Company is offering to exchange $1,000 principal
amount of New Notes for each $1,000 principal amount of
Old Notes that are properly tendered and accepted for
exchange. The Company will issue the New Notes on or
promptly after the Expiration Date. As of May 15, 1998,
there was $150 million aggregate principal amount of Old
Notes outstanding. See "The Exchange Offer."
Resale of the
New Notes.............Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, including "K-III Communications
Corporation" (available May 14, 1993), "Shearman &
Sterling" (available July 2, 1993), "Exxon Capital
Holdings Corporation" (available May 13, 1988), "Morgan
Stanley & Co. Incorporated" (available June 5, 1991),
<PAGE>
5
"Mary Kay Cosmetics, Inc." (available June 5, 1991) and
"Warnaco, Inc." (available October 11, 1991), the
Company believes that, except as described below, New
Notes issued pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale, resold and
otherwise transferred by Holders (other than any such
Holder which is a broker-dealer or an "affiliate" of the
Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities
Act, provided that (i) such New Notes are acquired in
the ordinary course of such Holder's business, (ii) such
Holder has no arrangement or understanding with any
person to participate in the distribution of such New
Notes and (iii) such Holder is not engaged in, and does
not intend to be engaged in, a distribution of the New
Notes. However, the Company does not intend to request
the Commission to consider, and the Commission has not
considered, the Exchange Offer in the context of a
no-action letter and there can be no assurance that the
staff of the Commission would make a similar
determination with respect to the Exchange Offer as it
has in such other circumstances.
By tendering Old Notes in exchange for New Notes, each
Holder will represent to the Company that: (i) it is not
an affiliate of the Company as defined in Rule 405 under
the Securities Act, (ii) any New Notes to be received by
it will be acquired in the ordinary course of business
and (iii) at the time of the commencement of this
Exchange Offer it had no arrangement with any person to
participate in a distribution of the New Notes and, if
such Holder is not a broker-dealer, it is not engaged
in, and does not intend to engage in, a distribution of
New Notes. If a Holder of Old Notes is unable to make
the foregoing representations, such Holder may not rely
on the applicable interpretations of the Staff of the
Commission as set forth in such no-action letters, and
must comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any secondary resale transaction.
Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes
were acquired by such broker-dealer as a result of
market-making activities or other trading activities,
must acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in
connection with any resale of such New Notes and that it
has not entered into any arrangement or understanding
with the Company or an affiliate of the Company to
distribute the New Notes in connection with any resale
of the New Notes. The Letter of Transmittal states that
by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in
connection with resales of New Notes where such Old
Notes were acquired by such broker-dealer as a result of
<PAGE>
6
market-making activities or other trading activities.
The Company has agreed that, starting on the Expiration
Date, and ending on the close of business 180 days after
the Expiration Date or, if earlier, when all New Notes
held by a participating broker-dealer have been disposed
of, it will make this Prospectus available to any
participating broker-dealer for use in connection with
any such resale. See "Plan of Distribution."
This Exchange Offer is not being made to, nor will the
Company accept surrenders for exchange from, Holders of
Old Notes (i) in any jurisdiction in which this Exchange
Offer or the acceptance thereof would not be in
compliance with the securities or blue sky laws of such
jurisdiction or (ii) if any Holder is engaged or intends
to engage in a distribution of the New Notes.
Expiration Date.........The Exchange Offer will expire at 5:00 p.m., New York
City time, on September 11, 1998(30 calendar days
following the commencement of the Exchange Offer),
unless extended by the Company in its sole discretion
which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offer is
extended. The Company will accept for exchange any
and all Old Notes which are validly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on the
Expiration Date. The New Notes issued pursuant to the
Exchange Offer will be delivered on or promptly after
the Expiration Date.
Interest on the
New Notes and
Old Notes.............The New Notes will bear interest at the rate of 8-7/8%
per annum and interest will be payable semi-annually on
April 1 and October 1, commencing on October 1, 1998, to
Holders of record on the immediately preceding March 15
and September 15. Holders of New Notes will receive
interest on October 1, 1998 from the date of initial
issuance of the New Notes, plus an amount equal to the
accrued interest on the Old Notes exchanged therefor
from the most recent date to which interest has been
paid to the date of exchange thereof. Such interest will
be paid with the first interest payment on the New
Notes. Interest on the Old Notes accepted for exchange
will cease to accrue upon issuance of the New Notes.
Procedures for
Tendering Old Notes...Each Holder of Old Notes wishing to accept the Exchange
Offer must complete, sign and date the Letter of
Transmittal, or a facsimile thereof, in accordance with
the instructions contained herein and therein, and mail
or otherwise deliver such Letter of Transmittal, or such
facsimile, together with the Old Notes and any other
required documentation, to United States Trust Company
of New York, as Exchange Agent (the "Exchange Agent"),
at the address set forth herein and in the Letter of
Transmittal.
Special Procedures for
Beneficial Owners.....Any beneficial owner whose Old Notes are registered in
the name of a broker, dealer, commercial bank, trust
<PAGE>
7
company or other nominee and who wishes to tender such
Old Notes in the Exchange Offer should contact such
registered holder promptly and instruct such registered
holder to tender on such beneficial owner's behalf. If
such beneficial owner wishes to tender on its own behalf,
such owner must, prior to completing and executing the
Letter of Transmittal and delivering his Old Notes,
either make appropriate arrangements to register
ownership of the Old Notes in its own name or obtain a
properly completed bond power from the registered holder.
The transfer of registered ownership may take
considerable time and may not be able to be completed
prior to the Expiration Date.
Guaranteed Delivery
Procedures............Holders of Old Notes who wish to tender their Old Notes
and whose Old Notes are not immediately available or who
cannot deliver their Old Notes, the Letter of
Transmittal or any other documents required by the
Letter of Transmittal to the Exchange Agent prior to the
Expiration Date, must tender their Old Notes according
to the guaranteed delivery procedures set forth in "The
Exchange Offer -- Guaranteed Delivery Procedures."
Withdrawal Rights.......Tenders of Old Notes may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Expiration Date
by furnishing a written or facsimile transmission notice
of withdrawal to the Exchange Agent containing the
information set forth in "The Exchange Offer --
Withdrawal of Tenders."
Certain Federal Income
Tax Consequences......The exchange of the Old Notes for the New Notes
should not constitute a taxable exchange for U.S.
federal tax consequences. For a discussion of certain
federal income tax consequences relating to the exchange
of the New Notes for the Old Notes, see "Certain Federal
Income Tax Consequences."
Exchange Agent..........United States Trust Company of New York, the trustee
under the Indenture, is acting as the Exchange Agent.
The address and telephone number of the Exchange Agent
are set forth in "The Exchange Offer -- Exchange Agent."
Use of Proceeds.........The Company will not receive any proceeds from the
Exchange Offer.
Summary of Terms of the New Notes and the Guarantees
The Exchange Offer relates to the exchange of up to $150,000,000 aggregate
principal amount of the Old Notes for an equal aggregate principal amount of New
Notes. The form and terms of the New Notes will be the same as the form and
terms of the Old Notes, except that the New Notes will be registered under the
Securities Act and, therefore, will not bear legends restricting the transfer
thereof. The New Notes will evidence the same debt as the Old Notes and will be
entitled to the benefits of the Indenture. See "Description of the Notes and the
Guarantees."
Issuer..................Terex Corporation.
Securities Offered......$150,000,000 aggregate principal amount of 8-7/8%
Senior Subordinated Notes due 2008.
<PAGE>
8
Maturity................April 1, 2008.
Interest Rate...........The New Notes will bear interest at 8-7/8% per annum
from the date of original issue.
Interest Payment
Dates.................April 1 and October 1 of each year, commencing October
1, 1998.
Ranking.................The New Notes will be unsecured senior subordinated
obligations of the Company and, as such, will be
subordinated in right of payment to all existing and
future Senior Indebtedness (as defined in the Indenture)
of the Company, including the Company's new bank credit
facility (the "New Bank Credit Facility"), pari passu in
right of payment with all future senior subordinated
indebtedness of the Company and senior in right of
payment to all existing and future subordinated
indebtedness of the Company. As of March 31, 1998, the
Company had approximately $413 million of Senior
Indebtedness outstanding (excluding unused commitments)
and approximately $574 million of indebtedness
outstanding.
Guarantees..............The New Notes will be jointly and severally guaranteed
on a senior subordinated basis by the existing and
future domestic subsidiaries and, under certain
circumstances, certain foreign subsidiaries of the
Company. The guarantees of the Subsidiary Guarantors
will be subordinated to all existing and future Senior
Indebtedness of the Subsidiary Guarantors, including
the obligations of the Subsidiary Guarantors under
the New Bank Credit Facility. The New Notes will be
effectively subordinated to all obligations of any
subsidiary of the Company which is not a Subsidiary
Guarantor. As of March 31, 1998, the Subsidiary
Guarantors had approximately $13 million of Senior
Indebtedness outstanding (excluding unused commitments)
and approximately $18 million of indebtedness
outstanding, and subsidiaries of the Company that are
not Subsidiary Guarantors had approximately $56 million
of indebtedness outstanding.
Sinking Fund............None.
Optional Redemption.....The New Notes are redeemable, in whole or in part, at
the option of the Company at any time on or after April
1, 2003, at the redemption prices set forth in this
Prospectus, plus accrued interest to the date of
redemption. In addition, at any time or from time to
time prior to April 1, 2001, the Company may, at its
option, redeem up to $50 million of the original
aggregate principal amount of the Notes with the
proceeds of one or more Public Equity Offerings (as
defined in the Indenture) at a redemption price equal to
108.875% of the principal amount thereof, plus accrued
<PAGE>
9
interest to the date of redemption; provided, however,
that at least $97.5 million in aggregate principal
amount of the Notes remains outstanding after each such
redemption.
Change of Control.......Upon the occurrence of a Change of Control (as
defined in the Indenture), the Company is required,
subject to certain conditions, to offer to purchase the
New Notes at 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest, if any, to
the date of purchase. See "Description of the Notes--
Change of Control."
Covenants...............The Indenture pursuant to which the New Notes will
be issued contains certain covenants, that, among other
things, will limit the ability of the Company and its
Restricted Subsidiaries (as defined) to incur
indebtedness and liens, pay dividends and make other
payments, consummate mergers and asset sales, enter into
related party transactions and make investments. Such
covenants are subject to important qualifications and
limitations. See "Description of the Notes-- Certain
Covenants."
Absence of a Public
Market for the
New Notes.............The New Notes will be new securities for which there
currently is no market. The Old Notes are eligible for
trading in the Private Offerings, Resale and Trading
through Automated Linkages (PORTAL) market. Although the
Initial Purchasers have advised the Company that they
currently intend to make a market in the New Notes, they
are not obligated to do so, and may discontinue any such
market making at any time without notice. Accordingly,
there can be no assurance as to the future development
or liquidity of any market for the New Notes. The
Company does not intend to apply for listing of the New
Notes on any securities exchange or for quotation
through the National Association of Securities Dealers
Automated Quotation System. See "Plan of Distribution."
Consequences of Exchanging or Failure to Exchange Old Notes
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon
and in the Indenture as a consequence of the issuance of the Old Notes pursuant
to exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities law. In
general, the Old Notes may not be offered or sold, unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. In
addition, upon consummation of the Exchange Offer, holders of the Old Notes that
remain outstanding will not be entitled to any rights under the Registration
Rights Agreement that by their terms terminate or cease to have further
effectiveness as result of the making of this Exchange Offer. To the extent that
Old Notes are tendered and accepted in the Exchange Offer, a holder's ability to
<PAGE>
10
sell untendered Old Notes could be adversely affected. In addition, although the
Old Notes are eligible for trading in the PORTAL market, to the extent that Old
Notes are tendered and accepted in connection with the Exchange Offer, any
trading market for Old Notes which remain outstanding after the Exchange Offer
could be adversely affected. The Company does not currently anticipate that it
will register under the Securities Act the resale of any Old Notes that remain
outstanding after consummation of the Exchange Offer. See "Description of the
Notes-- Registration Rights." The Company will agree to make available, during
the period required by the Securities Act, a prospectus meeting the requirements
of the Securities Act for use by Participating Broker-Dealers and other persons,
if any, with similar prospectus delivery requirements for use in connection with
any resale of New Notes. If any Holder is an affiliate of the Company or is
engaged in or intends to engage in or has any arrangement with any person to
participate in the distribution of the New Notes to be acquired pursuant to this
Exchange Offer, such Holder (i) could not rely on the applicable interpretations
of the staff of the commission and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction, including the delivery Act. Each broker-dealer that receives
New Notes for its own account pursuant to this Exchange Offer must represent to
the Company that it will deliver a prospectus in connection with any resale of
such New Notes. The Letter of Transmittal states that by so representing and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company has agreed
that, starting on the Expiration Date and ending on the close of business on the
90th day following the Expiration Date, it will make this Prospectus available
to any broker-dealer for use in connection with any such resale. See "Plan of
Distribution." However, to comply with the securities laws of certain
jurisdictions, if applicable, the New Notes may not be offered or sold unless
they have been registered or qualified for sale in such jurisdictions or an
exemption from registration or qualification is available and is complied with.
The Company does not currently intend to register or qualify the sale of the New
Notes in any such jurisdictions. See "The Exchange Offer -- Consequences of
Exchanging or Failing to Exchange Old Notes."
Risk Factors
See "Risk Factors" for a discussion of certain factors that should be
considered in connection with the Exchange Offer and an investment in the New
Notes.
<PAGE>
11
RISK FACTORS
In addition to other matters described in this Prospectus, the following
should be carefully considered in connection with the Exchange Offer and an
investment in the New Notes:
Holders Responsible for Compliance with Exchange Offer
Procedures; No Notice of Defects or Irregularities
Issuance of the New Notes in exchange for Old Notes pursuant to this
Exchange Offer will be made only after a timely receipt by the Company of such
Old Notes, a properly completed and duly executed Letter of Transmittal and all
other required documents. Therefore, holders of Old Notes desiring to tender
such Old Notes in exchange for New Notes should allow sufficient time to ensure
timely delivery. Neither the Exchange Agent nor the Company is under any duty to
give notification of defects or irregularities with respect to the tender of Old
Notes for exchange. Old Notes that are not tendered or are tendered but not
accepted for exchange will, following the consummation of this Exchange Offer,
continue to be subject to the existing restrictions upon transfer thereof and,
upon consummation of this Exchange Offer, the Company's obligation to register
the Old Notes will terminate. See "The Exchange Offer."
Significant Leverage
As of March 31, 1998, the Company had outstanding indebtedness of
approximately $574 million, and the ratio of the Company's indebtedness to total
capitalization was approximately 95%. This substantial leverage has several
important consequences, including the following: (i) a substantial portion of
the Company's net cash provided by operating activities, will be dedicated to
servicing its indebtedness, and (ii) the Company's ability to withstand
competitive pressures, adverse economic conditions and adverse changes in
governmental regulations, to make acquisitions, and to take advantage of
significant business opportunities that may arise, may be negatively affected.
The Company's ability to meet its debt service obligations and to reduce its
total indebtedness will be dependent upon future performance, which will be
subject to general economic conditions, its ability to achieve cost savings and
other financial, business and other factors affecting the operations of the
Company, many of which are beyond its control. If the Company is unable to
generate sufficient operating cash flow in the future to service its debt, it
may be required to refinance all or a portion of such debt or to obtain
additional financing. There can be no assurance, however, that any refinancing
would be possible or that any additional financing could be obtained. In
addition, because certain of the Company's obligations, including indebtedness
under the New Bank Credit Facility, bear interest at floating rates, an increase
in interest rates could adversely affect, among other things, the ability of the
Company to meet its debt service obligations. The Company has entered into
certain interest protection arrangements with respect to a portion of its
indebtedness under the New Bank Credit Facility that will be designed to place a
cap on the interest rates payable thereon.
Restrictions Imposed by the Terms of the Company's Indebtedness
The Indenture and the New Bank Credit Facility impose upon the Company
certain financial and operating covenants, including, among others, restrictions
on the ability of the Company to incur debt, pay dividends or take certain other
corporate actions. In addition, the New Bank Credit Facility requires that the
Company maintain certain financial ratios and provides for limitations on
capital expenditures. The foregoing covenants may restrict the Company's ability
to borrow additional funds, dispose of assets or otherwise pursue its business
strategies, and may impair the Company's ability to obtain additional financing
to fund future working capital requirements, capital expenditures, acquisitions
and other general corporate purposes. Changes in economic or business
conditions, results of operations or other factors could in the future cause the
Company to violate one or more covenants in the Company's debt instruments.
<PAGE>
12
Industry Cyclicality and Substantial Competition
Sales of products manufactured and sold by the Company have historically
been subject to substantial cyclical variation extending over a number of years
based on general economic conditions. Downward cycles result in reductions in
product sales which could adversely impact the Company's results of operations.
The Company recognizes the potential adverse impact of cyclical variations in
sales of products and has taken a number of steps to reduce its fixed costs to
decrease the impact of cyclicality.
The markets in which the Company competes are highly competitive. To compete
successfully, the Company must remain competitive in the areas of quality,
price, product line, ease of use, safety, comfort and customer service. Many of
the Company's competitors have greater financial resources than the Company.
Subordination of Notes and the Guarantees of Subsidiaries
The Old Notes are, and the New Notes will be, subordinated in right of
payment in full to the prior payment, when due, of all existing and future
Senior Indebtedness (as defined in the Indenture) of the Company including
indebtedness under the New Bank Credit Facility. The guarantees of the
Subsidiary Guarantors will be subordinated in right of payment in full to the
prior payment, when due, of all existing and future Senior Indebtedness of each
Subsidiary Guarantor, including obligations under the New Bank Credit Facility.
As a result of such subordination, in the event of the bankruptcy, liquidation
or reorganization of the Company or upon acceleration of the Notes due to an
Event of Default under the Indenture or certain other events, the assets of the
Company and any Subsidiary Guarantor will be available to pay obligations on the
Notes only after all Senior Indebtedness of the Company and such Subsidiary
Guarantor, as the case may be, has been paid in full, and there may not be
sufficient assets remaining to pay amounts due on the Notes then outstanding. As
of March 31, 1998, the Company had approximately $413 million of Senior
Indebtedness outstanding (excluding unused commitments) and approximately $574
million of indebtedness outstanding, and the Subsidiary Guarantors had
approximately $13 million of Senior Indebtedness outstanding (excluding unused
commitments) and approximately $18 million of indebtedness outstanding. In
addition, the Old Notes are, and the New Notes will be, effectively subordinated
to all obligations of any subsidiary of the Company which is not a Subsidiary
Guarantor. As a result, the holders of any indebtedness of the Company's foreign
subsidiaries or any other subsidiary of the Company which is not a Subsidiary
Guarantor will be entitled to payment thereof from the assets of such
subsidiaries prior to the holders of any general unsecured obligations of the
Company, including the Notes. As of March 31, 1998, subsidiaries of the Company
that are not Subsidiary Guarantors had approximately $56 million of indebtedness
outstanding. In addition, the Company may not make any payments in respect of
the Notes during the continuance of a payment default under any Designated
Senior Indebtedness (as defined herein). Moreover, if certain non-payment
defaults exist under any Designated Senior Indebtedness, the Company may not
make any payments in respect of the Notes for a specified period of time.
The Old Notes and the related guarantees of the Subsidiary Guarantors are
not, and the New Notes and the related guarantees of the Subsidiary Guarantors
will also not be, secured and will be effectively subordinated to secured
obligations of the Company and the Subsidiary Guarantors to the extent of the
assets securing such obligations. The obligations of the Company under the New
Bank Credit Facility, the obligations of the Subsidiary Guarantors as guarantors
of any outstanding Senior Secured Notes and the obligations of the Subsidiary
Guarantors under the New Bank Credit Facility are secured by a security interest
in substantially all of the property of the Company and such Subsidiary
Guarantors, including inventory, equipment, receivables and intangible assets
such as licenses, trademarks and customer lists. If the Company becomes
insolvent or is liquidated, or if payment under any outstanding Senior Secured
Notes or the New Bank Credit Facility is accelerated, the holders of any
outstanding Senior Secured Notes or the lenders under the New Bank Credit
Facility, as the case may be, would be entitled to exercise the remedies
available to a secured lender. Accordingly, such lenders will have a prior claim
on such assets of the Company and the Subsidiary Guarantors over the holders of
the Notes.
<PAGE>
13
Fraudulent Transfer Considerations
The obligations of any Subsidiary Guarantor under the Indenture may be
subject to review under applicable fraudulent transfer or similar laws, in the
event of the bankruptcy or other financial difficulty of any such person. In the
United States, under such laws, if a court in a lawsuit by an unpaid creditor or
representative of creditors of any such person, such as a trustee in bankruptcy
or any such person as debtor in possession, were to find under relevant law that
at the time such person incurred its obligations under its guarantee or pledged
its assets, it (i) received less than fair consideration or reasonably
equivalent value therefor, and (ii) either (a) was insolvent, (b) was rendered
insolvent, (c) was engaged or about to engage in a business or transaction for
which its remaining unencumbered assets constituted unreasonably small capital,
or (d) intended to incur, or believed or reasonably should have believed, that
it would incur debts beyond its ability to pay as such debts matured, such court
could void such obligations under its guarantee and direct the return of any
amounts paid with respect thereto or take other action detrimental to the
Holders. Moreover, regardless of the factors identified in the foregoing clauses
(i) and (ii), a court could take action if it found that the guarantee was
entered into with actual intent to hinder, delay, or defraud creditors. The
measure of insolvency for purposes of the foregoing will vary depending on the
law of the jurisdiction being applied. Generally, however, an entity would be
considered insolvent if the sum of its debts (including contingent or
unliquidated debts) is greater than all of its property at a fair valuation or
if the present fair salable value of its assets is less than the amount that
would be required to pay its probable liability on its existing debts as they
become absolute and matured.
There can be no assurance as to what standard a court would apply in order
to determine whether a Subsidiary Guarantor was "insolvent" upon consummation of
the Exchange Offer, or upon the incurrence of the subsidiary guarantees or that,
regardless of the method of valuation, a court would not determine that one or
more Subsidiary Guarantors was insolvent as a result of the foregoing.
The O&K Acquisition; Acquisition Strategy; Integration of Acquired Businesses
The recently completed O & K Acquisition will require the integration of the
manufacturing, administrative, finance, sales and marketing organizations of O&K
Mining into the Company, as well as the integration of and coordination of O&K
Mining's sales efforts with those of the Company. This will require substantial
attention from the Company's management team. The diversion of management
attention and any other difficulties encountered in the integration process
could have an adverse impact on the revenue and operating results of the
Company. In addition, there can be no assurance that the Company will be able to
integrate fully the respective business operations of the Terex Earthmoving
business segment and O&K Mining or to realize fully the cost reductions the
Company expects to achieve. The estimates of potential cost savings are forward
looking statements that are inherently uncertain. Actual cost savings could
differ materially from those anticipated. All of these forward looking
statements are based on the estimates and assumptions made by management of the
Company which, although believed to be reasonable, are inherently uncertain and
difficult to predict. There also can be no assurance that unforeseen costs and
expenses or other factors may not offset any cost savings. If the Company is not
successful in integrating such operations and achieving such cost reductions,
the business of the Company may be adversely affected.
The Company expects to continue a strategy of identifying and acquiring
businesses with complementary products and services which could be expected to
enhance the Company's operations and profitability. Future acquisitions may be
financed by internally generated funds, bank borrowings, public offerings or
private placements of equity or debt securities, or a combination of any of the
foregoing. There can be no assurance, however that the Company will continue to
identify suitable new acquisition candidates, obtain financing necessary to
complete such acquisitions or acquire businesses on satisfactory terms, or that
any business acquired by the Company will be integrated successfully into the
Company's operations or prove to be profitable. See "-- Significant Leverage"
and "-- Restrictions Imposed by the Terms of the Company's Indebtedness."
Successful integration of businesses acquired will depend, in part, on the
Company's ability to manage these additional businesses and eliminate
redundancies and excess costs. Material failure or substantial delay in
accomplishing such integration could have a material adverse effect on the
Company's results of operations and financial condition.
<PAGE>
14
Tax Audit Issues
The Internal Revenue Service (the "IRS") is currently examining the
Company's Federal tax returns for the years 1987 through 1989. In December 1994,
the Company received an examination report from the IRS proposing a substantial
tax deficiency. The examination report raised a variety of issues, including the
Company's substantiation for certain deductions taken during this period, the
Company's utilization of certain net operating loss carryovers ("NOLs") and the
availability of such NOLs to offset future taxable income. The Company filed an
administrative appeal to the examination report in April 1995. In June 1996, the
Company was advised that the matter was being referred back to the audit
division of the IRS. The IRS is currently reviewing information provided by the
Company. The ultimate outcome of this matter is subject to the resolution of
significant legal and factual issues. Given the stage of the audit, and the
number and complexity of the legal and administrative proceedings involved in
reaching a resolution of this matter, it is unlikely that the ultimate outcome,
if unfavorable to the Company, will be determined for at least several years. If
the IRS were to prevail on all the issues raised, the amount of the tax
assessment would be approximately $56 million plus penalties of approximately
$12.8 million and interest through March 31, 1998 of approximately $98.6
million. The penalties asserted by the IRS are calculated as 20% of the amount
of the tax assessed for fiscal year 1987 and 25% of the tax assessed for each of
fiscal years 1988 and 1989. Interest on the amount of tax assessed and penalties
is currently accruing at a rate of 10% per annum. The applicable annual rate of
interest has historically varied from 7% to 12%.
If the Company were required to pay a significant portion of the assessment
with related interest and penalties, such payment might exceed the Company's
resources. In such event, the viability of the Company would be placed in
jeopardy, and it is uncertain that the Company could, through financing or
otherwise, obtain the funds required to pay such assessment, interest, and
applicable penalties. Management believes, however, that the Company will be
able to provide adequate documentation for a substantial portion of the
deductions questioned by the IRS and that there is substantial support for the
Company's past and future utilization of the NOLs. Based upon consultation with
its tax advisors, management believes that the Company's position will prevail
on the most significant issues. Accordingly, management believes that the
outcome of the examination will not have a material adverse effect on its
financial condition or results of operations, but may result in some reduction
in the amount of the NOLs available to the Company. No additional accruals have
been made for any amounts which might be due as a result of this matter because
the possible loss ranges from zero to $56 million plus interest and penalties,
and the ultimate outcome cannot be determined or estimated at this time. No
reserves are being expensed to cover the potential liability.
Continuation of Net Operating Loss Carryovers
As of December 31, 1997, the Company had federal NOLs of approximately
$290.5 million. The Company would be subject to an annual limitation (described
below) on its ability to utilize its NOLs to offset future taxable income if the
Company undergoes an ownership change (an "Ownership Change") within the meaning
of Section 382 of the Internal Revenue Code of 1986, as amended ("Section 382").
Generally, an Ownership Change is deemed to occur if the aggregate cumulative
increase in the percentage ownership of the capital stock of the Company (which
generally includes for this purpose, but is not limited to, the common stock and
certain options and warrants) by persons owning 5% or more of such capital stock
and certain public groups (within the meaning of Section 382) is more than 50
percentage points in any three-year testing period. In the event of an Ownership
Change, the Company's utilization of its NOLs would be limited to an annual
amount (without extending the applicable 15-year carryforward period for NOLs)
equal to the product of the fair market value of the Company immediately before
such Ownership Change (as determined pursuant to Section 382, which may provide
for certain reductions in value) multiplied by the long-term tax-exempt rate,
which is an interest-indexed rate that is published monthly by the IRS and which
is approximately 5.05% as of the date of this Prospectus. NOLS arising after
the date that any Ownership Change occurs will be unaffected by such Ownership
Change.
<PAGE>
15
It is impossible for the Company to ensure that an Ownership Change will not
occur in the future, in part because the Company has no ability to restrict the
acquisition or disposition of the Company's capital stock by persons whose
ownership could cause an Ownership Change. In this regard, the Company has
entered into an agreement, dated June 27, 1997 (the "Standstill Agreement"),
with Mr. Randolph W. Lenz, the former Chairman of the Board of the Company, and
certain of his affiliates, who together beneficially own approximately 10% of
the Company's common stock, which places certain limitations on the ability of
Mr. Lenz and such affiliates to acquire, sell or otherwise dispose of shares of
the Company's capital stock. However, there can be no assurance that the
Standstill Agreement will in fact prevent an Ownership Change from occurring. In
addition, the Company may in the future take certain actions which, alone or
coupled with other events, could give rise to an Ownership Change, if in the
exercise of the business judgment of the Company such actions (which may include
future issuances of equity securities) are necessary or desirable. If an
Ownership Change were to occur, the NOL annual limitation under Section 382
could substantially reduce the Company's future after-tax earnings and cash
flow.
Reliance on Key Management
The success of the Company's business is dependent upon the management and
leadership skills of Ronald M. DeFeo, the Company's Chairman of the Board,
President and Chief Executive Officer. The Company does not have an employment
agreement with Mr. DeFeo and the loss of his services could have a material
adverse effect on the Company.
SEC Investigation
In March 1994, the Commission initiated a private investigation, which
included the Company and certain of its present and former officers and
affiliates, to determine whether violations of certain aspects of the Federal
securities laws had occurred. To date, the inquiry of the Commission has
primarily focused on accounting treatment and reporting matters relating to
various transactions which took place in the late 1980s and early 1990s. The
Company is cooperating with the Commission in its investigation. The Company has
recently been advised by the Staff of the Commission that it has been authorized
by the Commission to institute an administrative proceeding against the Company
and certain of its present and former officers and affiliates. Based on
information currently available to the Company, it is the Company's
understanding that if a proceeding were to be brought, the Staff intends to seek
an order to cease and desist violations of the Federal securities laws (without
monetary penalties) based on claims relating to accounting treatment and
reporting matters with respect to the Company's financial statements for the
years ended December 31, 1990 and 1991, as well as the Company's Proxy Statement
covering the 1992 fiscal year. It is not possible at this time to determine the
outcome of the Commission's investigation.
Environmental and Related Matters
The Company generates hazardous and nonhazardous wastes in the normal
course of its manufacturing operations. As a result, the Company is subject to a
wide range of federal, state, local and foreign environmental laws and
regulations, including the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA"), 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. The Company does not expect
that these expenditures will have a material adverse effect on its financial
condition or results of operations.
<PAGE>
16
Foreign Currencies; International Operations
The Company's products are sold in over 50 countries around the world and,
accordingly, revenues of the Company are generated in foreign currencies, while
the costs associated with those revenues are only partly incurred in the same
currencies. The major foreign currencies, among others, in which the Company
conducts business are the Pound Sterling, the French Franc and Deutsche Mark.
Costs of the Company are primarily incurred in the same currencies and in
percentages which are not materially different from the revenue percentages.
Since the Company's financial statements are denominated in U.S. dollars,
changes in exchange rates between the dollar and other currencies have had and
will have an impact on the reported results of the Company. To date, this impact
has not been material on the earnings of the Company. The Company may, from time
to time, hedge specifically identified committed transactions in foreign
currencies using forward currency sale or purchase contracts. The Company has
not engaged in any speculative or profit motivated hedging activities. Although
revenues and costs of the Company may be partially hedged, currency fluctuations
will impact the Company's financial performance in the future.
International operations are also subject to a number of potential risks,
including, among others, currency exchange controls, labor unrest, regional
economic uncertainty, political instability, restrictions on transfer of funds
(including by dividend), export duties and quotas, domestic and foreign customs
and tariffs, current and changing regulatory environments, difficulty in
obtaining distribution support and potentially adverse tax consequences. There
can be no assurance that these factors will not have an adverse effect on the
Company or its international operations or sales in the future.
Purchase of Notes on Change of Control
Upon the occurrence of a Change of Control (as defined in the Indenture),
each Holder will have the right to require the Company to make an offer to
repurchase all or any portion of such Holder's Notes at a purchase price equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase. The source of funds for any such
purchase would be the Company's available cash or cash generated from other
sources, including borrowings, sales of assets, sales of equity or funds
provided by a new controlling person. The occurrence of a Change of Control
likely would constitute an event of default under the New Bank Credit Facility
that would permit the lenders to accelerate the debt under the New Bank Credit
Facility. In such event, the Company likely would attempt to refinance the
indebtedness outstanding under the New Bank Credit Facility and the Notes. There
can be no assurance that sufficient funds will be available at the time of any
Change of Control to make any required purchases of the Notes tendered and to
repay indebtedness under the New Bank Credit Facility. See "Description of the
Notes -- Change of Control."
Lack of Public Market
The New Notes are being offered to the holders of the Old Notes. The Old
Notes were issued in March 1998 to the Initial Purchasers and resold in
transactions not requiring registration under the Securities Act or applicable
state securities laws, including sales pursuant to Rule 144A and Regulation S.
The Old Notes are eligible for trading on the PORTAL market. The New Notes will
be new securities for which there currently is no market. Although the Initial
Purchasers have advised the Company that they currently intend to make a market
in the New Notes, they are not obligated to do so, and any such market making
may be discontinued at any time without notice. Accordingly, there can be no
assurance as to the future development or liquidity of any market for the New
Notes. If a trading market develops for the New Notes, future trading prices of
such securities will depend on many factors, inducing, among other things,
prevailing interest rates, the Company's results of operations and the market
for similar securities. The Company does not intend to apply for listing of the
New Notes on any securities exchange or for quotation through the National
Association of Securities Dealer Automated Quotation System.
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17
THE COMPANY
Terex is a global manufacturer of a broad range of construction and mining
related capital equipment. The Company strives to manufacture high quality
machines which are low cost, simple to use and easy to maintain. The Company's
principal products include telescopic mobile cranes, aerial work platforms,
utility aerial devices, telescopic material handlers, truck mounted mobile
cranes, rigid and articulated off-highway trucks and high capacity surface
mining trucks, large hydraulic mining shovels and related components and
replacement parts. The Company's products are manufactured at 16 plants in the
United States and Europe and are sold primarily through a worldwide network of
dealers in over 750 locations to the global construction, infrastructure and
surface mining markets.
The Company's operations began in 1983 with the purchase of Northwest
Engineering Company, the Company's original business and name. Since 1983,
management has expanded and changed the Company's business through a series of
acquisitions and dispositions. In 1988, Northwest Engineering Company merged
into a subsidiary acquired in 1986 named Terex Corporation, with Terex
Corporation as the surviving entity. As a result of the completion of the PPM
Acquisition (as defined below) in May 1995, the Company's operations were
divided into three principal segments: Material Handling, Heavy Equipment and
Mobile Cranes. On November 27, 1996, the Company completed the sale of its
worldwide material handling segment, which was originally acquired in July 1992,
and currently the Company operates in two business segments: Terex Lifting
(formerly known as Terex Cranes) and Terex Earthmoving (formerly known as Terex
Trucks). The principal executive offices of the Company are located at 500 Post
Road East, Westport, Connecticut 06880 and its telephone number is (203)
222-7170.
Terex Lifting manufactures and sells telescopic mobile cranes (including
rough terrain, truck and all terrain mobile cranes), aerial work platforms
(including scissor, articulated boom and straight telescoping boom aerial work
platforms), utility aerial devices (including digger derricks and articulated
aerial devices), telescopic material handlers (including container stackers,
scrap handlers and telescopic rough terrain boom forklifts), truck mounted
cranes (boom trucks) and related components and replacement parts. These
products are primarily used by construction and industrial customers and utility
companies. Terex Lifting is comprised of a number of divisions and subsidiaries.
Terex Lifting was established as a separate business segment as a result of
the acquisition (the "PPM Acquisition") in May 1995 of substantially all of the
shares of P.P.M. S.A. and certain of its subsidiaries, including P.P.M. SpA,
Brimont Agraire S.A., a specialized trailer manufacturer in France, PPM Krane
GmbH, a sales organization in Germany, and Baulift Baumaschinen Und Krane
Handels GmbH, a parts distributor in Germany (collectively, "PPM Europe"), from
Potain S.A., and all of the capital stock of Legris Industries, Inc., which
owned 92.4% of the capital stock of PPM Cranes, Inc. ("Terex Lifting -- Conway
Operations"; PPM Europe and Terex Lifting -- Conway Operations are collectively
referred to herein as "PPM") from Legris Industries, S.A. Concurrently with the
completion of the PPM Acquisition, the Company contributed the assets (subject
to liabilities) of its Koehring Cranes and Excavators and Mark Industries
division to Terex Cranes, Inc., a wholly-owned subsidiary of the Company. The
former division now operates as Koehring Cranes, Inc., a wholly owned subsidiary
of Terex Cranes, Inc.
During 1997, the Company completed two acquisitions to augment its Terex
Lifting segment. On April 7, 1997, the Company completed the acquisition of
substantially all of the capital stock of certain of the former subsidiaries of
Simon Engineering plc for $90 million (subject to adjustment under certain
circumstances). The Simon Access Companies consist principally of business units
in the United States and Europe engaged in the manufacture, sale and worldwide
distribution of access equipment designed to position people and materials to
work at heights. The Simon Access Companies' products include utility aerial
devices, aerial work platforms and truck mounted cranes (boom trucks) which are
sold to customers in the industrial and construction markets, as well as utility
companies. Specifically, the Company acquired 100% of the outstanding common
stock of (i) Simon Telelect, Inc. (now named Terex-Telelect, Inc.), a Delaware
corporation, (ii) Simon Aerials, Inc. (now named Terex Aerials, Inc.), a
Wisconsin corporation and parent company of Terex-RO Corporation ("Terex RO"),
(iii) Sim-Tech Management Limited, a private limited company incorporated under
the laws of Hong Kong, (iv) Simon Cella, S.r.1., a company incorporated under
<PAGE>
18
the laws of Italy, and (v) Simon Aerials Limited (now named Terex Aerials
Limited), a company incorporated under the laws of Ireland; and 60% of the
outstanding common stock of Simon-Tomen Engineering Company Limited, a limited
liability stock company organized under the laws of Japan. On April 14, 1997,
the Company completed the acquisition of all of the capital stock of Baraga
Products, Inc. and M&M Enterprises of Baraga, Inc. (together, the "Square
Shooter Business"), which manufacture the Square Shooter, a rough terrain
telescopic lift truck designed to lift materials to heights where they are used
in construction.
On May 4, 1998, the Company purchased all of the outstanding shares of
Holland Lift International BV ("Holland Lift") for a purchase price of
approximately $4.35 million. Holland Lift, which is headquartered just outside
Amsterdam, the Netherlands, manufactures and sells self-propelled scissor lifts
(commonly referred to as aerial work platforms).
Terex Earthmoving currently manufactures and sells articulated and rigid
off-highway trucks and high capacity surface mining trucks, and related
components and replacement parts. These products are used primarily by
construction, mining and government customers. On January 5, 1998, the Company
also acquired Payhauler Corp. ("Payhauler"), which manufactures and markets 30
and 50 ton all wheel drive rigid frame trucks designed to move material in more
severe operating conditions than a standard rear wheel drive rigid frame truck.
On March 31, 1998, the Company purchased all of the outstanding shares of O&K
Mining from O&K Orenstein & Koppel AG for net aggregate consideration of
approximately $168 million, subject to certain post-closing adjustments. O&K
Mining is engaged in the manufacture, sale and worldwide distribution of heavy
duty hydraulic excavators primarily used to load coal, copper ore, iron ore,
other mineral-bearing materials or rocks into trucks. These products are used by
mining equipment contractors, mining and quarrying companies and large
construction companies involved in infrastructure projects worldwide. Terex
Earthmoving is comprised of Terex Equipment Limited ("TEL"), located in
Motherwell, Scotland, Unit Rig ("Unit Rig"), located in Tulsa, Oklahoma,
Payhauler, located in Batavia, Illinois, and O&K Mining, located in Dortmund,
Germany.
THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
The Old Notes were sold by the Company on March 31, 1998 to the Initial
Purchasers with further distribution permitted only to (i) Qualified
Institutional Buyers (as defined in Rule 144A under the Securities Act) and (ii)
persons in offshore transactions in reliance on Regulation S under the
Securities Act. In connection with the sale of the Old Notes, the Company and
the Initial Purchasers entered into the Registration Rights Agreement which
requires the Company to file with the Commission the registration statement of
which this Prospectus is a part within 60 days of the date of the issuance of
the Old Notes (the "Issuance Date") with respect to a registered offer to
exchange the Old Notes for New Notes, identical in all material respects to the
Old Notes, and to use its best efforts to cause such registration statement to
become effective under the Securities Act within 150 days of the Issuance Date.
The Company will keep the Exchange Offer open for not less than 30 days after
the date notice of the Exchange Offer is mailed to the Holders. A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The Exchange Offer is being made
pursuant to the Registration Rights Agreement to satisfy the Company's
obligations thereunder. The term "Holder" with respect to the Exchange Offer
means any person in whose name Old Notes are registered on the Company's books
or any other person who has obtained a properly completed bond power from the
registered Holder.
Resale of New Notes
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, including "K-III Communications
Corporation" (available May 14, 1993), "Shearman & Sterling" (available July 2,
1993), "Exxon Capital Holdings Corporation" (available May 13, 1988), "Morgan
Stanley & Co. Incorporated" (available June 5, 1991), "Mary Kay Cosmetics, Inc."
(available June 5, 1991) and "Warnaco, Inc." (available October 11, 1991), the
Company believes that, except as described below, the New Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any Holder of such Notes (other than any
such Holder which is a broker-dealer or an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that, (i) such New Notes are acquired in the ordinary course of such Holder's
business, (ii) such Holder has no arrangement or understanding with any person
to participate in the distribution of such New Notes, and (iii) such Holder is
<PAGE>
19
not engaged in, and does not intend to engage in, a distribution of such New
Notes. The Company does not intend to request the Commission to consider, and
the Commission has not considered, the Exchange Offer in the context of a
no-action letter and there can be no assurance that the staff of the Commission
would make a similar determination with respect to the Exchange Offer as it has
in such other circumstances. By tendering Old Notes for New Notes, each Holder
will represent to the Company, that (i) the New Notes acquired pursuant to the
Exchange Offer are being acquired in the ordinary course of business of the
person receive such New Notes, whether or not such person is the Holder, (ii) if
such Holder is not a broker-dealer, neither the Holder nor any such other person
is engaging in or intends to engage in a distribution of such New Notes, (iii)
neither the Holder nor any such other person has an arrangement or understanding
with any person to participate in the distribution of such New Notes within the
meaning of the Securities Act, and (iv) neither the Holder nor any such other
person is an affiliate of the Company. In the event that any Holder of Old Notes
cannot make the requisite representations to the Company, such holder cannot
rely on such interpretation by the staff of the Commission and must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. Unless an exemption from
registration is otherwise available, any such resale transaction should be
covered by an effective registration statement containing the selling security
holders information required by Item 507 of Regulation S-K under the Securities
Act. This Prospectus may be used for an offer to resell, resale or other
retransfer of New Notes only as specifically set forth herein.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes, and that it has not entered into any arrangement or understanding with
the Company or any affiliate of the Company to distribute New Notes in
connection with any resale of such New Notes. See "Plan of Distribution."
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept for exchange any and
all Old Notes properly tendered and not withdrawn prior to 5:00 p.m., New York
City time, on the Expiration Date. The Company will issue $1,000 principal
amount of New Notes in exchange for each $1,000 principal amount of outstanding
Old Notes surrendered pursuant to the Exchange Offer. Old Notes may be tendered
only in integral multiples of $1,000.
The form and terms of the New Notes will be the same as the form and terms
of the Old Notes except the New Notes will be registered under the Securities
Act and hence will not bear legends restricting the transfer thereof. The New
Notes will evidence the same debt as the Old Notes. The New Notes will be issued
under and entitled to the benefits of the Indenture, which also authorized the
issuance of the Old Notes, such that both series will be treated as a single
class of debt securities under the Indenture.
As of the date of this Prospectus, $150 million aggregate principal amount
of the Old Notes are outstanding. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered Holders of Old Notes. There will be
no fixed record date for determining registered Holders of Old Notes entitled to
participate in the Exchange Offer. The Exchange Offer is not conditioned with
any minimum principal amount of Old Notes being tendered for exchange. However,
the obligation to accept Old Notes for exchange pursuant to the Exchange Offer
is subject to certain conditions, as described under "-- Conditions".
The Company intends to conduct the Exchange Offer in accordance with the
provisions of the Registration Rights Agreement and the applicable requirements
of the Exchange Act, and the rules and regulations of the Commission thereunder.
Old Notes which are not tendered for exchange in the Exchange Offer will remain
outstanding and continue to accrue interest and will be entitled to the rights
and benefits such Holders have under the Indenture and the Registration Rights
Agreement.
<PAGE>
20
The Company shall be deemed to have accepted for exchange properly tendered
Old Notes when, as and if the Company shall have given oral or written notice
thereof to the Exchange Agent and complied with the provisions of the Indenture.
The Exchange Agent will act as agent for the tendering Holders for the purposes
of receiving the New Notes from the Company.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes described below, in connection with the
Exchange Offer. See " -- Fees and Expenses."
Expiration Date; Extensions; Amendments
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
September 11, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date to which the Exchange Offer is extended. Notwithstanding any extension of
the Exchange Offer, if the Exchange Offer is not consummated by September 28,
1998, the interest rate borne by the Old Notes shall be increased by one-half of
one percent (0.5%) per annum until the Exchange Offer is consummated.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the Holders an
announcement thereof, prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer and not permit acceptance of Old Notes not previously accepted,
if any of the conditions set forth below under " -- Conditions" shall not have
been satisfied, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent or (ii) to amend the terms of the Exchange
Offer in any manner which, in its good faith judgment, is advantageous to the
holders of the Old Notes, whether before or after any tender of the Notes. Any
such delay in acceptance, extension, termination or amendment will be followed
as promptly as practicable by oral or written notice thereof to the Holders. If
the Exchange Offer is amended in a manner determined by the Company to
constitute a material change, the Company will promptly disclose such amendment
by means of a prospectus supplement that will be distributed to the registered
Holders, if required by law, and the Company will extend the Exchange Offer for
a period of five to ten business days, depending upon the significance of the
amendment and the manner of disclosure to the registered Holders, if the
Exchange Offer would otherwise expire during such five to ten business day
period.
Without limiting the manner in which the Company may choose to make a
public announcement of any delay, extension, termination or amendment of the
Exchange Offer, the Company shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones news service.
Interest on the New Notes
The New Notes will bear interest at 8-7/8% per annum from the date of
original issue. Interest on the New Notes will be payable semi-annually, in
arrears, on April 1 and October 1 of each year, commencing on October 1, 1998.
Holders of New Notes will receive interest on October 1, 1998 from the date of
initial issuance of the New Notes, plus an amount equal to the accrued interest
on the Old Notes from the most recent date to which interest has been paid to
the date of exchange thereof for New Notes. Interest on the Old Notes accepted
for exchange will cease to accrue upon issuance of the New Notes.
<PAGE>
21
Conditions
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange any New Notes for, any Old
Notes, and may terminate the Exchange Offer as provided herein before the
acceptance of any Old Notes for exchange, if:
(a) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the Exchange Offer which, in
the Company's sole judgment, might materially impair the ability of the Company
to proceed with the Exchange Offer, or
(b) any law, statute, rule or regulation is proposed, adopted or enacted,
or any existing law, statute, rule or regulation is interpreted by the staff of
the Commission, which, in the Company's sole judgment, might materially impair
the ability of the Company to proceed with the Exchange Offer, or
(c) any governmental approval has not been obtained, which approval the
Company shall, in its sole discretion, deem necessary for the consummation of
the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any Old Notes
and return all tendered Old Notes to the tendering Holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of the
Exchange Offer, subject, however, to the rights of Holders who tendered such Old
Notes to withdraw their tendered Old Notes, or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old Notes which have not been withdrawn.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right, and each such right, shall be deemed an ongoing right which may be
asserted at any time and from time to time.
Procedures for Tendering
Only a Holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a Holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Old
Notes and any other required documents, to the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date. In addition, either (i) Old
Notes must be received by the Exchange Agent along with the Letter of
Transmittal, or (ii) a timely confirmation of book-entry transfer (a "Book-Entry
Confirmation") of such Old Notes, if such procedure is available, into the
Exchange Agent's account at the Depository Trust Company (the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer described
below must be received by the Exchange Agent prior to the Expiration Date, or
(iii) the Holder must comply with the guaranteed delivery procedures described
below. To be tendered effectively, the Old Notes, Letter of Transmittal and
other required documents must be received by the Exchange Agent at the address
set forth below under " -- Exchange Agent".
The tender by a Holder which is not withdrawn prior to the Expiration Date
will constitute an agreement between such Holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED
MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT
<PAGE>
22
TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR AND ON BEHALF OF SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender such Old Notes should contact the registered Holder promptly and
instruct such Holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on its own behalf, such owner must, prior to
completing and executing the Letter of Transmittal and delivering its Old Notes,
either make appropriate arrangements to register ownership of the Old Notes in
its name or obtain a properly completed bond power from the registered Holder.
The transfer of registered ownership may take considerable time and may not be
able to be completed prior to the Expiration Date.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by any Eligible Institution (as defined below)
unless the Old Notes tendered pursuant thereto are tendered (i) by a Holder who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution. In the event that signatures on a Letter of Transmittal
or a notice of withdrawal, as the case may be, are required to be guaranteed,
such guarantor must be a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Exchange Act which is a member of one of the recognized signature
guarantee programs identified in the Letter of Transmittal (each, an "Eligible
Institution").
If the Letter of Transmittal is signed by a person other than the Holder of
any Old Notes listed therein, such Old Notes must be endorsed or accompanied by
a properly completed bond power, in satisfactory form as determined by the
Company in its sole discretion, signed by such Holder as such Holder's name
appears on such Old Notes with the signature thereon guaranteed by an Eligible
Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject any
and all Old Notes not properly tendered or any Old Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Old Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes must be cured within such time as the Company shall determine.
Although the Company intends to notify Holders of defects or irregularities with
respect to tenders of Old Notes, neither the Company, the Exchange Agent nor any
other person shall incur any liability for failure to give such notification.
Tenders of Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the Exchange
Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering Holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
While the Company has no present plan to acquire any Old Notes that are not
tendered in the Exchange Offer, the Company reserves the right in its sole
discretion to (i) purchase or make offers for any Old Notes that remain
outstanding subsequent to the Expiration Date, (ii) as set forth above under "
- -- Conditions," to terminate the Exchange Offer, or (iii) redeem the Old Notes
as a whole or in part at any time and from time to time, as set forth under
"Description of Notes--Optional Redemption," or (iv) to the extent permitted by
applicable law, purchase Old Notes in the open market, in privately negotiated
transactions or otherwise. The terms of any such purchases or offers could
differ from the terms of the Exchange Offer.
<PAGE>
23
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are not
accepted for exchange for any reason set forth in the terms and conditions of
the Exchange Offer, or if Old Notes are submitted for a greater principal amount
than the Holder desires to exchange, such unaccepted or non-exchanged Old Notes
will be returned without expense to the tendering Holder thereof (or, in the
case of Old Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described below, such non-exchanged Old Notes will be credited to an
account maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the expiration or termination of the Exchange Offer.
Book Entry Transfer
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof,
with any required signature guarantees and any other required documents, must,
in any case, be transmitted to and received by the Exchange Agent at the address
set forth below under "-- Exchange Agent" on or prior to the Expiration Date or,
if the guaranteed delivery procedures described below are to be complied with,
within the time period provided under such procedures. Delivery of documents to
the Book-Entry Transfer Facility does not constitute delivery to the Exchange
Agent.
Guaranteed Delivery Procedures
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) On or prior to 5:00 p.m., New York City time, on the Expiration
Date, the Exchange Agent receives from such Eligible Institution a properly
completed and duly executed Letter of Transmittal and the Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by facsimile
transmission, mail or hand delivery) setting forth the name and address of the
Holder, the registered number(s) of such Old Notes and the principal amount of
Old Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within three New York Stock Exchange trading days after the
Expiration Date, the Letter of Transmittal (or facsimile thereof) together with
the Old Notes or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as all tendered Old Notes in proper form for
transfer or a Book-Entry Confirmation, as the case may be, and all other
documents required by the Letter of Transmittal, are received by the Exchange
Agent within three New York Stock Exchange trading days after the Expiration
Date.
<PAGE>
24
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the principal amount of
such Old Notes and, in the case certificates representing the Old Notes have
been tendered, registered number or numbers and or, in the case of Old Notes
transferred by book-entry transfer, the name and number of the account at the
Book-Entry Transfer Facility to be credited), (iii) be signed by the Holder in
the same manner as the original signature on the Letter of Transmittal by which
such Old Notes were tendered (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have United States Trust
Company of New York, the trustee with respect to the Old Notes (the "Trustee"),
register the transfer of such Old Notes into the name of the person withdrawing
the tender and (iv) specify the name in which any such Old Notes are to be
registered, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no New Notes will be issued with
respect thereto unless the Old Notes so withdrawn are validly re-tendered. Any
Old Notes which have been tendered but which are not accepted for payment will
be returned to the Holder thereof without cost to such Holder (or, is the case
of Old Notes tendered by book-entry transfer into the Exchange Agent's account
at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Notes will be credited to an account
maintained with such Book-Entry Transfer Facility) as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described above under "-- Procedures for Tendering" and "--Book-Entry Transfer"
at any time prior to the Expiration Date.
Exchange Agent
United States Trust Company of New York has been appointed as Exchange
Agent of the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notices of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
By Registered or Certified Mail: By Overnight Courier or By Hand,
After 4:30pm:
United States Trust Company of New York United States Trust Company of
P.O. Box 844, Cooper Station New York
New York, New York 10276-0844 770 Broadway, 13th Floor
Attention: Corporate Trust Services New York, New York 10003
Attention: Corporate Trust Services
By Hand Prior to 4:30 pm: By Facsimile:
United States Trust Company of New York (212) 780-0592
111 Broadway, Lower Level Attention: Corporate Trust Services
New York, New York 10006 Confirm by telephone:(800) 548-6565
Attention: Corporate Trust Services
<PAGE>
25
Fees and Expenses
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone, facsimile, or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. The
Company may also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of the Prospectus and related documents to the beneficial owners of the
Old Notes and in handling or forwarding tenders for exchange.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$75,000. Such expenses include fees and expenses of the Exchange Agent and
Trustee, accounting and legal fees and printing costs, among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, New Notes or Old Notes
for principal amounts not tendered or accepted for exchange are to be delivered
to, or are to be issued in the name of, any person other than the Holder of the
Old Notes tendered, or if tendered Old Notes are registered in the name of any
person other than the person signing the Letter of Transmittal, or if a transfer
tax is imposed for any reason other than the exchange of Old Notes pursuant to
the Exchange Offer, then the amount of any such transfer taxes (whether imposed
on the Holder or any other persons) will be payable by the tendering Holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering Holder.
Consequences of Failure to Exchange
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon and in the
Indenture as a consequence of the issuance of the Old Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities law.
Accordingly, such Old Notes may be resold only (i) to the Company (upon
redemption thereof or otherwise), (ii) pursuant to an effective registration
statement under the Securities Act, (iii) so long as the Old Notes are eligible
for resale pursuant to Rule 144A, to a qualified institutional buyer within the
meaning of Rule 144A under the Securities Act in a transaction meeting the
requirements of Rule 144A, or (iv) pursuant to another available exemption from
the registration requirements of the Securities Act, in each case in accordance
with any applicable securities laws of any state of the United States. The
Company does not currently anticipate that it will register under the Securities
Act the resale of any Old Notes that remain outstanding after consummation of
the Exchange Offer. However, generally, (i) if any Initial Purchaser so requests
with respect to Old Notes not eligible to be exchanged for Exchange Notes in the
Exchange Offer and held by it following consummation of the Exchange Offer or
(ii) if any holder of Old Notes is not eligible to participate in the Exchange
Offer or, in the case of any holder of Old Notes that participates in the
Exchange Offer, does not receive freely tradeable Exchange Notes in exchange for
Old Notes, the Company is obligated to file a registration statement on the
appropriate form under the Securities Act relating to the Old Notes held by such
persons.
Accounting Treatment
The New Notes will be recorded at the same carrying value as the Old Notes
as reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Company. The expenses of the Exchange Offer will be amortized over the term of
the New Notes.
<PAGE>
26
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. In consideration for issuing the New Notes as contemplated
in this Prospectus, the Company will receive in exchange Old Notes in like
principal amount, the forms and terms of which are identical, in all material
respects, to the New Notes. The Old Notes surrendered in exchange for New Notes
will be retired and canceled and cannot be reissued. Accordingly, issuance of
the New Notes will not result in any increase in the indebtedness of the
Company. Proceeds from the sale of the privately placed Old Notes were used to
finance a portion of the aggregate consideration for the O&K Acquisition and for
general corporate purposes.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of March 31, 1998. The table should be read in conjunction with the
historical consolidated financial statements and related notes incorporated by
reference in this Prospectus.
As of March 31, 1998
(dollars in millions)
Cash and cash equivalents................................ $ 58.5
=========
Notes payable and current portion of long-term
debt................................................... $ 19.3
Long-term debt, less current portion (1)................. 554.2
Minority interest, including redeemable
preferred stock of a subsidiary........................ 0.6
Stockholders' Equity
Warrants to purchase common stock...................... 0.8
Equity rights.......................................... 3.2
Common stock, $0.01 par value-- authorized
30 million shares; 20,644,649 shares
issued and outstanding.............................. 0.2
Additional paid-in capital............................. 179.0
Accumulated deficit.................................... (139.3)
Pension liability adjustment........................... (1.8)
Cumulative translation adjustment...................... (14.1)
--------
Total Stockholders' Equity.......................... 28.0
---------
Total Capitalization........................... $ 602.1
=========
(1) Includes $150.0 million principal amount of Old Notes. See
"Description of the Notes".
<PAGE>
27
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in millions, except per share amounts)
The selected historical consolidated financial data of the Company set forth
below as of and for the five years ended December 31, 1997 have been derived
from the audited historical consolidated financial statements of the Company and
the related notes thereto incorporated by reference in this Prospectus. The
selected historical consolidated financial data as of and for the three month
period ended March 31, 1997 and 1998 have been derived from the unaudited
interim financial statements of the Company and the related notes thereto
incorporated by reference in this Prospectus. Operating results for interim
periods are not necessarily indicative of results for the entire fiscal year.
The following data should be read in conjunction with the historical financial
statements of the Company and the related notes thereto incorporated by
reference in this Prospectus.
<TABLE>
<CAPTION>
Year Ended December 31, March 31,
--------- --------- --------- --------- --------- ---------- ----------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- ---------- ----------
Income Statement Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales..........................$ 274.7 $ 314.1 $ 501.4 $ 678.5 $ 842.3 $ 176.3 $ 260.6
Cost of goods sold................. 242.2 266.0 431.0 609.3 (3) 702.7 148.8 215.8
-------- -------- -------- --------- --------- ---------- ----------
Gross profit....................... 32.5 48.1 70.4 69.2 (3) 139.6 27.5 44.8
Engineering, selling and
administrative expenses.......... 40.7 37.7 57.6 64.1 (4) 68.5 14.1 21.0
-------- -------- -------- --------- --------- ---------- ----------
Income (loss) from operations...... (8.2) 10.4 12.8 5.1 (5) 71.1 13.4 23.8
Interest income.................... 0.9 0.5 0.7 1.2 0.9 0.6 0.1
Interest expense................... (30.0) (28.3) (38.7) (44.8)(6) (39.4) (9.5) (8.8)
Amortization of debt issuance
costs............................ (3.4) (2.3) (2.3) (2.6) (2.6) (0.7) (0.5)
Gain on sale of stock of
former subsidiary................ 3.0 26.0 1.0 --- ---
Other income (expense), net........ (3.0) (1.4) (5.6) (1.1) 1.0 0.3 ---
-------- -------- --------- ---------- --------- ---------- ----------
Income (loss) from continuing
operations before income taxes
and extraordinary items.......... (40.7) 4.9 (32.1) (42.2) 31.0 4.1 14.6
Provision for income taxes......... --- --- --- (12.1)(7) (0.7) (0.2) (0.2)
-------- -------- --------- --------- --------- ---------- ----------
Income (loss) from continuing
operations before
extraordinary items.............. (40.7) 4.9 (32.1) (54.3) 30.3 3.9 14.4
Income (loss) from
discontinued operations.......... (24.3) (3.7) 4.4 102.0 (8) --- --- ---
-------- -------- --------- --------- --------- ---------- ----------
Income (loss) before
extraordinary items.............. (65.0) 1.2 (27.7) 47.7 30.3 3.9 14.4
Extraordinary loss on
retirement of debt............... (1.5) (0.7) (7.5) --- (14.8) --- (38.3)
-------- -------- --------- --------- --------- ---------- ----------
Net income (loss)................. (66.5) 0.5 (35.2) 47.7 15.5 3.9 (23.9)
Less preferred stock accretion..... (0.2) (6.0) (7.3) (22.9)(9) (4.8)(10) (0.4) ---
-------- -------- --------- --------- --------- ---------- ----------
Income (loss) applicable to
common stock.....................$ (66.7) $ (5.5) $ (42.5) $ 24.8 $ 10.7 $ 3.5 $ 23.9
======== ======== ========= ========= ========= ========== ==========
Per Common and Common
Equivalent Share(1):
Basic
Income (loss) from continuing
operations..................$ (4.11) $ (0.10) $ (3.79) $ (6.54) $ 1.57 $ 0.26 $ 0.70
Income (loss) from
discontinued operations..... (2.44) (0.36) 0.42 8.64 --- --- ---
--------- --------- --------- --------- ----------- --------- ----------
Income (loss) before
extraordinary items......... (6.55) (0.46) (3.37) 2.10 1.57 0.26 0.70
--------- --------- --------- --------- ----------- --------- ----------
Extraordinary loss on
retirement of debt.......... (0.15) (0.07) (0.72) --- (0.91) --- (1.86)
--------- --------- --------- --------- ----------- --------- ----------
Net income (loss).............$ (6.70) $ (0.53) $ (4.09) $ 2.10 $ 0.66 $ 0.26 $ (1.16)
========= ========= ========= ========= =========== ========= ==========
Diluted
Income (loss) from
continuing operations.......$ (4.11) $ (0.10) $ (3.79) $ (5.81) $ 1.44 $ 0.24 $ 0.65
Income (loss) from
discontinued operations..... (2.44) (0.36) 0.42 7.67 --- --- ---
--------- --------- --------- --------- ----------- ---------- ----------
Income (loss) before
extraordinary items......... (6.55) (0.46) (3.37) 1.86 1.44 0.24 0.65
Extraordinary loss on
retirement of debt.......... (0.15) (0.07) (0.72) --- (0.84) --- (1.73)
--------- --------- --------- --------- ----------- ---------- ----------
Net income (loss).............$ (6.70) $ (0.53) $ (4.09) $ 1.86 $ 0.60 $ 0.24 $ (1.08)
========= ======== ========= ========= =========== ========== ==========
Average Number of Common and
Common Equivalent Shares Outstanding
in Per Share Calculation
(in millions)...................
Basic......................... 10.0 10.3 10.4 11.8 16.2 13.3 20.6
Diluted....................... 10.0 10.3 10.4 13.3 17.7 14.4 22.2
========= ======== ========= ========= =========== =========== ==========
Other Data (unaudited):
Gross margin.................... 11.8% 15.3% 14.0% 10.2%(3) 16.6% 15.6% 17.2%
EBITDA..........................$ 0.8 $ 14.2 $ 23.4 $ 46.2 $ 82.8 $ 15.7 $ 27.2
Ratio of EBITDA to interest
expense, net.................. 0.0x 0.5x 0.6x 1.1x 2.2x 1.8x 3.1x
Ratio of earnings to fixed
charges (2)................... --- 1.1x --- --- 1.6x 1.4x 2.5x
Backlog at period end...........$ 80.9 $ 79.5 $ 174.1 $ 120.6 $ 216.8 $ 170.1 $ 272.5
Balance Sheet Data (at end of
period):
Working capital.................$ 69.5 $ 56.5 $ 115.7 $ 195.2 $ 190.4 $ 148.9 $ 350.1
Total assets.................... 390.7 401.6 478.9 471.2 588.5 430.6 932.1
Total debt...................... 218.0 190.9 329.9 281.3 300.1 283.8 573.5
Stockholders' equity (deficit).. (62.3) (55.7) (96.9) (71.7) 59.6 (73.5) 28.0
</TABLE>
(footnotes on following page)
<PAGE>
28
(1) Effective with the fourth quarter of 1997, Terex implemented SFAS No. 128
which establishes new standards for computing and presenting earnings per
share and requires the disclosure of basic and diluted amounts. Earnings
per share amounts for all prior periods have been restated.
(2) In calculating the ratio of earnings to fixed charges, earnings consist of
income (loss) from continuing operations before income taxes and
extraordinary items plus fixed charges. Fixed charges consist of interest
expense, preferred stock accretion, amortization of debt issuance costs,
and rental expense representative of the interest factor. Earnings were
insufficient to cover fixed charges by $40.0 million, $32.1 million and
$42.2 million during the years ended December 31, 1993, 1995 and 1996,
respectively.
(3) Cost of goods sold includes $27.1 million in nonrecurring charges.
Excluding these charges, gross profit would have been $96.3 million or
14.2% of net sales.
(4) Engineering, selling and administrative expenses includes $2.8 million in
nonrecurring charges. Excluding these charges, engineering, selling and
administrative expenses would have been $61.3 million.
(5) Includes the effect of the nonrecurring charges set forth in (2) and (3)
above. Excluding these charges, income from operations would have been
$35.1 million.
(6) On November 27, 1996, the Company consummated the Clark Sale. As a result,
the Clark Material Handling Segment was accounted for as a discontinued
operation for the year ended December 31, 1996. Generally accepted
accounting principles permit, but do not require, the allocation of
interest expense between continuing operations and discontinued operations.
The Company has elected not to allocate interest expense to discontinued
operations because such allocation, although permitted by generally
accepted accounting principles, would not necessarily be indicative of the
use of proceeds from the Clark Sale and the effect on interest expense of
continuing operations. As a result, loss from continuing operations
includes substantially all of the interest expense of the Company, and
income from discontinued operations does not include any material interest
expense.
(7) This charge primarily reflects the utilization of acquired net operating
losses by P.P.M. S.A.
(8) Represents income from operations of $17.5 million of the Clark Material
Handling Segment and the gain of $84.5 million on the Clark Sale.
(9) Includes annual accretion of the Series A Preferred Stock of $7.7 million,
which shares were irrevocably called for redemption in December 1996,
annual accretion of the Series B Preferred Stock of $0.1 million, which
shares were converted in December 1997 into 87,300 shares of common stock
of the Company, annual accretion of the Subsidiary Preferred Stock of $0.6
million, which shares were exchanged in December 1997 for 705,969 shares of
common stock of the Company, and a $14.5 million nonrecurring charge as a
result of the redemption of the Series A Preferred Stock.
(10) Includes a $3.2 milion nonrecurring charge as a result of the redemption of
the Subsidiary Preferred Stock.
<PAGE>
29
INDUSTRY OVERVIEW AND OUTLOOK FOR PRINCIPAL PRODUCTS
Telescopic Mobile Cranes
Mobile cranes with telescoping booms were developed in the 1950s as advanced
hydraulics became available. Telescopic mobile cranes are generally used only
for a limited period during the later stages of a construction project. As each
project may require differing boom lengths and lifting capacities, contractors
tend to rent specific machines as needed rather than own a fleet of machines of
varying capabilities. As a result, according to industry sources, approximately
85% of all new telescopic mobile crane sales in North America are made to rental
fleets. Because of the market's rental orientation and the fact that cranes are
used in the later stages of construction projects, the demand for new telescopic
mobile cranes typically lags behind the demand for other construction equipment
by between 12 and 24 months during a cyclical economic recovery. Initially in an
economic recovery, rising end-user demand is first reflected in rising rental
fleet utilization rates rather than in new crane orders. As rental fleet
utilization reaches a practical maximum level, generally new orders for
telescopic mobile cranes increase. New telescopic mobile crane orders also
result from fleet replacement demand, which is affected by the aging of the
telescopic mobile crane population. From 1974 through 1981, the North American
telescopic mobile crane market consumed an average of over 3,500 machines per
year. During the recession which began in 1982, North American telescopic mobile
crane consumption declined to a low of 600 machines and many competitors exited
the industry. During the period from 1990 through 1996, the North American
telescopic mobile crane market consumed an average of approximately 1,300
machines per year, with a high of over 2,200 machines in 1990 and a low of
approximately 1,000 machines in 1992 and 1993.
The Company believes that the North American telescopic mobile crane
industry is entering a period of growth due to a strong and sustained period of
construction activity in North America, high rental fleet utilizations, and the
fact that the unusually large number of telescopic mobile cranes that were built
in the late 1970s are beginning to reach the end of their useful lives (which
the Company estimates to be approximately 20 years). These factors have
contributed to a 24% increase in telescopic mobile crane shipments in 1996, as
compared with 1995, and an estimated 15% increase in telescopic mobile crane
shipments in 1997, as compared with 1996. The Company believes that it is well
positioned to capitalize on the continued growth of the North American
telescopic mobile crane market. The increasing importance of rental fleet
operators and their desire to maximize returns on product investment has led
Terex Lifting to focus on a best value strategy, which seeks to improve customer
productivity by providing high quality products which are low cost, simple to
use and easy to maintain. By pursuing a strategy oriented toward improving
customers' productivity and investment returns, Terex Lifting has increased its
market share, and management believes that such a strategy will lead to its
fuller participation in the continued growth of the North American market.
The European telescopic mobile crane market, which is approximately the same
size as the North American market (ranging between 1,000 and 2,000 unit
shipments per year), has not had an increase in demand to the extent experienced
in North America. Excluding Germany, construction activity has remained at
recessionary levels for the last four years, which the Company believes was due
initially to a cyclical downturn and more recently to fiscal tightening as
European countries attempt to meet the budget deficit targets established by the
Maastricht Treaty. The Company's principal markets in Europe are in France and
Italy, where the Company believes it has the largest market shares. The French
and Italian markets are less dominated by rental fleets than the North American
market; the Company believes that approximately 55% of new telescopic mobile
crane sales in France and Italy are to rental fleet operators with the balance
to end users. An increase in construction activity in those countries,
therefore, would tend to have a more immediate impact on new telescopic mobile
crane sales than would a similar increase in North America. The Company believes
that it is well positioned to participate in any cyclical increase in demand in
France and Italy due to its local manufacturing, strong local distribution and
low cost relative to its major European competitors.
Outside North America and Europe, the most active new markets for the
Company's telescopic mobile cranes are the Middle East and South America. Terex
Lifting maintains distributors in these markets to which it sells approximately
10% of its newly manufactured telescopic mobile cranes.
<PAGE>
30
The Company also manufactures truck mounted cranes (boom trucks), which are
telescopic cranes mounted on production truck chassis. Over the past 20 years,
boom trucks have replaced truck mobile cranes in the market for under 30 ton
lifting devices. Conditions in the North American market for boom trucks remain
positive due to overall construction activity in North America.
Aerial Work Platforms
The aerial work platform industry in North America has developed over the
past 20 years as an efficient alternative to scaffolding and ladders, and has
been supported by regulations mandating minimum safety standards for people
working at heights. Aerial work platforms are used for indoor or outdoor
applications in a variety of construction, industrial and commercial settings
which require workers to be lifted to heights to perform their jobs. The Company
believes that approximately 90% of all aerial work platform sales in North
America are to rental fleets. The aerial work platform market has developed into
a rental market because (i) contractors require workers to be elevated only for
limited times during a given job, and different jobs require different platform
heights making ownership of a single specification unit impractical, and (ii)
industrial customers are increasingly outsourcing their equipment requirements
to rental providers. Recently, the equipment rental industry has been undergoing
a process of consolidation. As a result, the larger aerial work platform rental
fleet operators are increasingly demanding products that are low cost, simple to
use and easy to maintain. To meet the objectives of the equipment rental
industry, the Company has designed its aerial work platforms to incorporate
these characteristics.
Utility Aerial Devices
The Company also manufactures utility aerial devices which are used to set
telephone poles and move transformers and other material to work areas at the
top of poles (digger derricks), and to elevate workers to work areas at the top
of poles or in trees. Customers include electric utilities, local telephone
companies, private utility repair contractors and tree trimmers. The Company
believes that utilities are increasingly outsourcing maintenance to private
contractors in an effort to reduce costs, and that it is well positioned to
capitalize on this trend due to its strategy to manufacture simplified products
at lower cost, its existing dealer relationships and its direct relationships
with major private contractors.
Telescopic Container Stackers
Telescopic container stackers were developed in the early 1980s to
manipulate shipping containers efficiently in port storage areas and inland
terminals. Telescopic container stackers are particularly effective in storage
areas where containers are continually added and removed, and where the
efficient manipulation of, and access to, specific containers is required. The
Company believes that because of the efficiency of telescopic container
stackers, demand has steadily grown, primarily outside the United States in port
areas where storage capacity is constrained. Demand has been particularly strong
in South America and Europe. The Company believes that the United States market
offers growth potential as the benefits of this product are better recognized.
Off-Highway Trucks
Off-highway trucks, which include articulated trucks and rigid frame trucks,
are generally sold to construction companies, fleet contractors who provide
trucks to large construction companies, and to dealer rental fleets. According
to industry sources, North America and Europe account for greater than 60% of
the global market. These markets are dependent on large private construction
project activity and public infrastructure development, both of which have been
soft in Europe in recent years and strong in the United States. The Company
believes that it is well positioned to capitalize on any demand that may arise
from such activity or development. Terex believes that fleet operators and large
construction companies generally prefer products that are low cost, simple to
use and easy to maintain, and that its products have these characteristics. The
Company also believes that it is well positioned to capitalize on future growth
in Europe through the O&K Acquisition and in China through an existing joint
venture relationship.
<PAGE>
31
High Capacity Surface Mining Trucks
High capacity surface mining trucks are designed to haul coal or ore. They
range in capacities from 120 to 300 tons, and are used in larger surface mines
around the world. The trucks are typically operated around the clock, seven days
a week, often running several weeks between maintenance stops. Accordingly, of
critical concern to mine operators is (i) reliability -- that the truck is
operating in excess of 90% of the time and (ii) hauling efficiency -- the
operating cost per ton hauled, including fuel consumption, tire wear and
maintenance. There are two types of trucks offered: electric and mechanical
drive. The Company offers electric drive trucks in which a diesel engine drives
an alternator which powers two wheel motors, one in each rear wheel. Terex
believes that electric drive vehicles are more efficient than mechanical drive
trucks. As a result of the efficiency and reliability of its trucks, the Company
has been able to increase its market share slightly in recent years despite
difficult competitive conditions in the industry. The Company believes that it
is the third largest manufacturer with a global market share of approximately
13%. The worldwide market is approximately 270 units per year, with sales
generally direct to large surface mines. To respond to the continuing demand of
large mines to improve financial returns through lower costs and higher hauling
capacities, the Company is taking several strategic actions including reducing
the cost of its trucks through component outsourcing and modular assembly
process implementation, as well as development of a 320 ton capacity truck (as
compared to 260 tons, its current largest truck) with a new generation electric
drive system. The Company believes that the current demand levels will continue,
with earnings opportunities from the development of more cost efficient designs
and manufacturing processes.
Large Hydraulic Mining Shovels
The large hydraulic mining shovels are used primarily in surface mines
worldwide and in large scale infrastructure projects with needs for massive
earth moving, such as dams and highways. Growth in demand for coal, copper and
iron ore is a function of population growth and improvement in standards of
living worldwide. In particular, growth in energy consumption (particularly
coal) and metal consumption (particularly ore) caused by metal intensity in
industries like automotive, telecommunications and appliances leads to growth in
demand for coal, copper and iron ore. Most of this growth will come from regions
with large mineral resources, including Australia, South Africa, West Africa,
India, Indonesia, Brazil, China and Kazakhstan. Excavator sales are also
sensitive to the level of large scale private construction project activity and
public infrastructure development, both of which have been soft in Europe in
recent years and strong in the United States. While the market for new surface
mining equipment is somewhat cyclical, the after-market for parts and services
is more stable because hydraulic excavators are typically kept in continuous
operation for 10 to 15 years and require regular maintenance and repair
throughout their productive lives.
Historically, the leading technologies used in open cast mining have been
bucket wheel excavators and electric rope shovels, both of which require
substantially greater capital outlays and often are relatively inflexible.
Hydraulic mining shovels exhibit high maneuverability and higher output rates
relative to comparable sized electric rope shovel or bucket wheel excavators. An
increasing trend toward smaller, shorter lived mines and more selective mining
practices has resulted in increasing substitution of the hydraulic mining
shovels for the two older technologies. The Company believes that O&K Mining's
leading technological position in these products leaves it well placed to take
advantage of this trend.
BUSINESS STRATEGY
Ronald M. DeFeo joined the Company in May 1992, was appointed President and
Chief Operating Officer in October 1993, was named Chief Executive Officer in
March 1995 and was appointed Chairman of the Board in March 1998. Since joining
the Company, Mr. DeFeo has recruited several new senior executives to Terex, and
under the direction of this new management team, Terex has implemented a series
of interrelated strategic initiatives designed to improve manufacturing
efficiency and offer its products at a lower cost than competitors, thereby
increasing sales, earnings and market share. The Company has also initiated a
strategy to improve significantly its financial flexibility, strengthen its
capital structure and enhance its liquidity to execute its growth initiatives.
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32
Increase Sales Through Best Value Strategy
The Company has focused its product lines on products which it can
manufacture at low cost relative to its competitors. The Company has
rationalized its product lines and simplified its product designs, including
increasing the number of interchangeable parts between models. This strategy has
enabled the Company to offer many of its products at prices that it believes are
often 10% to 15% below those offered by its competitors with virtually the same
utility and marketability as the competition's products, thereby offering its
customers a more attractive return on their invested capital. The key targets of
this strategy are rental companies, Terex Lifting's primary customers, which are
generally unable to charge a premium rental rate for equipment that has
sophisticated, but nonessential features. The Company believes that by offering
its customers a simplified product design at a lower price, it can increase
sales and gain market share.
Focus on Core Operations
Over the past several years the Company has focused on the growing and
improving operations of its core lifting and earthmoving businesses and has
expanded the size and scope of those operations through both acquisitions and
new product development in order to increase the Company's market share.
Management believes that these initiatives have helped insulate the Company from
potential cyclical changes in any one market. In addition, these initiatives
have expanded the Company's product lines, added new technology and improved the
Company's distribution network.
Growth through Acquisitions
During the past several years, the Company has invested approximately
$394.3 million to strengthen its core businesses through the seven strategic
acquisitions listed below:
Acquired
Operating or Licensed
Year Acquisition Purchase Price Location Products Brand Names
1995 PPM $104.5 million South Carolina, Telescopic P&H, PPM,
France, Italy Mobile Cranes BENDINI
1997 Simon Access $90 million Kansas, Aerial Work SIMON,
Companies South Dakota, Platforms, TELELECT,
Wisconsin, Utility Aerial RO, CELLA
Ireland, Italy Devices, Boom
Trucks
1997 Square Shooter (terms not Michigan Telescopic SQUARE
Business disclosed) Rough Terrain SHOOTER
Lift Trucks
1998 Payhauler (terms not Illinois Heavy Duty PAYHAULER
Business disclosed) Rigid Hauling
Trucks
1998 O&K Mining $168.5 million Germany Large O&K
Hydraulic
Mining Shovels
1998 Holland Lift $4.35 million Netherlands Scissor Lifts HOLLAND
LIFT
1998 American Crane $10.8 million North Carolina Lattice Boom AMERICAN
Cranes CRANE
The Company expects that acquisitions and new product development will
continue to be important components of its growth strategy and is continually
reviewing acquisition opportunities. As with its previous acquisitions, Terex
will continue to pursue strategic acquisitions which complement the Company's
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33
core operations, offer cost reduction opportunities as well as distribution and
purchasing synergies and provide product diversification.
Reduce Costs and Improve Manufacturing Efficiency
Over the past few years, the Company has initiated several programs to
increase profitability through cost reductions and improved manufacturing
efficiency. As part of this strategy, the Company evaluates every cost component
of its existing and acquired businesses and typically (i) consolidates
manufacturing operations, (ii) increases the efficiency of manufacturing
processes through improved material flow and outsourcing, (iii) reduces overhead
and (iv) emphasizes those products that yield the highest margins, including the
replacement parts and related business. Management believes it has established a
philosophy of continuous cost reduction in all of its operations. Some recent
examples of cost reduction initiatives are listed below.
o As a result of numerous cost reduction initiatives at PPM,
the Company has reduced total headcount at PPM from
approximately 840 in May 1995 to approximately 590 at
December 31, 1997 and reduced the number of employees
categorized as indirect at PPM from approximately 430 in May
1995 to approximately 226 at December 31, 1997. During that
same period, sales at PPM increased. In addition, by
outsourcing certain welding operations at PPM's Conway,
South Carolina telescopic mobile crane manufacturing
facility, the Company believes it has achieved over $2
million of annualized savings.
o Cost reductions at certain of the Simon Access Companies
acquired in April 1997 resulted in a reduction of headcount
by approximately 130 during the 90 days immediately
following the acquisition of the Simon Access Companies,
primarily in indirect personnel. The Company estimates those
initiatives reduced annual operating expenses by
approximately $7 million and the Company anticipates further
cost savings as the Simon Access Companies are more
completely integrated into the Terex family.
Consistent with its business strategy, promptly after the consummation of
the O&K Acquisition, the Company commenced implementation of several programs to
reduce costs and improve the manufacturing efficiency of O&K Mining, as
described under "The O&K Acquisition," with anticipated pro forma cost savings
of approximately $7.5 million following the O&K Acquisition.
THE O&K ACQUISITION
On March 31, 1998, the Company, through direct and indirect subsidiaries,
acquired all of the outstanding shares of O&K Mining from O & K Orenstein &
Koppel AG. The net aggregate consideration for the O&K Mining business was
approximately $168.5 million, subject to certain post-closing adjustments. The
Company financed the aggregate consideration through a portion of the net
proceeds of the issuance and sale of the Old Notes and borrowings under the New
Bank Credit Facility.
O&K Mining markets a complete range of large hydraulic mining shovels with
the 5 to 18 ton bucket capacity models serving the global construction,
infrastructure development and quarrying markets and the 24 to 80 ton bucket
capacity models serving the global surface mining industry. The Company believes
that O&K Mining has the leading market share for large hydraulic excavator
models having machine weights in excess of 200 tons. O&K Mining's excavator
shovel models incorporate a patented tripower hydraulic shovel system allowing
the machines to generate competitive cycle times and higher bucket capacities
and fill rates per cycle and to offer significantly greater maneuverability and
reliability as compared to competing technologies. O&K Mining estimates that the
resulting increase in machine operating time and higher output per cycle permits
its hydraulic mining shovels to offer 10% to 30% greater annual productivity at
lower capital equipment and infrastructure investment levels as compared to
competing electric rope shovels and bucket wheel excavators. The use of O&K
Mining's excavator shovels in around the clock intensive, harsh condition mining
operations requires significant higher margin after-market parts and service,
which in the case of the larger hydraulic excavators can generate revenues of up
to 200% of the original sale price over the expected life of the machines. O&K's
after-market parts and service business accounted for approximately 47% of O&K
<PAGE>
34
Mining's sales during the nine month period ended September 30, 1997. In 1997,
O&K Mining introduced the RH 400, the world's largest hydraulic mining shovels
with an 800 ton machine weight and 80 ton bucket capacity. This expansion of O&K
Mining's product line will enable it to compete with the most popular electric
rope shovel size class and represents a significant growth opportunity for O&K
Mining.
The Company plans to initiate several programs to increase sales and reduce
costs in connection with the integration of O&K Mining into the Terex
Earthmoving segment. Since 1993, O&K Mining has successfully marketed the
Company's off-highway trucks under private label, primarily in Europe. The
Company believes that additional opportunities exist to offer packages of
off-highway trucks with complementary small hydraulic excavators to the
construction industry outside Europe and of high capacity trucks with
complementary large hydraulic excavators to the global surface mining industry.
The new machine product combinations and the related integrated parts and field
service business will allow the Company to expand on its and O&K Mining's
established customer relationships and position itself as an integrated provider
of surface mining and construction products. The integration of O&K Mining into
the Company also presents substantial cost saving opportunities including
headcount reduction and facilities consolidation, and increased purchasing
leverage. In addition, sourcing of components from lower cost providers and
negotiation of more favorable contractual service and supply terms with, and
reduced cost allocations from, Orenstein & Koppel represent additional cost
reduction possibilities.
Promptly following the O&K Acquisition, the Company commenced initiation of
several programs to reduce costs and improve the manufacturing efficiency of O&K
Mining, including those listed below. The Company estimates that approximately
$7.5 million of pro forma cost savings will be realized from cost reduction
efforts following the O&K Acquisition.
Consolidation of Field Operations. Given the service requirements of
installed equipment, O&K Mining, like the Company, maintains large field
organizations including personnel, inventory and facilities in key markets
around the world. The largest sales and service operations of O&K Mining are in
the United Kingdom, Australia and the United States, directly overlapping with
the Company's largest sales and service operations which are also in the United
Kingdom (Terex (UK) Limited), Australia (Unit Rig Australia) and the United
States (Unit Rig). This overlap provides consolidation opportunities for the
Company.
Component Purchase and Parts Logistics Agreements. In connection with the
O&K Acquisition, O&K Mining entered into component purchase agreements with O &
K Orenstein & Koppel AG at lower pricing than previously paid by O&K Mining to O
& K Orenstein & Koppel AG. In addition, O&K Mining entered into a parts
logistics agreement with an affiliate of Fried, Krupp AG Hoesch-Krupp ("Krupp"),
the controlling shareholder of O & K Orenstein & Koppel AG, pursuant to which
Krupp provide warehousing, picking, packing and shipping services at a reduced
cost to O&K Mining's German parts distribution operation.
Elimination of Current Arrangements with O & K Orenstein & Koppel AG. The
Company has eliminated the existing cost allocations from, and joint advertising
and engineering arrangements with, O & K Orenstein & Koppel AG, which the
Company expects will result in significant net annual savings.
Outsourcing and Resourcing Non-Critical Manufacturing. The Company plans to
reduce product costs through outsourcing and resourcing certain non-critical
components and manufacturing operations, including steel cutting and certain
welding and machining operations, to suppliers primarily outside Germany.
In addition to cost reductions, the Company plans to emphasize parts sales
growth. Due to the relatively young age of O&K Mining's installed equipment base
and its increasing new equipment sales, the active field population of O&K
Mining excavator shovels has grown over the past four years and is expected to
continue to grow. The expanding and aging field population leads to growth in
replacement parts sales, which carry a substantially higher gross margin than
new equipment sales. The Company believes that growing replacement parts sales
represent a significant opportunity for earnings growth at O&K Mining.
<PAGE>
35
BUSINESS
General
Terex is a global manufacturer of a broad range of construction and mining
related capital equipment. The Company strives to manufacture machines which are
low cost, simple to use and easy to maintain. The Company's principal products
include telescopic mobile cranes, aerial work platforms, utility aerial devices,
telescopic material handlers, truck mounted cranes (boom trucks), rigid and
articulated off-highway trucks, high capacity surface mining trucks, large
hydraulic mining shovels, and related components and replacement parts. The
Company operates in two business segments: Terex Lifting (formerly known as
Terex Cranes) and Terex Earthmoving (formerly known as Terex Trucks). The
Company's products are manufactured at 17 plants in the United States and Europe
and are sold primarily through a worldwide network of dealers in over 750
locations to the global construction, infrastructure and surface mining markets.
Management believes that the Company is benefitting from several industry
trends, including the growing importance of rental fleet operators with respect
to Terex Lifting and an increasing level of global infrastructure development
with respect to Terex Earthmoving, particularly in North America and Europe.
Products
Telescopic Mobile Cranes
Telescopic mobile cranes are used primarily in new industrial, commercial
construction and public works construction industries and in maintenance
applications, to lift equipment or material to heights in excess of 50 feet. The
Company's Terex Lifting segment manufactures the following types of telescopic
mobile cranes:
Rough Terrain Cranes -- are designed to lift
materials and equipment on rough or uneven terrain and are
most often located on a single construction or work site such
as a building site, a highway or a utility project for long
periods of time. Rough terrain cranes cannot be driven on
highways and accordingly must be transported by truck to the
work site. Rough terrain cranes manufactured by Terex Lifting
have maximum lifting capacities of up to 90 tons and maximum
tip heights of up to 205 feet. Terex Lifting manufactures its
rough terrain cranes at its facilities located at Waverly,
Iowa, Conway, South Carolina, Montceau-les-Mines, France, and
Crespellano, Italy under the brand names TEREX, LORAIN, P&H,
PPM and BENDINI.
Truck Cranes -- have two cabs and can travel rapidly
from job site to job site at highway speeds. In contrast to
rough terrain cranes which are often located for extended
periods at a single work site, truck cranes are often used for
multiple local jobs, primarily in urban or suburban areas.
Truck cranes manufactured by Terex Lifting have maximum
lifting capacities of up to 75 tons and maximum tip heights of
up to 193 feet. Terex Lifting manufactures truck cranes at its
Waverly, Iowa and Conway, South Carolina facilities under the
brand names P&H and LORAIN.
All Terrain Cranes -- were developed in Europe as a
cross between rough terrain and truck cranes in that they are
designed to travel across both rough terrain and highways. All
terrain cranes have two cabs and are versatile and highly
maneuverable. All terrain cranes manufactured by Terex Lifting
have lifting capacities of up to 130 tons and maximum tip
heights of up to 223 feet. Terex Lifting manufactures its all
terrain cranes at its Montceau-les-Mines, France facility
under the brand names TEREX and PPM.
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36
Truck Mounted Cranes (Boom Trucks)
Terex Lifting manufactures telescopic boom cranes for mounting on commercial
truck chassis. Terex also distributes truck mounted articulated cranes under the
EFFER brand name which are manufactured by Effer SpA. Truck mounted cranes are
used primarily in the construction industry to lift equipment or materials to
various heights. Boom trucks are generally lighter and have a lower lifting
capacity than truck cranes, and are used for many of the same applications when
lower lifting capabilities are required. An advantage of a boom truck is that
the equipment or material to be lifted by the crane can be transported by the
truck which can travel at highway speeds. Applications include the installation
of air conditioners and other roof equipment. The Company's Terex Lifting
segment manufactures the following types of cranes for installation on truck
chassis:
Telescopic Boom Truck Mounted Cranes -- enable an
operator to reach heights of up to 167 feet and have a maximum
lifting capacity of up to 37.5 tons. Terex Lifting
manufactures its telescopic boom truck mounted cranes at its
Olathe, Kansas facility under the brand name RO-STINGER.
Articulated Boom Truck Mounted Cranes -- are for
users who prefer greater capacities over the greater vertical
reach provided by a telescopic boom truck mounted crane. At
its Olathe, Kansas facility, Terex Lifting acts as the master
distributor for the EFFER brand line of articulated boom truck
mounted cranes which have maximum capacities up to 87,305
pounds and horizontal reach to 66 feet.
Aerial Work Platforms
Aerial work platforms are self propelled devices which position workers and
materials easily and quickly to elevated work areas. These products have
developed over the past 20 years as alternatives to scaffolding and ladders. The
work platform is mounted on either a telescoping and/or articulating boom or on
a vertical lifting scissor mechanism.
Scissor Lifts -- are used in open areas in indoor or
outdoor applications in a variety of construction, industrial
and commercial settings. Scissor lifts manufactured by Terex
Lifting have maximum working heights of up to 52 feet and
maximum load capacities of up to 2,000 pounds. Terex Lifting
manufactures scissor aerial work platforms at its Waverly,
Iowa and Milwaukee, Wisconsin facilities under the brand names
TEREX, SIMON, MARK and HOLLAND LIFT.
Straight Telescopic Boom Lifts -- are used primarily
outdoors in residential, commercial and industrial new
construction and maintenance projects. Straight telescopic
boom lifts manufactured by Terex Lifting have maximum working
heights of up to 126 feet and maximum load capacities of up to
650 pounds. Terex Lifting manufactures its straight telescopic
aerial work platforms at its Waverly, Iowa and Milwaukee,
Wisconsin facilities under the brand names TEREX, SIMON and
MARK.
Articulating Telescopic Boom Lifts -- are generally
used in industrial environments where the articulation allows
the user to access elevated areas over machines or structural
obstacles which prevent access with a scissor lift or straight
boom. Articulating lifts available from Terex Lifting have
maximum working heights of up to 70 feet and maximum load
capacities of up to 500 pounds. Terex Lifting manufactures
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37
its articulating telescopic boom lifts at its Waverly,
Iowa and Milwaukee, Wisconsin facilities under the brand
name TEREX AERIALS.
Utility Aerial Devices
Utility aerial devices are used to set utility poles and move workers and
materials to work areas at the top of utility poles and towers. Utility aerial
devices are mounted on commercial truck chassis which include separately
installed steel cabinets for tool and material storage. Most utility aerial
devices are insulated to permit live wire work.
Articulated Aerial Devices -- are used to elevate
workers to work areas at the top of utility poles or in trees
and include one or two man baskets. Articulated aerial devices
available from Terex Lifting include telescopic,
non-overcenter and overcenter models and range in working
heights from 32 to 203 feet. Articulated aerial devices are
manufactured by Terex Lifting at its Watertown, South Dakota
facility under the brand names TELELECT and HI-RANGER.
Digger Derricks -- are used to set telephone poles.
The digger derricks include a telescopic boom with an auger
mounted at the tip which digs a hole, and a device to grasp,
manipulate and set the pole. Digger derricks available from
Terex Lifting have sheave heights exceeding 70 feet and
lifting capacities up to 48,000 pounds. Digger derricks are
manufactured by Terex Lifting at its Watertown, South Dakota
facility under the brand names TELELECT.
Telescopic Material Handlers
Telescopic material handlers are used to lift containers or other material
from one location to another at the same job site.
Telescopic Container Stackers -- are used to pick up
and stack containers at dock and terminal facilities. At the
end of a telescopic container stacker's boom is a spreader
which enables it to attach to containers of varying lengths
and weights and to rotate the container up to 360 degrees.
Telescopic container stackers are particularly effective in
storage areas where containers are continually added and
removed, and where the efficient manipulation of, and access
to, specific containers is required. Telescopic container
stackers manufactured by Terex Lifting have lifting capacities
up to 49.5 tons, can stack up to six full or nine empty
containers and are able to maneuver through very narrow areas.
Terex Lifting manufactures its telescopic container stackers
under the brand names PPM and P&H SUPERSTACKERS at its Conway,
South Carolina and Montceau-les-Mines, France facilities.
Rough Terrain Telescopic Boom Forklifts -- serve a
similar function as smaller size rough terrain telescopic
mobile cranes and are used exclusively to move and place
materials on new residential and commercial job sites. Terex
Lifting manufactures rough terrain telescopic boom forklifts
with load capacities of up to 10,000 pounds and with a maximum
extended reach of up to 31 feet and lift capabilities of up to
48 feet. Terex Lifting manufactures rough terrain telescopic
boom forklifts at its facility in Baraga, Michigan under the
brand name SQUARE SHOOTER.
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Rigid and Articulated Off-Highway Trucks
Terex Earthmoving manufactures two distinct types of off-highway trucks with
hauling capacities from 25 to 100 tons: articulated and rigid frame. Terex
Earthmoving manufactures rigid and articulated trucks at its TEL facility in
Motherwell, Scotland. TEL manufactures and markets articulated trucks and rigid
frame trucks under the TEREX brand name and sells to O&K Mining on a private
label basis. Upon consummation of the O&K Acquisition, the Company will continue
to manufacture articulated trucks and rigid frame trucks under the O&K name.
Articulated Off-Highway Trucks -- are three axle, six
wheel drive machines with a capacity range of 25 to 40 tons.
Their differentiating feature is an oscillating connection
between the cab and body which allows the cab and body to move
independently, thereby enabling all six tires to maintain
ground contact for improved traction on rough terrain. This
allows the truck to move effectively through extremely rough
or muddy off-road conditions. Articulated off-highway trucks
are typically used together with an excavator or wheel loader
to move dirt in connection with road, tunnel or other
infrastructure construction and commercial, industrial or
major residential construction projects. Terex's articulated
trucks are manufactured in Motherwell, Scotland, under the
brand name TEREX.
Rigid Off-Highway Trucks -- are two axle machines
which generally have larger capacities than articulated trucks
but can operate only on improved or graded surfaces. The
capacities of rigid off-highway trucks range from 35 to 100
tons, and off-highway trucks have applications in large
construction or infrastructure projects, aggregates and
smaller surface mines. Terex Earthmoving's rigid trucks are
manufactured in Motherwell, Scotland, under the TEREX brand
name and in Batavia, Illinois, under the PAYHAULER brand name.
High Capacity Surface Mining Trucks -- are off road
dump trucks with capacities in excess of 120 tons primarily
for surface mining. Terex Earthmoving's haulers are powered by
a diesel engine driving an electric generator that provides
power to individual electric motors in each of the rear
wheels. Unit Rig's current LECTRA HAUL product line consists
of a series of rear dump trucks with payload capacities
ranging from 120 to 260 tons, and bottom dump trucks with
capacities ranging from 180 to 270 tons. Terex Earthmoving's
high capacity surface mining trucks are manufactured at Unit
Rig, located in Tulsa, Oklahoma, under the UNIT RIG and LECTRA
HAUL brand names.
Large Hydraulic Excavators
Terex Earthmoving sells hydraulic excavators which are shovels primarily
used to load coal, copper ore, iron ore, other mineral-bearing materials or
rocks into trucks. These products are primarily utilized for quarrying
construction materials or digging in opencast mines. Additional applications
include large construction projects with difficult working conditions and large
amounts of solid material and rock to be moved.
Terex Earthmoving offers a complete range of large
hydraulic excavators,with operating weights from 58 to 800
tons. In 1997, O&K Mining introduced the RH 400, the world's
largest hydraulic excavator with an 800 ton machine weight and
80 ton bucket capacity. This expansion of Terex Earthmoving's
product line will enable it to compete with the most popular
electric rope shovel size class and represents a significant
growth opportunity for Terex Earthmoving. Most hydraulic
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39
excavators sold by Terex Earthmoving are manufactured under
the O&K brand name by O&K Mining in Dortmund, Germany. The
smallest model sold by Terex Earthmoving is manufactured by
Orenstein & Koppel in Berlin, Germany, pursuant to a private
label supply agreement.
Backlog
The Company's backlog as of December 31, 1996 and 1997 and March 31, 1997
and 1998 not including backlog at O&K Mining, was as follows:
December 31, March 31,
1996 1997 1997 1998
(dollars in millions)
Terex Lifting.... $ 67.2 $186.5 $ 101.0 $ 224.0
Terex Earthmoving 53.4 30.3 69.1 48.5
------- ------- ------- -------
Total.. $ 120.6 $ 216.8 $170.1 $272.5
======= ======= ======= =======
Substantially all of the Company's backlog orders are expected to be filled
within one year, although there can be no assurance that all such backlog orders
will be filled within that time period. The Company's backlog orders represent
primarily new machine orders. Parts orders are generally filled on an as-ordered
basis.
Backlog in Terex Lifting at December 31, 1997 increased $119.3 million as
compared to $67.2 million at December 31, 1996. Terex Lifting backlog at
December 31, 1997 increased $119.3 million to $186.5 million as compared to
$67.2 at December 31, 1996. The increase in backlog was due to the effect of the
Simon Access and Square Shooter businesses acquired in April 1997 (approximately
$51 million in backlog) as well as increases in the businesses other than the
1997 acquisitions. The backlog at Terex Earthmoving decreased to $30.3 million
at December 31, 1997 from $53.4 million at December 31, 1996, principally
because of the decline in sales and backlog of Unit Rig machines during 1997.
Terex Lifting's backlog was $224.0 million at March 31, 1998, compared to
$101.0 million at March 31, 1997 and $186.5 million at December 31, 1997. Of the
total backlog at March 31, 1998, approximately 37% was at the businesses
acquired in 1997. Backlog at Terex Earthmoving was $48.5 million at March 31,
1998 compared to $30.3 million at December 31, 1997 and $69.1 million at March
31, 1997 and December 31, 1997, respectively.
Distribution
Terex Lifting distributes its products primarily through a global network of
dealers in over 750 different locations. With respect to telescopic mobile
cranes in North America, Terex Lifting maintains extensive dealer networks. The
geographic strength of Terex Lifting's telescopic mobile cranes marketed under
the LORAIN brand name centers in the midwest and mid-Atlantic regions of the
United States and the geographic strength of telescopic mobile cranes marketed
under the P&H brand name centers in the southern and western regions of the
United States. Terex Lifting's European distribution is carried out primarily
under three brand names, TEREX, PPM and BENDINI, through a single distribution
network comprised of both distributors and a direct sales force. Terex Lifting
sells its utility aerial devices under the SIMON, TEREX and TELELECT brand names
principally through a network of North American distributors. Terex Lifting
sells its aerial work platform products through a distribution network that
includes many of the Aerials Limited and Aerials dealers throughout the world,
but principally in North America and Europe. Terex Lifting's aerial work
platform products are sold under the brand name TEREX AERIALS.
TEL markets machines and replacement parts primarily through worldwide
dealership networks. TEL's truck dealers are independent businesses which
generally serve the construction, mining, timber and/or scrap industries.
Although these dealers carry products of a variety of manufacturers, and may or
may not carry more than one of the Company's products, each dealer generally
carries only one manufacturer's "brand" of each particular type of product.
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The Company employs sales representatives who service these dealers from offices
located throughout the world. Payhauler distributes its products primarily
through a dealership network.
Unit Rig distributes its products and services directly to customers
primarily through its own distribution system. O&K Mining sells its hydraulic
mining shovels and after-market parts and services primarily through its export
sales department in Dortmund, Germany, through O&K Mining's global network of
wholly-owned foreign subsidiaries and through dealership networks.
Research and Development
The Company maintains engineering staffs at several of its locations who
design new products and improvements in existing product lines. The Company's
engineering expenses are primarily incurred in connection with the improvements
of existing products, efforts to reduce costs of existing products and, in
certain cases, the development of products which may have additional
applications or represent extensions of the existing product line.
Materials
Principal materials used by the Company in its various manufacturing
processes include steel, castings, engines, tires, hydraulic cylinders, electric
controls and motors, and a variety of other fabricated or manufactured items. In
the absence of labor strikes or other unusual circumstances, substantially all
materials are normally available from multiple suppliers. Current and potential
suppliers are evaluated on a regular basis on their ability to meet the
Company's requirements and standards. Electric wheel motors and controls used in
the Unit Rig product line are currently supplied exclusively by General Electric
Company. The Company is endeavoring to develop alternative sources and has
entered into a contract with General Atomics, a former defense contractor, to
develop electric wheel motors for Unit Rig trucks. If the Company is unable to
develop alternative sources, or if there is disruption or termination of its
relationship with General Electric Company (which is not governed by a written
contract), it could have a material adverse effect on Unit Rig's operations.
Competition
Telescopic Mobile Cranes -- The domestic telescopic mobile crane industry is
comprised primarily of three manufacturers. The Company believes that Terex
Lifting is the second largest domestic manufacturer, with approximately a 36%
market share. The Company believes that the number one domestic manufacturer is
Grove Worldwide, and the number three domestic manufacturer is Link-Belt, a
subsidiary of Sumitomo Corp. The Company's principal markets in Europe are in
France and Italy, where the Company believes it has the largest market shares,
with an estimated 50% market share in each of these countries. In Europe, Terex
Lifting's primary competitors are Grove Cranes Ltd. (including the recently
acquired Krupp Mobilkran), Liebherr Werk Ehingen and DeMag. Outside the United
States and Europe, the most active new mobile crane markets are the Middle East
and South America. Terex Lifting sells approximately 10% of its newly
manufactured telescopic mobile cranes to those markets.
The United States boom truck industry is dominated by four manufacturers, of
which the Company believes Terex RO, with a 25% market share, is the second
largest behind Grove National.
Aerial Work Platforms -- The aerial work platform industry in North America
is fragmented, with seven major competitors. The Company believes that its
approximate 7% market share makes it the fifth largest manufacturer of aerial
work platforms in North America, behind JLG, Genie, Grove Manlift and Snorkel.
The Company believes that approximately 42,000 aerial platforms were sold in the
United States during 1997, of which approximately 70% were scissor lifts, 19%
were articulated boom lifts, and 11% were straight boom lifts. The Company
believes that its market share in boom lifts is greater than its market share in
scissor lifts.
Utility Aerial Devices -- The utility aerial device industry is comprised
primarily of three manufacturers. The Company believes that it has a 20% market
<PAGE>
41
share of that industry and that it is the second largest manufacturer in the
United States of utility aerial devices behind Altec. Outside theUnited States,
the Company is focusing primarily on the Mexican and Caribbean markets.
Telescopic Container Stackers -- The Company believes that three
manufacturers account for approximately 66% of the global market for telescopic
container stackers. The Company believes that it has a global market share of
25% and that it is the second largest manufacturer behind Kalmar. Other
manufacturers include Valmet Belloti and Taylor.
Telescopic Rough Terrain Lift Trucks -- OmniQuip and Gradall are the largest
manufacturers of telescopic rough terrain lift trucks. The Company believes that
the Square Shooter Business has approximately a 4% market share.
Off-Highway Trucks -- North America and Europe account for greater than 60%
of the global market. Four manufacturers dominate the global market. The Company
believes that it is the third largest of these manufacturers (behind Volvo and
Caterpillar), with approximately a 10% global market share.
High Capacity Surface Mining Trucks -- The high capacity surface mining
truck industry includes three principal manufacturers: Caterpillar,
Komatsu-Dresser and the Company. The Company believes that it is the third
largest manufacturer with a global market share of approximately 13%.
Large Hydraulic Mining Shovels -- The large hydraulic mining shovel industry
is comprised of primarily seven manufacturers, the largest of which are Hitachi,
Komatsu-DeMag, Liebherr and Caterpillar. The Company believes that O&K Mining is
the largest manufacturer of hydraulic mining shovels having machine weights in
excess of 200 tons, with an approximate 29% global market share. The largest
hydraulic excavators also compete against electric mining shovels (rope
excavators) from competitors such as Harnischfeger Corporation and Bucyrus
International, Inc. and, for some applications, against bucket wheel loaders
from competitors such as Caterpillar, Volvo and Komatsu-Dresser.
Employees
As of March 31, 1998, the Company had approximately 3,077 employees. The
Company considers its relations with its personnel to be satisfactory.
Approximately 35% of the Company's employees are represented by labor unions
which have entered into or are in the process of entering into various separate
collective bargaining agreements with the Company. The Company experienced a
labor strike at its parts distribution center in Southaven, Mississippi during
the second quarter of 1995 which was settled in February 1997. The strike had no
appreciable effect on the conduct of business or financial results of that
operation as a whole, although individual product line sales growth may have
been hindered.
Patents, Licenses and Trademarks
Several of the trademarks and trade names of the Company, in particular the
TEREX, LORAIN, UNIT RIG, MARK, P&H, PPM, SIMON, TELELECT, SQUARE SHOOTER,
PAYHAULER, O&K and HOLLAND LIFT trademarks, are important to the business of the
Company. The Company owns and maintains trademark registrations and patents in
countries where it conducts business, and monitors the status of its trademark
registrations and patents to maintain them in force and renews them as required.
The Company also protects its trademark, trade name and patent rights when
circumstances warrant such action, including the initiation of legal
proceedings, if necessary. P&H is a registered trademark of Harnischfeger
Corporation which the Company has the right to use for certain products pursuant
to a license agreement until 2011. Pursuant to the terms of the Simon
Acquisition agreements, the Company has the right to use the SIMON name (which
is a registered trademark of Simon Engineering plc) for certain products until
April 7, 2000. CELLA is a trademark of Sergio Cella. EFFER is a trademark of
Effer SpA. Pursuant to the terms of the O&K Acquisition agreement, the Company
has the right to use the O&K and Orenstein & Koppel names (which are registered
trademarks of Orenstein & Koppel) for most applications in the mining business
for an unlimited period of time. All other trademarks and tradenames referred to
in this Prospectus are registered trademarks of Terex Corporation or its
subsidiaries.
<PAGE>
42
Environmental Matters
The Company is subject to a wide range of Federal, state, local and foreign
environmental laws, including CERCLA, that regulate the discharge of materials
into the environment. Compliance with such laws has not had a material effect on
the Company. In addition, the Company has not incurred, and does not expect to
incur in the future, any material capital expenditures for environmental control
facilities.
Legal Proceedings
In December 1994, the Company received an examination report from the IRS
proposing a substantial tax deficiency based upon an alleged inability of the
Company to substantiate certain deductions taken by the Company from 1987 to
1989 and the Company's utilization of certain NOLs. This matter is currently
pending in the Milwaukee audit division of the IRS. For a discussion of this
matter, see "Risk Factors -- Tax Audit Issues."
In March 1994, the Commission initiated a private investigation, which
included the Company and certain of its affiliates, to determine whether
violations of certain aspects of the Federal securities laws had occurred.
For a discussion of this investigation, see "Risk Factors -- SEC Investigation."
The Company is involved in various other legal proceedings which have arisen
in the normal course of its operations. The outcome of these other legal
proceedings, if determined adversely to the Company, is unlikely to have a
material effect on the Company.
Seasonal Factors
The Company markets a large portion of its products in North America and
Europe, and its sales of trucks and cranes during the fourth quarter of each
year (i.e., October through December) to the construction industry are usually
lower than sales of such equipment during each of the first three quarters of
the year because of the normal winter slowdown of construction activity.
However, sales of trucks to the mining industry are generally less affected by
such seasonal factors.
Discontinued Operations
On November 27, 1996, the Company sold substantially all of the assets and
liabilities of the Clark Material Handling Segment for an aggregate cash
purchase price of approximately $140 million. Prior to the disposition the Clark
Material Handling Segment consisted of Clark Material Handling Company and
certain affiliated companies which were acquired by the Company in July 1992
from Clark Equipment Company. The Clark Material Handling Segment designed,
manufactured and marketed a complete line of internal combustion and electric
lift trucks, electric walkies and related components and replacement parts under
the CLARK trademark
<PAGE>
43
Properties
The following table outlines the principal manufacturing, warehouse and
office facilities owned or leased by the Company and its subsidiaries:
Type and Size
Entity Facility Location of Facility
- --------------------- -------------------------- ----------------------
Terex Westport, Connecticut(1) Office; 14,898 sq. ft.
(Corporate Offices)
Terex Southhaven, Mississippi (1) Warehouse and light
(Distribution Center) manufacturing;
505,000 sq. ft.(2)
Terex Earthmoving
Unit Rig Tulsa, Oklahoma Manufacturing, warehouse
and office; 375,587 sq. ft.
TEL Motherwell, Scotland Manufacturing, warehouse and
office; 473,000 sq. ft.
Payhauler Batavia, Illinois(1) Manufacturing, office and
warehouse; 112,000 sq. ft.
O&K Mining Dortmund, Germany(1) Manufacturing, office and
warehouse; 775,000 sq. ft.
Terex Lifting
Terex Lifting -- Waverly, Iowa Office, manufacturing and
Waverly Operations warehouse; 363,000 sq. ft.
Terex Lifting -- Conway, South Carolina(1) Office, manufacturing and
warehouse; 168,716 sq. ft.
P.P.M. S.A. Montceau-les-Mines, France Office, manufacturing and
warehouse; 419,764 sq. ft.
P.P.M. SpA Crespellano, Italy Office, manufacturing and
warehouse; 79,900 sq. ft.
PPM Europe Subsidiary Dortmund, Germany(1) Office and warehouse;
129,180 sq. ft.
PPM Europe Subsidiary Rethel, France Office, manufacturing and
warehouse; 215,300 sq. ft.
Telelect Huron, South Dakota Manufacturing; 88,000 sq.ft.
Telelect Watertown, South Dakota Office, manufacturing and
warehouse; 222,450 sq. ft.
Cella Brescia, Italy(1) Manufacturing and office;
64,000 sq. ft.
Aerials Limited Cork, Ireland(1) Manufacturing and office;
80,000 sq. ft.
Aerials (Terex RO) Olathe, Kansas Manufacturing and office;
80,400 sq. ft.
Aerials Milwaukee, Wisconsin Manufacturing, office and
warehouse; 103,000 sq. ft.
Square Shooter Baraga, Michigan Manufacturing, office and
warehouse; 41,152 sq. ft.
Holland Lift Hoorn,The Netherlands(1) Manufacturing, office and
warehouse; 30,000 sq. ft.
American Crane Wilmington, North Carolina Manufacturing, office and
warehouse; 572,200 sq.ft.
American Crane Oudenbosch, Office and warehouse;
Europe Subsidiary The Netherlands(1) 8,000 sq.ft.
- --------------------
(1).....These facilities are either leased or subleased by the indicated entity.
(2).....Includes 239,400 sq. ft. of warehouse space which the Company currently
leases to others.
<PAGE>
44
Unit Rig also has 10 owned or leased locations for parts distribution and
rebuilding of components, of which two are in the United States, two are in
Canada and six are outside North America. O&K Mining also has six leased
locations for sales and parts distribution, located in Georgia (U.S.A.), the
United Kingdom, South Africa, Australia, Singapore and Canada.
Management believes that the properties listed above are suitable and
adequate for the Company's needs. The Company has determined that certain of its
properties exceed its current requirements. Such properties may be sold, leased
or utilized in another manner and have been excluded from the above list.
MANAGEMENT
Executive Officers and Directors
The following individuals are currently directors of the Company:
First Year
Position and Elected
Name Age Offices with Company Director
- --------------- ----- --------------------------------- -----------
Ronald M. DeFeo 46 Chairman of the Board, President, 1993
Chief Executive Officer, Chief
Operating Officer and Director
G. Chris Andersen 60 Director 1992
William H. Fike 62 Director 1995
Bruce I. Raben 44 Director 1992
Marvin B. Rosenberg 58 Director 1992
David A. Sachs 39 Director 1992
Dr. Donald P. Jacobs 71 Director 1998
Ronald M. DeFeo was appointed a director of the Company in 1993 and was
appointed President and Chief Operating Officer of the Company on October 4,
1993, Chief Executive Officer of the Company on March 24, 1995 and Chairman of
the Board on March 4, 1998. Mr. DeFeo joined the Company in May 1992 as
President of the Company's Heavy Equipment Group. A year later, he also assumed
the responsibility of serving as the President of Clark Material Handling
Company. Prior to joining the Company on May 1, 1992, Mr. DeFeo was a Senior
Vice President of J.I. Case Company, the farm and construction equipment
division formerly of Tenneco Inc., and also served as a Managing Director of
Case Construction Equipment throughout Europe. While at J.I. Case, Mr. DeFeo was
also a Vice President of North American Construction Equipment Sales and General
Manager of Retail Operations. Mr. DeFeo serves as a director of United Rentals,
Inc.
G. Chris Andersen was appointed a director of the Company in 1992. Mr.
Andersen was a Vice Chairman of PaineWebber Incorporated from March 1990 through
1995. Mr. Andersen is currently a partner of Andersen, Weinroth & Co. L.P., an
investment banking firm, and also serves as a director of Sunshine Mining &
Refining Company, All Star Systems, Inc., Headway Corp. Services and Compost
America.
William H. Fike was appointed a director of the Company in 1995. Mr. Fike is
the Vice Chairman of Magna International, Inc., an automotive parts manufacturer
based in Ontario, Canada ("Magna"). Prior to joining Magna in September 1994,
Mr. Fike was employed by Ford Motor Company from 1966 to 1994, where he served
most recently as President of Ford Europe. Mr. Fike serves as a director of
Magna and AGCO Corporation.
Bruce I. Raben was appointed a director of the Company in 1992. Mr. Raben is
a managing director of CIBC Oppenheimer Corp., one of the Initial Purchasers.
<PAGE>
45
Prior to joining that firm in February 1996, Mr. Raben was employed as an
Executive Vice President of Jefferies & Company, Inc. Mr. Raben serves as a
director of Equity Marketing Inc. and Optical Security, Inc.
Marvin B. Rosenberg retired as a Senior Vice President of the Company, a
position he held since January 1, 1994, on December 31, 1997. He served as
Secretary and General Counsel of the Company since 1987 with his retirement from
the Company on December 31, 997. From 1987 through 1993, Mr. Rosenberg served as
General Counsel of KCS Industries, L.P., a Connecticut limited partnership and
its predecessor, KCS Industries, Inc. ("KCS"), an entity that, until December
31, 1993, provided administrative, financial, marketing, technical, real estate
and legal services to the Company and its subsidiaries.
David A. Sachs was appointed a director of the Company in 1992. Mr. Sachs is
a Managing Director of Ares Management, L.P., an investment management firm, and
is a principal of Onyx Partners, Inc., a merchant banking firm. From 1990 to
1994, Mr. Sachs was employed at TMT-FW, Inc., an affiliate of Taylor & Co., a
private investment firm based in Fort Worth, Texas. Mr. Sachs serves as a
director of Talton Holdings, Inc.
Dr. Donald P. Jacobs was appointed a director of the Company in 1998. Dr.
Jacobs is Dean of the J.L. Kellogg Graduate School of Management at Northwestern
University. In addition to serving as director of First National Bank of
Chicago, Hartmarx Corporation, Security Capital Industrial Trust, Unicom
Corporation/Commonwealth Edison Company, Unocal Corporation and Whitman
Corporation, Dr. Jacobs is Chairman of the Public Review Board of Arthur
Andersen & Co. and previously served as Chairman of the Board of Amtrak.
The following table sets forth the respective names and ages of the
Company's current executive officers, as of August 1, 1998, indicating all
positions and offices held by each such person. Each officer is elected by the
Board to hold office for one year or until his successor is duly elected and
qualified.
Name Age Positions and Offices Held
Ronald M. DeFeo 46 Chairman of the Board, President, Chief
Executive Officer, Chief Operating Officer and
Director
Eric I Cohen 39 Senior Vice President, General Counsel and
Secretary
Joseph F. Apuzzo 42 Vice President-Finance and Controller
Brian J. Henry 39 Vice President-Finance, Business Development
Steven E. Hooper 45 Vice President-Human Resources
Jack Lascar 44 Vice President-Investor Relations and Corporate
Communications
For information regarding Mr. DeFeo, refer to the table listing directors
above.
Eric I Cohen was appointed Senior Vice President, General Counsel and
Secretary effective January 1, 1998. Mr. Cohen had been a partner at the law
firm of Robinson Silverman Pearce Aronsohn & Berman LLP from January 1992 until
joining the Company on January 1, 1998.
Joseph F. Apuzzo was appointed Vice President-Finance and Controller of the
Company on May 15, 1996. Mr. Apuzzo previously held the position of Vice
President, Corporate Controller since joining the Company on October 9, 1995.
<PAGE>
46
Mr. Apuzzo was Vice President of Corporate Finance at D'Arcy Masius Benton &
Bowles, Inc. from September 1994 until October 1995. Mr. Apuzzo was employed by
Price Waterhouse LLP in various capacities from 1983 until September 1994.
Brian J. Henry was appointed Vice President-Finance, Business Development
on May 18, 1998. Previously, Mr. Henry has served as Vice President-Finance and
Treasurer and Director of Investor Relations on the Company since July 11, 1995.
Mr. Henry formerly held the position of Vice President-Corporate Development and
Acquisitions and has been employed by the Company since 1993. He was employed by
KCS from 1990 until 1993.
Steven E. Hooper was appointed Vice President-Human Resources of the
Company on September 15, 1995, after serving as Director of Human Resources of
the Company since January 1994. He was previously a Human Resources Director at
Allied Signal Aerospace from October 1992 to December 1993. Prior to October
1992, Mr. Hooper was with Tenneco Inc. for eight years in various senior level
human resources positions.
Jack Lascar was appointed Vice President-Investor Relations and Corporate
Communications of the Company on May 18, 1998. Previously, Mr. Lascar had been
Vice President-Investor Relations for Tenneco, Inc. Mr. Lascar had held various
senior level manaagement positions at Tenneco during the period from 1981
through 1998.
DESCRIPTION OF THE NEW
BANK CREDIT FACILITY
On March 6, 1998, the Company entered into the New Bank Credit Facility with
several financial institutions. Under the terms of such facility, the Company
and certain wholly owned foreign subsidiaries of the Company (the "Subsidiary
Borrowers," and together with the Company, the "Borrowers") may borrow up to an
aggregate of $375 million pursuant to the Term Loan Facilities and have
available an aggregate of $125 million pursuant to the New Revolving Credit
Facility. All obligations of the Subsidiary Borrowers under the New Bank Credit
Facility are guaranteed by the Company. All obligations of the Company under the
New Bank Credit Facility are guaranteed by the Company's domestic subsidiaries.
With limited exceptions, the obligations of the Borrowers under the New Bank
Credit Facility are secured by (i) a pledge of all of the capital stock of
domestic subsidiaries of the Company, (ii) a pledge of 65% of the stock of the
foreign subsidiaries of the Company and (iii) a first priority security interest
in, and mortgages on, substantially all of the assets of Terex and its domestic
subsidiaries. The New Bank Credit Facility contains covenants limiting the
Borrowers' activities, including, without limitation, limitations on dividends
and other payments, liens, investments, incurrence of indebtedness, mergers and
asset sales, related party transactions and capital expenditures. The New Bank
Credit Facility also contains certain financial and operating covenants,
including a maximum leverage ratio, a minimum interest coverage ratio and a
minimum fixed charge coverage ratio. The New Bank Credit Facility replaced
certain of the Existing Credit Facilities, and approximately $117 million of the
proceeds from the Term Loan Facilities were used to repay in full the
outstanding indebtedness and related fees and expenses under such Existing
Credit Facilities.
Pursuant to the Term Loan Facilities, the Borrowers may borrow (i) up to
$175 million in aggregate principal amount pursuant to a Term Loan A due March,
2004 (the "Term A Loan") and (ii) up to $200 million in aggregate principal
amount pursuant to a Term Loan B due March, 2005 (the "Term B Loan"). The
outstanding principal amount of the Term A Loan currently bears interest, at the
applicable Borrower's option, at an all-in drawn cost of 2.00% per annum in
excess of the adjusted eurocurrency rate or, with respect to U.S. dollar
denominated alternate base rate loans, at an all-in drawn cost of 1.00% per
annum in excess of the prime rate. The outstanding principal amount of the Term
B Loan currently bears interest, at the Company's option, at a rate of 2.50% per
annum in excess of the adjusted eurodollar rate or, with respect to U.S. dollar
denominated alternate base rate loans, 1.50% in excess of the prime rate. The
Term A Loan amortizes on a quarterly basis, in the annual percentages of 0%,
16%, 16%, 21%, 21% and 26%, respectively, during the six year term of the loan.
The Term B Loan amortizes in an annual percentage of 1% during each of the first
six years of the term of the loan and 94% in the seventh year of the term of the
loan. The Term A Loan and Term B Loan are subject to mandatory prepayment in
certain circumstances and are voluntarily prepayable without payment of a
premium (subject to reimbursement of the lenders' costs in case of prepayment of
eurodollar loans other than on the last day of an interest period).
<PAGE>
47
Pursuant to the New Revolving Credit Facility, the Borrowers have available
an aggregate amount of up to $125 million. The outstanding principal amount of
loans under the New Revolving Credit Facility bears interest, at the applicable
Borrower's option, at an all-in drawn cost of 2.00% per annum in excess of the
adjusted eurocurrency rate or, with respect to U.S. dollar denominated alternate
base rate loans, at an all-in drawn cost of 1.00% per annum in excess of the
prime rate. The New Revolving Credit Facility will terminate on the sixth
anniversary thereof. The New Revolving Credit Facility is used for working
capital and general corporate purposes.
If for any reason the Company is unable to comply with the terms of the New
Bank Credit Facility, including the covenants included therein, such
noncompliance could result in an event of default under the New Bank Credit
Facility and could result in acceleration of the payment of the indebtedness
outstanding under the New Bank Credit Facility.
DESCRIPTION OF THE NOTES
General
The Old Notes were, and the New Notes will be, issued under that certain
Indenture, dated as of March 31, 1998 (the "Indenture"), between the Company and
United States Trust Company of New York, as Trustee (the "Trustee"), a copy of
which is filed as an exhibit to the Registration Statement of which this
Prospectus constitutes a part. The form and terms of the New Notes will be the
same as the form and terms of the Old Notes in all material respects, except
that the New Notes will be registered under the Securities Act, and, therefore,
will not bear legends restricting the transfer thereof. The following is a
summary of certain provisions of the Indenture and the Notes.
The following summary of certain provisions of the Indenture and the Notes
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"), and to all of the provisions of the Indenture and the
Notes, including the definitions of certain terms in the Indenture and those
terms made a part thereof by the Trust Indenture Act. As used in this
"Description of the Notes" section, references to the "Company" include only
Terex Corporation and not its Subsidiaries.
The Old Notes are, and the New Notes will be, unsecured senior subordinated
obligations of the Company.
The Old Notes were issued, and the New Notes will be issued, only in fully
registered form, without coupons, in denominations of $1,000 and any integral
multiple of $1,000. See "-- Book-Entry, Delivery and Form." No service charge
shall be made for any registration or exchange of Notes, but the Company may
require payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith. Principal of, premium, if
any, and interest on the Old Notes are, and on the New Notes will be, payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, The City of New York (which initially shall
be the corporate trust office of the Trustee, at 111 Broadway, Lower Level,
Corporate Trust Window, New York, New York 10005), except that, at the option of
the Company, payment of interest may be made by check mailed to the address of
the Holders as such address appears in the Note register.
Terms of the Notes
The Notes are unsecured Senior Notes subordinated obligations of the
Company, limited to $150 million aggregate principal amount, and will mature on
April 1, 2008. The Notes are subordinate in right of payment to certain other
debt obligations of the Company. The Notes bear interest at the rate per annum
shown on the cover page hereof from March 31, 1998, or from the most recent date
to which interest has been paid or provided for, payable semiannually to Holders
of record at the close of business on the March 15 or September 15 immediately
preceding the interest payment date on April 1 and October 1 of each year,
commencing October 1, 1998. The Company will pay interest on overdue principal
at 1% per annum in excess of such rate, and it will pay interest on overdue
<PAGE>
48
installments of interest at such higher rate to the extent lawful. Interest on
the Notes will be computed on the basis of a 360-day year of twelve 30-day
months.
The interest rate on the Notes is subject to increase in certain
circumstances if the Registration Statement of which this Prospectus constitutes
a part is not declared effective on a timely basis or if certain other
conditions are not satisfied, all as further described under "Registration
Rights."
Optional Redemption
Except as set forth in the following paragraph, the Notes are not redeemable
at the option of the Company prior to April 1, 2003. Thereafter, the Notes will
be redeemable, at the Company's option, in whole or in part, at any time or from
time to time, upon not less than 30 nor more than 60 days' prior notice mailed
by first-class mail to each Holder's registered address, at the following
redemption prices (expressed in percentages of principal amount), plus accrued
interest to the redemption date (subject to the right of Holders of record on
the relevant record date to receive interest due on the relevant interest
payment date), if redeemed during the 12-month period commencing on April 1 of
the years set forth below:
Redemption
Period Price
2003............................... 104.438%
2004............................... 102.958%
2005............................... 101.479%
2006 and thereafter................ 100.000%
In addition, at any time and from time to time prior to April 1, 2001, the
Company may redeem in the aggregate up to $50 million of the original principal
amount of the Notes with the proceeds of one or more Public Equity Offerings, at
a redemption price (expressed as a percentage of principal amount) of 108.875%
plus accrued interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date); provided, however, that at least 65% of the aggregate
principal amount of the Notes originally outstanding must remain outstanding
after each such redemption.
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Company in compliance with the requirements of
the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not listed on a securities exchange, by the Trustee
on a pro rata basis, by lot or by such other method as the Trustee in its sole
discretion shall deem to be fair and appropriate, although no Note in original
principal amount of $1,000 or less shall be redeemed in part. If any Note is to
be redeemed in part only, the notice of redemption relating to such Note shall
state the portion of the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note.
The Notes do not have the benefit of a sinking fund.
Subsidiary Guarantees
The obligations of the Company pursuant to the Notes, including the
repurchase obligation resulting from a Change of Control, are unconditionally
guaranteed, jointly and severally, on a senior subordinated basis, by each of
the Subsidiary Guarantors. Each Subsidiary Guarantee is limited in amount to an
amount not to exceed the maximum amount that can be guaranteed by the applicable
Subsidiary Guarantor without rendering the Subsidiary Guarantee, as it relates
to such Subsidiary Guarantor, voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally. If a Subsidiary Guarantee were to be rendered
voidable, a court could deem it unenforceable or subordinate it to all other
indebtedness (including guarantees and other contingent liabilities) of the
applicable Subsidiary Guarantor, and, depending on the amount of such
indebtedness, a Subsidiary Guarantor's liability on its Subsidiary Guarantee
<PAGE>
49
could be reduced to zero. See "Risk Factors -- Subordination of the Notes and
Subsidiary Guarantees."
Pursuant to the Indenture, a Subsidiary Guarantor may consolidate with,
merge with or into, or transfer all or substantially all its assets to any other
Person to the extent described below under "-- Certain Covenants -- Merger and
Consolidation"; provided, however, that if such other Person is not the Company
or another Subsidiary Guarantor, such Subsidiary Guarantor's obligations under
its Subsidiary Guarantee must be expressly assumed by such other Person.
However, generally upon the sale or other disposition (including by way of
consolidation or merger) of a Subsidiary Guarantor or the sale or disposition of
all or substantially all the assets of a Subsidiary Guarantor (in each case
other than to the Company or an Affiliate of the Company) permitted by the
Indenture (including pursuant to the exercise of remedies in respect of any Lien
on the capital stock of a Subsidiary Guarantor, which Lien secures outstanding
Bank Indebtedness), such Subsidiary Guarantor will be released and relieved from
all its obligations under its Subsidiary Guarantee.
Subordination
The indebtedness evidenced by the Notes is senior subordinated obligations
of the Company. The payment of the principal of, premium (if any), and interest,
on the Notes is contractually subordinated in right of payment as set forth in
the Indenture, to the prior payment in full of all Senior Indebtedness of the
Company.
The obligations of a Subsidiary Guarantor under its Subsidiary Guarantee
are senior subordinated obligations of such Subsidiary Guarantor. As such, the
rights of Noteholders to receive payment by a Subsidiary Guarantor pursuant to
its Subsidiary Guarantee will be contractually subordinated in right of payment
to the rights of holders of Senior Indebtedness of such Subsidiary Guarantor.
The terms of the subordination provisions described herein with respect to the
Company's obligations under the Notes apply equally to a Subsidiary Guarantor
and the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee.
Indebtedness of the Company and the Subsidiary Guarantors that constitutes
Senior Indebtedness ranks senior to the Notes and the relevant Subsidiary
Guarantee in accordance with the provisions of the Indenture. The Notes and the
Subsidiary Guarantees ranks pari passu in all respects with all other Senior
Subordinated Indebtedness of the Company and the Subsidiary Guarantors,
respectively, and will rank senior to all other Subordinated Obligations of the
Company and the Subsidiary Guarantors, respectively. See "-- Subsidiary
Guarantees," "Risk Factors -- Subordination of Notes and the Subsidiary
Guarantees" and "Risk Factors -- Fraudulent Transfer Considerations."
As of March 31, 1998, (i) the Senior Indebtedness of the Company and the
Subsidiary Guarantors, to which the Notes are contractually subordinated, is
approximately $413 million, consisting principally of approximately $381 million
of Indebtedness Incurred under the New Bank Credit Facility and (ii) there is no
Senior Subordinated Indebtedness of the Company or the Subsidiary Guarantors
ranking pari passu with the Notes or the Subsidiary Guarantees, or any
Subordinated Obligations ranking junior to the Notes or the Subsidiary
Guarantees.
In addition, claims of creditors of the Company's subsidiaries, including
trade creditors, secured creditors and creditors holding indebtedness and
guarantees issued by such subsidiaries, and claims of preferred stockholders (if
any) of such subsidiaries, generally have priority with respect to the assets
and earnings of such subsidiaries over the claims of the creditors of the
Company, including the Holders of the Notes, even if such obligations do not
constitute Senior Indebtedness. The Notes therefore are effectively subordinated
to existing and future liabilities of subsidiaries of the Company, except to the
extent that the Subsidiary Guarantees may be enforceable by Holders of the Notes
against the Subsidiary Guarantors.
Each of the Company and the Subsidiary Guarantors has agreed in the
Indenture that it will not Incur, directly or indirectly, any Indebtedness that
is subordinate or junior in ranking in right of payment to its Senior
Indebtedness unless such Indebtedness is, among other things, Senior
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50
Subordinated Indebtedness or is expressly subordinated in right of payment to
Senior Subordinated Indebtedness. Unsecured Indebtedness is not deemed to be
subordinated or junior to Secured Indebtedness merely because it is unsecured.
The Company may not pay principal of, premium (if any) or interest on, the
Notes or make any deposit pursuant to the provisions described under
"Defeasance" below and may not repurchase, redeem or otherwise retire any Notes
(collectively, "pay the Notes") if (i) any amount of principal, interest or
other payments due under the Designated Senior Indebtedness has not been paid
when due and remains outstanding or (ii) any other default on Designated Senior
Indebtedness occurs and the maturity of such Designated Senior Indebtedness is
accelerated in accordance with its terms unless, in either case, the default has
been cured or waived and any such acceleration has been rescinded or such
Designated Senior Indebtedness has been paid in full. However, the Company may
pay the Notes without regard to the foregoing if the Company and the Trustee
receive written notice approving such payment from the Representative of the
Designated Senior Indebtedness with respect to which either of the events set
forth in clause (i) or (ii) of the immediately preceding sentence has occurred
and is continuing. During the continuance of any default (other than a default
described in clause (i) or (ii) of the second preceding sentence) with respect
to any Designated Senior Indebtedness pursuant to which the maturity thereof may
be accelerated either immediately without further notice (except such notice as
may be required to effect such acceleration) or upon the expiration of any
applicable grace periods, the Company may not pay the Notes for a period (a
"Payment Blockage Period") commencing upon the receipt by the Trustee (with a
copy to the Company) of written notice (a "Blockage Notice") of such default
from the Representative of the holders of such Designated Senior Indebtedness
specifying an election to effect a Payment Blockage Period and ending 179 days
thereafter (or earlier if such Payment Blockage Period is terminated (i) by
written notice to the Trustee and the Company from the Person or Persons who
gave such Blockage Notice, (ii) because the default giving rise to such Blockage
Notice is no longer continuing (solely as evidenced by written notice to the
Trustee by the Representative of such Designated Senior Indebtedness which
notice shall be promptly delivered) or (iii) because such Designated Senior
Indebtedness has been repaid in full). Notwithstanding the provisions described
in the immediately preceding sentence (but subject to the provisions described
in the first sentence of this paragraph), unless the holders of such Designated
Senior Indebtedness or the Representative of such holders have accelerated the
maturity of such Designated Senior Indebtedness, the Company may resume payments
on the Notes after the end of such Payment Blockage Period. The Notes shall not
be subject to more than one Payment Blockage Period in any consecutive 360-day
period, irrespective of the number of defaults with respect to Designated Senior
Indebtedness during such period.
Upon any payment or distribution of the assets of either the Company or any
Subsidiary Guarantor upon a total or partial liquidation or dissolution or
reorganization of or similar proceeding, or any bankruptcy, insolvency,
receivership or similar proceeding, relating to either the Company or any
Subsidiary Guarantor or its property or an assignment for the benefit of
creditors or marshalling of assets and liabilities of the Company or any
Subsidiary Guarantor, the holders of Senior Indebtedness are entitled to receive
payment in full of such Senior Indebtedness before the Noteholders are entitled
to receive any payment, and until the Senior Indebtedness is paid in full, any
payment or distribution to which Noteholders would be entitled but for the
subordination provisions of the Indenture will be made to holders of such Senior
Indebtedness as their interests may appear. If a payment or distribution is made
to Noteholders that, due to the subordination provisions, should not have been
made to them, such Noteholders are required to hold it in trust for the holders
of Senior Indebtedness and pay it over to them as their interests may appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of Designated Senior
Indebtedness or the Representative of such holders of the acceleration.
By reason of the subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Company or a Subsidiary Guarantor who
are holders of Senior Indebtedness of the Company or such Subsidiary Guarantor,
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51
as the case may be, may recover more, ratably, than the Noteholders, and
creditors of the Company or such Subsidiary Guarantor who are not holders of
Senior Indebtedness may recover less, ratably, than holders of Senior
Indebtedness and may recover more, ratably, than the Noteholders.
The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in trust
by the Trustee for the payment of principal of and interest on the Notes
pursuant to the provisions described under "-- Defeasance."
Change of Control
Upon the occurrence of a Change of Control, each Holder has the right to
require that the Company repurchase all or any part of such Holder's Notes at a
purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase (subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest payment date).
Within 15 Business Days following any Change of Control, the Company shall
mail a notice to the Trustee and to each Holder stating: (i) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (subject to the right of holders of record on the relevant record
date to receive interest on the relevant interest payment date); (ii) the
circumstances and relevant facts regarding such Change of Control (including
information with respect to pro forma historical income, cash flow and
capitalization after giving effect to such Change of Control); (iii) the
repurchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and (iv) the instructions determined by
the Company, consistent with the covenant described hereunder, that a Holder
must follow in order to have its Notes purchased.
The Company shall comply in all material respects, to the extent
applicable, with the requirements of Section 14(e) of the Exchange Act and any
other securities laws or regulations in connection with the repurchase of Notes
pursuant to the covenant described hereunder. To the extent that the provisions
of any securities laws or regulations conflict with the provisions of the
covenant described hereunder, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the covenant described hereunder by virtue thereof.
Subject to the limitations discussed below, the Company could, in the
future, enter into certain transactions, including acquisitions, refinancings or
other recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of Indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit ratings.
Restrictions on the ability of the Company to Incur additional Indebtedness are
contained in the covenants described under "-- Certain Covenants -- Limitation
on Indebtedness" and "-- Limitation on Indebtedness and Preferred Stock of
Restricted Subsidiaries." Such restrictions can only be waived with the consent
of the Holders of a majority in principal amount of the Notes then outstanding.
Except for the limitations contained in such covenants, however, the Indenture
will not contain any covenants or provisions that may afford Holders protection
in the event of a highly leveraged transaction.
If a Change of Control offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the purchase price for all
of the Notes that might be delivered by Holders seeking to accept the Change of
Control offer. The failure of the Company to make or consummate the Change of
Control offer or pay the purchase price when due will give the Trustee and the
Holders the rights described under "-- Events of Default."
The existence of a Holder's right to require the Company to offer to
repurchase such Holder's Notes upon a Change of Control may deter a third party
from acquiring the Company in a transaction which constitutes a Change of
Control.
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52
The New Bank Credit Facility, under certain circumstances, prohibits the
Company from purchasing any Notes prior to its expiration, and will also provide
that the occurrence of certain change of control events with respect to the
Company would constitute a default thereunder. In the event a Change of Control
occurs at a time when the Company is prohibited from purchasing Notes, the
Company could (but is not required to) seek the consent of its lenders to the
purchase of Notes or could (but is not required to) attempt to refinance the
borrowings that contain such prohibition. If the Company does not obtain such a
consent or repay such borrowings, the Company will remain prohibited from
purchasing Notes. In such case, the Company's failure to purchase tendered Notes
would constitute an Event of Default under the Indenture which would, in turn,
constitute a default under the New Bank Credit Facility. In such circumstances,
the subordination provisions in the Indenture would likely restrict payment to
the Holders of Notes.
Future Indebtedness of the Company may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require such Indebtedness to be repaid or repurchased upon a Change of Control.
Moreover, the exercise by the Holders of their right to require the Company to
repurchase the Notes could cause a default under such Indebtedness, even if the
Change of Control itself does not, due to the financial effect of such
repurchase on the Company. Finally, the Company's ability to pay cash to the
Holders following the occurrence of a Change of Control may be limited by the
Company's then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any required
repurchases. The provisions under the Indenture relating to the Company's
obligation to make an offer to repurchase the Notes as a result of a Change of
Control may be waived or modified with the written consent of each Holder of
Notes at the time outstanding.
Certain Covenants
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness
(a) The Company shall not Incur, directly or indirectly, any Indebtedness
(including Acquired Indebtedness) unless, on the date of such Incurrence, and
after giving pro forma effect thereto, (i) no Default or Event of Default shall
have occurred and be continuing or would occur and (ii) the Consolidated Cash
Flow Coverage Ratio at the date of such issuance exceeds 2.0 to 1.0.
(b) Notwithstanding clause (a), the Company may Incur the following
Indebtedness: (i) Indebtedness Incurred pursuant to the Credit Facility,
together with all Indebtedness then outstanding and Incurred pursuant to clause
(i) of "-- Limitation on Indebtedness and Preferred Stock of Restricted
Subsidiaries" below, not to exceed in outstanding principal amount the greater
of (1) $500 million at any time outstanding and (2) the sum of (x) 80% of the
consolidated book value of the net accounts receivable of the Company and (y)
50% of the consolidated book value of the inventory of the Company, in each case
determined in accordance with GAAP; (ii) Indebtedness owed to and held by a
Restricted Subsidiary; provided, however, that any subsequent issuance or
transfer of any Capital Stock that results in such Subsidiary ceasing to be a
Restricted Subsidiary, or any transfer of such Indebtedness (other than to a
Restricted Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Indebtedness by the Company; (iii) the Notes and the Exchange
Notes; (iv) Indebtedness (other than Indebtedness described in clause (i), (ii),
or (iii) above) outstanding on the Issue Date; (v) any Refinancing Indebtedness
in respect of Indebtedness Incurred pursuant to paragraph (a) or pursuant to
clause (iii), (iv) or (viii) or this clause (v) or pursuant to clause (v) of the
covenant described under "-- Limitation on Indebtedness and Preferred Stock of
Restricted Subsidiaries" below; (vi) obligations of the Company pursuant to (A)
Interest Rate Protection Agreements in respect of Indebtedness of the Company
that is permitted by the terms of the Indenture to be outstanding to the extent
the notional principal amount of such obligation does not exceed the aggregate
principal amount of the Indebtedness to which such Interest Rate Protection
Agreements relate, (B) Currency Agreement Obligations in respect of foreign
exchange exposures Incurred by the Company in the ordinary course of its
business and (C) commodity agreements of the Company to the extent entered into
in the ordinary course of business to protect the Company from fluctuations in
<PAGE>
53
the prices of raw materials used in its business; (vii) Indebtedness of the
Company consisting of obligations in respect of purchase price adjustments in
connection with the acquisition or disposition of assets by the Company or any
Restricted Subsidiary permitted under the Indenture; (viii) Capital Lease
Obligations, Purchase Money Indebtedness and Acquired Indebtedness (to the
extent not Incurred in connection with, or in anticipation or contemplation of,
the relevant transaction) in an aggregate principal amount, together with the
principal amount of Indebtedness Incurred pursuant to clause (ix) of "--
Limitation on Indebtedness and Preferred Stock of Restricted Subsidiaries," not
exceeding $15 million at any one given time outstanding; (ix) performance bonds,
surety bonds, insurance obligations or bonds and other similar bonds or
obligations incurred by the Company in the ordinary course of business
consistent with past practice; (x) Floor Plan Guarantees; (xi) Indebtedness
Incurred pursuant to the terms of the outstanding Common Stock Appreciation
Rights, as such terms are in effect on the Issue Date; and (xii) Indebtedness in
an aggregate principal amount which, together with all other Indebtedness of the
Company then outstanding (other than Indebtedness permitted by clauses (i)
through (xi) of this Section or clause (a)) does not exceed $5 million (less the
amount of any Subsidiary Indebtedness and Preferred Stock then outstanding and
Incurred pursuant to clause (xii) of "-- Limitation on Indebtedness and
Preferred Stock of Restricted Subsidiaries").
(c) Except to the extent that such Indebtedness is permitted to be incurred
pursuant to Sections (a) and (b) above and the provisions of "-- Limitation on
Indebtedness and Preferred Stock of Restricted Subsidiaries," the Company shall
not, and shall not permit any Restricted Subsidiary to, Incur any Indebtedness
if the proceeds thereof are used, directly or indirectly, to repay, prepay,
redeem, defease, retire, refund or refinance any Subordinated Obligations unless
such Indebtedness shall be subordinated to the Notes or the relevant Subsidiary
Guarantee, as applicable, to at least the same extent as such Subordinated
Obligations.
(d) For purposes of determining compliance with the covenants entitled "--
Limitation on Indebtedness" and "-- Limitation on Indebtedness and Preferred
Stock of Restricted Subsidiaries," in the event that an item of Indebtedness
meets the criteria of more than one of the types of Indebtedness described
above, the Company, in its sole discretion, will classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of the above clauses.
(e) For purposes of determining amounts of Indebtedness under the covenants
entitled "-- Limitation on Indebtedness" and "-- Limitation on Indebtedness and
Preferred Stock of Restricted Subsidiaries," Indebtedness resulting from
security interests granted with respect to Indebtedness otherwise included in
the determination of Indebtedness, and Guarantees (and security interests with
respect thereof) of, or obligations with respect to letters of credit
supporting, Indebtedness otherwise included in the determination of Indebtedness
shall not be included in the determination of Indebtedness.
(f) Indebtedness of any Person which is outstanding at the time such Person
becomes a Restricted Subsidiary of the Company (including upon designation of
any subsidiary or other person as a Restricted Subsidiary) or is merged with or
into or consolidated with the Company or a Restricted Subsidiary of the Company
shall be deemed to have been Incurred at the time such Person becomes such a
Restricted Subsidiary of the Company or merged with or into or consolidated with
the Company or a Restricted Subsidiary of the Company, as applicable.
Limitation on Indebtedness and Preferred Stock of Restricted Subsidiaries
The Company shall not permit any Restricted Subsidiary to Incur, directly
or indirectly, any Indebtedness or Preferred Stock (except that a Subsidiary
Guarantor shall be permitted to issue Preferred Stock) except: (i) Indebtedness
Incurred pursuant to the Credit Facility, together with the aggregate amount of
all Indebtedness then outstanding and issued pursuant to clause (b)(i) of
"Limitation on Indebtedness" above, not to exceed in outstanding principal
amount the greater of (1) $500 million at any time outstanding and (2) the sum
of (x) 80% of the consolidated book value of the net accounts receivable of the
Company and (y) 50% of the consolidated book value of the inventory of the
Company, in each case determined in accordance with GAAP; (ii) Indebtedness or
Preferred Stock issued to and held by the Company or a Restricted Subsidiary;
provided, however, that (A) any subsequent issuance or transfer of any Capital
<PAGE>
54
Stock that results in any such Subsidiary ceasing to be a Restricted Subsidiary
or (B) any subsequent transfer of such Indebtedness or Preferred Stock (other
than to the Company or a Restricted Subsidiary) shall be deemed, in each case,
to constitute the Incurrence of such Indebtedness or Preferred Stock by the
issuer thereof; (iii) Acquired Indebtedness (to the extent not Incurred in
connection with, or in anticipation or contemplation of, the relevant
transaction) of such Restricted Subsidiary; provided that after giving effect to
the Incurrence of such Acquired Indebtedness, the Company could incur $1.00 of
Indebtedness pursuant to clause (a) under "-- Limitation on Indebtedness"; (iv)
Indebtedness or Preferred Stock (other than any described in clause (i), (ii) or
(iii)) outstanding on the Issue Date; (v) Refinancing Indebtedness Incurred in
respect of Indebtedness or Preferred Stock referred to in clause (iii), (iv) or
(x) or this clause (v); provided, however, that to the extent such Refinancing
Indebtedness Refinances Acquired Indebtedness or Preferred Stock of a Restricted
Subsidiary that is not a Wholly Owned Subsidiary, such Refinancing Indebtedness
shall be Incurred only by such Restricted Subsidiary; (vi) Obligations of a
Restricted Subsidiary pursuant to (A) Interest Rate Protection Agreements in
respect of Indebtedness of the Restricted Subsidiary that is permitted by the
terms of the Indenture to be outstanding to the extent the notional principal
amount of such obligation does not exceed the aggregate principal amount of the
Indebtedness to which such Interest Rate Protection Agreements relate, (B)
Currency Agreement Obligations in respect of foreign exchange exposures Incurred
by the Restricted Subsidiary in the ordinary course of its business and (C)
commodity agreements of the Restricted Subsidiary to the extent entered into in
the ordinary course of business to protect the Restricted Subsidiary from
fluctuations in the prices of raw materials used in its business; (vii)
Indebtedness consisting of the Subsidiary Guarantees; (viii) Indebtedness of any
Restricted Subsidiary consisting of Obligations in respect of purchase price
adjustments in connection with the acquisition or disposition of assets by any
Restricted Subsidiary permitted under the Indenture; (ix) Capital Lease
Obligations, Purchase Money Indebtedness and Acquired Indebtedness (to the
extent not Incurred in connection with, or in anticipation or contemplation of,
the relevant transaction) in an aggregate principal amount not exceeding,
together with the principal amount of Indebtedness Incurred pursuant to clause
(viii) of "-- Limitation on Indebtedness," $15 million at any one given time
outstanding; (x) performance bonds, surety bonds, insurance obligations or bonds
and other similar bonds or obligations incurred by a Restricted Subsidiary in
the ordinary course of business consistent with past practice; (xi) Floor Plan
Guarantees; and (xii) Indebtedness and Preferred Stock in an aggregate principal
amount which, together with any other Indebtedness or Preferred Stock of
Restricted Subsidiaries then outstanding (other than Indebtedness or Preferred
Stock permitted by clauses (i) through (xi) of this Section) does not exceed $5
million (less the amount of any Indebtedness then outstanding and Incurred
pursuant to clause (b)(xii) of "-- Limitation on Indebtedness").
Limitation on Liens Securing Subordinated Indebtedness
The Company will not, and will not permit any Restricted Subsidiary to,
create, Incur, assume or suffer to exist any Liens of any kind (other than
Permitted Liens) upon any of their respective assets or properties now owned or
acquired after the date of the Indenture or any income or profits therefrom
securing (i) any Indebtedness of the Company or a Restricted Subsidiary which is
expressly by its terms subordinate or junior in right of payment to any other
Indebtedness of the Company or such Restricted Subsidiary, as the case may be,
unless the Notes or the relevant Subsidiary Guarantee, as the case may be, are
equally and ratably secured for so long as such Indebtedness is so secured;
provided that, if such Indebtedness which is expressly by its terms subordinate
or junior in right of payment to any other Indebtedness of the Company or a
Restricted Subsidiary is expressly subordinate or junior to the Notes or the
relevant Subsidiary Guarantee, as the case may be, then the Lien securing such
subordinated or junior Indebtedness shall be subordinate and junior to the Lien
securing the Notes or the relevant Subsidiary Guarantee, as the case may be,
with the same relative priority as such subordinated or junior Indebtedness
shall have with respect to the Notes or the relevant Subsidiary Guarantee, as
the case may be or (ii) any assumption, guarantee or other liability of the
Company or any Restricted Subsidiary in respect of any Indebtedness of the
Company or a Restricted Subsidiary which is expressly by its terms subordinate
or junior in right of payment to any other Indebtedness of the Company or such
Restricted Subsidiary, unless the Notes or the relevant Subsidiary Guarantee, as
the case may be, are equally and ratably secured for so long as such assumption,
guaranty or other liability is so secured; provided that, if such subordinated
Indebtedness which is expressly by its terms subordinate or junior in right of
payment to any other Indebtedness of the Company or a Restricted Subsidiary is
<PAGE>
55
expressly by its terms subordinate or junior to the Notes or the relevant
Subsidiary Guarantee, as the case may be, then the Lien securing the assumption,
guarantee or other liability of such Subsidiary shall be subordinate and junior
to the Lien securing the Notes or the relevant Subsidiary Guarantee, as the case
may be, with the same relative priority as such subordinated or junior
Indebtedness shall have with respect to the Notes or the relevant Subsidiary
Guarantee, as the case may be.
Limitation on Other Senior Subordinated Indebtedness
The Company will not, and will not permit any Restricted Subsidiary to,
create, Incur, assume, guarantee or in any other manner become liable with
respect to any Indebtedness that is subordinate in right of payment to any
Senior Indebtedness of the Company or any such Restricted Subsidiary, unless
such Indebtedness (i) has a maturity date subsequent to the Stated Maturity of
the Notes and an Average Life longer than that of the Notes and (ii) is also
pari passu with, or subordinate in right of payment to, the Notes or the
relevant Subsidiary Guarantee, as the case may be.
Limitation on Restricted Payments
(a) The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, (i) declare or pay any dividend or make any
distribution on or in respect of its Capital Stock (including any payment in
connection with any merger or consolidation involving the Company) or to the
direct or indirect holders of its Capital Stock in their capacities as such
(except dividends or distributions payable solely in Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to purchase its
Capital Stock (other than Disqualified Stock) and except dividends or
distributions payable to the Company or any Restricted Subsidiary (and, if the
Restricted Subsidiary making such dividends or distributions has any
stockholders other than the Company or another Restricted Subsidiary, to such
stockholders on no more than a pro rata basis, measured by value)), (ii)
purchase, redeem or otherwise acquire or retire for value any Capital Stock of
the Company, any Restricted Subsidiary or any other Affiliate of the Company,
(iii) purchase, repurchase, redeem, defease or otherwise acquire or retire for
value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment, any Subordinated Obligations or (iv) make any Restricted
Investment (any such dividend, distribution, purchase, redemption, repurchase,
defeasance, other acquisition, retirement or Investment being herein referred to
as a "Restricted Payment") if at the time the Company or such Restricted
Subsidiary makes such Restricted Payment: (1) a Default shall have occurred and
be continuing (or would result therefrom); or (2) the Company would not be
permitted to issue an additional $1.00 of Indebtedness pursuant to clause (a)
under "-- Limitation on Indebtedness" after giving pro forma effect to such
Restricted Payment; or (3) the aggregate amount of such Restricted Payment and
all other Restricted Payments since the date on which the Notes were originally
issued would exceed the sum of: (A) 50% of the Consolidated Net Income accrued
during the period (treated as one accounting period) from the beginning of the
first full fiscal quarter commencing after the date on which the Notes were
originally issued to the end of the most recent fiscal quarter for which
financial statements are available (or, in case such Consolidated Net Income
shall be a deficit, minus 100% of such deficit) and (B) the aggregate Net Cash
Proceeds received by the Company from (x) the issue or sale of its Capital Stock
(other than Disqualified Stock) subsequent to the Issue Date (other than an
issuance or sale to a Subsidiary or an employee stock ownership plan or similar
trust in the benefit of employees) and (y) the issue or sale (other than an
issuance or sale to a Subsidiary or an employee stock ownership plan or similar
trust in the benefit of employees) after the Issue Date of Disqualified Stock or
debt securities that have been converted or exchanged in accordance with their
terms for Capital Stock of the Company (other than Disqualified Stock), in each
case to the extent such proceeds are not used to redeem, repurchase, retire or
otherwise acquire Capital Stock or any Indebtedness of the Company or any
Restricted Subsidiary or to make any Investment pursuant to clause (viii) of the
definition of "Permitted Investment."
(b) The provisions of clauses (2) and (3) of Section (a) shall not
prohibit: (1) any purchase or redemption of Capital Stock or Subordinated
Obligations of the Company made by exchange for, or out of the proceeds of the
substantially concurrent sale or issuance of, Capital Stock of the Company
(other than Disqualified Stock and other than Capital Stock issued or sold to a
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56
Subsidiary or an employee stock ownership plan); provided, however, that the Net
Cash Proceeds from such sale shall be excluded from clause (3)(B) of Section
(a); (2) dividends paid within 60 days after the date of declaration if at such
date of declaration such dividend would have complied with this provision;
provided, however, that such dividend shall be deducted in the calculation of
the amount of Restricted Payments available to be made referred to in clause (3)
of Section (a) above; (3) the repurchase of shares of, or options to purchase
shares of, Capital Stock of the Company or any of its Subsidiaries from
employees, former employees, directors or former directors of the Company or any
of its Subsidiaries (or permitted transferees of such employees, former
employees, directors or former directors), pursuant to the terms of the
agreements (including employment agreements) or plans (or amendments thereto)
approved by the Board of Directors under which such individuals purchase or sell
or are granted the option to purchase or sell, shares of such common stock;
provided, however, that the aggregate amount of any repurchases pursuant to this
clause (3) and any purchases pursuant to clause (4) below shall not exceed
$500,000 per year or $3.5 million in the aggregate on or after the Issue Date;
(4) provided that no Default or Event of Default shall have occurred or be
continuing at the time of such payment or after giving effect thereto, the
purchase by the Company of shares of its common stock (for not more than fair
market value) in connection with the delivery of such stock to grantees under
any stock option plan (upon the exercise by such grantees of their stock
options) or any other deferred compensation plan of the Company approved by the
Board of Directors; provided, however, that the aggregate amount of any
purchases pursuant to this clause (4) and any repurchases pursuant to clause (3)
above shall not exceed $500,000 per year or $3.5 million in the aggregate on or
after the Issue Date; (5) the redemption, purchase, retirement or other payoff
of any Subordinated Obligations with the proceeds of any Refinancing
Indebtedness permitted to be incurred pursuant to the terms of clauses (b)(v)
and (v), respectively, of the covenants described under "-- Certain Covenants --
Limitation on Indebtedness" and "-- Limitation on Indebtedness and Preferred
Stock of Restricted Subsidiaries"; and (6) provided that no Default or Event of
Default shall have occurred or be continuing at the time of such payment or
after giving effect thereto, other Restricted Payments in an aggregate amount
not to exceed $10 million; provided, however, that such payment shall be
deducted in the calculation of the amount of Restricted Payments available to be
made referred to in clause (3) of Section (a) above.
Limitation on Restrictions on Distributions from Restricted Subsidiaries
The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, create or permit to exist or become effective any
encumbrance or restriction on the ability of any Restricted Subsidiary to (i)
pay dividends or make any other distributions on its Capital Stock or with
respect to any other interest or participation in, or measured by, its profits
to the Company or a Restricted Subsidiary or pay any Indebtedness or other
obligation owed to the Company or a Restricted Subsidiary, (ii) make any loans
or advances to the Company or any other Restricted Subsidiary or (iii) transfer
any of its property or assets to the Company or any other Restricted Subsidiary,
except for such encumbrances or restrictions existing under or by reason of (a)
the Credit Facility as in effect on the Issue Date, and any amendments,
restatements, renewals, replacements or refinancings thereof; provided, however,
that such amendments, restatements, renewals, replacements or refinancings are
no more restrictive with respect to such dividend and other payment restrictions
than those contained in the Credit Facility (or, if more restrictive, than those
contained in the Indenture) immediately prior to any such amendment,
restatement, renewal, replacement or refinancing, (b) applicable law, (c) any
instrument governing Indebtedness or Capital Stock of an Acquired Person
acquired by the Company or any of its Restricted Subsidiaries as in effect at
the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition); provided,
however, that (1) such restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Acquired Person, and (2) the
consolidated net income of an Acquired Person for any period prior to such
acquisition shall not be taken into account in determining whether such
acquisition was permitted by the terms of the Indenture, (d) by reason of
customary non-assignment provisions in leases or other agreements entered into
the ordinary course of business and consistent with past practices, (e) Purchase
Money Indebtedness for property acquired in the ordinary course of business that
only impose restrictions on the property so acquired, (f) an agreement for the
sale or disposition of the Capital Stock or assets of such Restricted
Subsidiary; provided, however, that such restriction is only applicable to such
Restricted Subsidiary or assets, as applicable, and such sale or disposition
otherwise is permitted under "-- Limitation on Sales of Assets and Subsidiary
Stock" below; provided, further, however, that such restriction or encumbrance
shall be effective only for a period from the execution and delivery of such
agreement through a termination date not later than 270 days after such
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57
execution and delivery, or (g) Refinancing Indebtedness permitted under the
Indenture; provided, however, that the restrictions contained in the agreements
governing such Refinancing Indebtedness are no more restrictive in the aggregate
than those contained in the agreements governing the Indebtedness being
refinanced immediately prior to such refinancing. Notwithstanding the foregoing,
neither (a) customary provisions restricting subletting or assignment of any
lease entered into in the ordinary course of business, consistent with past
practice, nor (b) Liens permitted under the Indenture, shall in and of
themselves be considered a restriction on the ability of the applicable
Restricted Subsidiary to transfer such agreements or assets, as the case may be.
Limitation on Sales of Assets and Subsidiary Stock
(a) The Company shall not, and shall not permit any Restricted Subsidiary
to, make any Asset Disposition unless (i) the Company or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at least
equal to the fair market value, as determined in good faith by the Board of
Directors (including as to the value of all non-cash consideration), of the
shares and assets subject to such Asset Disposition and at least 75% of the
consideration thereof received by the Company or such Restricted Subsidiary, as
the case may be, is in the form of cash or Cash Equivalents, and (ii) an amount
equal to 100% of the Net Available Cash from such Asset Disposition is applied
by the Company (or such Restricted Subsidiary, as the case may be) (A) first,
(x) to the extent the Company elects (or is required by the terms of any Senior
Indebtedness), to prepay, repay or purchase Senior Indebtedness of the Company
within 360 days of such Asset Disposition, (y) at the Company's election to the
investment by the Company or any Wholly Owned Subsidiary or such Restricted
Subsidiary in long-term assets to replace the assets that were the subject of
such Asset Disposition or a long-term asset that (as determined in good faith by
the Board of Directors) is directly related to the business of the Company and
the Restricted Subsidiaries existing on the Issue Date, in each case within 360
days from the date of such Asset Disposition, or (z) a combination of the
foregoing purposes within such 360-day period; (B) second, to the extent of the
balance of such Net Available Cash after application in accordance with clause
(A), to make a pro rata offer to purchase Notes at par (and, to the extent
required by the instrument governing such Indebtedness, any other Senior
Subordinated Indebtedness designated by the Company, at a price no greater than
par) plus accrued and unpaid interest, and (C) third, to the extent of the
balance of such Net Available Cash after application in accordance with clauses
(A) and (B), for general corporate purposes otherwise not prohibited under the
Indenture; provided, however, that in connection with any prepayment, repayment
or purchase of Indebtedness pursuant to clause (A) or (B) above, the Company or
such Subsidiary shall retire such Indebtedness and cause the related loan
commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing
provisions of this Section, the Company and its Restricted Subsidiaries shall
not be required to apply any Net Available Cash in accordance with this Section
except to the extent that the aggregate Net Available Cash from all Asset
Dispositions which are not applied in accordance with this Section exceeds $10
million. Pending application of Net Available Cash pursuant to this Section,
such Net Available Cash shall be used to temporarily reduce Senior Indebtedness
or invested in Cash Equivalents.
For the purposes of this covenant, the following is deemed to be cash or
Cash Equivalents: the express assumption of Indebtedness (other than any
Indebtedness that is by its terms subordinated to the Notes) of the Company or
any Restricted Subsidiary, but only to the extent that such assumption is
effected on a basis under which there is no further recourse to the Company or
any of the Restricted Subsidiaries with respect to such liabilities
(b) In the event of an Asset Disposition that requires the purchase of the
Notes (and other Senior Subordinated Indebtedness) pursuant to clause (a)(ii)(B)
above, the Company will be required to purchase Notes tendered pursuant to an
offer by the Company for the Notes (and, to the extent required, other Senior
Subordinated Indebtedness) at a purchase price of 100% of their principal amount
(without premium) plus accrued but unpaid interest (or, in respect of such other
Senior Subordinated Indebtedness, such lesser price, if any, as may be provided
for by the terms of such Senior Subordinated Indebtedness) in accordance with
the procedures (including prorating in the event of oversubscription) set forth
in the Indenture which shall include, among other things, that the offer shall
remain open for 20 Business Days following commencement. If the aggregate
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58
purchase price of Notes (and, to the extent required, any other Senior
Subordinated Indebtedness) tendered pursuant to such offer is less than the Net
Available Cash allotted to the purchase thereof, the Company will be required to
apply the remaining Net Available Cash in accordance with clause (a)(ii)(C)
above. The Company shall not be required to make such an offer to purchase Notes
(and other Senior Subordinated Indebtedness) pursuant to this covenant if the
Net Available Cash available therefor is less than $10 million (which lesser
amount shall be carried forward for purposes of determining whether such an
offer is required with respect to any subsequent Asset Disposition).
(c) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this clause by virtue thereof.
Limitation on Affiliate Transactions.
(a) The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, conduct any business or enter into any transaction
or series of similar transactions (including the purchase, sale, lease or
exchange of any asset or property or the rendering of any service) with any
Affiliate of the Company (other than any employee stock ownership plan for the
benefit of the Company's or a Restricted Subsidiary's employees) unless the
terms of such business, transaction or series of transactions are (i) set forth
in writing, (ii) as favorable to the Company or such Restricted Subsidiary as
terms that would be obtainable at the time for a comparable transaction or
series of similar transactions in arms' length dealings with an unrelated third
Person and (iii) a majority of the disinterested members of the Board of
Directors have, by resolution, determined in good faith that such business or
transaction or series of transactions meets the criteria set forth in (ii)
above; provided, however, that if such transaction involves an amount in excess
of $10 million, the Company shall also obtain from a nationally recognized
independent investment banking firm, accounting firm or appraisal firm with
experience in evaluating the terms and conditions of such type of business or
transactions an opinion that such transaction is fair from a financial point of
view to the Company or its Restricted Subsidiary, as the case may be; provided,
further, however, that the provisions of both clause (iii) above and the
preceding proviso shall not apply with respect to any such business, transaction
or series of transactions between the Company or any Subsidiary Guarantor, on
the one hand, and any Restricted Subsidiary, on the other hand, which business,
transaction or series of transactions is entered into in the ordinary course of
business.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i)
any Restricted Payment permitted to be made pursuant to the covenant described
under "-- Limitation on Restricted Payments," or any payment or transaction
specifically excepted from the definition of Restricted Payment, (ii) any
issuance of securities, or other payments, awards or grants in cash, securities
or otherwise pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans entered into in the ordinary course of
business and approved by a majority of the entire Board of Directors or by a
majority of the disinterested members of the Board of Directors or a majority of
the entire board of directors or a majority of the disinterested members of the
board of directors of the relevant Restricted Subsidiary, (iii) the grant of
stock options or similar rights to employees and directors pursuant to plans
approved by a majority of the entire Board of Directors or by a majority of the
disinterested members of the Board of Directors or a majority of the entire
board of directors or a majority of the disinterested members of the board of
directors of the relevant Restricted Subsidiary, (iv) loans or advances to
officers, directors or employees in the ordinary course of business, (v) the
payment of reasonable fees to directors of the Company and its Restricted
Subsidiaries who are not employees of the Company or its Restricted
Subsidiaries, (vi) any Affiliate transaction between the Company and a
Subsidiary Guarantor, between Subsidiary Guarantors, or between Restricted
Subsidiaries (neither of which is a Subsidiary Guarantor), (vii) indemnification
or insurance provided to officers or directors of the Company or any Subsidiary
approved in good faith by the Board of Directors; (viii) payment of compensation
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59
and benefits to directors, officers and employees of the Company and its
Subsidiaries approved in good faith by the Board of Directors; and (ix) the
purchase of or the payment of Indebtedness of or monies owed by the Company or
any of its Restricted Subsidiaries for goods or materials purchased, or services
received, in the ordinary course of business.
Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries
The Company shall not sell or otherwise dispose of any Capital Stock of a
Restricted Subsidiary, and shall not permit any Restricted Subsidiary, directly
or indirectly, to issue or sell or otherwise dispose of any of its Capital Stock
except (i) to the Company or a Wholly Owned Subsidiary, (ii) if, immediately
after giving effect to such issuance, sale or other disposition, neither the
Company nor any of its Subsidiaries own any Capital Stock of such Restricted
Subsidiary, (iii) Preferred Stock of a Subsidiary Guarantor, or (iv) directors'
qualifying shares.
Merger and Consolidation
The Company shall not, in a single transaction or a series of related
transactions, consolidate with or merge with or into, or convey, transfer or
lease all or substantially all its assets (computed on a consolidated basis) to,
any Person or group of affiliated Persons, unless: (i) the resulting, surviving
or transferee Person shall be the Company or, if not the Company, shall be a
corporation organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia (the "Successor
Company"), and such Successor Company shall expressly assume, by an indenture
supplemental to the Indenture, executed and delivered to the Trustee, all the
obligations of the Company under the Notes and this Indenture (and the
Subsidiary Guarantees shall be confirmed as applying to such Person's
obligations); (ii) at the time of and immediately after giving effect to such
transaction or transactions on a pro forma basis (and treating any Indebtedness
which becomes an obligation of the resulting, surviving or transferee Person or
any Subsidiary as a result of such transaction as having been Incurred by such
Person or such Subsidiary at the time of such transaction), no Default or Event
of Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction, the resulting, surviving or transferee Person would
be able to Incur at least $1.00 of Indebtedness pursuant to Section (a) of the
"-- Limitation on Indebtedness"; and (iv) the Company shall have delivered to
the Trustee an Officers' Certificate and if a supplemental indenture is
required, an Opinion of Counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture (if any) comply with the Indenture.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, and the predecessor company, in the case of a
conveyance, transfer or lease, shall be released from the obligation to pay the
principal of and interest on the Notes.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise) of all or substantially all of the properties and assets of one or
more Subsidiaries, the Company's interest in which constitutes all or
substantially all of the properties and assets of the Company shall be deemed to
be the transfer of all or substantially all of the properties and assets of the
Company.
The Company will not permit any Subsidiary Guarantor to consolidate with or
merge with or into, or convey, transfer or lease, in one transaction or a series
of transactions, all or substantially all of its assets to, any Person unless:
(i) the resulting, surviving or transferee Person shall be the Company or a
Subsidiary Guarantor or, if not the Company or such a Subsidiary Guarantor,
shall be a corporation organized and existing under the laws of the jurisdiction
under which such Subsidiary was organized or under the laws of the United States
of America, or any State thereof or the District of Columbia, and such Person
shall expressly assume, by executing a Subsidiary Guarantee, all the obligations
of such Subsidiary, if any, under its Subsidiary Guarantee; (ii) immediately
after giving effect to such transaction or transactions on a pro forma basis
(and treating any Indebtedness which becomes an obligation of the resulting,
surviving or transferee Person as a result of such transaction as having been
issued by such Person at the time of such transaction), no Default or Event of
Default shall have occurred and be continuing; (iii) immediately after giving
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60
effect to such transaction, the Company would be able to Incur at least $1.00 of
Indebtedness pursuant to the "-- Limitation on Indebtedness"; and (iv) the
Company delivers to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger or transfer and such
Subsidiary Guarantee, if any, complies with the Indenture. The provisions of
clauses (i), (ii) and (iii) above shall not apply to any one or more
transactions which constitute (a) an Asset Disposition subject to the applicable
provisions of the covenant described under "-- Limitation on Sales of Assets and
Subsidiary Stock" above or (b) the grant of any Lien on the assets of a
Restricted Subsidiary to secure outstanding Bank Indebtedness, which Lien is
otherwise permitted by the terms of the Indenture, or any conveyance or transfer
of such assets resulting from an exercise of remedies in respect of any such
Lien.
Notwithstanding the foregoing, the Company may merge with or into, or
convey, transfer or lease all or substantially all of its assets to, any
Subsidiary Guarantor, and a Subsidiary Guarantor may merge with or into, or
convey, transfer or lease all or substantially all of its assets to, any other
Subsidiary Guarantor or the Company.
The phrase "all or substantially all" of the assets of the Company or a
Subsidiary Guarantor will likely be interpreted under applicable state law and
will be dependent upon particular facts and circumstances. As a result, there
may be a degree of uncertainty in ascertaining whether a sale or transfer of
"all or substantially all" of the assets of the Company or a Subsidiary
Guarantor has occurred.
Future Subsidiary Guarantors
The Indenture provides that the Company and each Subsidiary Guarantor shall
cause each Restricted Subsidiary of the Company organized or existing under the
laws of the United States, any state thereof or the District of Columbia of the
Company which, after the date of the Indenture (if not then a Subsidiary
Guarantor), becomes a Restricted Subsidiary to execute and deliver an indenture
supplemental to the Indenture and thereby become a Subsidiary Guarantor which
shall be bound by the Subsidiary Guarantee of the Notes in the form set forth in
the Indenture (without such future Subsidiary Guarantor being required to
execute and deliver the Subsidiary Guarantee endorsed on the Notes); provided,
however, that no Subsidiary meeting the requirements of this sentence which is
an Inactive Subsidiary shall be required to become a Subsidiary Guarantor
hereunder unless and until such date as such Subsidiary no longer is an Inactive
Subsidiary (at which date such Subsidiary shall, if required by the terms of
this sentence, become a Subsidiary Guarantor). In addition, the Indenture
provides that the Company will not permit any Restricted Subsidiary that is not
a Subsidiary Guarantor to Guarantee any other Indebtedness of the Company or any
Subsidiary Guarantor unless such Restricted Subsidiary simultaneously executes a
supplemental indenture to the Indenture providing for the Guarantee of the
payment of the Notes by such Restricted Subsidiary, which Guarantee of the
payment of the Notes shall be subordinated to the Guarantee of such other
Indebtedness to the same extent as the Notes or the Subsidiary Guarantees, as
applicable, are subordinated to such other Indebtedness; provided, however, that
such Restricted Subsidiary shall not be required to so Guarantee the payment of
the Notes to the extent that such other Indebtedness does not exceed $1 million
individually or, together with any other Indebtedness of the Company or any
Subsidiary Guarantor Guaranteed by such Restricted Subsidiary, $3 million in the
aggregate. Such Restricted Subsidiary shall be deemed released from its
obligations under the Guarantee of the payment of the Notes at any such time
that such Restricted Subsidiary is released from all of its obligations under
its Guarantee of such other Indebtedness unless such release results from the
payment under such Guarantee of other Indebtedness.
Limitation on Lines of Business
The Indenture provides that neither the Company nor any of its Subsidiaries
or Unrestricted Subsidiaries shall directly or indirectly engage to any
substantial extent in any line or lines of business activity other than that
which, in the reasonable good faith judgement of the Board of Directors, is a
Related Business.
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61
Limitation on Designations of Unrestricted Subsidiaries
The Indenture provides that the Company may designate any Subsidiary of the
Company (other than a Subsidiary Guarantor) as an "Unrestricted Subsidiary"
under the Indenture (a "Designation") only if:
(i) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation; and
(ii) either (x) the Company's Investment in such Subsidiary does not exceed
$1,000 or (y) the Company would be permitted under the Indenture to make an
Investment at the time of Designation (assuming the effectiveness of such
Designation) in an amount (the "Designation Amount") equal to the fair market
value of the Company's Investment in such Subsidiary on such date.
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
described under "-- Limitation on Restricted Payments" for all purposes of the
Indenture in the Designation Amount. The Indenture will further provide that the
Company shall not, and shall not permit any Restricted Subsidiary to, at any
time (a) provide credit support for, or a guarantee of, any Indebtedness of any
Unrestricted Subsidiary (including any undertaking, agreement or instrument
evidencing such Indebtedness), (b) be directly or indirectly liable for any
Indebtedness of any Unrestricted Subsidiary, or (c) be directly or indirectly
liable for any Indebtedness which provides that the holder thereof may (upon
notice, lapse of time or both) declare a default thereon or cause the payment
thereof to be accelerated or payable prior to its final scheduled maturity upon
the occurrence of a default with respect to any Indebtedness of any Unrestricted
Subsidiary (including any right to take enforcement action against such
Unrestricted Subsidiary), except to the extent permitted under the covenant
described under "-- Limitation on Restricted Payments."
The Indenture further provides that the Company may revoke any Designation
of a Subsidiary as an Unrestricted Subsidiary (a "Revocation") if:
(i) no Default shall have occurred and be continuing at the time of and
after giving effect to such Revocation; and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding
immediately following such Revocation would, if Incurred at such time, have been
permitted to be Incurred for all purposes of the Indenture and for all purposes
of the Indenture shall be deemed to have been Incurred at such time.
All Designations and Revocations must be evidenced by an Officers'
Certificate delivered to the Trustee attaching a certified copy of the
resolutions of the Board of Directors giving effect to such Designation or
Revocation, as applicable, and certifying compliance with the foregoing
provisions.
Notwithstanding the foregoing, no Subsidiary that is a Subsidiary Guarantor
as of the Issue Date shall be permitted to become an Unrestricted Subsidiary.
SEC Reports
Notwithstanding that the Company may not be required to remain subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act, the
Company shall file with the SEC and provide within 15 days to the Trustee and
Noteholders such annual reports and such information, documents and other
reports as are specified in Sections 13 and 15(d) of the Exchange Act and
applicable to a U.S. corporation subject to such Sections, such information,
documents and other reports to be so filed and provided at the times specified
for the filing of such information, documents and reports under such Sections;
provided that prior to the consummation of the Exchange Offer and the issuance
of the Exchange Notes, the Company will mail to the Trustee and the Noteholders
substantially the same information that would have been required by such
Sections.
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62
Defaults
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Notes when due, continued for 30 days (whether or not
prohibited by the subordination provisions of the Indenture), (ii) a default in
the payment of principal of any Note when due at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or otherwise
(whether or not prohibited by the subordination provisions of the Indenture),
(iii) the failure by the Company to comply with its obligations under "--
Certain Covenants -- Merger and Consolidation" above, (iv) the failure by the
Company to comply for 30 days after notice with any of its obligations in the
covenants described above under "Change of Control" (other than a failure to
purchase Notes) or under "-- Certain Covenants -- Limitation on Indebtedness,"
"-- Limitation on Indebtedness and Preferred Stock of Restricted Subsidiaries,"
"-- Limitation on Liens Securing Subordinated Indebtedness," "-- Limitation on
Other Senior Subordinated Indebtedness," "-- Limitation on Restricted Payments,"
"-- Limitation on Restrictions on Distributions from Restricted Subsidiaries,"
"-- Limitation on Sales of Assets and Subsidiary Stock" (other than a failure to
purchase the Notes), "-- Limitation on Affiliate Transactions," "-- Limitation
on the Sale or Issuance of Capital Stock of Restricted Subsidiaries," "-- Future
Subsidiary Guarantors," "-- Limitation on Designations of Unrestricted
Subsidiaries," or "-- SEC Reports," (v) the failure by the Company to comply for
60 days after notice with its other covenants, obligations, warranties or
agreements contained in the Indenture, (vi) Indebtedness of the Company or any
Significant Subsidiary is not paid within any applicable grace period after
final maturity or is accelerated by the Holders thereof because of a default and
the total amount of such Indebtedness unpaid or accelerated exceeds $10 million
(the "cross acceleration provision"), (vii) certain events of bankruptcy,
insolvency or reorganization of the Company or any Significant Subsidiary (the
"bankruptcy provisions"), (viii) any judgment or decree for the payment of
money, the portion of which is not covered by insurance is in excess of $10
million, which is rendered against the Company or any Subsidiary and is not
discharged and either (A) an enforcement proceeding has been commenced by any
creditor upon such judgment or decree or (B) there is a period of 60 days
following such judgment during which such judgment or decree is not discharged,
waived or the execution thereof stayed (including pending appeal), or (ix) any
Subsidiary Guarantee by a Significant Subsidiary ceases to be in full force and
effect or becomes unenforceable or invalid or is declared null and void (other
than in accordance with the terms of the Subsidiary Guarantee or the Indenture)
or any Subsidiary Guarantor that is a Significant Subsidiary denies or
disaffirms its obligations under its Subsidiary Guarantee.
However, a default under clause (iv), (v) or (viii) will not constitute an
Event of Default until the Trustee or the Holders of 25% in principal amount of
the outstanding Notes notify the Company of the default and the Company does not
cure such default within the time specified after receipt of such notice.
If an Event of Default (other than the bankruptcy provisions relating to
the Company) occurs and is continuing, the Trustee or the Holders of at least
25% in principal amount of the outstanding Notes may declare the principal of
and accrued but unpaid interest on all the Notes to be due and payable. Upon
such a declaration, such principal and interest shall be due and payable
immediately; provided, however, that for so long as the Credit Facility remains
in effect, such declaration shall not become effective until the earlier of (i)
five Business Days following delivery of notice to the Senior Credit Facility
Representative of the intention to accelerate the Notes or (ii) the acceleration
of any Indebtedness under the Credit Facility. If an Event of Default relating
to the bankruptcy provisions relating to the Company occurs and is continuing,
the principal of and interest on all the Notes will ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holders. Under certain circumstances, the Holders of a
majority in principal amount of the outstanding Notes may rescind any such
acceleration with respect to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder of a Note may pursue
any remedy with respect to the Indenture or the Notes unless (i) such Holder has
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63
previously given the Trustee notice that an Event of Default is continuing, (ii)
Holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (iii) such Holders have offered the
Trustee reasonable security or indemnity against any loss, liability or expense,
(iv) the Trustee has not complied with such request within 60 days after the
receipt thereof and the offer of security or indemnity and (v) the Holders of a
majority in principal amount of the outstanding Notes have not given the Trustee
a direction inconsistent with such request within such 60-day period. Subject to
certain restrictions, the Holders of a majority in principal amount of the
outstanding Notes are given the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee reasonably determines is unduly prejudicial to the rights of
any other Holder or that would involve the Trustee in personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of or interest on any Note, the Trustee may withhold notice if and
so long as the board of directors, the executive committee or a committee of its
trust officers reasonably determines that withholding notice is in the best
interest of the Holders. In addition, the Company is required to deliver to the
Trustee, within 120 days after the end of each fiscal year, a certificate
regarding knowledge of the Company's compliance with all covenants and
conditions under the Indenture. The Company also is required to deliver to the
Trustee, within 30 days after the occurrence thereof, written notice of any
event which would constitute certain Defaults, their status and what action the
Company is taking or proposes to take in respect thereof.
Amendments and Waivers
Subject to certain exceptions, the Indenture may be amended with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the Notes) and, subject to certain exceptions, any past default or
compliance with any provisions may also be waived with the consent of the
Holders of a majority in principal amount of the Notes then outstanding.
Without the consent of each Holder of an outstanding Note affected thereby,
no amendment may (i) reduce the amount of Notes whose Holders must consent to an
amendment or waiver, (ii) reduce the rate of or extend the time for payment of
interest on any Note, (iii) reduce the principal of or extend the Stated
Maturity of any Note, (iv) reduce the premium payable upon the redemption of any
Note or change the time at which any Note may be redeemed as described under "--
Optional Redemption" above or alter the provisions (including definitions) set
forth under "Change of Control" above in a manner adverse to the Holders, (v)
make any Note payable in money or payable in a place other than that stated in
the Note, (vi) impair the right of any Holder to receive payment of principal of
and interest on such Holder's Notes on or after the due dates therefor or to
institute suit for the enforcement of any payment on or with respect to such
Holder's Notes, (vii) make any change in the amendment provisions which require
each Holder's consent or in the waiver provisions, (viii) make any change to the
subordination provisions (including definitions) of the Indenture that would
adversely affect the Holders, or (ix) make any change in any Subsidiary
Guarantee that would adversely affect the Holders.
Without the consent of any Holder, the Company and the Trustee may amend
the Indenture to cure any ambiguity, omission, defect or inconsistency, to
provide for the assumption by a successor corporation of the obligations of the
Company under the Indenture, to provide for uncertificated Notes in addition to
or in place of certificated Notes (provided that the uncertificated Notes are
issued in registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated Notes are described in Section 163(f)(2)(B)
of the Code), to add guarantees with respect to the Notes, to secure the Notes,
to add to the covenants of the Company for the benefit of the Holders or to
surrender any right or power conferred upon the Company, to make any change that
does not adversely affect the rights of any Holder or to comply with any
requirement of the SEC in connection with the qualification of the Indenture
under the Trust Indenture Act. However, no amendment may be made to the
subordination provisions of the Indenture that adversely affects the rights of
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64
any Holder of Senior Indebtedness of the Company or any Restricted Subsidiary
then outstanding unless the Holders of such Senior Indebtedness (or their
Representative) consent to such change.
The consent of the Holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to Holders a notice briefly describing such amendment. However,
the failure to give such notice to all Holders, or any defect therein, will not
impair or affect the validity of the amendment.
Transfer
The registered holder of a Note will be treated as the owner of it for all
purposes. The Notes will be issued in registered form and will be transferable
only upon the surrender of the Notes being transferred for registration of
transfer. The Company may require payment of a sum sufficient to cover any tax,
assessment or other governmental charge payable in connection with certain
transfers and exchanges.
Defeasance
The Company at its option at any time may terminate all of its obligations
under the Notes and the Indenture ("legal defeasance"), except for certain
obligations, including, but not limited to, those respecting the defeasance
trust and obligations to register the transfer or exchange of the Notes, to
replace mutilated, destroyed, lost or stolen Notes and to maintain a registrar
and paying agent in respect of the Notes. In addition, the Company at its option
at any time may terminate its obligations under "Change of Control" and under
the covenants described under "-- Certain Covenants" (other than the covenant
described under "-- Merger and Consolidation") (and any omission to comply with
such obligations shall not constitute a Default or Event of Default with respect
to the Notes), and the limitations contained in clause (iii) of the first
paragraph under "-- Certain Covenants -- Merger and Consolidation" above
("covenant defeasance"). In the event that a covenant defeasance occurs, certain
events (not including non-payment, bankruptcy and insolvency events) described
under "-- Defaults" will no longer constitute Events of Default with respect to
the Notes.
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations in such amounts as will be sufficient, in the report of a
nationally recognized firm of independent public accountants or a nationally
recognized investment banking firm, to pay and discharge the principal of,
premium, if any, and interest on the outstanding Notes to redemption or
maturity, as the case may be, and must comply with certain other conditions,
including delivery to the Trustee of an Opinion of Counsel to the effect that
Holders will not recognize income, gain or loss for Federal income tax purposes
as a result of such deposit and defeasance and will be subject to Federal income
tax on the same amount and in the same manner and at the same times as would
have been the case if such deposit and defeasance had not occurred (and, in the
case of legal defeasance only, such Opinion of Counsel must be based on a ruling
of the Internal Revenue Service or other change in applicable Federal income tax
law).
If the funds deposited with the Trustee to effect legal defeasance or
covenant defeasance are insufficient to pay the principal of, premium, if any,
and interest on the Notes when due, then the obligations of the Company under
the Indenture will be revived and no such defeasance will be deemed to have
occurred.
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Concerning the Trustee
United States Trust Company of New York is the Trustee under the Indenture
and has been appointed by the Company as Registrar and Paying Agent with regard
to the Notes. Such bank may also act as a depository of funds for, or make loans
to and perform other services for, the Company or its Affiliates in the ordinary
course of business in the future.
The Holders of a majority in principal amount of the outstanding Notes have
the right to direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee, subject to certain exceptions.
The Indenture provides that if an Event of Default occurs (and is not cured),
the Trustee will be required, in the exercise of its power, to use the degree of
care of a prudent man in the conduct of his own affairs. Subject to such
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any Holder of Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the Indenture. The Trustee may resign at any
time or may be removed by the Company. If the Trustee resigns, is removed or
becomes incapable of acting as Trustee or if a vacancy occurs in the office of
the Trustee for any cause, a successor Trustee shall be appointed in accordance
with the provisions of the Indenture.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and the Indenture. The Indenture also
contains certain limitations on the right of the Trustee, as a creditor of the
Company, to obtain payment of claims in certain cases, or to realize on certain
property received by it in respect of any such claims, as security or otherwise.
Governing Law
The Indenture provides that it, the Guarantees and the Notes are governed
by, and construed in accordance with, the laws of the State of New York without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
Certain Definitions
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries (the "Acquired Person") (i) existing at the time such Person
becomes a Restricted Subsidiary of the Company or at the time it merges or
consolidates with the Company or any of its Restricted Subsidiaries or (ii)
assumed in connection with the acquisition of assets from such Person.
"Affiliate" of any specified Person means (i) any other Person which,
directly or indirectly, is in control of, is controlled by or is under common
control with such specified Person or (ii) any other Person who is a director or
officer (A) of such specified Person, (B) of any subsidiary of such specified
Person or (C) any Person described in clause (i) above. For purposes of this
definition, control of a Person means the power, direct or indirect, to direct
or cause the direction of the management and policies of such Person whether by
contract or otherwise and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer, conveyance or other
disposition (or series of related sales, leases, transfers or dispositions) by
the Company or any Restricted Subsidiary, including any disposition by means of
a merger or consolidation (each referred to for the purposes of this definition
as a "disposition"), of (i) any shares of Capital Stock of a Restricted
Subsidiary (other than directors' qualifying shares or shares required by
applicable law to be held by a Person other than the Company or a Restricted
Subsidiary), (ii) all or substantially all the assets of any division or line of
business of the Company or any Restricted Subsidiary or (iii) any other assets
of the Company or any Restricted Subsidiary outside of the ordinary course of
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66
business of the Company or such Restricted Subsidiary (other than, in the case
of (i), (ii) and (iii) above, a disposition by a Restricted Subsidiary to the
Company or by the Company or a Restricted Subsidiary to a Wholly Owned
Subsidiary; provided, however, that each of (a) the consummation of any sale or
series of related sales of assets or properties of the Company and the
Restricted Subsidiaries by the Company and any Restricted Subsidiaries having an
aggregate fair market value of less than $1 million in any fiscal year and (b)
the discounting of accounts receivable or the sale of inventory, in each case in
the ordinary course of business, shall not be deemed an Asset Disposition.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means (i) the Indebtedness outstanding or arising under
the Credit Facility up to a maximum principal amount of $500 million, (ii) all
obligations and other amounts owing to the holders of such Indebtedness or any
agent or representative thereof outstanding or arising under the Credit Facility
(including, but not limited to, interest (including interest accruing on or
after the filing of any petition in bankruptcy, reorganization or similar
proceeding relating to the Company or any Restricted Subsidiary, whether or not
a claim for such interest is allowed in such proceeding), fees, charges,
indemnities, expense reimbursement obligations and other claims under the Credit
Facility), and (iii) all Hedging Obligations arising in connection therewith
with any party to the Credit Facility.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" of a Person means any obligation which is
required to be classified and accounted for as a capital lease on the face of a
balance sheet of such Person prepared in accordance with GAAP; the amount of
such obligation shall be the capitalized amount thereof, determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such capital lease prior to
the first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such person, including any Preferred
Stock, but excluding any debt securities convertible into or exchangeable for
such equity.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Rating Services or Moody's Investors
Service, Inc.; (iii) commercial paper maturing no more than one year from the
date of creation thereof and, at the time of acquisition, having a rating of at
least A-1 from Standard & Poor's Rating Services or at least P-1 from Moody's
Investors Service, Inc.; (iv) certificates of deposit or bankers' acceptances
maturing within one year from the date of acquisition thereof issued by (x) any
bank organized under the laws of the United States of America or any state
thereof or the District of Columbia or (y) a commercial banking institution
organized and located in a country recognized by the United States of America,
in each case having at the date of acquisition thereof combined capital and
surplus of not less than $200 million (or the foreign currency equivalents
thereof); (v) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (i) above entered into
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with any bank meeting the qualifications specified in clause (iv) above; (vi)
investments in money market funds which invest substantially all their assets in
securities of the types described in clauses (i) through (v) above; and (vii)
other short-term investments utilized by foreign Restricted Subsidiaries in
accordance with normal investment practices for cash management not exceeding
$1.0 million in aggregate principal amount outstanding at any time.
"Cash Flow" for any period means the Consolidated Net Income for such
period, plus the following (but without duplication) to the extent deducted in
calculating such Consolidated Net Income for such period: (i) income tax
expense, (ii) Consolidated Interest Expense, (iii) depreciation expense and
amortization expense, provided that consolidated depreciation and amortization
expense of a Subsidiary that is not a Wholly Owned Subsidiary shall only be
added to the extent of the equity interest of the Company in such Subsidiary and
(iv) all other non-cash charges (other than any recurring non-cash charges to
the extent such charges represent an accrual of or reserve for cash expenditures
in any future period). Notwithstanding clause (iv) above, there shall be
deducted from Cash Flow in any period any cash expended in such period that
funds a non-recurring, non-cash charge accrued or reserved in a prior period
which was added back to Cash Flow pursuant to clause (iv) in such prior period.
"Change of Control" means the occurrence of any of the following events:
(i) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the beneficial owner (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be
deemed to have beneficial ownership of all shares that such Person has the right
to acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 40% of the total voting
power of the Voting Stock of the Company, whether as a result of issuance of
securities of the Company, any merger, consolidation, liquidation or dissolution
of the Company, any direct or indirect transfer of securities or otherwise.
(ii) (A) another corporation merges into the Company or the Company
consolidates with or merges into any other corporation, or (B) the Company
conveys, transfers or leases all or substantially all its assets (computed on a
consolidated basis) to any person or group, in one transaction or a series of
transactions other than any conveyance, transfer or lease between the Company
and a Wholly Owned Subsidiary of the Company, in each case in one transaction or
a series of related transactions with the effect that either (x) immediately
after such transaction any person or entity or group (as so defined) of persons
or entities (other than a Permitted Holder) shall have become the beneficial
owner of securities of the surviving corporation of such merger or consolidation
representing a majority of the combined voting power of the outstanding
securities of the surviving corporation ordinarily having the right to vote in
the election of directors or (y) the securities of the Company that are
outstanding immediately prior to such transaction and which represent 100% of
the combined voting power of the securities of the Company ordinarily having the
right to vote in the election of directors are changed into or exchanged for
cash, securities or property, unless pursuant to such transaction such
securities are changed into or exchanged for, in addition to any other
consideration, securities of the surviving corporation that represent
immediately after such transaction, at least a majority of the combined voting
power of the securities of the surviving corporation ordinarily having the right
to vote in the election of directors; or
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the shareholders of the Company was approved by
a vote of 60% of the directors of the Company then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office.
The phrase "all or substantially all" of the assets of the Company will
likely be interpreted under applicable state law and will be dependent upon
particular facts and circumstances. As a result, there may be a degree of
uncertainty in ascertaining whether a sale or transfer of "all or substantially
all" of the assets of the Company has occurred.
"Code" means the Internal Revenue Code of 1986, as amended.
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"Common Stock Appreciation Rights" means up to 1,000,000 common stock
appreciation rights issued on May 9, 1995 pursuant to a Common Stock
Appreciation Rights Agreement between the Company and United States Trust
Company of New York, as agent.
"Consolidated Cash Flow Coverage Ratio" as of any date of determination
means the ratio of (i) the aggregate amount of Cash Flow for the period of the
most recent four consecutive fiscal quarters for which financial statements are
available to (ii) Consolidated Interest Expense for such four fiscal quarters;
provided, however, that (1) if the Company or any Restricted Subsidiary has
issued any Indebtedness since the beginning of such period that remains
outstanding or if the transaction giving rise to the need to calculate the
Consolidated Cash Flow Coverage Ratio is an issuance of Indebtedness, or both,
Cash Flow and Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been issued on the first day of such period and the discharge
of any other Indebtedness repaid, repurchased, defeased or otherwise discharged
with the proceeds of such new Indebtedness as if such discharge had occurred on
the first day of such period, (2) if since the beginning of such period the
Company or any Restricted Subsidiary shall have made any Asset Disposition, the
Cash Flow for such period shall be reduced by an amount equal to the Cash Flow
(if positive) directly attributable to the assets which are the subject of such
Asset Disposition for such period, or increased by an amount equal to the Cash
Flow (if negative), directly attributable thereto for such period, and
Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any
Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased,
defeased or otherwise discharged with respect to the Company and its continuing
Restricted Subsidiaries in connection with such Asset Dispositions for such
period (or, if the Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Company and its
continuing Restricted Subsidiaries are no longer liable for such Indebtedness
after such sale), (3) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an Investment in
any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary)
or an acquisition of assets (including Capital Stock of a Subsidiary), including
any acquisition of assets occurring in connection with a transaction causing a
calculation to be made hereunder, Cash Flow and Consolidated Interest Expense
for such period shall be calculated after giving pro forma effect thereto
(including the issuance of any Indebtedness) as if such Investment or
acquisition occurred on the first day of such period, and (4) if since the
beginning of such period any Person (that subsequently became a Restricted
Subsidiary or was merged with or into the Company or any Restricted Subsidiary
since the beginning of such period) shall have made any Asset Disposition or any
Investment that would have required an adjustment pursuant to clause (2) or (3)
above if made by the Company or a Restricted Subsidiary during such period, Cash
Flow and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto as if such Asset Disposition or Investment
occurred on the first day of such period. For purposes of this definition,
whenever pro forma effect is to be given to an acquisition of assets, the amount
of income or earnings relating thereto, and the amount of Consolidated Interest
Expense associated with any Indebtedness issued in connection therewith, the pro
forma calculations shall be determined in good faith by a responsible financial
or accounting Officer of the Company. If any Indebtedness bears a floating rate
of interest and is being given pro forma effect, the interest of such
Indebtedness shall be calculated as if the average interest rate for the period
up to the date of determination had been the applicable rate for the entire
period (taking into account any Interest Rate Protection Agreement applicable to
such Indebtedness if such Interest Rate Protection Agreement has a remaining
term in excess of 12 months). For purposes of this definition, whenever pro
forma effect is to be given to any Indebtedness Incurred pursuant to a revolving
credit facility the amount outstanding under such Indebtedness shall be equal to
the average of the amount outstanding during the period commencing on the first
day of the first of the four most recent fiscal quarters for which financial
statements are available and ending on the date of determination.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such interest expense but Incurred by the Company or
its Restricted Subsidiaries, (i) interest expense attributable to capital
leases, (ii) amortization of debt discount, (iii) capitalized interest, (iv)
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original issue discount and non-cash interest payments or accruals, (v)
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing, (vi) net costs under Hedging
Obligations (including amortization of fees), (vii) dividends in respect of all
Disqualified Stock held by Persons other than the Company, a Subsidiary
Guarantor or a Wholly Owned Subsidiary, (viii) interest Incurred in connection
with investments in discontinued operations, (ix) the interest portion of any
deferred payment obligations constituting Indebtedness, and (x) the cash
contributions to any employee stock ownership plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or fees
to any Person (other than the Company) in connection with Indebtedness Incurred
by such plan or trust. For purposes of this definition, interest expense
attributable to any Indebtedness represented by the guarantee (other than (a)
Guarantees permitted by the terms of clauses (b)(x) and (xi), respectively, of
the covenants described under "-- Certain Covenants -- Limitation on
Indebtedness" and "-- Limitation on Indebtedness and Preferred Stock of
Restricted Subsidiaries" and (b) Guarantees by the Company of Indebtedness of a
consolidated Restricted Subsidiary or by a consolidated Restricted Subsidiary of
the Company or another consolidated Restricted Subsidiary) by such person or a
Subsidiary of such person of an obligation of another person shall be deemed to
be the interest expense attributable to the Indebtedness guaranteed.
"Consolidated Net Income" means, for any period, the net income or loss of
the Company and its consolidated Subsidiaries; provided, however, that there
shall not be included in such Consolidated Net Income:
(i) any net income of any Person if such Person is not a Restricted
Subsidiary, except that (A) the Company's equity in the net income of any such
Person for such period shall be included in such Consolidated Net Income up to
the aggregate amount of cash actually distributed by such Person during such
period to the Company or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution to a
Restricted Subsidiary, to the limitations contained in clause (iii) below) and
(B) the Company's equity in a net loss of any such Person for such period shall
be included in determining such Consolidated Net Income;
(ii) any net income of any Person acquired by the Company or a Subsidiary
in a pooling of interests transaction for any period prior to the date of such
acquisition;
(iii) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the payment of
dividends or the making of distributions by such Subsidiary, directly or
indirectly, to the Company, except that (A) the Company's equity in the net
income of any such Restricted Subsidiary for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Restricted Subsidiary during such period to the Company or
another Restricted Subsidiary as a dividend or other distribution (subject, in
the case of a dividend or other distribution to another Restricted Subsidiary,
to the limitation contained in this clause) and (B) the Company's equity in a
net loss of any such Restricted Subsidiary for such period shall be included in
determining such Consolidated Net Income;
(iv) any gain or loss realized upon the sale or other disposition of any
property, plant or equipment of the Company or its consolidated subsidiaries
(including pursuant to any sale and leaseback arrangement) which is not sold or
otherwise disposed of in the ordinary course of business and any gain or loss
realized upon the sale or other disposition of any Capital Stock of any Person;
(v) all extraordinary, unusual or non-recurring gains, and any
extraordinary or non-recurring loss as recorded on the statement of operations
in accordance with GAAP; and
(vi) the cumulative effect of a change in accounting principles.
"Credit Facility" means a collective reference to any term loan and
revolving credit facilities (including, but not limited to, the credit agreement
to be entered into by and among the Company, certain of its subsidiaries and
certain financial institutions providing for an aggregate $500 million of term
loan and revolving credit facilities), including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, as such credit facilities and/or related documents may be further
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amended, restated, supplemented, renewed, replaced or otherwise modified from
time to time whether or not with the same agent, trustee, representative lenders
or holders, and irrespective of any changes in the terms and conditions thereof.
Without limiting the generality of the foregoing, the term "Credit Facility"
shall include agreements in respect of reimbursement of letters of credit issued
pursuant to the Credit Facility and agreements in respect of Hedging Obligations
with lenders party to the Credit Facility and shall also include any amendment,
amendment and restatement, renewal, extension, restructuring, supplement or
modification to any Credit Facility and all refunding, refinancings (in whole or
in part) and replacements of any Credit Facility, including any agreement (i)
extending the maturity of any Indebtedness incurred thereunder or contemplated
thereby, or (ii) adding or deleting borrowers or guarantors thereunder, so long
as borrowers and issuers include one or more of the Company and its Restricted
Subsidiaries and their respective successors and assigns.
"Currency Agreement Obligations" means the obligations of any person under
a foreign exchange contract, currency swap agreement or other similar agreement
or arrangement to protect such person against fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Depository" means The Depository Trust Company, its nominees and their
respective successors.
"Designated Senior Indebtedness" means (i) so long as any Bank Indebtedness
is outstanding, such Bank Indebtedness and (ii) provided no Bank Indebtedness is
outstanding (or if Bank Indebtedness is outstanding, to the extent permitted by
the terms of, or lenders under, such Bank Indebtedness), any other Senior
Indebtedness of the Company permitted to be incurred under the Indenture which,
at the date of determination, has an aggregate principal amount outstanding of,
or under which, at the date of determination, the holders thereof are committed
to lend up to, at least $20 million and is specifically designated by the
Company in the instrument evidencing or governing such Senior Indebtedness as
"Designated Senior Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (i) matures
or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise
prior to the 91st day after the Stated Maturity of the Notes, (ii) is
convertible or exchangeable for Indebtedness or Disqualified Stock prior to the
91st day after the Stated Maturity of the Notes or (iii) is redeemable at the
option of the holder thereof, in whole or in part on or prior to the 91st day
after the Stated Maturity of the Notes; provided, however, that any Capital
Stock that would not constitute Disqualified Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the first anniversary of the Stated Maturity of the Notes
shall not constitute Disqualified Stock if the "asset sale" or "change of
control" provisions applicable to such Capital Stock are not more favorable to
the holders of such Capital Stock than the provisions described under "--
Certain Covenants -- Limitation on Sales of Assets and Subsidiary Stock" and "--
Certain Covenants -- Change of Control."
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Floor Plan Guarantees" means guarantees (including but not limited to
repurchase or remarketing obligations) by the Company or a Restricted Subsidiary
Incurred in the ordinary course of business consistent with past practice of
Indebtedness Incurred by a franchise dealer, or other purchaser or lessor, for
the purchase of inventory manufactured or sold by the Company or a Restricted
Subsidiary, the proceeds of which Indebtedness is used solely to pay the
purchase price of such inventory to such franchise dealer and any related
reasonable fees and expenses (including financing fees), provided, however, that
(1) to the extent commercially practicable, the Indebtedness so guaranteed is
secured by a perfected first priority Lien on such inventory in favor of the
holder of such Indebtedness and (2) if the Company or such Restricted Subsidiary
is required to make payment with respect to such guarantee, the Company or such
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Restricted Subsidiary will have the right to receive either (q) title to such
inventory, (r) a valid assignment of a perfected first priority Lien in such
inventory or (s) the net proceeds of any resale of such inventory.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the date of the Indenture, including those set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing in any manner any Indebtedness or other
obligation of any Person and any obligation, direct or indirect, contingent or
otherwise, of such Person (i) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Indebtedness or other obligation of such Person
(whether arising by virtue of partnership arrangements, or by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay, or
to maintain financial statement conditions or otherwise) or (ii) entered into
for purposes of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided, however, that the term
"Guarantee" shall not include endorsements of negotiable instruments for
collection or deposit in the ordinary course of business.
The term "Guarantee" used as a verb has a corresponding meaning.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any interest rate swap agreement, foreign currency exchange
agreement, interest rate collar agreement, option or futures contract or other
similar agreement or arrangement designed to protect such Person against changes
in interest rates or foreign exchange rates.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Inactive Subsidiary" means a Subsidiary which at the time of determination
(i) owns assets having a fair market value of less than $50,000, (ii) does not
conduct any business activity and (iii) is not an obligor with respect to any
Indebtedness.
"Incur" means create, issue, assume, Guarantee, incur or otherwise become
liable for, directly or indirectly, or otherwise become responsible for,
contingently or otherwise, Indebtedness or Disqualified Stock; provided,
however, that any Indebtedness or Disqualified Stock of a Person existing at the
time such Person becomes a subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at
the time it becomes a Subsidiary. The term "Incurrence" when used as a noun
shall have a correlative meaning.
"Indebtedness" of any Person means, without duplication, and whether or not
contingent,
(i) the principal of and premium (if any) in respect of (A) indebtedness of
such Person for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which such
Person is responsible or liable;
(ii) all Capital Lease Obligations of such Person;
(iii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person and
all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of business);
(iv) all obligations of such Person for the reimbursement of any obligor on
any letter of credit, banker's acceptance or similar credit transaction;
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(v) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock (measured at
the greater of its voluntary or involuntary maximum fixed repurchase price plus
accrued and unpaid dividends);
(vi) to the extent not otherwise included in this definition, all Hedging
Obligations;
(vii) all obligations of the type referred to in clauses (i) through (vi)
of other Persons and all dividends of other Persons for the payment of which, in
either case, such Person is responsible or liable, directly or indirectly, as
obligor, guarantor or otherwise, including by means of any Guarantee (other than
in each case by reason of activities described in the proviso to the definition
of "Guarantee"); and
(viii) all obligations of the type referred to in clauses (i) through (vii)
of other Persons secured by any Lien on any property or asset of such Person
(whether or not such obligation is assumed by such Person), the amount of such
obligation being deemed to be the lesser of the value of such property or assets
or the amount of the obligation so secured.
For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Stock as if such
Disqualified Stock were purchased on any date on which Indebtedness shall be
required to be determined pursuant to the Indenture, and if such price is based
upon, or measured by, the fair market value of such Disqualified Stock, such
fair market value to be determined in good faith by the Board of Directors. For
purposes hereof, the amount of any Indebtedness issued with original issue
discount shall be the original purchase price plus accrued interest, provided,
however, that such accretion shall not be deemed an incurrence of Indebtedness.
"Interest Rate Protection Agreement" means any interest rate swap
agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect the Company or any Restricted Subsidiary against
fluctuations in interest rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable or deposits on the balance sheet of the Person
making the advance or loan, in each case in accordance with GAAP) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person and shall include the designation of a
Restricted Subsidiary as an Unrestricted Subsidiary. For purposes of the
definition of "Unrestricted Subsidiary," the definition of "Restricted Payment"
and the covenant described under "-- Certain Covenants -- Limitation on
Restricted Payments," (i) "Investment" shall include the portion (proportionate
to the Company's equity interest in such Subsidiary) of the fair market value of
the net assets of any Subsidiary of the Company at the time that such Subsidiary
is designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall
be deemed to continue to have a permanent investment in an Unrestricted
Subsidiary in an amount (if positive) equal to (x) the Company's "Investment" in
such Subsidiary at the time of such redesignation less (y) the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of such Subsidiary at the time of such
redesignation, and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors.
Notwithstanding the foregoing, in no event shall any issuance of Capital Stock
(other than Preferred Stock or Disqualified Stock, or Capital Stock
exchangeable, exercisable or convertible for any of the foregoing) of the
Company in exchange for Capital Stock, property or assets of another Person
constitute an Investment by the Company in such Person.
"Issue" means issue, assume, Guarantee, Incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be issued by such
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73
Subsidiary at the time it becomes a Subsidiary; and the term "issuance" has a
corresponding meaning.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means any mortgage, pledge, security interest, privilege,
conditional sale or other title retention agreement or other similar lien
(statutory or otherwise), or encumbrance upon or with respect to any property of
any kind, real or personal, moveable or immovable, now owned or hereafter
acquired.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to such properties or assets or received in any other non-cash form) therefrom,
in each case net of (i) all legal, title and recording tax expenses, commissions
and other fees and expenses Incurred, and all Federal, state, provincial,
foreign and local taxes required to be paid or accrued as a liability under
GAAP, as a consequence of such Asset Disposition, (ii) all payments made on any
Indebtedness which (A) is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any lien upon or other security
agreement of any kind with respect to such assets, or (B) which must by its
terms, or in order to obtain a necessary consent to such Asset Disposition, or
by applicable law be repaid out of the proceeds from such Asset Disposition,
(iii) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Disposition and (iv) reasonable amounts provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the property or
other assets disposed of in such Asset Disposition and retained by the Company
or any Restricted Subsidiary after such Asset Disposition, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Disposition. Further, with respect to an
Asset Disposition by a Subsidiary which is not a Wholly Owned Subsidiary, Net
Available Cash shall be reduced pro rata for the portion of the equity of such
Subsidiary which is not owned by the Company.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale plus, in the case of an
issuance of Capital Stock upon any exercise, exchange or conversion of
securities (including options, warrants, rights and convertible exchangeable
debt), of the Company that were issued for cash on or after the Issue Date, the
amount of cash originally received by the Company upon the issuance of such
securities (including options, warrants, rights and convertible or exchangeable
debt), net of attorneys' fees, accountants' fees, underwriters' or placement
agents' fees, discounts or commissions and brokerage, consultant and other fees
and expenses actually Incurred or required to be Incurred in connection with
such issuance or sale and also net of taxes paid or payable as a result thereof.
"Obligations" means with respect to any Indebtedness all obligations for
principal, premium, interest, penalties, fees, indemnifications, reimbursements,
and other amounts payable pursuant to the documentation governing such
Indebtedness.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) the Company, a Restricted Subsidiary or a Person that will,
upon the making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iii) Investments in Cash Equivalents; (iv) receivables owing to the Company or
any Restricted Subsidiary if created or acquired in the ordinary course of
business; (v) loans or advances to employees made in the ordinary course of
business consistent with past practices of the Company or such Restricted
Subsidiary; (vi) stock, obligations or securities received in settlement of
debts created in the ordinary course of business and owing to the Company or any
Restricted Subsidiary or in satisfaction of judgments; (vii) any Person to the
extent such Investment represents the non-cash portion of the consideration
received for an Asset Disposition as permitted pursuant to the covenant
described under "-- Certain Covenants -- Limitation on Sales of Assets and
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Subsidiary Stock"; (viii) so long as no Default has occurred and is continuing
(or would result therefrom), any Investment made by the issuance of, or with the
proceeds of a substantially concurrent sale of, Capital Stock (other than
Disqualified Stock) of the Company; provided, however, that the Net Cash
Proceeds from such sale shall be excluded from clause 3(B) of Section (a) of the
covenant described under "-- Certain Covenants -- Limitation on Restricted
Payments"; (ix) Investments by the Company or any Restricted Subsidiary, in an
aggregate amount not to exceed $3 million, in an Unrestricted Subsidiary formed
primarily for the purposes of financing purchases and leases of inventory
manufactured by the Company or any Restricted Subsidiary; (x) Investments in
Cash Equivalents; (xi) Floor Plan Guarantees permitted by the terms of clauses
(b)(x) and (xi), respectively, of the covenants described under "-- Certain
Covenants -- Limitation on Indebtedness" and "-- Limitation on Indebtedness and
Preferred Stock of Restricted Subsidiaries"; and (xi) other Investments that do
not exceed in the aggregate $10 million at any one time outstanding.
"Permitted Liens" means, with respect to any Person, (a) pledges or
deposits by such Person under workmen's compensation laws, unemployment
insurance laws or similar legislation, or good faith deposits in connection with
bids, tenders, contracts (other than for the payment of Indebtedness) or leases
to which such Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits or cash or United States government bonds
to secure surety or appeal bonds to which such Person is a party, or deposits as
security for contested taxes or import duties or for the payment of rent, in
each case Incurred in the ordinary course of business; (b) Liens imposed by law,
including carriers', warehousemen's and mechanics' Liens, in each case for sums
not yet due or being contested in good faith by appropriate proceedings; or
other Liens arising out of judgments or awards against such Person with respect
to which such Person shall then be proceeding with an appeal or other
proceedings for review; (c) Liens for taxes, assessments or other governmental
charges not yet subject to penalties for non-payment or which are being
contested in good faith by appropriate proceedings provided appropriate reserves
have been taken on the books of the Company; (d) Liens to secure the performance
of statutory obligations or in favor of issuers of surety bonds, performance
bonds, appeal bonds or letters of credit or other obligations of a like nature
issued pursuant to the request of and for the account of such Person, in each
case in the ordinary course of its business; provided, however, that such
letters of credit do not constitute Indebtedness; (e) Liens securing a Hedging
Obligation so long as the related Indebtedness is, and is permitted to be under
the Indenture, secured by a Lien on the same property securing the Hedging
Obligation; (f) Liens for the purpose of securing the payment (or the
refinancing of the payment) of all or a part of any Purchase Money Indebtedness
or Capital Lease Obligations relating to assets or property acquired,
constructed or leased in the ordinary course of business provided that (x) the
aggregate principal amount of Indebtedness secured by such Liens shall not
exceed the cost of the assets or property so acquired or constructed and (y)
such Liens shall not encumber any other assets or property of the Company or any
Restricted Subsidiary other than such Assets or property and assets affixed or
appurtenant thereto; (g) Liens arising from precautionary Uniform Commercial
Code financing statement filings regarding operating leases entered into by the
Company and its Subsidiaries in the ordinary course of business; (h) Liens in
favor of the Company and/or any of its Restricted Subsidiaries, other than such
a Lien with respect to intercompany indebtedness if the Company or a Subsidiary
Guarantor is not the beneficiary of such a Lien; (i) Liens securing Indebtedness
of a Person existing at the time that such Person is acquired by, merged into or
consolidated with the Company or any Restricted Subsidiary; provided, however,
that such Liens were not incurred in connection with, or in contemplation of,
such acquisition, merger or consolidation, and do not extend to any property or
assets other than those of such Person; (j) Liens on property or assets existing
at the time of acquisition thereof by the Company or any Restricted Subsidiary;
provided, however, that such Liens were not incurred in connection with, or in
contemplation of, such acquisition, and do not extend to any other property or
assets; (k) Liens existing on the date of the Indenture; (l) Liens arising from
the rendering of a final judgement or order against the Company or any
Restricted Subsidiary that does not give rise to an Event of Default; (m)
encumbrances consisting of zoning restrictions, surety exceptions, utility
easements, licenses, rights of way, easements of ingress or egress over property
of the Company or any Restricted Subsidiary, rights or restrictions of record on
the use of real property, minor defects in title, landlords' and lessors' liens
under leases on property located on the rented premises, in each case not
interfering in any material respect with the ordinary conduct of the business of
the Company and the Restricted Subsidiaries; (n) Liens securing Senior
Indebtedness; (o) Liens with respect to Floor Plan Guarantees permitted by the
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terms of clauses (b)(x) and (xi), respectively, of the covenants described under
"-- Certain Covenants -- Limitation on Indebtedness" and "-- Limitation on
Indebtedness and Preferred Stock of Restricted Subsidiaries"; and (p) any
extension, renewal, refinancing, refunding or replacement of any Permitted Lien,
provided that such new Lien is limited to the property or assets that secured
(or under the arrangement under which the original Permitted Lien, could secure)
the obligations to which such Liens relate.
"Person" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over shares
of Capital Stock of any other class of such Person.
"Public Equity Offering" means an underwritten primary or combined primary
and secondary public offering of common stock (other than Disqualified Stock) of
the Company pursuant to an effective registration statement under the Securities
Act which public equity offering results in gross proceeds to the Company of not
less than $50 million.
"Purchase Money Indebtedness" means any Indebtedness of a Person to any
seller or other Person incurred to finance the acquisition (including in the
case of a Capital Lease Obligation, the lease) of any after acquired real or
personal tangible property or assets related to the Business of the Company or
the Restricted Subsidiaries and which is incurred substantially concurrently
with such acquisition and is secured only by the assets so financed.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such indebtedness.
"Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the earlier of
(x) the Stated Maturity of the Indebtedness being Refinanced and (y) the Stated
Maturity of the Notes, (ii) such Refinancing Indebtedness has an Average Life at
the time such Refinancing Indebtedness is Incurred that is equal to or greater
than the Average Life of the Indebtedness being Refinanced and (iii) such
Refinancing Indebtedness has an aggregate principal amount (or if Incurred with
original issue discount, an aggregate issue price) that is equal to or less that
the aggregate principal amount (or if Incurred with original issue discount, the
aggregate accreted value) then outstanding or committed (plus unpaid accrued
interest) under the Indebtedness being Refinanced, plus actual fees and expenses
Incurred in connection with the Refinancing; provided, further, however, that
(x) Refinancing Indebtedness shall not include (1) Indebtedness of a Subsidiary
that is not a Wholly Owned Subsidiary or a Subsidiary Guarantor that Refinances
Indebtedness of the Company or (2) Indebtedness of the Company or a Restricted
Subsidiary that Refinances Indebtedness of an Unrestricted Subsidiary, (y) if
the Indebtedness being Refinanced is not Senior Indebtedness, then such
Refinancing Indebtedness shall rank no more senior than, and shall be at least
as subordinated in right of payment, to the Notes as the Indebtedness being
Refinanced and (z) Refinancing Indebtedness shall be secured only by assets of a
similar type and in a similar amount to those that secured the Indebtedness so
refinanced.
"Related Business" means any business in the manufacture or sale of capital
goods or parts or services, or otherwise reasonably related, ancillary or
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Indebtedness; provided that
if, and for so long as, any Designated Senior Indebtedness lacks such a
representative, then the Representative for such Designated Senior Indebtedness
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shall at all times be the holders of a majority in outstanding principal amount
of such Designated Senior Indebtedness in respect of any Designated Senior
Indebtedness.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of any Person secured by a
Lien.
"Senior Indebtedness" means with respect to the Company or any Subsidiary
Guarantor (x) Bank Indebtedness and (y) any other Indebtedness that, by the
terms of the instrument creating or evidencing such Indebtedness, is expressly
made senior in right of payment to the Notes or the applicable Guarantee, other
than (1) any obligation of such Person to any subsidiary of such Person or to
any officer, director or employee of such Person or any such subsidiary, (2) any
liability of such Person for federal, state, local or other taxes owed or owing
by such Person, (3) any accounts payable or other liability of such Person to
trade creditors arising in the ordinary course of business (including Guarantees
thereof or instruments evidencing such liabilities), (4) any Indebtedness,
Guarantee or obligation of such Person which is, expressly by its terms,
subordinate or junior in any respect to any other Indebtedness, Guarantee or
obligation of such Person, (5) that portion of any Indebtedness of such Person
which at the time of issuance is issued in violation of the Indenture, (6)
Indebtedness of such Person represented by Disqualified Stock or (7) Capital
Lease Obligations.
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank pari passu with the Notes in right of payment and is not subordinated by
its terms in right of payment to any Indebtedness or other obligation of the
Company which is not Senior Indebtedness.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meanings of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the final date
specified in such security as the fixed date on which all outstanding principal
of such security is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company or any
Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter
Incurred) which is subordinate or junior in right of payment to the Notes or the
relevant Subsidiary Guarantee, as applicable, pursuant to a written agreement to
that effect.
"Subsidiary" means (a) any corporation, association, partnership, limited
liability company or other business entity of which more than 50% of the total
voting power of shares of Capital Stock or other interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by (i) the Company,
(ii) the Company and one or more Subsidiaries or (iii) one or more Subsidiaries
or (b) any limited partnership of which the Company or any Subsidiary is a
general partner, or (c) any other Person (other than a corporation or limited
partnership) in which the Company, or one or more other Subsidiaries or the
Company and one or more other Subsidiaries, directly or indirectly, has more
than 50% of the outstanding partnership or similar interests or has the power,
by contract or otherwise, to direct or cause the direction of the policies,
management and affairs thereof. Unless the context other wise requires,
Subsidiary means each direct and indirect Subsidiary of the Company.
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"Subsidiary Guarantee" means a Guarantee by a Subsidiary Guarantor of the
Company's Obligations with respect to the Notes.
"Subsidiary Guarantor" means any Subsidiary of the Company that Guarantees
the Company's Obligations with respect to the Notes.
"Trust Indenture Act" means the Trust Indenture Act of 1939 (15
U.S.C.ss.ss.77aaa-77bbbb) as in effect on the date of this Indenture.
"Trustee" means the party named as such in the Indenture until a successor
replaces it and, thereafter, means the successor.
"Unrestricted Subsidiary" means any Subsidiary of the Company (other than a
Subsidiary Guarantor) designated as such pursuant to and in compliance with the
covenant described under "Limitation on Designations of Unrestricted
Subsidiaries." Any such designation may be revoked by a resolution of the Board
of Directors of the Company delivered to the Trustee, subject to the provisions
of such covenant.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a Person means Capital Stock of such Person of the class
or classes pursuant to which the holders thereof have the general voting power
under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or not
at the time stock of any other class or classes shall have or might have voting
power by reason of the happening of any contingency).
"Wholly Owned Subsidiary" means (i) a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares and shares held by other
Persons to the extent such Shares are required by applicable law to be held by a
Person other than the Company or a Restricted Subsidiary) is owned by the
Company or one or more Wholly Owned Subsidiaries and (ii) each of Terex Cranes,
Inc., P.P.M. Cranes, Inc., P.P.M. S.A., and any future wholly owned subsidiaries
of any of the foregoing, in each case so long as the Company or one or more
Wholly Owned Subsidiaries maintains a percentage ownership interest in such
entity equal to or greater than such ownership interest (on a fully diluted
basis) on the later of (a) the Issue Date or (b) the date such entity is
incorporated or acquired by the Company or one or more Wholly Owned
Subsidiaries.
Book-Entry, Delivery and Form
General
The Old Notes were, and the New Notes will be, issued in the form of one
fully registered Note in global form (collectively, the "Global Note"). DTC or
its nominee will credit, on its book-entry registration and transfer system, the
number of Notes sold to Qualified Institutional Buyers pursuant to Rule 144A
represented by such Global Note to the accounts of institutions that have
accounts with DTC or its nominee (the "DTC participants") and Euroclear will
credit, on its book-entry registration and transfer system, the number of Notes
sold to certain persons in offshore transactions in reliance on Regulation S
under the Securities Act also represented by such Global Note to the accounts of
institutions that have accounts with Euroclear or its nominee participants (the
"Euroclear participants" and, collectively with the DTC participants, the
"participants"). Each of DTC and Euroclear is referred to herein as a "Book
Entry Facility." The accounts to be credited shall be designated by the Initial
Purchasers. Ownership of beneficial interests in the Global Note will be limited
to participants or persons that may hold interests through participants.
Ownership of beneficial interest in the Global Note will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
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a Book Entry Facility or its nominee (with respect to participants' interests)
for such Global Notes or by participants or persons that hold interests through
participants (with respect to beneficial interests of persons other than
participants). The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such limits and laws may impair the ability to transfer or pledge
beneficial interests in the Global Note.
So long as DTC, or its nominee, is the registered holder of the Global
Note, DTC or such nominee, as the case may be, will be considered the sole legal
owner and holder of such Notes represented by such Global Note for all purposes
under the Indenture and the Notes. Except as set forth below, owners of
beneficial interests in the Global Note will not be entitled to have such Global
Note or any Notes represented thereby registered in their names, will not
receive or be entitled to receive physical delivery or certificated Notes in
exchange therefor and will not be considered to be the owners or holders of such
Global Note or any Notes represented thereby for any purpose under the Notes or
the Indenture. The Company and the Subsidiary Guarantors understand that under
existing industry practice, in the event an owner of a beneficial interest in a
Global Note desires to take any action that DTC, as the holder of such Global
Note, is entitled to take, DTC would authorize the participants to take such
action, and that the participants would authorize beneficial owners owning
through such participants to take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
Any payment of principal or interest due on the Notes on any interest
payment date or at maturity will be made available by the Company to the Trustee
by such date. As soon as possible thereafter, the Trustee will make such
payments to DTC or its nominee, as the case may be, as the registered owner of
the Global Note representing such Notes in accordance with existing arrangements
between the Trustee and the depositary.
The Company and the Subsidiary Guarantors expect that DTC or its nominee,
upon receipt of any payment of principal or interest in respect of the Global
Note will credit immediately the accounts of the related participants with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such Global Note as shown on the records of DTC. The
Company and the Subsidiary Guarantors also expect that payments by participants
to owners of beneficial interests in the Global Note held through such
participants are, and will continue to be, governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form of registered in "street name," and will be the
responsibility of such participants.
None of the Company, the Subsidiary Guarantors, the Trustee, or any payment
agent for the Global Note have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in the Global Note or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests or for other aspects of
the relationship between the depositary and its participants or the relationship
between such participants and the owners of beneficial interests in the Global
Note owning through such participants.
Because of time zone differences, the securities account of a Euroclear
participant purchasing an interest in the Global Note from a DTC participant
will be credited, and any such crediting will be reported to the relevant
Euroclear participant, during the securities settlement processing day (which
must be a business day for Euroclear) immediately following the DTC settlement
date. Cash received in Euroclear as a result of sales of interests in a Global
Note by or through a Euroclear participant to a DTC participant will be received
with value on the DTC settlement date but will be available in the relevant
Euroclear cash account only as of the business day following settlement in DTC.
As long as the Notes are represented by a Global Note, DTC's nominee will
be the holder of such Notes and therefore will be the only entity that can
exercise a right to repayment or repurchase of such Notes. See "Description of
the Notes -- Change of Control" and "-- Certain Covenants -- Limitation on Sales
of Assets and Subsidiary Stock." Notice by participants or by owners of
beneficial interests in the Global Note held through such participants of the
exercise of the option to elect repayment of beneficial interests in Notes
represented by the Global Note must be transmitted to the relevant Book Entry
<PAGE>
79
Facility in accordance with its procedures on a form required by the relevant
Book Entry Facility and provided to participants. In order to ensure that DTC's
nominee will timely exercise a right to repayment with respect to a particular
Note, the beneficial owner of such Note must instruct the broker or other
participant to exercise a right to repayment. Different firms have cut-off times
for accepting instructions from their customers and, accordingly, each
beneficial owner should consult the broker or other participant through which it
holds an interest in a Note in order to ascertain the cut-off time by which such
an instruction must be given in order for timely notice to be delivered to DTC.
Neither the Company nor any Subsidiary Guarantor will be liable for any delay in
delivery of notices of the exercise of the option to elect repayment.
Unless and until exchanged in whole or in part for Notes in definitive form
in accordance with the terms of the Notes, the Global Note may not be
transferred except as a whole by DTC to a nominee of DTC or by a nominee of DTC
to DTC or another nominee of DTC or by DTC or any such nominee to a successor of
DTC or a nominee of each successor.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of a Book Entry
Facility, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. None of the
Trustee, the Company, or the Subsidiary Guarantors will have any responsibility
for the performance by a Book Entry Facility or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations. The Company, the Subsidiary Guarantors and the
Trustee may conclusively rely on, and shall be protected in relying on,
instructions from a Book Entry Facility for all purposes.
Certificated Notes
The Global Note is exchangeable for corresponding Notes in certificated
fully registered form ("Certificated Notes") registered in the name of persons
other than DTC or its nominee only if (A) DTC (i) notifies the Company that it
is unwilling or unable to continue as depositary for the Global Note or (ii) at
any time ceases to be a clearing agency registered under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), (B) there shall have occurred and
be continuing an Event of Default (as defined in the Indenture) with respect to
the applicable Notes or (C) the Company executes and delivers to the Trustee an
order that the Global Note shall be so exchangeable. Any Certificated Notes will
be issued only in fully registered form, and shall be issued without coupons in
denominations of $1,000 and integral multiples thereof. Any Certificated Notes
so issued will be registered in such names and in such denominations as DTC
shall request.
The Clearing System
DTC has advised the Company and the Subsidiary Guarantors as follows: DTC
is a limited-purpose trust company organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of section 17A of the Exchange Act. DTC
was created to hold securities of institutions that have accounts with its
participants and to facilitate the clearance and settlement of securities
transactions among its participants in such securities through electronic
book-entry changes in accounts of participants, thereby elimination the need for
physical movement of securities certificates. DTC's participants include
securities brokers and dealers (which may include the Initial Purchasers),
banks, trust companies, clearing corporations and certain other organizations.
Access to DTC's book-entry system is also available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, whether directly or indirectly.
<PAGE>
80
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the material United States federal income
tax consequences of the ownership and disposition of the Notes by U.S. Holders
(as defined below) who acquire such securities in the Exchange Offer (the
"Initial U.S. Holders"). This summary is based on the Internal Revenue Code of
1986, as amended to the date hereof (the "Code"), administrative pronouncements,
judicial decisions and existing and proposed Treasury Regulations, changes to
any of which subsequent to the date of this Prospectus may affect the tax
consequences described herein. This summary discusses only Notes held as capital
assets withing the meaning of Section 1221 of the Code. It does not discuss all
of the tax consequences that may be relevant to a holder in light of his
particular circumstances or to holders subject to special rules, such as persons
who are not U.S. Holders (as defined below) or Initial U.S. Holders, certain
financial institutions, insurance companies, dealers in securities and holders
who hold the Notes as part of a straddle, hedging, conversion or other
integrated transaction. Holders of Notes should consult their tax advisors with
regard to the application of the United States federal income tax laws to their
particular situations as well as any tax consequences arising under the laws of
any state, local or foreign taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
that, for United States federal income tax purposes, is (i) a citizen or
resident of the United States, (ii) a corporation, partnership or other entity
created or organized in or under the laws of the United States or of any
political subdivision thereof, (iii) an estate the income of which is subject to
United States federal income taxation regardless of its source, or (iv) a trust,
if a U.S. court is able to exercise primary supervision over the administration
of such trust and one or more U.S. fiduciaries have the authority to control all
substantial decisions of such trust.
Payment of Interest
Interest paid on a Note will generally be taxable as ordinary income at the
time it accrues or is received in accordance with the U.S. Holder's method of
accounting for federal income tax purposes.
Exchange Offer
The exchange of Old Notes for New Notes pursuant to the Exchange Offer will
not result in any federal income tax consequences to U.S. Holders. When a U.S.
Holder exchanges an Old Note for a New Note pursuant to the Exchange Offer, the
U.S. Holder will have the same adjusted basis and holding period in the New Note
as in the Old Note immediately before the exchange. There will be no federal
income tax consequences of the Exchange Offer to nonexchanging Holders.
Sale, Exchange or Retirement
Upon the sale, exchange or retirement of a Note, a U.S. Holder will
recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement (excluding amounts attributable to
accrued and unpaid interest, which amounts will be includible as ordinary
interest income) and such U.S. Holder's tax basis in the Note. Gain or loss
realized on the sale, exchange or retirement or a Note will be capital gain or
loss. Recently enacted legislation includes substantial changes to the federal
taxation of capital gains recognized by individuals, including a 20% maximum tax
rate for certain gains from the sale of capital assets held for more than 18
months. The deduction of capital losses is subject to certain limitations.
Prospective investors should consult their tax advisors regarding the treatment
of capital gains and losses.
THE FOREGOING IS A SUMMARY OF THE PRINCIPAL FEDERAL INCOME TAX CONSEQUENCES TO A
U.S. HOLDER OF AN OLD NOTE. EACH HOLDER OF AN OLD NOTE IS URGED TO CONSULT ITS
TAX ADVISOR TO DETERMINE THE SPECIFIC FEDERAL INCOME TAX CONSEQUENCES OF
ACCEPTING THE EXCHANGE OFFER, AS WELL AS THE EFFECT OF STATE, LOCAL AND FOREIGN
INCOME AND OTHER TAX LAWS.
<PAGE>
81
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company and the Subsidiary Guarantors have agreed that,
for a period of 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act, and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date, the Company will send
additional copies of this Prospectus and any amendment or supplement to this
Prospectus to any broker-dealer that requests such documents in the Letter of
Transmittal.
The Company and the Subsidiary Guarantors have agreed to pay all expenses
incident to this Exchange Offer other than commissions or concessions of any
brokers or dealers and will indemnify the Holders of the New Notes (including
any broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the New Notes and the guarantees
thereof will be passed upon for the Company by Robinson Silverman Pearce
Aronsohn & Berman LLP, 1290 Avenue of the Americas, New York, New York 10104.
EXPERTS
The consolidated financial statements of Terex Corporation incorporated in
this Prospectus by reference to the Annual Report on Form 10-K of Terex
Corporation for the year ended December 31, 1997 and the Company's Current
Report on Form 8-K dated July 16, 1998 have been so incorporated in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The consolidated financial statement of O&K Mining GmbH as of December 31,
1997 and 1996 and for the years then ended, incorporated in this Prospectus by
reference to the Company's Amendment No. 2 to Current Report on Form 8-K/A dated
March 31, 1998 have been so incorporated in reliance on the report of C&L
Treuhand-Vereinigung Deutsche Revision, Aktiengesellschaft
Wirtschaftsprufungsgesellschaft, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The consolidated financial statements of PPM Cranes, Inc. for the year ended
December 31, 1997 incorporated in this Prospectus by reference to the Company's
Current Report on Form 8-K dated July 16, 1998 have been so incorporated in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on authority of said firm as experts in auditing and accounting.
<PAGE>
82
AVAILABLE INFORMATION
Terex Corporation is subject to the informational requirements of the
Exchange Act, and in accordance therewith files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at its offices at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials may also be obtained by mail
from the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Additionally,
the Commission maintains a Web site containing reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address for such Web site is http://www.sec.gov.
In addition, the Common Stock is listed on the NYSE under the symbol "TEX"
and reports, proxy statements and other information concerning the Company may
also be inspected at the offices of the NYSE, 20 Broad Street, New York, New
York 10005.
The Company and the Subsidiary Gurantors have filed with the Commission a
Registration Statement on Form S-4 (together with all amendments, exhibits,
schedules, and supplements thereto, the "Registration Statement") under the
Securities Act, with respect to the New Notes offered hereby. This Prospectus,
which constitutes a part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement, as permitted by the
rules and regulations of the Commission. For further information with respect to
the Company and the New Notes offered hereby, reference is hereby made to the
Registration Statement, which may be inspected and copied at the Public
Reference Section of the Commission referred to above. Statements contained in
this Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the full text of
such contract or document filed as an exhibit to the Registration Statement, or
otherwise filed with the Commission, each such statement being qualified in all
respects by such reference.
The Company furnishes stockholders with annual reports containing audited
financial statements. The Company also furnishes its common stockholders with
proxy material for its annual meetings complying with the proxy requirements of
the Exchange Act.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents which have been filed by the Company with the
Commission are incorporated in this Prospectus by reference:
1. The Company's Annual Report on Form 10-K for the year ended December 31,
1997.
2. The Company's Notice of Annual Meeting of Stockholders and Proxy
Statement dated April 8, 1998.
3. The Company's Current Report on Form 8-K dated March 31, 1998, and filed
on April 7, 1998.
4. The Company's Quarterly Report on Form 10-Q for the three months ended
March 31, 1998.
5. The Company's Amendment No. 1 to Current Report on Form 8-K/A dated
March 31, 1998, and filed on June 11, 1998.
6. The Company's Amendment No. 2 to Current Report on Form 8-K/A dated
March 31, 1998, and filed on June 29, 1998.
7. The Company's Current Report on Form 8-K dated July 16, 1998, and filed
on July 16, 1998.
<PAGE>
83
All reports and other documents filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
of this Prospectus and prior to the consummation of the Exchange Offer shall be
deemed to be incorporated herein by reference and to be a part hereof on and
from the date of filing such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference in this Propsectus shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or incorporated herein by reference or
in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any and all documents incorporated by reference in this Prospectus (not
including exhibits to such information, unless such exhibits are specifically
incorporated by reference in such information). Such requests should be directed
to Terex Corporation, Attention: Secretary, 500 Post Road East, Westport,
Connecticut 06880 (telephone (203) 222-7170).
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this Prospectus and
the accompanying Letter of Transmittal, and, if given or made, such information
or representation must not be relied upon as having been authorized by the.
Neither this Prospectus nor the accompanying Letter of Transmittal constitutes
an offer to sell or a solicitation of an offer to buy any security other than
those to which it relates, nor does it constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus nor
the accompanying Letter of Transmittal, nor both together, nor any sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent to its date.
TABLE OF CONTENTS
Page
Prospectus Summary..................................1
Risk Factors.......................................11
The Company........................................17
The Exchange Offer.................................18
Use of Proceeds....................................26
Capitalization.....................................26
Selected Consolidated Financial Data...............27
Industry Overview and Outlook For
Principal Products...............................29
Business Strategy..................................31
The O&K Acquisition................................33
Business...........................................35
Management.........................................44
Description of the New Bank Credit
Facility........................................46
Description of Notes...............................47
Certain Federal Income Tax Consequences............80
Plan of Distribution...............................81
Legal Matters......................................81
Experts............................................81
Available Information..............................82
Incorporation of Documents by
Reference.........................................82
